


                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                  SCHEDULE 14A

                                 (Rule 14a-101)

                    PROXY STATEMENT PURSUANT TO SECTION 14(A)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                                (AMENDMENT NO. )

Filed by the Registrant [X]


Filed by a Party other than the Registrant [ ]


Check the appropriate box:

[X] Preliminary Proxy Statement
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE 14A
    6(E)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material under ss. 240.14a-12


                           ACCUIMAGE DIAGNOSTICS CORP.
                ________________________________________________
                (Name of Registrant as Specified In Its Charter)

    ________________________________________________________________________
    (Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a 6(i)(1) and 0-11.
      (1) Title of each class of securities to which transaction applies:

                       Common stock, of AccuImage Diagnostics Corp.

      (2) Aggregate number of securities to which transaction applies:
          48,336,295 shares of AccuImage Diagnostics Corp. common stock as of
          the Record Date.

      (3) Per unit price or other underlying value of transaction computed
          pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
          filing fee is calculated and state how it was determined):

      (4) Proposed maximum aggregate value of transaction: $6,000,000

      (5) Total fee paid: $1,200 |_| Fee paid previously with preliminary
          materials.

[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
    0-11(a)(2) and identify the filing for which the offsetting fee was paid
    previously. Identify the previous filing by registration statement number,
    or the Form or Schedule and the date of its filing.
      (1) Amount Previously Paid:
          ______________________________________________________________________

<PAGE>


      (2) Form, Schedule or Registration Statement No.:
          ______________________________________________________________________

      (3) Filing Party:
          ______________________________________________________________________

      (4) Date Filed:
          ______________________________________________________________________


<PAGE>


                                                              January [  ], 2005

Dear AccuImage Diagnostics Corp. Shareholder:

      A special meeting of shareholders has been scheduled for [ ], 2005, at
10:00 a.m., Pacific Standard Time, at the corporate headquarters of AccuImage
Diagnostics Corp. ("ACCUIMAGE"), located at 400 Oyster Point Boulevard, Suite
201, South San Francisco, California 94080. At the special meeting, we will ask
you to consider and vote on a proposal to approve and adopt the Merger
Agreement, dated as of November 24, 2004, by and among Merge Technologies
Incorporated ("MERGE TECHNOLOGIES"), ADI Acquisition Corp., a wholly owned
subsidiary of Merge Technologies, AccuImage, and Dr. Aviel Faliks ("DR.
FALIKS"), as the principal shareholder of AccuImage, providing for the
acquisition of AccuImage by Merge Technologies and the other transactions
contemplated by the merger agreement. Pursuant to the merger, if approved and
consummated, you will receive approximately $0.12 in cash, without interest, for
each share of AccuImage common stock that you own, unless you perfect and
exercise your appraisal rights. Upon the consummation of the merger, AccuImage
will become a wholly-owned subsidiary of Merge Technologies. Merge Technologies
is a public company whose common stock is traded on the NASDAQ under the symbol
MRGE.

      The approximately $0.12 cash per share merger consideration is based on an
aggregate of $6,000,000 in merger consideration and 48,336,295 shares of our
common stock outstanding as of January [ ], 2005. The merger consideration of
$6,000,000, and the resulting per share price, is subject to downward adjustment
based on reductions in our Net Asset Value as defined in the merger agreement.
The estimated $0.12 per share merger consideration represents a premium of
approximately 84.6% to the closing price of our common stock on November 23,
2004, the last trading day before the public announcement of the signing of the
merger agreement.

      The board of directors of AccuImage carefully considered and evaluated the
merger, and after undertaking a comprehensive strategic review with the
objective of maximizing shareholder value, the board of directors of AccuImage
determined that an acquisition of AccuImage by Merge Technologies is advisable
and in the best interests of AccuImage shareholders.

      The merger cannot be completed unless AccuImage shareholders holding a
majority of the outstanding shares of AccuImage common stock entitled to vote at
the special meeting of shareholders vote to approve and adopt the merger
agreement and the transactions contemplated by the merger agreement. Your
participation in the special meeting, in person or by proxy, is welcome. You
should be aware, however, that Dr. Faliks owns approximately 51.8% of our
outstanding shares and on November 24, 2004 entered into a voting, proxy and
option agreement with Merge Technologies pursuant to which he agreed to vote or
cause to be voted, subject to certain termination rights, all of the shares he
owns and has a right to vote in favor of the merger. The vote of Dr. Faliks will
be sufficient to approve the merger regardless of the vote of any other
AccuImage shareholders.

      The accompanying Notice of Special Meeting of Shareholders and proxy
statement explain the merger and provide specific information concerning the
special meeting. Please read these materials, along with the annexes attached to
the proxy statement, carefully.

      To be certain that your shares are voted at the special meeting, please
mark, sign, date and return promptly the enclosed proxy card, whether or not you
plan to attend the special meeting in person. If you abstain or do not instruct
your broker or other nominee how to vote your shares, it will have the same
effect as voting against the merger.

      THE BOARD OF DIRECTORS OF ACCUIMAGE HAS UNANIMOUSLY APPROVED THE MERGER
AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT.

      PLEASE DO NOT SEND YOUR STOCK CERTIFICATES TO US AT THIS TIME.

On behalf of the board of directors of AccuImage, I thank you in advance for
your participation in this matter.

                              On behalf of your board of directors,

                              AVIEL FALIKS
                              CHAIRMAN OF THE BOARD


<PAGE>


                           ACCUIMAGE DIAGNOSTICS CORP.
                      400 OYSTER POINT BOULEVARD, SUITE 201
                        SOUTH FRANCISCO, CALIFORNIA 94080


                    NOTICE OF SPECIAL MEETING OF SHAREHOLDERS


TO ACCUIMAGE DIAGNOSTICS CORP.'S SHAREHOLDERS:

      A special meeting of shareholders of AccuImage Diagnostics Corp.
("ACCUIMAGE") will be held on [ ], 2005 at 10:00 a.m., Pacific Standard Time, at
the principal executive offices of AccuImage Diagnostics Corp., located at 400
Oyster Point Boulevard, Suite 201, South San Francisco, California 94080.

      AccuImage shareholders of record at the close of business on January [ ],
2005 will be entitled to attend and vote at the special meeting. The purpose of
the special meeting is:

     o    to consider and vote upon a proposal to approve and adopt the Merger
          Agreement, dated as of November 24, 2004, by and among Merge
          Technologies Incorporated, ADI Acquisition Corp., a wholly-owned
          subsidiary of Merge Technologies, AccuImage Diagnostics Corp., and Dr.
          Aviel Faliks, the principal shareholder of AccuImage, providing for
          the acquisition of AccuImage by Merge Technologies and the other
          transactions contemplated by the merger agreement.; and

     o    to transact such other business as may properly come before the
          meeting or any adjournment or postponement thereof, including to
          consider any procedural matters incident to the conduct of the special
          meeting.

      A complete list of AccuImage shareholders as of the record date will be
open to examination by any AccuImage shareholder for any purpose germane to the
special meeting between the hours of 9:00 a.m. and 4:30 p.m., Pacific Standard
Time, at the principal executive offices of AccuImage, on each business day for
ten days prior to the special meeting. The list will also be available at the
special meeting and may be inspected by any AccuImage shareholder who is
present.

      The merger agreement and the merger are explained in the accompanying
proxy statement, which you are urged to read carefully, including the attached
annexes. This Notice of Special Meeting of Shareholders, the accompanying proxy
statement and proxy card are being mailed to shareholders entitled to notice of,
and to vote at, the special meeting, on or about January [ ], 2005.

                                              Sincerely,

                                              KATHLEEN RYAN
                                              Chief Financial Officer


South San Francisco, CA
January [  ], 2005


<PAGE>


                                    IMPORTANT


      YOUR VOTE IS IMPORTANT. TO ASSURE YOUR VOTES ARE COUNTED AT THE SPECIAL
MEETING, PLEASE MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD IN THE
ENCLOSED RETURN ENVELOPE TODAY, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL
MEETING IN PERSON. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.

      IF YOUR ACCUIMAGE SHARES ARE NOT REGISTERED IN YOUR OWN NAME AND YOU WOULD
LIKE TO ATTEND THE SPECIAL MEETING, PLEASE BRING EVIDENCE OF YOUR ACCUIMAGE
SHARE OWNERSHIP WITH YOU TO THE SPECIAL MEETING. YOU SHOULD BE ABLE TO OBTAIN
EVIDENCE OF YOUR ACCUIMAGE SHARE OWNERSHIP FROM THE BROKER, DEALER, TRUSTEE,
BANK OR OTHER NOMINEE WHO HOLDS YOUR ACCUIMAGE SHARES ON YOUR BEHALF.

      IF YOU DO ATTEND THE SPECIAL MEETING, YOU MAY THEN WITHDRAW YOUR PROXY AND
VOTE IN PERSON.


<PAGE>


                                TABLE OF CONTENTS

Proxy Statement For Special Meeting Of Shareholders............................1

Forward Looking Statements.....................................................2

Summary Term Sheet.............................................................3

         The Parties...........................................................3

         Market Price And Dividend Data........................................3

         The Special Meeting Of Shareholders...................................4

         The Merger............................................................4

         The Merger Agreement..................................................5

         Voting Agreement......................................................8

Questions And Answers About The Merger And The Special Meeting.................9

The Special Meeting Of Shareholders...........................................13

         Date, Time And Place.................................................13

         Purpose Of The Special Meeting.......................................13

         Record Date; Stock Entitled To Vote; Quorum..........................13

         Vote Required........................................................13

         Voting By Our Directors, Executive Officers And Certain Shareholders.13

         Voting Of Proxies....................................................13

         Revocability Of Proxies..............................................14

         Adjournments Or Postponements........................................14

         Solicitation Of Proxies..............................................14

         Householding Of Proxy Materials......................................15

The Parties...................................................................16

         Accuimage Diagnostics Corp...........................................16

         Merge Technologies Incorporated......................................16


                                      -i-


<PAGE>


         ADI Acquisition Corp.................................................16

         Dr. Aviel Faliks.....................................................16

The Merger....................................................................17

         Background Of The Merger.............................................17

         Reasons For The Merger And Recommendation Of Our Board Of Directors..19

         Interests Of Accuimage's Directors And Executive Officers In
         The Merger...........................................................20

         Appraisal Rights.....................................................21

         Source Of Funds......................................................22

         Delisting And Deregistration Of Our Common Stock.....................22

         Material United States Federal Income Tax Consequences Of The Merger.22

         Past Contacts, Transactions Or Negotiations..........................23

The Merger Agreement..........................................................24

         Form Of The Merger...................................................24

         Effective Time Of The Merger.........................................24

         Directors And Officers Of Surviving Corporation......................24

         Merger Consideration.................................................24

         Effect On Stock Options..............................................25

         Exchange Of Shares For Cash; Procedures For Submitting Certificates..25

         Conditions To The Merger.............................................26

         Termination Of The Merger Agreement..................................28

         Expenses And Fees....................................................29

         No Solicitation By Accuimage.........................................29

         Representations And Warranties.......................................30

         Covenants Under The Merger Agreement.................................32


                                      -ii-


<PAGE>


         Amendment............................................................34

         Assignment...........................................................34

Voting Agreement..............................................................35

Security Ownership Of Certain Beneficial Owners And Management................36

Other Matters.................................................................37

Where You Can Find More Information...........................................38


                                     -iii-


<PAGE>


                           ACCUIMAGE DIAGNOSTICS CORP.
                      400 OYSTER POINT BOULEVARD, SUITE 201
                          SOUTH SAN FRANCISCO, CA 94080


               PROXY STATEMENT FOR SPECIAL MEETING OF SHAREHOLDERS
      The board of directors of AccuImage Diagnostics Corp. solicits the
accompanying proxy to be voted at the special meeting of shareholders to be held
on [ ], 2005, at 10:00 a.m., Pacific Standard Time, at the principal executive
offices of AccuImage located at 400 Oyster Point Boulevard, Suite 201, South San
Francisco, California 94080, and at any adjournments or postponements of the
special meeting. In this proxy statement, unless the context requires otherwise,
references to "we," "us," "our" or "AccuImage," refer to AccuImage Diagnostics
Corp.

      Our principal executive offices are located at 400 Oyster Point Boulevard,
Suite 201, South San Francisco, California 94080, telephone number (650)
875-0192. The approximate date on which this proxy statement, the accompanying
Notice of Special Meeting of Shareholders and proxy card were sent or given to
our shareholders entitled to notice of, and to vote at, the special meeting, is
January [ ], 2005.

      You should rely only on the information contained in this proxy statement
in making your decision whether to vote for or against the merger. We have not
authorized anyone to provide you with information that is different from what is
contained in this proxy statement. This proxy statement is dated January [ ],
2005. You should not assume that the information contained in this proxy
statement is accurate as of any date other than that date unless such
information is expressly provided as of another date. Neither the mailing of
this proxy statement to shareholders nor the payment of cash in the merger
creates any implication to the contrary.

        You may revoke your proxy and change your vote at any time before the
shares reflected on your proxy card are voted at the special meeting. If you own
your shares in your name, you can do this in one of three ways. First, you can
send a written notice of revocation to our secretary at our principal executive
offices. Second, you can mark, sign, date and return a new proxy card. Third,
you can attend the meeting and vote in person. Your attendance alone will not
revoke your proxy. If you have instructed a broker, dealer, trustee, bank or
other nominee to vote your shares, you must follow the directions received from
the broker, dealer, trustee, bank or other nominee to change your instructions.

      Merge Technologies Incorporated, which we refer to as Merge Technologies,
has supplied all information contained in this proxy statement relating to Merge
Technologies Incorporated, and ADI Acquisition Corp., a wholly-owned subsidiary
of Merge Technologies, and AccuImage has supplied all other information
contained in this proxy statement, including all information relating to
AccuImage.


                                      -1-


<PAGE>


                           FORWARD LOOKING STATEMENTS


      Certain statements in this proxy statement relating to the proposed
acquisition of AccuImage Diagnostics Corp. by Merge Technologies Incorporated
contain or are based on "forward-looking" information (that AccuImage believes
to be within the definition of such term in the Private Securities Litigation
Reform Act of 1995, as amended) and involve risks and uncertainties, many of
which are outside of our control. Words such as "may," "will," "intends,"
"should," "expects," "plan," "projects," "anticipates," "believes," "estimates,"
"predicts," "potential," "continue," or "opportunity," or the negative of these
terms or words of similar import, are intended to identify forward-looking
statements.

      These forward-looking statements are subject to known and unknown risks
and uncertainties, which could cause actual results to differ materially from
those anticipated, including, without limitation, the following risks and
uncertainties:

     o    not all of the conditions to the closing of the merger may be
          fulfilled;

     o    if the merger agreement is terminated under certain circumstances set
          forth in the merger agreement, the requirement to pay a termination
          fee in cash to Merge Technologies could adversely affect our business,
          financial condition and results of operations;

     o    legislative or regulatory changes may adversely affect the businesses
          in which we are engaged;

     o    potential or actual litigation may challenge the proposed transaction;

     o    general economic, financial and business conditions may make the
          merger impractical; and

     o    changes in tax laws, and actions of U.S., foreign and local
          governments, may make the merger less desirable.

     Certain other risk factors are more fully discussed in the section entitled
"Risk Factors" in AccuImage's Annual Report on Form 10-K for the year ended
September 30, 2004 filed with the Securities and Exchange Commission on December
[ ], 2004 and from time to time in AccuImage's other filings with the Securities
and Exchange Commission, including among others, its reports on Form 8-K and
Form 10-Q.

      The forward-looking statements included in this proxy statement are made
only as of the date of this proxy statement and AccuImage, Merge Technologies
and ADI Acquisition Corp. undertake no obligation to publicly update any of the
forward-looking statements made herein, whether as a result of new information,
subsequent events or circumstances, changes in expectations or otherwise.


                                      -2-


<PAGE>


                               SUMMARY TERM SHEET

      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 CAREFULLY READ THIS ENTIRE PROXY STATEMENT, THE ANNEXES
ATTACHED TO THIS PROXY STATEMENT AND THE DOCUMENTS TO WHICH WE REFER. SEE "WHERE
YOU CAN FIND MORE INFORMATION." THE MERGER AGREEMENT, DATED AS OF NOVEMBER 24,
2004, BY AND AMONG MERGE TECHNOLOGIES INCORPORATED, ADI ACQUISITION CORP. , A
WHOLLY-OWNED SUBSIDIARY OF MERGE TECHNOLOGIES, ACCUIMAGE AND AVIEL FALIKS IS
ATTACHED AS ANNEX A TO THIS PROXY STATEMENT. WE ENCOURAGE YOU TO READ THE MERGER
AGREEMENT AS IT IS THE LEGAL DOCUMENT THAT GOVERNS THE MERGER. WE HAVE INCLUDED
PAGE REFERENCES IN PARENTHESES TO DIRECT YOU TO THE APPROPRIATE PLACE IN THIS
PROXY STATEMENT FOR A MORE COMPLETE DESCRIPTION OF THE TOPICS PRESENTED IN THIS
SUMMARY.

THE PARTIES (PAGE [17])

o    ACCUIMAGE DIAGNOSTICS CORP. (PAGE [17]). AccuImage Diagnostics Corp., a
     Nevada corporation, is based in South San Francisco and is engaged in the
     development, marketing and sale of software used for medical data and
     interactive medical image visualization. The software, which runs on a
     personal computer, interprets images obtained from leading equipment
     manufacturers and imaging modalities (e.g. CT, MRI, and ultrasound). Our
     principal executive offices are located at 400 Oyster Point Boulevard,
     Suite 201, South San Francisco, California 94080, and our telephone number
     is (650) 875-0192.

o    MERGE TECHNOLOGIES INCORPORATED (PAGE [17]). Merge Technologies
     Incorporated, a Wisconsin corporation doing business as Merge eFilm, is a
     healthcare software and services company focused on accelerating the
     productivity of imaging centers, small- to medium-sized hospitals and
     clinics with a suite of RIS/PACS products that more efficiently streamline,
     integrate and distribute image and information workflow across the
     healthcare enterprise. Since 1987, Merge Technologies has leveraged its
     healthcare integration and connectivity experience to create workflow
     solutions that improve its customers' productivity and enhance the quality
     of care they provide. Merge Technologies' principal executive offices are
     located at 1126 S. 70th Street, Suite 107B, Milwaukee, WI 53214, and its
     telephone number is (414) 977-4000.

o    ADI ACQUISITION CORP. (PAGE [17]).ADI Acquisition Corp., a Nevada
     corporation, is a wholly-owned subsidiary of Merge Technologies, formed
     exclusively for the purpose of effecting the merger. ADI Acquisition Corp.
     has not conducted any business operations other than in connection with
     entering into and performing its obligations under the merger agreement.
     ADI Acquisition Corp.'s principal executive offices are located at 1126 S.
     70th Street, Suite 107B, Milwaukee, WI 53214, and its telephone number is
     (414) 977-4000.

     DR. AVIEL FALIKS. (PAGE [17]). Dr. Faliks is our principal shareholder,
     owning 25,050,000 shares of our common stock or 51.8% of the shares of our
     common stock outstanding on [ ]. Merge Technologies insisted upon Dr.
     Faliks joining as a party to the merger agreement in order to personally
     make the representations and warranties included in the merger agreement
     and to provide a remedy to Merge Technologies should there be a breach of
     one or more representations or warranties made by AccuImage and Dr. Faliks
     in the merger agreement. Dr. Faliks has agreed to personally indemnify
     Merge Technologies for the breach of any representation or warranty made by
     AccuImage or Dr. Faliks in the merger agreement up to an aggregate amount
     of $2,000,000 plus the amount of any payments otherwise paid or payable to
     Dr. Faliks under a consulting agreement to be entered into between Dr.
     Faliks and Merge Technologies, a copy of which is attached to this proxy
     statement as Annex D. Dr. Faliks has agreed to place $1,000,000 of the
     merger consideration he would otherwise have received upon closing of the
     merger into an escrow account to secure these indemnity obligations.

MARKET PRICE AND DIVIDEND DATA

o    Our common stock is currently traded on The NASD OTC Bulletin Board under
     the symbol "AIDP." On November 23, 2004, the last full trading day prior to
     the public announcement of the proposed merger, our common stock closed at
     $.065 per share. On [ ], 200[ ], the last full trading day prior to the
     record date, our common stock closed at $[ ] per share. The average daily
     closing price of our common stock over the last 30 trading days ended
     November 23, 2004 was $[ ].


                                      -3-


<PAGE>


o    We have never declared a dividend and do not intend to do so in the future.
     Nevada Revised Statutes section 78.288 limits our ability to pay dividends
     on our common stock if any such dividend would render AccuImage insolvent.
     In addition, the merger agreement prohibits us from paying a dividend
     without the prior written consent of Merge Technologies.

THE SPECIAL MEETING OF SHAREHOLDERS (PAGE [14])

o    DATE, TIME AND PLACE (PAGE [14]). The special meeting of shareholders will
     be held on [ ], 2005, at 10:00 a.m., Pacific Standard Time, at AccuImage's
     corporate headquarters, located at 400 Oyster Point Boulevard, Suite 201,
     South San Francisco, California 94080.

o    PURPOSE OF THE SPECIAL MEETING (PAGE [14 ]). At the special meeting, we
     will ask you to approve and adopt the merger agreement, the merger and the
     other transactions contemplated by the merger agreement.

o    RECORD DATE; STOCK ENTITLED TO VOTE (PAGE [14]). You are entitled to vote
     at the special meeting if you owned shares of our common stock at the close
     of business on [ ], 2004, the record date for the special meeting. You will
     have one vote at the special meeting for each share of our common stock you
     owned at the close of business on the record date. As of the record date,
     there were [ ] shares of our common stock entitled to be voted at the
     special meeting, of which a total of 26,550,000 are beneficially owned by
     our directors and executive officers. Dr. Aviel Faliks, our Chairman of the
     Board, Chief Executive Officer and President who holds an aggregate of
     25,050,000 or 51.8% of our outstanding shares has agreed to vote his shares
     in favor of the merger pursuant to the voting, proxy and option agreement,
     a COPY of which is attached to this proxy statement as ANNEX C. We refer to
     the voting, proxy and option agreement as the "voting agreement" in this
     proxy statement

o    QUORUM (PAGE [14]). The holders of a majority of the outstanding shares of
     common stock entitled to vote at meetings of shareholders must be present,
     either in person or by proxy, to constitute a quorum at the special
     meeting. We will count abstentions, either in person or by proxy, and
     broker nonvotes (shares held by a broker or other nominee that does not
     have the authority to vote, and does not vote, on a matter but which
     otherwise submits a validly executed proxy) for the purpose of establishing
     a quorum. If less than a quorum is present at the special meeting, it is
     expected that the special meeting will be adjourned or postponed until such
     time as a quorum is present.

o    VOTE REQUIRED (PAGE [14]). The affirmative vote of a majority of the
     outstanding shares of AccuImage's common stock is required to approve and
     adopt the merger agreement, the merger and the other transactions
     contemplated by the merger agreement. Dr. Faliks, who owns approximately
     51.8% of our outstanding shares, has agreed with Merge Technologies to vote
     or cause to be voted, subject to certain termination rights, all of his
     shares in favor of the merger, which will be sufficient to approve the
     merger regardless of the vote of any other shareholders.


THE MERGER (PAGE [19])

      The rights and obligations of the parties to the merger agreement are
governed by the specific terms and conditions of the merger agreement and not by
any summary or other information in this proxy statement. Therefore, the
information in this summary regarding the merger agreement and the merger is
qualified in its entirety by reference to the merger agreement, a copy of which
is attached to this proxy statement as ANNEX A.

o    REASONS FOR THE MERGER AND RECOMMENDATION OF OUR BOARD OF DIRECTORS (PAGE
     [21]). After an evaluation of certain business, financial and market
     factors our board of directors has unanimously determined that the merger
     and the terms of the merger are advisable, fair to and in the best
     interests of our shareholders, has unanimously approved the merger
     agreement and unanimously recommends that our shareholders vote "FOR" the
     approval and adoption of the merger agreement and the transactions
     contemplated by the merger agreement.

o    INTERESTS OF ACCUIMAGE'S DIRECTORS AND EXECUTIVE OFFICERS IN THE MERGER
     (PAGE [22]). In considering the recommendation of our board of directors
     with respect to the merger, you should be aware that certain of our
     directors and executive officers may have interests in the merger that are
     different from, or are in addition to, the interests of AccuImage
     shareholders generally, including those listed below:


                                      -4-


<PAGE>


-    All of our directors and executive officers hold options and/or warrants
     exercisable for shares of our common stock. The merger agreement provides
     that, as a condition to Merge Technologies' obligation to close the merger,
     all options and warrants for shares of our common stock must be resolved in
     a manner reasonably satisfactory to Merge Technologies. No options or
     warrants will be converted into the right to receive a portion of the
     merger consideration (unless they are exercised prior to closing of the
     merger). Unless otherwise modified, such options and warrants will remain
     outstanding unaffected by the merger.

-    The merger agreement provides that at the closing of the merger, Merge
     Technologies and Dr. Faliks will enter into a consulting agreement in the
     form attached to this proxy statement as ANNEX D. The consulting period is
     for a term commencing on the date of the closing of the merger and, unless
     terminated earlier, expiring on December 31, 2007. Under the consulting
     agreement Dr. Faliks is to perform certain sales and business development
     and consultative services and to hold himself available at reasonable times
     to consult with officers, directors and representatives of Merge
     Technologies for a transition period of 120 days following the closing of
     the merger. Dr. Faliks may perform additional services during the
     transition period and may perform services on behalf of Merge Technologies
     after the expiration of the transition period, through the remaining term
     of the consulting agreement. Under the consulting agreement, Dr. Faliks is
     entitled to receive 15% of the amount by which AccuImage's Software Product
     Revenues (as defined in the consulting agreement, which is attached to this
     proxy statement as Annex D) exceed $1,000,000 in any calendar year for
     years 2005, 2006 and 2007. AccuImage's revenue for fiscal year 2004 was
     approximately $550,000, meaning that Dr. Faliks will receive payment under
     the consulting agreement only if Merge Technologies, with the assistance of
     Dr. Faliks, can roughly double our recent annual revenues. Under the
     consulting agreement, Dr. Faliks is also entitled to be reimbursed for
     certain out-of-pocket expenses incurred by Dr. Faliks in performing
     services under the consulting agreement.

-    The merger agreement also provides that as a condition to closing. Merge
     Technologies expects to make mutually satisfactory arrangements for the
     continued employment of certain AccuImage employees.

-    From and after the effective time of the merger, Merge Technologies will
     cause the surviving corporation of the merger, AccuImage, to indemnify and
     hold harmless all past and present officers and directors of AccuImage and
     its subsidiaries, to the full extent such persons may be indemnified by
     AccuImage pursuant to AccuImage's charter and bylaws, as in effect
     immediately prior to the effective time, and under applicable laws, for
     acts or omissions occurring at or prior to the effective time.

-    The merger agreement provides that at closing of the merger, Merge
     Technologies will cause AccuImage to repay the $1,000,000 aggregate
     principal amount demand notes issued by AccuImage to Dr. Faliks, including
     all accrued and unpaid interest on such notes. As of December 20, 2004, the
     aggregate amount of principal and interest due on such notes was $
     1,006,712.31.

o    APPRAISAL RIGHTS (PAGE [ ] AND ANNEX B). Under Nevada law, if you do not
     vote in favor of approving and adopting the merger agreement and the
     transactions contemplated by the merger agreement, you have the right to
     seek appraisal of the fair value of your shares as determined by a Nevada
     court if the merger is completed, but only if you submit a written demand
     for an appraisal before the vote on the merger agreement and comply with
     the appropriate Nevada law procedures.

o    SOURCE OF FUNDS (PAGE [25]). Merge Technologies will use its existing cash
     reserves to fund the aggregate merger consideration.

o    DELISTING AND DEREGISTRATION OF OUR COMMON STOCK (PAGE [25 ]). If the
     merger is completed, our common stock will be delisted from NASD OTC
     Bulletin Board and will be deregistered under the Securities Exchange Act
     of 1934, as amended, as soon as practicable following the effective time of
     the merger.

o    MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER (PAGE
     [25]). The merger will be a taxable transaction for United States federal
     income tax purposes that will generally be treated as a sale or exchange by


                                      -5-


<PAGE>


     shareholders of shares of our common stock for the cash merger
     consideration. Any gain or loss recognized by a shareholder in the merger
     will generally be capital gain or loss, depending on an individual
     shareholder's holding period and other factors. TAX MATTERS CAN BE
     COMPLICATED, AND THE TAX CONSEQUENCES OF THE MERGER TO YOU, INCLUDING THE
     APPLICATION AND EFFECT OF ANY STATE, LOCAL OR FOREIGN INCOME AND OTHER TAX
     LAWS, WILL DEPEND ON THE FACTS OF YOUR OWN SITUATION. YOU ARE ENCOURAGED TO
     CONSULT YOUR OWN TAX ADVISOR TO UNDERSTAND FULLY THE TAX CONSEQUENCES OF
     THE MERGER TO YOU.

THE MERGER AGREEMENT (PAGE [27])

o    FORM OF THE MERGER (PAGE [27]). At the effective time of the merger, ADI
     Acquisition Corp., a wholly owned subsidiary of Merge Technologies and a
     party to the merger agreement, will merge with and into AccuImage.
     AccuImage will survive the merger as a wholly owned subsidiary of Merge
     Technologies.

o    EFFECTIVE TIME OF THE MERGER (PAGE [27]). The merger will become effective
     upon the filing and acceptance for recording of a certificate of merger
     with the Secretary of State of the State of Nevada. The filing of the
     certificate of merger will be made on the date of the closing of the
     merger.

o    MERGER CONSIDERATION (PAGE [27]). If the merger is completed, you will
     receive approximately $0.12 in cash, without interest, in exchange for each
     share of our common stock that you own at the effective time of the merger,
     unless you perfect and exercise your appraisal rights. After the merger is
     completed, you will have the right to receive the merger consideration, but
     you will no longer have any other rights as an AccuImage shareholder. Our
     shareholders will receive the merger consideration after exchanging their
     AccuImage stock certificates in accordance with the instructions contained
     in the letter of transmittal to be sent to our shareholders as soon as
     practicable after the effective time of the merger. The price of
     approximately $0.12 per share was determined through arm's-length
     negotiations between Merge Technologies and us and is based on an aggregate
     purchase price of $6,000,000 divided by 48,336,295 total shares
     outstanding. The per share merger consideration would be reduced should any
     outstanding stock options or warrants be exercised prior to closing. In
     addition, the $6,000,000 aggregate merger consideration, and the resulting
     per share amount, could be adjusted downward on a dollar-for-dollar basis
     to the extent that the negative balance of our Net Asset Value on the
     closing date of the merger exceeds $220,168. For purposes of this
     computation, "Net Asset Value" means our total assets minus total
     liabilities determined in accordance with U.S. generally accepted
     accounting principals, as in effect on November 24, 2004, except that, for
     purposes of computing our Net Asset Value, the following will be excluded:
     (i) cash received upon exercise of stock options on shares of AccuImage
     common stock, (ii) up to $80,000 of legal fees incurred by AccuImage in
     connection with the merger, and (iii) up to $40,000 per full calendar month
     in operating losses of AccuImage incurred in the ordinary course of
     business from and after October 1, 2004, pro rated to the closing of the
     merger. The approximate $0.12 per share in merger consideration is
     management's estimate of the per share merger consideration after
     considering the likelihood of exercise of stock options or warrants and
     bearing in mind the potential downward adjustment based on our Net Asset
     Value on the closing date of the merger. However, no assurance can be given
     that there will not be a greater adjustment resulting in a lower per share
     merger consideration.

o    EFFECT ON STOCK OPTIONS AND WARRANTS (PAGE [28]). Each option or warrant
     issued and outstanding that is vested and exercisable prior to the
     effective time of the merger may be exercised prior to the effective time
     in accordance with the terms of such warrant or option and the stock option
     plan, if applicable. The merger agreement provides that, as a condition to
     Merge Technologies' obligation to close the merger, all options and
     warrants for shares of our common stock must be terminated or otherwise
     resolved in a manner reasonably satisfactory to Merge Technologies. No
     options or warrants will be converted into the right to receive a portion
     of the merger consideration (unless they are exercised prior to closing of
     the merger). Unless otherwise modified, such options and warrants will
     remain outstanding unaffected by the merger.

o    CONDITIONS TO THE MERGER (PAGE [29]). Merge Technologies' obligation to
     effect the merger is subject to the fulfillment or waiver (if permitted by
     law), at or prior to the effective time of the merger, of the following
     conditions, among others:

-    There must have been no material adverse change our business, operations or
     prospects or certain other recent financial performance or balance sheet
     criteria, since the date of the merger agreement;


                                      -6-


<PAGE>


-    We must obtain all consents required in connection with the change in
     control resulting from the merger under certain agreements by which we are
     bound;

-    Merge Technologies must secure employment agreements with certain of our
     employees; - We and Dr. Faliks must deliver all necessary documents
     required under the merger agreement.

     Each of the representations and warranties of AccuImage and Dr. Faliks set
     forth in the merger agreement must individually and collectively be true
     and correct in all material respects at and as of the closing date:

-    There cannot be any action, suit or proceeding pending or threatened, where
     an unfavorable result would prevent, delay or cause the closing to be
     rescinded or affect materially and adversely Merge Technologies' control of
     AccuImage after the closing or the right of AccuImage to own its assets or
     operate its business after the closing;

-    There must be no claims relating to ownership of stock or any other equity
     of AccuImage not disclosed on the AccuImage stock transfer records;

-    We and Dr. Faliks must have taken all actions in connection with the
     consummation of the transactions contemplated by the merger agreement
     reasonably satisfactory to Merge Technologies;

-    Holders of more than 5% of the shares of our common stock issued and
     outstanding immediately prior to the effective time of the merger must not
     have properly demanded an appraisal of their shares under Nevada law prior
     to the closing of the merger;

-    All of our outstanding options and warrants must be terminated or otherwise
     resolved in a manner reasonably satisfactory to Merge Technologies; and

-    We must enter into a consulting agreement or similar agreement with Leon
     Kaufman covering the period since expiration of his prior agreement with
     AccuImage on the same terms and conditions as such prior agreement.

     Our obligation and the obligation of Dr. Faliks to effect the Merger are
     subject to the fulfillment or waiver, at or prior to the effective time of
     the merger, of the following conditions, among others:

-    Each of the representations and warranties of Merge Technologies set forth
     in the Merger Agreement must be true and correct in all material respects
     at and as of the closing date;


-    There cannot be any action, suit or proceeding pending or threatened, where
     an unfavorable result would prevent consummation of any of the transactions
     contemplated by the merger agreement or cause any of the transactions
     contemplated by the merger agreement to be rescinded;

-    Merge Technologies must deliver the merger consideration and all necessary
     documents required under the merger agreement;

-    Merge Technologies must execute and deliver the consulting agreement;

-    Holders of more than 5% of the shares of our common stock issued and
     outstanding immediately prior to the effective time of the merger must not
     have properly demanded an appraisal of their shares under Nevada law prior
     to the closing of the merger.

-    Our shareholder approval must have been obtained.

o    TERMINATION OF THE MERGER AGREEMENT (PAGE [31]). The merger agreement may
     be terminated at any time prior to the closing of the merger, whether
     before or after any approval of the matters presented in connection with
     the merger by our shareholders:


                                      -7-


<PAGE>


-    by mutual written consent of Merge Technologies and us;

-    by either us or Merge Technologies, if (i) the merger has not been
     consummated prior to March 31, 2005, (ii) there is a final and
     non-appealable court order permanently enjoining, restraining or otherwise
     prohibiting the consummation of the merger; (iii) our board of directors
     has adversely modified or withdrawn its recommendation, approval or
     adoption of the merger or the merger agreement, or has resolved to do so;
     (iv) our board of directors recommends to our shareholders any acquisition
     proposal involving us by a third party or has resolved to do so; or (v) our
     shareholders do not approve the merger agreement;

-    by us, if there has been a material breach by Merge Technologies of any
     representation, warranty, covenant or agreement contained in the merger
     agreement which cannot be cured prior to March 31, 2005;

-    by Merge Technologies, if there has been a breach by us or Dr. Faliks of
     any representation, warranty, covenant or agreement contained in the merger
     agreement which (i) would result in a material adverse change in AccuImage
     or a material adjustment to our financial performance, and (ii) cannot be
     cured prior to March 31, 2005;

o    EXPENSES AND FEES (PAGE [31]).

-    TERMINATION FEE. We must pay Merge Technologies a termination fee in cash
     if the merger agreement is terminated under certain circumstances involving
     our entering into an agreement to be acquired by another company. The
     amount of the termination fee is the greater of (i) 5% of the aggregate
     consideration in such other transaction or (ii) 25% of the difference
     between the amount received in such other transaction and $6,000,000.

-    EXPENSES. Other than the termination fees described above, the parties to
     the merger agreement will bear their respective costs and expenses incurred
     in connection with the merger agreement, whether or not the merger is
     consummated.

o    NO SOLICITATION BY ACCUIMAGE (PAGE [32]). So long as the merger agreement
     is in effect, AccuImage may not solicit any proposal from a third party
     with respect to the acquisition of AccuImage by means of a merger,
     reorganization, consolidation, business combination, recapitalization,
     liquidation, dissolution or similar transaction or any purchase or sale of
     any significant portion of the assets or equity securities of it or any of
     its subsidiaries, other than as disclosed by Merge Technologies in
     accordance with the merger agreement. Under certain conditions, AccuImage
     may terminate the merger agreement to accept an acquisition proposal from a
     third party which is superior to that offered by Merge Technologies in the
     merger agreement that Merge Technologies has elected not to match. If
     AccuImage terminates the merger agreement to accept a superior proposal, we
     will be required to pay Merge Technologies a termination fee in an amount
     equal to the greater of (i) five percent (5%) of the aggregate
     consideration received in the superior proposal or (ii) twenty-five percent
     (25%) of the difference between the amount received in the superior
     proposal and $6,000,000.

VOTING AGREEMENT (PAGE [38] AND ANNEX C)

         Dr. Aviel Faliks, our Chairman, Chief Executive Officer, President and
a member of our board of directors, who owns 25,050,000 shares, representing
approximately 51.8% of the outstanding shares of our common stock as of the
record date, has entered into a voting, proxy and option agreement with Merge
Technologies. Pursuant to the voting agreement, Dr. Faliks has agreed, among
other things, to vote or cause to be voted all shares of our common stock over
which he has voting power (i) in favor of approval and adoption of the merger
agreement, the merger and the other transactions contemplated by the merger
agreement and (ii) against any takeover proposal involving us by a third party
and any other matters which could reasonably be expected to impede, interfere,
delay or adversely affect the merger and the other transactions contemplated by
the merger agreement. Dr. Faliks further agreed not to sell or transfer the
shares of our common stock held by him prior to the termination of the voting
agreement. At the time the voting agreement was entered into, Dr. Faliks owned
34,050,000 shares of our common stock, or approximately 59.4% of our shares then
outstanding. On December 13, 2004, Dr. Faliks contributed back to the company
all 9,000,000 shares of common stock that he purchased or was granted during
calendar year 2004. Merge Technologies and ADI Acquisition Corp consented to
that contribution by Dr. Faliks.


                                      -8-


<PAGE>


         QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETING

      The following questions and answers are provided for your convenience and
briefly address some commonly asked questions about the proposed transaction and
the special meeting of AccuImage shareholders. You should carefully read this
entire proxy statement, including each of the annexes attached to this proxy
statement.

Q: WHY AM I RECEIVING THIS PROXY STATEMENT AND PROXY CARD?

A: You are receiving this proxy statement and proxy card because as of the close
   of business on [ ], 200[ ] you owned shares of common stock of AccuImage.
   This proxy statement describes the issues on which we would like you, as a
   shareholder, to vote. It also gives you information about these issues so
   that you can make an informed decision.

Q: WHAT AM I VOTING ON?

A: You are being asked to consider and vote to approve and adopt the merger
   agreement, pursuant to which Merge Technologies will acquire AccuImage
   through the merger of a wholly owned subsidiary of Merge Technologies with
   and into AccuImage, and the other transactions contemplated thereby. As a
   result of the merger, AccuImage will become a wholly owned subsidiary of
   Merge Technologies.

Q: WHAT WILL ACCUIMAGE SHAREHOLDERS RECEIVE IN THE MERGER?

A: In the merger, each outstanding share of AccuImage common stock will be
   converted into the right to receive approximately $0.12 in cash, without
   interest, unless you perfect and exercise your appraisal rights described
   below. AccuImage shareholders will not have the option to receive Merge
   Technologies common stock in exchange for their shares of AccuImage common
   stock instead of cash. AccuImage shareholders as of the record date for the
   special meeting will have appraisal rights with respect to their shares of
   AccuImage common stock. The shares of AccuImage common stock held by those
   shareholders who properly follow the procedures necessary to exercise their
   appraisal rights will not be immediately converted into the right to receive
   approximately $0.12 in cash, without interest, but rather will be entitled to
   have their shares of our common stock appraised and receive the "fair value"
   of the shares in cash as determined by a Nevada court in lieu of the
   consideration the shareholders would otherwise be entitled to receive under
   the merger agreement.

Q: WHAT WILL HAPPEN TO OUTSTANDING AND PREVIOUSLY UNEXERCISED STOCK OPTIONS OR
   WARRANTS?

A: Each option or warrant on shares of AccuImage common stock that is issued and
   outstanding and that is vested and exercisable prior to the effective time of
   the merger may be exercised prior to the effective time in accordance with
   the terms of such warrant or option and the stock option plan, if applicable.
   The merger agreement provides that, as a condition to Merge Technologies'
   obligation to close the merger, all options and warrants for shares of our
   common stock must be terminated or otherwise resolved in a manner reasonably
   satisfactory to Merge Technologies. No options or warrants will be converted
   into the right to receive a portion of the merger consideration (unless they
   are exercised prior to closing of the merger). Unless otherwise modified,
   such options and warrants will remain outstanding unaffected by the merger.

Q: WHAT WILL HAPPEN TO MY SHARES OF ACCUIMAGE COMMON STOCK AFTER THE MERGER?

A: Following consummation of the merger, your shares of our common stock will
   represent solely the right to receive the merger consideration of
   approximately $0.12 per share in cash, without interest, unless you perfect
   and exercise your appraisal rights, and trading in our common stock on The
   NASD OTC Bulletin Board will cease. Price quotations for our common stock
   will no longer be available and we will cease filing periodic reports with
   the Securities and Exchange Commission under the Securities Exchange Act of
   1934, as amended, as soon as we are legally allowed to do so.


                                      -9-


<PAGE>


Q:  DOES MERGE TECHNOLOGIES HAVE THE FINANCIAL RESOURCES TO PAY THE AGGREGATE
    MERGER CONSIDERATION?

A: The aggregate consideration payable to our shareholders and option holders in
   the merger is approximately $6,000,000. Merge Technologies has advised us
   that the aggregate merger consideration will be funded from Merge
   Technologies' or an affiliate's existing cash reserves. There is no financing
   condition to the consummation of the merger.

Q: WILL THE MERGER BE TAXABLE TO ACCUIMAGE SHAREHOLDERS?

A: Yes. The merger is a taxable transaction and, for U.S. federal income tax
   purposes will generally be treated as a sale of your shares of our common
   stock in exchange for the consideration you receive in the merger. You should
   read "The Merger -- Material United States Federal Income Tax Consequences of
   the Merger" beginning on page 21 for a more complete discussion of the U.S.
   federal income tax consequences of the merger. We also urge you to consult
   your own tax advisors to determine the effect of the merger on you under
   applicable federal, state, local and foreign tax laws.

Q: WHEN WILL THE MERGER BE COMPLETED AND WHEN WILL PAYMENT BE RECEIVED?

A: The closing of the merger will occur on the second business day following the
   satisfaction or waiver of the conditions to the merger contained in the
   merger agreement or at such other time as the parties may agree. We are
   working toward completing the merger as quickly as possible. We anticipate
   that the merger will be completed during the first quarter of 2005. However,
   the merger cannot be completed without first receiving the approval of the
   AccuImage shareholders as described in this proxy statement. Detailed
   instructions with regard to the surrender of your stock certificates,
   together with a letter of transmittal, will be mailed to you promptly
   following the completion of the merger. You should not submit your
   certificates to us or the paying agent until you have received these
   materials. The paying agent will send payment for your shares promptly after
   the paying agent receives your stock certificates and other required
   documents.

Q: WHO IS ENTITLED TO VOTE AT THE SPECIAL MEETING OF SHAREHOLDERS?

A: Holders of record of shares of AccuImage common stock as of the close of
   business on [                 ], 2005 are entitled to vote on the merger
   agreement, the merger and the other transactions contemplated by the merger
   agreement.

Q: WHEN AND WHERE IS THE SPECIAL MEETING OF SHAREHOLDERS?

A: The special meeting of shareholders will be held on [                    ],
   2005 at 10:00 a.m., Pacific Standard Time, at AccuImage's corporate
   headquarters, located at 400 Oyster Point Boulevard, Suite 201, South San
   Francisco, California 94080.

Q:  WHAT SHAREHOLDER APPROVAL IS REQUIRED TO APPROVE AND ADOPT THE MERGER
    AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT?

A: The affirmative vote of a majority of the outstanding shares of AccuImage
   common stock is required to approve and adopt the merger agreement and the
   transactions contemplated by the merger agreement. As of the record date,
   there were 48,336,295 shares of AccuImage common stock outstanding, of which
   approximately 51.8% were beneficially owned by Dr. Faliks. Dr. Faliks has
   agreed with Merge Technologies to vote, or cause to be voted, all of the
   shares of AccuImage common stock he owned and has a right to vote to approve
   the merger and the merger agreement, subject to certain termination rights.
   Dr. Faliks' vote will be sufficient to approve the merger and the merger
   agreement regardless of the vote of any other shareholder.


Q: DOES ACCUIMAGE'S BOARD OF DIRECTORS RECOMMEND THE APPROVAL AND ADOPTION OF
   THE MERGER AGREEMENT?

A: Yes. AccuImage's board of directors unanimously recommends that AccuImage
   shareholders vote "FOR" the approval and adoption of the merger agreement and
   the transactions contemplated by the merger agreement. AccuImage's board of
   directors considered many factors in deciding to recommend the approval and
   adoption of the merger agreement, including, among others, other available
   strategic alternatives, and the premium offered by Merge Technologies to the
   market price of AccuImage common stock at the time our board of directors
   decided to recommend to our shareholders the approval and adoption of the
   merger agreement. The approximately $0.12 cash per share merger consideration
   represents a premium of approximately 84.6% to the closing price of our
   common stock on November 23, 2004, the last trading day before the public
   announcement of the signing of the merger agreement.


                                      -10-


<PAGE>


Q: WHERE CAN I LEARN MORE ABOUT MERGE TECHNOLOGIES AND ACCUIMAGE?

A: AccuImage and Merge Technologies, file annual, quarterly and current reports,
   proxy statements and other information with the Securities and Exchange
   Commission. You may read and copy any reports, statements or other
   information that AccuImage and Merge Technologies file with the Securities
   and Exchange Commission at the Securities and Exchange Commission's Public
   Reference Room, 450 Fifth Street, N.W., Washington, D.C. 20549. Please call
   the Securities and Exchange Commission at 1-800-SEC-0330 for further
   information on the operation of the Public Reference Room. These Securities
   and Exchange Commission filings are also available to the public at the
   Internet site maintained by the Securities and Exchange Commission at
   http://www.sec.gov.

Q: WHOM SHOULD I CONTACT IF I HAVE QUESTIONS?

A: If you would like additional copies, without charge, of this proxy statement
   or if you have questions about the merger, including the procedures for
   voting your shares, you should contact us as follows:

     AccuImage Diagnostics Corp.
     Attn:  Ray Vallejo
     400 Oyster Point Boulevard
     Suite 201
     South San Francisco, CA
     (650) 875-0192

Q: AM I ENTITLED TO APPRAISAL RIGHTS?

A: Yes, if you are a holder of record Under Nevada law, if you do not vote in
   favor of approving and adopting the merger agreement and the transactions
   contemplated by the merger agreement, you have the right to seek appraisal of
   the fair value of your shares as determined by a Nevada court if the merger
   is completed, but only if you submit a written demand for an appraisal before
   the vote on the merger agreement and comply with the appropriate Nevada law
   procedures. You should read "The Merger -- Appraisal Rights" beginning on
   page [ ] and ANNEX B to this proxy statement for a more complete discussion
   of your appraisal rights.

Q: WHAT DO I NEED TO DO NOW?

A: We urge you to read this proxy statement carefully, including its annexes,
   and to consider how the merger affects you. Then mark, sign, date and return
   the enclosed proxy card in the postage-paid envelope provided.

Q: WHAT HAPPENS IF I DO NOT RETURN A PROXY CARD?

A: The failure to return your proxy card will have the same effect as voting
   against the merger.

Q: MAY I VOTE IN PERSON?

A: Yes. You may vote in person at the special meeting, rather than signing and
   returning your proxy card, if you own shares in your own name. Provided that
   you bring a legal proxy from your broker, dealer, trustee, bank or other
   nominee and present it at the special meeting, you may also vote in person at
   the special meeting if your shares are held in "street name" through a
   broker, dealer, trustee, bank or other nominee. You may also be asked to
   present photo identification for admittance.

Q: MAY I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?

A: Yes. You may change your vote at any time before the shares reflected on your
   proxy card are voted at the special meeting. If you own your shares in your
   name, you can do this in one of three ways. First, you can send a written
   notice of revocation to our secretary at our principal executive offices.


                                      -11-


<PAGE>


   Second, you can mark, sign, date and return a new proxy card. Third, you can
   attend the meeting and vote in person. Your attendance alone will not revoke
   your proxy. If you have instructed a broker, dealer, trustee, bank or other
   nominee to vote your shares, you must follow the directions received from the
   broker, dealer, trustee, bank or other nominee to change your instructions.

Q:  IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
    SHARES FOR ME?

A: Your broker will not vote your shares without instructions from you. You
   should instruct your broker to vote your shares, following the instructions
   provided by your broker. Without instructions, your shares will not be voted,
   which will have the effect of a vote against the merger.

Q: WHO IS SOLICITING MY PROXY?

A: The board of directors of AccuImage is soliciting your proxy. Officers and
   other employees of AccuImage may participate in soliciting proxies by mail,
   telephone, facsimile or e-mail.

Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?

A: No. If the merger is completed, you will receive written instructions for
   exchanging your shares of our common stock for the merger consideration of
   approximately $0.12 per share in cash, without interest, unless you exercise
   and perfect your appraisal rights.


                                      -12-


<PAGE>



                       THE SPECIAL MEETING OF SHAREHOLDERS

DATE, TIME AND PLACE

         We will hold the special meeting on January [ ], 2005 at 10:00 a.m.,
Pacific Standard Time, at AccuImage's corporate headquarters, located at 400
Oyster Point Boulevard, Suite 201, South San Francisco, California 94080.

PURPOSE OF THE SPECIAL MEETING

         At the special meeting, we will ask you to approve and adopt the merger
agreement and the transactions contemplated by the merger agreement. AccuImage's
board of directors unanimously (i) approved and declared advisable the merger
agreement, the merger and the other transactions contemplated by the merger
agreement, (ii) declared that it is in the best interests of our shareholders
that we enter into the merger agreement and complete the merger on the terms and
conditions in the merger agreement and (iii) recommended that you approve and
adopt the merger agreement and the transactions contemplated by the merger
agreement.

RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM

         Only holders of record of shares of our common stock at the close of
business on [ ], 200[ ], the record date, are entitled to notice of and to vote
at the special meeting. On the record date, 48,336,295 shares of our common
stock were issued and outstanding and held by approximately 105 holders of
record. Each holder of record of common stock will be entitled to one vote per
share at the special meeting on the proposal to approve and adopt the merger
agreement and the transactions contemplated by the merger agreement.

         The holders of a majority of the outstanding shares of common stock
must be present, either in person or by proxy, to constitute a quorum at the
special meeting. We will count abstentions, either in person or by proxy, and
broker nonvotes (shares held by a broker or other nominee that does not have the
authority to vote, and does not vote, on a matter but which otherwise submits a
validly executed proxy) for the purpose of establishing a quorum. If a quorum is
present at the special meeting, the quorum cannot be broken by the withdrawal of
enough shareholders such that less than a quorum remains and the remaining
shareholders may continue to transact business until adjournment. If a quorum is
not present at the special meeting, the holders of a majority of the common
stock represented at the special meeting, or if no shareholder entitled to vote
is present at the meeting, any officer of AccuImage, may adjourn the meeting to
solicit additional proxies. In the event that a quorum is not present at the
special meeting, it is expected that the meeting will be adjourned or postponed
to solicit additional proxies.

VOTE REQUIRED

         The approval and adoption of the merger agreement and the transactions
contemplated by the merger agreement requires the affirmative vote of a majority
of the outstanding shares of our common stock. If you abstain from voting,
either in person or by proxy, or do not instruct your broker or other nominee
how to vote your shares, it will effectively count as a vote against the
approval and adoption of the merger agreement and the transactions contemplated
by the merger agreement.

VOTING BY OUR DIRECTORS, EXECUTIVE OFFICERS AND CERTAIN SHAREHOLDERS

         At the close of business on the record date, our directors and
executive officers were entitled to vote 26,550,000 shares of our common stock,
representing approximately 54.9% of the outstanding shares of our common stock
on that date. In connection with the merger agreement, Dr. Faliks, our chairman,
chief executive officer and president and one of our directors, entered into the
voting agreement with Merge Technologies. ,Among other things, under the voting
agreement Dr. Faliks agreed to vote or cause to be voted all shares of our
common stock over which he has voting power in favor of approval and adoption of
the merger agreement, the merger and the other transactions contemplated by the
merger agreement. As of the record date, Dr. Faliks held 25,050,000 shares of
our common stock, representing approximately 51.8% of the outstanding shares of
our commons stock as of that date. Dr. Faliks further agreed not to sell or
transfer the shares of our common stock held by him prior to the termination of
such voting agreement. At the time the voting agreement was entered into, Dr.
Faliks owned 34,050,000 shares of our common stock, or approximately 59.4% of
our shares then outstanding. On December 13, 2004, Dr. Faliks contributed back
to the company all 9,000,000 shares of common stock that he purchased or was
granted during calendar year 2004. Merge Technologies and ADI Acquisition Corp.
consented to that contribution by Dr. Faliks. See "Voting Agreement" on page [ ]
for additional information regarding the voting agreement.


                                      -13-


<PAGE>


VOTING OF PROXIES

         You may vote your proxy by mail as explained on the enclosed proxy
card. Voting your proxy does not limit your right to vote in person should you
decide to attend the special meeting. If your shares are held in the name of a
broker, dealer, trustee, bank or other nominee, you will be provided voting
instructions from the nominee and, in order to vote at the special meeting, you
must obtain a legal proxy, executed in your name, from the nominee. You may be
asked to present photo identification for admittance to the special meeting if
your shares are held in the name of a broker, dealer, trustee, bank or other
nominee.

         If you vote by mail and the returned proxy card is completed, signed
and dated, your shares will be voted at the special meeting in accordance with
your instructions. If you vote by mail and your proxy card is returned unsigned,
then your vote cannot be counted. If you vote by mail and the returned proxy
card is signed and dated, but you do not fill out the voting instructions on the
proxy card, the shares represented by your proxy will be voted "FOR" the
approval and adoption of the merger agreement and the transactions contemplated
by the merger agreement.

         The persons you name as proxies may propose and vote for one or more
adjournments or postponements of the special meeting, including adjournments or
postponements to permit further solicitations of proxies. No proxy voted against
the proposal to approve and adopt the merger agreement and the transactions
contemplated by the merger agreement will be voted in favor of any adjournment
or postponement.

         We do not expect that any matter other than the proposal to approve and
adopt the merger agreement and the transactions contemplated by the merger
agreement will be brought before the special meeting. If, however, our board of
directors properly presents any other matters, the persons named as proxies will
vote in accordance with their judgment as to matters that they believe to be in
the best interests of our shareholders.

         DO NOT SEND YOUR STOCK CERTIFICATES WITH YOUR PROXY. A LETTER OF
TRANSMITTAL WITH INSTRUCTIONS FOR THE SURRENDER OF ACCUIMAGE'S COMMON STOCK
CERTIFICATES WILL BE MAILED TO OUR SHAREHOLDERS AS SOON AS PRACTICABLE AFTER
COMPLETION OF THE MERGER.

REVOCABILITY OF PROXIES

         If you hold your shares in your name, you have the unconditional right
to revoke your proxy at any time prior to its exercise by employing any of the
following methods:

     o    delivering a written notice of revocation to the secretary of
          AccuImage at our principal executive offices;

     o    signing and delivering a later-dated proxy after the date of the
          previously submitted proxy; or

     o    voting in person at the special meeting.

         The revocation of your proxy by written notice or your later-dated
proxy will be effective only if the secretary of AccuImage receives the written
notice or later-dated proxy prior to the day of the special meeting or if the
inspector of elections receives the written notice or later-dated proxy at the
special meeting. Your attendance at the special meeting without further action
will not automatically revoke your proxy.

         If you have instructed a broker, dealer, trustee, bank or other nominee
to vote your shares, you must follow the directions received from such nominee
to change these instructions.

ADJOURNMENTS OR POSTPONEMENTS

         Although it is not expected, the special meeting may be adjourned or
postponed for the purpose of soliciting additional proxies or for other reasons
as determined by the chairman of the meeting. Any adjournment or postponement
may be made without notice, including by an announcement made at the special
meeting, by the chairman of the meeting in his sole discretion. If the special
meeting is adjourned or postponed for the purpose of soliciting additional
proxies or for other reasons, we will allow our shareholders who have already
sent in their proxies to revoke them at any time prior to their use.


                                      -14-


<PAGE>


SOLICITATION OF PROXIES

         Our board of directors is soliciting your proxy. In addition to the
solicitation of proxies by use of the mail, officers and other employees of
AccuImage may solicit the return of proxies by personal interview, telephone,
e-mail or facsimile. We will not pay additional compensation to our officers and
employees for their solicitation efforts, but we will reimburse them for any
out-of-pocket expenses they incur in their solicitation efforts. We will request
that brokerage houses and other custodians, nominees and fiduciaries forward
solicitation materials to the beneficial owners of stock registered in their
names. AccuImage will bear all costs of preparing, assembling, printing and
mailing the Notice of Special Meeting of Shareholders, this proxy statement, the
enclosed proxy card and any additional materials, as well as the cost of
forwarding solicitation materials to the beneficial owners of stock and all
other costs of solicitation; provided that Merge Technologies will bear the
costs for its legal counsel and other representatives in relation to the
preparation of such materials.

HOUSEHOLDING OF PROXY MATERIALS

         Some banks, brokers and other nominee record holders may be
participating in the practice of "householding" proxy statements. "Householding"
means that only one copy of this proxy statement may have been sent to a
household shared by multiple shareholders unless such nominee received contrary
instructions from one or more of the shareholders. Upon written or oral request,
we will promptly deliver a separate copy of this proxy statement to any
shareholder at a shared address to which a single copy of the document was
delivered. All requests should be made to: AccuImage Diagnostics Corp., 400
Oyster Point Boulevard, Suite 201, South San Francisco, California 94080,
Attention: Ray Vallejo.


                                      -15-


<PAGE>


                                   THE PARTIES


ACCUIMAGE DIAGNOSTICS CORP.

            AccuImage was organized on February 2, 1990 under the laws of the
state of Nevada as Black Pointe Holdings, Inc. On June 26, 1996, AccuImage
changed its name to AccuImage Diagnostics Corp.

            On September 30, 1997, pursuant to a Stock Exchange Agreement, we
acquired all of the outstanding shares of AccuImage, Inc., a Nevada corporation,
which owned the exclusive rights to certain computer software and technology,
which we had been licensing. Subsequent to the exchange, AccuImage, Inc. was
dissolved.

            We are based in South San Francisco and are engaged in the
development, marketing and sale of software used for medical data and
interactive medical image visualization. The software, which runs on a personal
computer, interprets images obtained from leading equipment manufacturers and
imaging modalities (e.g., CT, MRI, and Ultrasound).

            We provide our software to three different markets. First, we offer
hospitals, clinics and medical professionals a scalable solution for
transmitting data on the Internet and enhancing the diagnostic value of data
already obtained. Second, we sell to Original Equipment Manufacturers ("OEMs")
of medical acquisition devices a customizable version that adds value to their
core products. Third, we offer vendors who sell Picture and Archiving
Communication Systems a medical diagnostic software package that complements and
enhances their existing product line.

         Our principal executive offices are located at 400 Oyster Point
Boulevard, Suite 201, South San Francisco, California 94080, and our telephone
number is (650) 875-0192. Additional information regarding AccuImage is
contained in our filings with the Securities and Exchange Commission. See "Where
You Can Find More Information" on page 37.

MERGE TECHNOLOGIES INCORPORATED

          Merge Technologies, Incorporated is a Wisconsin corporation that does
business as "Merge eFilm". Merge Technologies is a global healthcare software
and services company focused on accelerating the productivity of imaging
centers, small- to medium-sized hospitals and clinics with a suite of RIS/PACS
products that more efficiently streamline, integrate and distribute image and
information workflow across the healthcare enterprise. Since 1987, Merge
Technologies has leveraged its healthcare integration and connectivity
experience to create workflow solutions that improve its customers' productivity
and enhance the quality of care they provide.

         Merge Technologies' principal executive offices are located at 1126 S.
70th Street, Suite 107B, Milwaukee, WI 53214, and its telephone number is (414)
977-4000. Additional information regarding Merge Technologies is contained in
Merge Technologies' filings with the Securities and Exchange Commission. See
"Where You Can Find More Information" on page 37.

ADI ACQUISITION CORP.

         ADI Acquisition Corp. is a newly formed Nevada corporation and a
wholly-owned subsidiary of Merge Technologies. ADI Acquisition Corp. has not
conducted any business operations other than in connection with entering into
and performing its obligations under the merger agreement. ADI Acquisition
Corp.'s principal executive offices are located at 1126 S. 70th Street, Suite
107B, Milwaukee, Wisconsin 53214, and its telephone number is (414) 977-4000.

DR. AVIEL FALIKS

         Dr. Faliks is our principal shareholder, owning 25,050,000 shares of
our common stock or 51.8% of the shares of our common stock outstanding on [ ].
Merge Technologies insisted upon Dr. Faliks joining as a party to the merger
agreement in order to personally make the representations and warranties
included in the merger agreement and to provide a remedy to Merge Technologies
should there be a breach of one or more representations or warranties made by
AccuImage and Dr. Faliks in the merger agreement. Dr. Faliks has agreed to
personally indemnify Merge Technologies for losses suffered by Merge
Technologies as a result of any breach of any representation or warranty made by
AccuImage or Dr. Faliks in the merger agreement up to an aggregate amount of
$2,000,000 plus the amount of any payments otherwise paid or payable to Dr.
Faliks under the consulting agreement. Dr. Faliks has agreed to place $1,000,000
of the merger consideration he would otherwise have received upon closing of the
merger into an escrow account to secure these indemnity obligations.


                                      -16-


<PAGE>


                                   THE MERGER


BACKGROUND OF THE MERGER

         Communications between the parties began on March 29, 2004 when Dr.
Faliks called David Noshay, Merge Technologies' Vice President of Business
Development. AccuImage had identified Merge Technologies as a potential reseller
or licensee of AccuImage products. The purpose of the call was to discuss
whether there was any interest in such a business relationship. Dr. Faliks and
Mr. Noshay spoke by telephone several more times during the spring to discuss
more specifically the features of the AccuImage products. Mr. Noshay then
arranged for a meeting between Dr. Faliks and William C. Mortimore, the Chairman
of the board of directors and Chief Strategist of Merge Technologies.

         At the initial meeting between Dr. Faliks, Dr. Leon Kaufmann,
AccuImage's head of research and Mr. Mortimore, held on June 4, 2004 at the
Milwaukee office of Merge Technologies, Drs. Faliks and Kaufmann provided an
overview of AccuImage, its products, history and prospects.

         On July 19, 2004, Drs. Faliks and Kaufmann again visited Merge
Technologies' offices in Milwaukee where they met with Messrs. Mortimore and
Noshay to provide an overview of AccuImage's plug-ins and to describe in detail
the functionalities of the AccuImage software. These discussions continued to be
focused around an opportunity for Merge Technologies to sell AccuImage products.

         On July 26, 2004, Mr. Mortimore called Dr. Faliks to ask permission to
speak about the AccuImage products with Dr. Hirsch Handmaker, an AccuImage board
member and a Merge Technologies customer, Ron Shilling, an AccuImage board
member, and Dr. John Rumberger, an expert on calcium scoring. Dr. Faliks
provided Mr. Mortimore with the contact information for those individuals and
encouraged Mr. Mortimore to contact them about the AccuImage products.

         At the August 17, 2004 meeting of the AccuImage board of directors, Dr.
Faliks briefed the board generally about the company's efforts to find strategic
sales partners including, Hitachi Medical Systems, Cedara Software Corp.,
Philips, Cerner and SourceOneHealth. Dr. Faliks noted that Merge Technologies
had expressed a strong interest in a relationship and that a follow up meeting
was scheduled in September.

         In the first of two meetings held in September between the management
of AccuImage and Merge Technologies, Mr. Mortimore met with Dr. Faliks, Mr. Ray
Vallejo, the Chief Operating Officer of AccuImage and Mr. Jeff Watts,
AccuImage's head of engineering on September 1, 2004, at the offices of
AccuImage in South San Francisco. The meeting participants discussed AccuImage's
products, intellectual property and human capital. Dr. Faliks shared his
thoughts about a transaction involving the acquisition of AccuImage by Merge
Technologies, and his estimate of the valuations of AccuImage. Mr. Mortimore
communicated to the meeting participants that Merge Technologies had an interest
in the assets of AccuImage and would like to pursue further discussion with
other members of AccuImage's management , including its Chief Technology
Officer.

         On September 22, 2004, Dr. Faliks, Dr. Kaufman and Mr. Watts,
AccuImage's visited Merge Technologies' Ohio office to perform a full
demonstration of the AccuImage products for Mr. Tim Kulbago, Merge Technologies'
Chief Technology Officer, Mr. Mortimore and Dr. Frank Seidelmann, a member of
the board of directors of Merge Technologies and owner of medical imaging
centers. All of AccuImage's products were demonstrated and competitive strengths
were highlighted.

         On September 24, 2004, Mr. Mortimore and Dr. Faliks engaged in a
telephone conversation, during which Mr. Mortimore advised Dr. Faliks of Merge
Technologies' interest in AccuImage and receptiveness to exploring an
acquisition transaction.

         On September 27 and 28, Dr. Faliks provided feedback to his fellow
AccuImage board members regarding status of discussions with Merge Technologies.
On October 8, Mr. Mortimore contacted Dr. Faliks and asked Dr. Faliks to provide
some customer references. AccuImage provided Mr. Mortimore with a list of twelve
customers. Mr. Mortimore contacted these customer references to discuss
AccuImage products and explained to them that Merge Technologies may be
interested in licensing AccuImage products.

         On October 7, with the consent of Dr. Faliks, Mr. Mortimore met with
Dr. Kaufamnn in San Francisco, where they discussed the intellectual property
assets of AccuImage.


                                      -17-


<PAGE>


         On October 10, 2004, Mr. Mortimore telephoned Dr. Faliks to express
Merge Technologies' desire to pursue talks involving Merge Technologies
acquiring AccuImage. Scott Veech, Merge Technologies' Chief Financial Officer
participated in the call. Later that day, Mr. Veech and an investment banker
again called Dr. Faliks and made a first offer relating to an acquisition of
AccuImage. Dr. Faliks indicated that he thought the offer was too low and that
he was going to discuss the offer with his fellow board members. Dr. Faliks
contacted the other AccuImage board members and discussed the proposal. The
board members expressed their support for continuing merger discussions with
Merge Technologies.

         The nondisclosure agreement between AccuImage and Merge Technologies
was signed on October 14, 2004. That same day, Messrs. Mortimore and Kulbago, of
Merge Technologies, met at AccuImage's South San Francisco office with Mr.
Vallejo and other AccuImage representatives to perform technical due diligence.

         From October 14 through October 21, Dr. Faliks and Mr. Veech continued
to discuss a potential business combination. These discussions culminated in a
term sheet being sent by Merge Technologies' Chief Executive Officer, Richard
Linden, to Dr. Faliks on October 21, 2004. On October 22, 2004, Dr. Faliks
distributed the term sheet to the other AccuImage board members for their
review. Dr. Faliks discussed the term sheet with each member of the board and
arranged for a telephonic board meeting to be held on October 28, 2004.

         On October 28, the AccuImage board held a telephonic board meeting.
During the board meeting, the term sheet was discussed as were the other
alternatives available to AccuImage. The board approved resolutions authorizing
Dr. Faliks to continue to negotiate with Merge Technologies based on the term
sheet and subject to Merge Technologies' continued due diligence.

         On October 29, Messrs. Veech and Linden visited the AccuImage offices
to view a web demonstration of the AccuImage products and to further discuss a
possible acquisition of AccuImage. In addition, Messrs. Veech and Linden met
with AccuImage staff, discussed integration plans with Dr. Faliks and reviewed
the process of advancing toward a definitive agreement. On November 4, AccuImage
performed a web demonstration of the AccuImage products for the Merge
Technologies' Customer Advisory Panel in order for Merge Technologies to get
feedback on the AccuImage products.

         From October 29 through November 8, Dr. Faliks continued to negotiate
acquisition terms with Merge Technologies' representatives. On November 8, Dr.
Faliks spoke with fellow AccuImage board members Messrs. Shilling, Handmaker,
Goswami, and Lew regarding progress in negotiations, outstanding transaction
issues and status of the ongoing due diligence being performed by Merge
Technologies. A tentative board meeting was scheduled for November 19 to discuss
and consider the proposed acquisition by Merge Technologies.

         On November 17 and 18, Mr. Steve Oreskovich, Merge Technologies'
Controller and Mr. George Rosic, Merge Technologies' principal outside counsel
visited AccuImage's offices to perform legal and financial due diligence.

         A meeting of the board of directors of Merge Technologies was held on
November 17, 2004. The directors were also presented financial data regarding
AccuImage and the merger consideration. Following these presentations, the
directors discussed the potential acquisition and unanimously determined that
the merger agreement was advisable and in the best interests of its
shareholders, approved and declared the advisability of the merger and related
matters.

         On November 19, Dr. Faliks spoke with fellow board members regarding
the status of negotiations with Merge Technologies. The next board meeting was
tentatively scheduled for November 22.

         From November 8 through November 24, Merge Technologies and AccuImage
and their respective representatives and legal counsel prepared, negotiated and
distributed numerous drafts of the merger agreement, voting agreement and
consulting agreement.

         On November 23, AccuImage's auditors released preliminary fiscal year
2004 financial statements for AccuImage. Later that day, agreement was reached
on the merger agreement, voting agreement, consulting agreement and escrow
agreement. Dr. Faliks distributed final copies of these documents to board
members via email and an AccuImage board meeting was held by teleconference on
the evening of November 23. At the board meeting, the board discussed the
principal terms of the merger agreement, the merger and the related documents.
After further discussion, the board unanimously (i) approved and declared
advisable the merger agreement and the transactions contemplated thereby and
authorized the execution and delivery of the merger agreement, (ii) determined
that the merger is fair to, and in the best interests of, AccuImage's
shareholders, and (iii) recommended that the AccuImage shareholders approve and
adopt the merger agreement and the merger.


                                      -18-


<PAGE>


         In the early morning of November 24, the parties executed the merger
agreement and the voting agreement. Later in the morning on November 24,
AccuImage and Merge Technologies issued a joint press release announcing the
execution of the merger agreement.


REASONS FOR THE MERGER AND RECOMMENDATION OF OUR BOARD OF DIRECTORS
          Our board of directors has unanimously determined that the acquisition
of AccuImage by Merge Technologies is advisable, fair to and in the best
interests of our shareholders. The decision of the board to approve and enter
into the merger agreement and to recommend that shareholders vote "FOR" the
approval and adoption of the merger agreement was the result of careful
consideration of numerous factors by the board, including, without limitation,
the following:

    o MERGER CONSIDERATION PREMIUM. The approximately $0.12 per share merger
      consideration represents a premium of approximately 84.6% to the closing
      price of our common stock on November 23, 2004, the last trading day
      before the public announcement of the signing of the merger agreement.

    o CONDITIONS TO CLOSING. The absence of a financing condition to the merger
      and the perceived ability of Merge Technologies to fund the aggregate
      merger consideration were considered to make consummation of the merger
      more likely.

    o ABILITY TO ACCEPT A SUPERIOR PROPOSAL. The provisions of the merger
      agreement that permit the board of directors to consider an unsolicited
      superior proposal were deemed necessary to enable the board of directors
      to comply with its fiduciary duties to the shareholders of AccuImage.

    o INDEPENDENCE RISKS. The board of directors believed that a sale to Merge
      Technologies was more favorable to our shareholders than remaining
      independent based on the potential value of such alternative and the risks
      associated with remaining independent. The main strategic and operational
      risks associated with AccuImage remaining independent include:

    - Risks associated with increased competition and generating revenue growth;

      Risks associated with the costs of complying with the reporting
      requirements of the Securities Exchange Act of 1934, as amended, including
      the costs of compliance with applicable provisions of the Sarbanes-Oxley
      Act of 2002;

    - Risks associated with executing our business plan while achieving
      profitability; and

    - Risks associated with liquidity and funding available to AccuImage.

     In determining that a sale to Merge Technologies was more favorable to our
     shareholders than remaining independent, the board of directors considered
     the merger consideration offered by Merge Technologies as compared to the
     range of potential value of AccuImage in the event AccuImage remained
     independent, as well as the board of directors' perception that the risk
     associated with consummating the sale to Merge Technologies was lower than
     the risks associated with achieving a competitive value through AccuImage
     remaining independent.

    o LIQUIDITY FOR SHAREHOLDERS. The liquidity being made available to our
      shareholders, was deemed an attractive feature of the merger.

    o PROCEDURAL FAIRNESS. The board of directors concluded that AccuImage
      conducted a fair and thorough process for evaluating the strategic
      alternatives and the offer received by AccuImage and for ensuring that all
      reasonable alternatives and likely acquisition candidates were pursued.
      The board of directors considered the prospects for AccuImage should it
      remain independent and discussed the likelihood of obtaining any superior
      offer in light of the few likely acquisition candidates and the fact that
      AccuImage had discussed strategic alternatives with many of those parties
      without receiving any indications of interest in an acquisition of
      AccuImage.


                                      -19-


<PAGE>


    o NEGATIVE FACTORS. Our board of directors also identified and considered in
      its deliberations the following potentially negative factors relating to
      the merger agreement, the merger and the other transactions contemplated
      by the merger agreement, but concluded that these factors were acceptable
      in light of the foregoing positive reasons for pursuing the merger.

    - DISRUPTIONS. The possible disruption to our businesses that may result
      from the announcement of the transaction and the resulting distraction of
      management attention from the day-to-day operations of our businesses.

    - TERMINATION FEE. The termination fee to be paid by AccuImage to Merge
      Technologies in cash if the merger agreement is terminated under certain
      circumstances specified in the merger agreement.

         Although the foregoing discussion sets forth the material factors
considered by our board of directors in reaching its recommendation, it may not
include all of the factors considered by each member of the board of directors,
and each director may have considered different factors. In view of the variety
of factors and the amount of information considered, the board of directors did
not find it practicable to, and did not, make specific assessments of, quantify
or otherwise assign relative weights to the specific factors considered in
reaching its determination. The determination was made after consideration of
all of the factors as a whole.

         BASED UPON THE FOREGOING CONSIDERATIONS, THE BOARD OF DIRECTORS HAS
UNANIMOUSLY DETERMINED THAT THE MERGER AGREEMENT, THE MERGER AND THE OTHER
TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT ARE ADVISABLE AND FAIR TO AND
IN THE BEST INTERESTS OF OUR SHAREHOLDERS. ACCORDINGLY, THE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THE MERGER
AGREEMENT.

INTERESTS OF ACCUIMAGE'S DIRECTORS AND EXECUTIVE OFFICERS IN THE MERGER

         In addition to their interests in the merger as shareholders, certain
of our directors and executive officers have interests in the merger that differ
from, or are in addition to, your interests as a shareholder. In considering the
recommendation of our board of directors to vote "FOR" the approval and adoption
of the merger agreement and the transactions contemplated by the merger
agreement, you should be aware of these interests. Our board of directors was
aware of, and considered the interests of, our directors and executive officers
in approving the merger agreement, the merger and the other transactions
contemplated by the merger agreement. All interests are described below, to the
extent material, and except as described below, such persons have, to our
knowledge, no material interest in the merger that differ from your interests
generally.

      STOCK OPTIONS AND WARRANTS. All of our directors and executive officers
hold options and/or warrants exercisable for shares of our common stock. The
merger agreement provides that, as a condition to Merge Technologies' obligation
to close the merger, all options and warrants for shares of our common stock
must be terminated or otherwise resolved in a manner reasonably satisfactory to
Merge Technologies. No options or warrants will be converted into the right to
receive a portion of the merger consideration (unless they are exercised prior
to closing of the merger). Unless otherwise modified, such options and warrants
will remain outstanding unaffected by the merger.

        CONSULTING AGREEMENT. The merger agreement provides that at the closing
of the merger, Merge Technologies and Dr. Faliks will enter into a consulting
agreement in the form attached hereto as ANNEX D. The consulting period is for a
term commencing on the date of the closing of the merger and, unless terminated
earlier, expiring on December 31, 2007. Under the consulting agreement Dr.
Faliks is to perform certain sales and business development and consultative
services and to hold himself available at reasonable times to consult with
officers, directors and representatives of Merge Technologies for a transition
period of 120 days following closing of the merger. Dr. Faliks may perform
additional services during the transition period and may perform services on
behalf of Merge Technologies after the expiration of the transition period,
through the remaining term of the consulting agreement. Under the consulting
agreement, Dr. Faliks is entitled to receive 15% of the amount by which
AccuImage's Software Product Revenues (as defined in the consulting agreement)
exceed $1,000,000 in any calendar year for years 2005, 2006 and 2007.
AccuImage's revenue for any fiscal year 2004 was approximately $550,000, meaning
that Dr. Faliks will receive payment under the consulting agreement only if
Merge Technologies, with the assistance of Dr. Faliks, can roughly double our
recent annual revenues. Under the consulting agreement, Dr. Faliks is also
entitled to be reimbursed for certain out-of-pocket expenses incurred by Dr.
Faliks in performing services under the consulting agreement.

         THE VOTING AGREEMENT. Dr. Faliks also entered into the voting agreement
with Merge Technologies pursuant to which he has agreed, among other things, to
vote his shares of AccuImage common stock in favor of the merger agreement. See
"Voting Agreement" on page [ ].


                                      -20-


<PAGE>


APPRAISAL RIGHTS

         Our stockholders have dissenters' rights under Nevada law to demand
fair value of their shares in connection with the merger. The discussion of the
provisions of Nevada law set forth below is not a complete summary regarding
your dissenters' rights under Nevada law and is qualified in its entirety by
reference to the text of the relevant provisions of Nevada law, which are
attached to this proxy statement as Annex B. Shareholders intending to exercise
dissenters' rights should carefully review Annex B. Failure to follow precisely
any of the statutory procedures set forth in Annex B may result in a termination
or waiver of these rights.

         If the merger is completed, holders of our common stock who follow the
procedures specified in Nevada Revised Statutes Sections 92A.300 to 92A.500,
inclusive, within the appropriate time periods will be entitled to have their
shares of our common stock appraised by a court and to receive the "fair value"
of such shares in cash as determined by the Nevada courts in lieu of the
consideration that such shareholder would otherwise be entitled to receive
pursuant to the merger agreement.

         The following is a brief summary of the Nevada Revised Statutes
Sections 92A.300 to 92A. 500, inclusive, which sets forth the procedures for
demanding statutory dissenters' rights. Failure to follow the procedures set
forth in the Nevada Revised Statutes precisely could result in the loss of
dissenters' rights. This proxy statement constitutes notice to holders of our
common stock concerning the availability of dissenters' rights under the Nevada
Revised Statutes. Shareholders wishing to assert dissenters' rights must be
record holders of their shares on the date of making a demand for dissenters'
rights with respect to such shares and must continuously hold such shares of
record through the effective time of the merger.

         Shareholders who desire to exercise their dissenters' rights must
satisfy all of the conditions set forth in the Nevada Revised Statutes. A
written notice of intent to demand payment for his, her or its shares must be
filed with us before a vote is taken on the merger at the special meeting on [
], 2005. This written notice of intent to demand payment must be in addition to,
and separate from, a vote against the merger. Shareholders electing to exercise
their dissenters' rights must not vote in favor of the merger. Any proxy or vote
against the merger will not constitute a demand for dissenters' rights within
the meaning of NRS Section 92A.420.

         Shareholders that elect to exercise dissenters' rights should mail or
deliver their written notice of intent to demand payment to us at our address at
400 Oyster Point Boulevard, Suite 100, South San Francisco, California 94080,
Attention: Chief Executive Officer. Such written demand must be received by us
prior to the time a vote is taken on the merger at the special meeting on
January [ ], 2005. The notice of intent to demand payment should specify the
shareholder's name and mailing address, and that the shareholder is demanding
dissenters' rights for his, her or its common stock of AccuImage by such notice.

         Pursuant to NRS Section 92A.430, we will send a dissenters' notice no
later than ten days after the effectuation of the corporate action to all of our
shareholders who have complied with NRS Section 92A.420 and have not voted for
the merger, which will include the following: (i) where the demand for payment
must be sent and where and when certificates, if any, for shares must be
deposited, (ii) in the case of holders of shares not represented by
certificates, to what extent the transfer of shares will be restricted after the
demand for payment is received, (iii) a form for demanded payment that requires
the shareholder asserting dissenters' rights to certify whether or not he, she
or it acquired beneficial ownership prior to the date of the first announcement
to the shareholders of the terms of the proposed action, (iv) a date by which we
must receive the demand for payment, which may not be less than 30 nor more than
60 days after the notice is delivered and (v) a copy of the NRS Sections 92A.300
to 92A.500, inclusive.

         Pursuant to NRS Section 92A.440, a shareholder who elects to exercise
dissenters' rights must then send us a demand for payment, certify whether the
dissenter acquired beneficial ownership of his, her or its shares prior to the
date of the first announcement to the shareholders of the terms of the proposed
merger and deposit certificates, if any.

         Within 30 days after receipt of a demand for payment, we must pay each
dissenter who complied with NRS Section 92A.440 the amount we estimate to be the
fair value of his, her or its shares, plus accrued interest. A dissenter may
reject our estimation of fair value under NRS Section 92A.480 by notifying us in
writing, within 30 days of our offer of payment, of his, her or its own
estimation of the fair value of the shares and the amount of accrued interest
due.

         If a demand for payment remains unsettled, we must commence a
proceeding within 60 days after receiving the demand and petition the court to
determine the fair value of the shares and accrued interest. If we fail to
commence such proceedings within the 60-day period, we must pay each dissenter
whose demand remains unsettled the amount demanded.


                                      -21-


<PAGE>


         Failure by any holder of our common stock to comply fully with the
procedures set forth in Annex B to this proxy statement may result in
termination of such shareholder's dissenters' rights.

         Under the merger agreement, Merge Technologies and AccuImage will not
be obligated to effect the merger and the transactions contemplated by the
merger agreement if shareholders holding more than 5% of our outstanding shares
of common stock have exercised their dissenters' rights under Nevada law and not
waived such rights prior to closing of the merger.


SOURCE OF FUNDS

         The merger is not conditioned upon Merge Technologies' ability to
obtain financing. Pursuant to the merger agreement, approximately $6,000,000
will be required to provide the consideration for shares of our common stock.
Such funds will be provided from Merge Technologies' or its affiliate(s)'
existing cash reserves.

DELISTING AND DEREGISTRATION OF OUR COMMON STOCK
         If the merger is completed, our common stock will be delisted from the
NASD OTC Bulletin Board and will be deregistered under the Securities Exchange
Act of 1934, as amended, as soon as practicable following the effective time of
the merger.

MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER

         The following discussion summarizes the material United States federal
income tax consequences of the merger relevant to our shareholders who hold
their AccuImage common stock as capital assets. This summary is based upon the
provisions of the Internal Revenue Code of 1986, as amended, applicable current
and proposed United States Treasury Regulations, judicial authority and
administrative rulings and practice, all of which are subject to change,
possibly on a retroactive basis, at any time. This discussion does not address
all aspects of United States federal income taxation that may be relevant to a
particular AccuImage shareholder in light of that shareholder's particular
circumstances, or to an AccuImage shareholder subject to special treatment under
the United States federal income tax laws. This discussion may not be applicable
to certain types of shareholders, including partnerships (or entities treated as
partnerships for U.S. federal income tax purposes) and shareholders who acquired
AccuImage shares pursuant to the exercise of employee stock options or otherwise
as compensation. Moreover, the tax consequences to holders of AccuImage stock
options are not discussed. If a partnership holds shares of our common stock,
the tax treatment of a partner generally will depend on the status of the
partner and on the activities of the partnership. Partners of partnerships
holding our common stock are encouraged to consult their tax advisors. In
addition, the discussion does not address any aspect of foreign, state or local
taxation or estate and gift taxation that may be applicable to AccuImage
shareholders.

         CONSEQUENCES OF THE MERGER TO U.S. HOLDERS. The following discussion
applies to AccuImage shareholders who are "U.S. holders". A "U.S. holder" means
a citizen or resident of the United States; a corporation (or other entity
treated as a corporation for U.S. federal income tax purposes) organized or
created in the United States or under laws of the United States or any political
subdivision thereof; an estate, the income of which is subject to federal income
tax regardless of its source; or a trust (i) with respect to which a court
within the United States is able to exercise primary supervision over its
administration and one or more U.S. persons have the authority to control all of
the substantial decisions of the trust or (ii) that has a valid election to be
treated as a U.S. person.

         The receipt of cash in exchange for shares of our common stock in the
merger or pursuant to the exercise of appraisal rights will be a taxable
transaction for U.S. federal income tax purposes. In general, an AccuImage
shareholder will recognize gain or loss for federal income tax purposes equal to
the difference between the amount of cash received in exchange for the shares of
AccuImage common stock and that shareholder's adjusted tax basis in such shares.
That gain or loss will be capital gain or loss. The capital gain or loss will be
long-term if the shareholder will have held the shares for more than twelve
months at the time of the merger. Gain or loss will be calculated separately for
each block of shares of common stock, with a "block" consisting of shares
acquired at the same cost in a single transaction. For federal income tax
purposes, the highest marginal tax rate for individuals on ordinary income is
35%, compared to 15% for capital gains on assets held more than twelve months.
The highest marginal tax rate for corporations for federal income tax purposes
is 35% on ordinary income and capital gain. There are limitations on the
deductibility of capital losses.

         CONSEQUENCES OF THE MERGER TO NON-U.S. HOLDERS. The following
discussion applies to AccuImage shareholders who are "non-U.S. holders." A
"non-U.S. holder" is a person or entity that is not a "U.S. holder."


                                      -22-


<PAGE>


         A non-U.S. holder generally will not be subject to U.S. federal income
tax on any gain realized on the disposition of AccuImage common stock in the
merger unless:

  o the non-U.S. holder is an individual who is present in the United States for
    183 days or more in the taxable year in which the merger occurs and specific
    other conditions are met; or

  o the gain is effectively connected with the conduct of a trade or business in
    the United States of the non-U.S. holder, subject to an applicable treaty
    providing otherwise.

         An individual who is present in the United States for 183 days or more
in the taxable year in which the AccuImage common stock is disposed of in the
merger is encouraged to consult his or her own tax advisor regarding the U.S.
federal income tax consequences of the merger.

         BACKUP TAX WITHHOLDING. Certain non-corporate shareholders may be
subject to backup withholding at a 28% rate on cash payments received in
exchange for AccuImage shares in the merger or received upon the exercise of
appraisal rights. Backup withholding generally will apply only if the
shareholder fails to furnish a correct social security number or other taxpayer
identification number, or otherwise fails to comply with applicable backup
withholding rules and certification requirements. Corporations in certain
circumstances are generally exempt from backup withholding. Each non-corporate
shareholder should complete and sign the substitute Form W-9 that will be part
of the letter of transmittal to be returned to the paying agent in order to
provide the information and certification necessary to avoid backup withholding,
unless an applicable exemption exists and is otherwise proved in a manner
satisfactory to the paying agent. The exemptions provide that certain AccuImage
shareholders are not subject to these backup withholding requirements. In order
for a foreign individual to qualify as an exempt recipient, however, he or she
must submit a signed statement (such as a Certificate of Foreign Status on Form
W-8) attesting to his or her exempt status. Any amounts withheld under the
backup withholding tax rules from a payment to a shareholder will be allowed as
a refund or credit against the shareholder's U.S. federal income tax liability,
provided that the required procedures are followed.

         THIS FEDERAL INCOME TAX DISCUSSION IS INCLUDED FOR GENERAL INFORMATION
ONLY AND IS BASED UPON PRESENT LAW. OUR SHAREHOLDERS ARE URGED TO CONSULT THEIR
TAX ADVISORS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO
THEM, INCLUDING THE APPLICATION AND EFFECT OF THE ALTERNATIVE MINIMUM TAX AND
STATE, LOCAL AND FOREIGN TAX LAWS.

PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS

         Other than as described in "-- Background of the Merger," AccuImage and
Merge Technologies have not had any past contacts, transactions or negotiations.


                                      -23-


<PAGE>


                              THE MERGER AGREEMENT


         THE FOLLOWING DESCRIPTION SUMMARIZES THE MATERIAL PROVISIONS OF THE
MERGER AGREEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE COMPLETE
TEXT OF THE MERGER AGREEMENT. THE COMPLETE TEXT OF THE MERGER AGREEMENT IS
INCLUDED IN THIS PROXY STATEMENT AS ANNEX A, AND YOU SHOULD READ IT CAREFULLY
AND IN ITS ENTIRETY.

FORM OF THE MERGER

         Subject to the terms and conditions of the merger agreement and in
accordance with Nevada law, at the effective time of the merger, ADI Acquisition
Corp., a wholly owned subsidiary of Merge Technologies and a party to the merger
agreement, will merge with and into AccuImage, and each issued and outstanding
share of common stock, par value $0.01 per share, of ADI Acquisition Corp. will
be converted into one validly issued, fully paid and nonassessable share of
common stock of the surviving corporation. AccuImage will survive the merger as
a wholly owned Nevada subsidiary of Merge Technologies. The merger will have the
effects set forth in the merger agreement and in the Nevada General Corporation
Law.

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 Nevada. The term "effective
time" will mean the date and time at which the certificate of merger is accepted
for recording. The filing of the certificate of merger will occur on the date of
the closing, which will be the second business day after satisfaction or waiver
of the conditions to the merger described in the merger agreement or at such
other time as Merge Technologies and AccuImage agree.

DIRECTORS AND OFFICERS OF SURVIVING CORPORATION

         The directors and officers of ADI Acquisition Corp. in office
immediately prior to the effective time of the merger will be the directors and
officers of the surviving corporation. The directors and officers will serve in
accordance with the bylaws of the surviving corporation until their respective
successors are duly elected or appointed and qualified.

MERGER CONSIDERATION

         The maximum aggregate merger consideration is $6,000,000, subject to
adjustment in accordance with the merger agreement. Upon completion of the
merger, each share of our common stock issued and outstanding immediately prior
to the effective time, other than shares held by ADI Acquisition Corp. or any
other direct or indirect subsidiary of Merge Technologies or by us or any of our
direct or indirect subsidiaries, in each case not held on behalf of third
parties, and (i) shares owned by Merge Technologies and (ii) shares held by
shareholders who perfect and exercise their appraisal rights, will be converted
into the right to receive the proportionate share of the merger consideration,
in cash, without interest. The $6,000,000 aggregate merger consideration, and
the resulting per share amount of approximately $0.12 per share, could be
adjusted downward on a dollar-for-dollar basis to the extent that the negative
balance of our Net Asset Value on the closing date of the merger exceeds
$220,168. For purposes of this computation, "Net Asset Value" means our total
assets minus total liabilities determined in accordance with U.S. generally
accepted accounting principals, as in effect on November 24, 2004, except that,
for purposes of computing our Net Asset Value, the following will be excluded:
(i) cash received upon exercise of stock options on shares of AccuImage common
stock, (ii) up to $80,000 of legal fees incurred by AccuImage in connection with
the merger, and (iii) up to $40,000 per full calendar month in operating losses
of AccuImage incurred in the ordinary course of business from and after October
1, 2004, pro rated to the closing of the merger.

         There were 48,336,295 shares of our common stock outstanding as of the
record date. Should that number of shares remaining outstanding as of the
closing date of the merger remain the same and should there be no adjustment
based on our Net Asset Value, each of our shares would be converted into the
right to receive approximately $0.12 in cash, without interest. The actual per
share amount could be reduced should any of the outstanding stock options on our
common stock be exercised prior to closing of the merger or if the negative
balance of our Net Asset Value exceeds $220,168. The approximate $0.12 per share
in merger consideration is management's estimate of the per share merger
consideration after considering the likelihood of exercise of stock options or
warrants and bearing in mind the potential downward adjustment based on our Net
Asset Value on the closing date of the merger. However, no assurance can be
given that there will not be a greater adjustment resulting in a lower per share
merger consideration.


                                      -24-


<PAGE>


         Treasury shares held by us as well as shares owned by any of our
wholly-owned subsidiaries and shares owned by Merge Technologies, ADI
Acquisition Corp. or any other direct or indirect subsidiary of Merge
Technologies, will be cancelled as of the effective time of the merger, and no
payment, capital stock of Merge Technologies or other consideration will be
delivered in exchange for such shares.

         Upon completion of the merger, no shares of our common stock will
remain outstanding and all such shares will automatically be cancelled and
retired and you (unless you have perfected and exercised your appraisal rights)
will cease to have any rights as a shareholder, except the right to receive
approximately $0.12 per share in cash, without interest. Our shareholders will
receive the merger consideration after exchanging their AccuImage stock
certificates in accordance with the instructions contained in the letter of
transmittal to be sent to our shareholders as soon as practicable after the
effective time of the merger. The merger consideration of $6,000,000 was
determined through arm's-length negotiations between Merge Technologies and us.

EFFECT ON STOCK OPTIONS AND WARRANTS

         Each option or warrant our shares of AccuImage common stock that is
issued and outstanding and that is vested and exercisable prior to the effective
time of the merger may be exercised prior to the effective time in accordance
with the terms of such option and the stock option plan, if applicable. The
merger agreement provides that, as a condition to Merge Technologies' obligation
to close the merger, all options and warrants for shares of our common stock
must be resolved in a manner reasonably satisfactory to Merge Technologies.
AccuImage plans on discussing termination of options and warrants with all
holders of options and warrants and AccuImage and Merge Technologies plan on
discussing replacement of Merge Technologies options for existing AccuImage
options with those AccuImage employees who will be offered employment by Merge
Technologies. No options or warrants will be converted into the right to receive
a portion of the merger consideration (unless they are exercised prior to
closing of the merger). Unless otherwise modified, such options and warrants
will remain outstanding unaffected by the merger.

EXCHANGE OF SHARES FOR CASH; PROCEDURES FOR SUBMITTING CERTIFICATES

         Your right to receive approximately $0.12 per share in cash, without
interest, will occur automatically at the effective time of the merger, unless
you perfect and exercise your appraisal rights. As soon as practicable after the
effective time of the merger, the transfer agent will mail to each record holder
of a certificate or certificates that immediately prior to the effective time of
the merger represented outstanding shares of our common stock converted in the
merger (i) a letter of transmittal, (ii) instructions for use in effecting the
surrender of the stock certificate or stock certificates representing shares of
our common stock in exchange for cash and (iii) a Form W-9 to establish
available exemptions from back-up withholding. The letter of transmittal will
specify that delivery will be affected, and risk of loss and title to the
certificates representing shares of our common stock will pass, only upon actual
delivery of the certificates to the paying agent. You should not return your
stock certificates with the enclosed proxy.

         Upon surrender to the transfer agent of a stock certificate
representing shares of our common stock, together with a duly executed letter of
transmittal and any other documents that may be reasonably required by the
paying agent, you will be entitled to receive from the paying agent, on behalf
of Merge Technologies, approximately $0.12 in cash, without interest, for each
share represented by the stock certificate, and the certificate surrendered will
be cancelled.

         In the event of a transfer of ownership of our common stock that is not
registered in our records, the cash consideration for shares of our common stock
may be paid to a person other than the person in whose name the surrendered
certificate is registered if:

    o the certificate is properly endorsed or otherwise is in proper form for
      transfer; and

    o the person requesting such payment either:

    o pays to the transfer agent any taxes required by reason of the payment to
      a person other than the registered holder of the surrendered certificate;
      or

    o establishes to the satisfaction of the transfer agent that the tax has
      been paid or is not applicable.


                                      -25-


<PAGE>



      The cash paid to you upon conversion of your shares of our common stock
will be issued in full satisfaction of all rights relating to the shares of our
common stock.

      If your stock certificate has been lost, stolen or destroyed, the transfer
agent will deliver to you the applicable merger consideration for the shares
represented by that certificate if:

    o you deliver an affidavit to us certifying that such certificate has been
      lost, stolen or destroyed; and

    o if requested by Merge Technologies or the paying agent, you post a bond,
      in such reasonable amount as Merge Technologies or the transfer agent, as
      applicable, may direct as indemnity against any claim that may be made
      against them with respect to the certificate alleged to have been lost,
      stolen or destroyed.

      Six months after the effective time of the merger, the transfer agent will
deliver to Merge Technologies any portion of the merger consideration that
remains undistributed to our former shareholders. After the expiration of the
six-month period, each holder of a certificate representing shares of our common
stock may surrender the certificate to Merge Technologies and receive the
aggregate merger consideration payable in exchange for the certificate, without
interest. However, neither Merge Technologies nor the surviving corporation will
be liable to any former holder of our common stock for any portion of the merger
consideration delivered to a public official pursuant to applicable abandoned
property, escheat and similar laws.

CONDITIONS TO THE MERGER

      The obligation of Merge Technologies and ADI Acquisition Corp. to effect
the merger are subject to the fulfillment or waiver, in Merge Technologies' sole
discretion, at or prior to the effective time of the merger, of the following
conditions:

     o    Since the date of the merger agreement, there must have been no
          material adverse change in our business, operations or prospects;

     o    There must not have been any material adjustments in our 2003
          financial performance (revenues and net income) or our year to date
          2004;

     o    There must not have been any material adverse changes in our balance
          sheet between November 24, 2004 and the closing of the merger;

     o    We must obtain all required consents to change in control of AccuImage
          and the assignment of certain of our contracts;

     o    Merge Technologies must secure employment including non-competition
          provisions with certain of our employees at a compensation level
          consistent with similarly situated employees of Merge Technologies;

     o    Merge Technologies must have satisfied itself that all of our
          employees have executed confidentiality and employee invention
          agreements in form satisfactory to Merge Technologies;

     o    Dr. Faliks or AccuImage, as the case may be, must deliver to Merge
          Technologies, certain agreements, instruments or documents described
          in the merger agreement;

     o    We must deliver to Merge Technologies an opinion of counsel dated as
          of the closing date from Morris Manning & Martin LLP, with respect to
          the matters set forth in the merger agreement;

     o    Each of the representations and warranties of AccuImage and Dr. Faliks
          set forth in the merger agreement must, individually and collectively,
          be true and correct in all material respects at and as of the closing
          date and we must deliver a certificate to such effect;

     o    We and Dr. Faliks must have performed and complied with all of our
          covenants and obligations under the merger agreement in all material
          respects through the closing date;


                                      -26-


<PAGE>


     o    There cannot be any action, suit or proceeding pending or threatened
          before any court or quasi-judicial or administrative agency of any
          federal, state, local or foreign jurisdiction or before any arbitrator
          wherein an unfavorable injunction, judgment, order, decree, ruling or
          charge would (i) prevent consummation of any of the transactions
          contemplated by the merger agreement, (ii) cause any of the
          transactions contemplated by the merger agreement to be interfered
          with, prevented, delayed or rescinded following consummation, (iii)
          affect materially and adversely the right of Merge Technologies
          following the closing date to control AccuImage as survivor of the
          merger or (iv) affect materially and adversely, including through the
          imposition of any divestiture requirement, the right of AccuImage to
          own its assets or to operate its business as presently operated and as
          presently proposed to be operated (and no such injunction, judgment,
          order, decree, ruling or charge will be in effect);

     o    There cannot have been made or threatened by any person other than as
          disclosed on our stock transfer records, any claim asserting that such
          person (i) is the holder or the beneficial owner of or has the right
          to acquire or to obtain beneficial ownership of, any stock of, or any
          other equity, voting or ownership interest in, AccuImage, or (ii) is
          entitled to all or any portion of the merger consideration payable in
          an amount that exceeds $25,000;

     o    All actions we and Dr. Faliks must take in connection with
          consummation of the transactions contemplated by the merger agreement,
          and all certificates, instruments and other documents required to
          effect the transactions contemplated by the merger agreement, must be
          reasonably satisfactory in form and substance to Merge Technologies;

     o    Holders of more than 5% of the shares of our common stock issued and
          outstanding immediately prior to the effective time of the merger must
          not have properly demanded an appraisal of their shares under Nevada
          law prior to the closing of the merger;

     o    All of our outstanding options and warrants must be resolved in a
          manner reasonably satisfactory to Merge Technologies;

     o    We must terminate our consulting arrangement with Health Care
          Technology Group on or before December 15, 2004; and

     o    We must enter into a consulting or similar agreement with Leon Kaufman
          covering the period since expiration of his prior agreement with us on
          the same terms and conditions as such prior agreement.

     The obligations of AccuImage and Dr. Faliks to effect the merger are
subject to the fulfillment or waiver at or prior to the effective time, of the
following conditions:

     o    Each of the representations and warranties of Merge Technologies set
          forth in the Merger Agreement must be true and correct in all material
          respects at and as of the closing date;

     o    Merge Technologies must have performed and complied with all of its
          covenants under the merger agreement in all respects through the
          closing date;

     o    There cannot be any action, suit or proceeding pending or threatened
          before any court or quasi-judicial or administrative agency of any
          federal, state, local or foreign jurisdiction or before any arbitrator
          wherein an unfavorable injunction, judgment, order, decree, ruling or
          charge would (i) prevent consummation of any of the transactions
          contemplated by the Merger Agreement or (ii) cause any of the
          transactions contemplated by the merger agreement to be rescinded
          following consummation;

     o    Merge Technologies must deliver a certificate to the effect that each
          of the conditions specified above is satisfied in all respects;

     o    Merge Technologies must have delivered the merger consideration due at
          closing to the transfer agent and $1,000,000 of the merger
          consideration otherwise payable to Dr. Faliks to the escrow agent;

     o    Merge Technologies must have delivered to us and to Dr. Faliks an
          opinion of counsel dated as of the closing date from counsel for Merge
          Technologies with respect to certain matters;


                                      -27-


<PAGE>


     o    Merge Technologies must execute and deliver the consulting agreement;

     o    Holders of more than 5% of the shares of our common stock issued and
          outstanding immediately prior to the effective time of the merger must
          not have properly demanded an appraisal of their shares under Nevada
          law prior to the closing of the merger; and

     o    Our shareholders must have approved the merger at the special meeting.

TERMINATION OF THE MERGER AGREEMENT

      The merger agreement may be terminated at any time prior to the closing of
the merger, whether before or after any approval of the matters presented in
connection with the merger by our shareholders: o By mutual written consent of
Merge Technologies and us;

     o    By either us or Merge Technologies, if (i) the merger has not been
          consummated prior to March 31, 2005, (ii) there is a final and
          non-appealable court order permanently enjoining, restraining or
          otherwise prohibiting the consummation of the merger; (iii) our board
          of directors has adversely modified or withdrawn its recommendation,
          approval or adoption of the merger or the merger agreement, or has
          resolved to do so; (iv) our board of directors recommends to our
          shareholders any acquisition proposal involving us by a third party or
          has resolved to do so; or (v) our shareholders do not approve the
          merger agreement;

     o    By us, if there has been a material breach by Merge Technologies of
          any representation, warranty, covenant or agreement contained in the
          merger agreement which cannot be cured prior to March 31, 2005; and

     o    By Merge Technologies, if there has been a breach by us or Dr. Faliks
          of any representation, warranty, covenant or agreement contained in
          the merger agreement which (i) would result in a material adverse
          change in AccuImage or a material adjustment to our financial
          performance, and (ii) cannot be cured prior to March 31, 2005.


                                      -28-


<PAGE>


EXPENSES AND FEES

      We must pay to Merge Technologies a termination fee in cash if the merger
agreement is terminated for any of the following reasons and an acquisition
proposal is consummated or we enter into a definitive agreement with respect to
an acquisition proposal, in either case within twenty four months after the
termination of the merger agreement:

     o    by either us or Merge Technologies after (i) our board of directors
          has withdrawn or adversely modified its recommendation, approval or
          adoption of the merger or the merger agreement, or has resolved to do
          so; or (ii) our board of directors approves or recommends to our
          shareholders any acquisition proposal, or has resolved to do so. This
          type of termination is referred to as a "termination upon board
          withdrawal."

     o    by either us or Merge Technologies after the merger fails to receive
          approval by the requisite vote of our shareholders at the special
          meeting. This type of termination is referred to as a "termination
          upon insufficient vote."

     o    by Merge Technologies after we breach any representation, warranty
          covenant or agreement contained in the merger agreement which (i)
          would result in a material adverse change in AccuImage or a material
          adjustment to our financial performance, and (ii) cannot be cured
          prior to March 31, 2005. This type of termination is referred to as a
          "termination upon breach."

       Under the merger agreement:

     o    the term "acquisition proposal" generally means any offer or proposal
          by any third party concerning a merger, consolidation or other
          business combination involving us or any of our subsidiaries or any
          proposal or offer to acquire in any manner, directly or indirectly, a
          15% or greater equity interest in, 15% or more of the voting
          securities of, or 15% or more of the assets of, us or any of our
          subsidiaries, other than the transactions contemplated by the merger
          agreement.

         The amount of the termination fee is the greater of (i) five percent
(5%) of the aggregate consideration received in the acquisition proposal or (ii)
twenty-five percent (25%) of the difference between the amount received in the
acquisition proposal and $6,000,000. In addition, if the merger agreement is
terminated by Merge Technologies as a result of a termination upon breach or is
terminated by us or by Merge Technologies (i) because the merger has not been
consummated by March 31, 2005, (ii) in a termination upon board withdrawal, or
(iii) in a termination upon insufficient vote, under circumstances where a
termination fee is not due, we must reimburse Merge Technologies its reasonable
expenses incurred in connection with the merger.

    Other than the termination fees and expense reimbursements described above,
the parties to the merger agreement will bear their respective costs and
expenses incurred in connection with the merger agreement, whether or not the
merger is consummated


NO SOLICITATION BY ACCUIMAGE

      We have agreed that, from the date of the merger agreement until the
earlier of the effective time of the merger or the date on which the merger
agreement is terminated in accordance with its terms, we (and our directors,
officers, employees and representatives) will not, directly or indirectly:

     o    solicit, initiate, encourage, knowingly facilitate or induce the
          submission of any acquisition proposal;

     o    participate or engage in any discussions or negotiations regarding, or
          furnish to any person any nonpublic information with respect to, or
          take any other action to facilitate any inquiries or the making of any
          proposal that constitutes, or may reasonably be expected to lead to,
          any acquisition proposal us;

     o    approve, endorse or recommend any acquisition proposal (except as
          required by the fiduciary duties of our board of directors);

     o    enter into any letter of intent or similar document or any agreement,
          commitment or understanding contemplating or otherwise relating to any
          acquisition proposal.


                                      -29-


<PAGE>


     In addition we have agreed to:


     o    immediately terminate all discussions or negotiations, if any, with
          any third party with respect to an acquisition proposal;

     o    demand that each person who has signed a confidentiality agreement
          with us since January 1, 2003, with respect to such person's
          consideration of a possible acquisition proposal to immediately
          destroy all confidential information furnished to such person by us;

     o    promptly provide Merge Technologies with information regarding any
          acquisition proposal, including the identity of the party making the
          acquisition proposal and the material terms of the acquisition
          proposal;

         The merger agreement also contains procedures to be followed should we
receive an acquisition proposal that is a "superior proposal". For purposes of
the merger agreement, the term "superior proposal" generally means any
transaction that, if consummated would result in a third party owning a majority
of AccuImage stock or assets which our board of directors, in good faith (after
consultation with a recognized financial advisor) to be more favorable to our
shareholders and reasonably capable of being consummated.

         The merger agreement provides that if we receive an acquisition
proposal that constitutes a "superior proposal", or which our board of directors
in good faith concludes could reasonably be expected to result in a superior
proposal, we will promptly provide Merge Technologies notice that we have
received a superior proposal and provide the identity of the party making the
superior proposal and the material terms of the superior proposal. We have
agreed that, if requested by Merge Technologies, we will negotiate in good faith
with Merge Technologies, for a period of not less than five business days after
we provide notice of the superior proposal, to revise the merger agreement so
that the acquisition proposal that constituted the superior proposal no longer
constitutes a superior proposal.

         If we receive a superior proposal, we may furnish non-public
information to and enter into discussions or negotiations with such third party
if (i) prior to furnishing such nonpublic information to, or entering into
discussions or negotiations with, such third party, our board of directors
receives from such third party an executed confidentiality agreement similar in
form and substance to the Confidentiality Agreement, dated September 22, 2004,
between Merge Technologies and us, (ii) we have provided Merge Technologies with
notice of the receipt of the superior proposal and (iii) contemporaneously with
furnishing such third party any nonpublic information, we furnish a copy of such
nonpublic information to Merge Technologies.

         If the superior proposal continues to be a superior proposal after
compliance with the notice and negotiation procedures set forth above, our board
of directors may withhold, withdraw or modify its approval and recommendation
relating to the merger agreement and the merger if (i) our shareholders have not
already approved the merger agreement and the merger at the special meeting, and
(ii) our board of directors has concluded in good faith (following receipt of
advice from its outside legal counsel) that, in light of the superior proposal,
the failure of the board of directors to effect a change in its recommendation
would result in a breach of its fiduciary obligations to our shareholders.
Furthermore, notwithstanding the limitations set forth above, nothing in the
merger agreement prevents us or our board of directors from complying with Rules
14-d(9) and 14-e(2) under the Securities Exchange Act of 1934, as amended, or
publicly disclosing the existence of an acquisition proposal involving us by a
third party to the extent required by applicable law.

REPRESENTATIONS AND WARRANTIES

      The merger agreement contains customary representations and warranties
made by us, Dr. Faliks and  Merge Technologies and ADI Acquisition Corp. to,
among other things:

     o    due organization, valid existence and good standing;

     o    approval of the merger agreement and power and authorization to enter
          into the transactions contemplated by the merger agreement;


                                      -30-


<PAGE>


     o    that no violations, conflicts or breaches of certain documents will be
          caused by the consummation of the transactions contemplated by the
          merger agreement;

     o    the governmental approvals, or other consents, if any, required in
          connection with the transactions contemplated by the merger agreement;

     In addition, the merger agreement contains representations and warranties
made by us as to, among other things:

     o    our capitalization;

     o    the delivery and accuracy of our filings with the Securities and
          Exchange Commission;

     o    the absence of undisclosed material liabilities;

     o    the absence of certain material adverse changes or events since the
          end of our most recent fiscal year;

     o    validity of our accounts receivable;

     o    tax matters and our material compliance with relevant tax laws;

     o    matters related to certain of our contracts.

     o    the leasehold interest and condition of our real estate;

     o    title to our property and assets;

     o    the ownership and use of our intellectual property;

     o    absence of litigation, actions and proceedings against us and our
          subsidiaries;

     o    our employee benefit plans and matters relating to the Employee
          Retirement Income Security Act of 1974, as amended;

     o    labor matters;

     o    environmental matters and our compliance with environmental laws;

     o    compliance with laws and absence of agreements, judgments or
          injunctions restricting the conduct of our business;

     o    our possession of licenses and permits and our material compliance
          with governmental regulations;

     o    the existence of our insurance policies;

     o    our bank accounts;


                                      -31-


<PAGE>


     o    the payment of brokers or similar fees;

     o    absence of illegal payments;

     o    the absence of notice of termination or modification of certain
          business relationships;

     o    the accruing of our books and records;

     o    our compliance with antitrust laws;

     o    the absence of product liability expense;

     o    the completeness and accuracy of the information supplied by us in
          relation to the merger agreement including representations and
          warranties;

     o    the maintenance of internal controls and disclosure controls and
          procedures required under the Securities Exchange Act of 1934, as
          amended; and

      In addition, the merger agreement contains representations and warranties
made by Merge Technologies and ADI Acquisition Corp. as to, among other things,
the lack of prior operations of ADI Acquisition Corp. and Merge Technologies
having sufficient funds to pay the aggregate merger consideration as required by
the merger agreement.

      The representations and warranties in the merger agreement are complicated
and not easily summarized. You are urged to read carefully and in their entirety
the sections of the merger agreement entitled "Representations and Warranties of
the Company" and "Representations and Warranties of Parent and Sub." The merger
agreement is attached to this proxy statement as ANNEX A.

COVENANTS UNDER THE MERGER AGREEMENT

      CONDUCT OF ACCUIMAGE BUSINESS. We have agreed in the merger agreement that
we will conduct our business in the ordinary course consistent with past
practices, use reasonable efforts to preserve our assets, relationships,
customers, clients and employees and to preserve for Merge Technologies the
integrity and reputation of AccuImage.

      In addition, we have agreed that we may not, without the prior written
consent of Merge Technologies, which consent may not be unreasonably withheld or
delayed:

     o    form or caused to be formed a subsidiary;

     o    make any change in executive management personnel

     o    purchase, redeem or otherwise acquire any shares of the capital stock
          of AccuImage or any of its subsidiaries, or any other securities of
          AccuImage or any of its subsidiaries, or any rights, warrants or
          options to acquire any such shares or other securities;

     o    enter into employment contracts or modify compensation;

     o    amend our articles of incorporation or bylaws;


                                      -32-


<PAGE>


     o    authorize, issue or sell, repurchase, or become committed to
          authorize, issue or sell, or repurchase any shares of capital stock or
          any rights or options to acquire capital stock;

     o    make any single expenditure in an amount exceeding $10,000, or
          expenditures which in the aggregate exceed $25,000, or agree to sell
          or encumber any of our assets except in the ordinary course of
          business;

     o    pay or declare any dividend to our shareholders;

     o    pay, declare or announce any capital distribution;

      OTHER COVENANTS. The merger agreement contains a number of affirmation
covenants on the part of us, including covenants relating to:

     o    giving all necessary notices and obtaining necessary consents;

     o    providing Merge Technologies with full access to our properties and
          business;

     o    providing Merge Technologies with notices of any material development
          affecting AccuImage;

     o    using our best efforts to secure new contracts with original equipment
          manufacturers and distributors on terms approved by Merge
          Technologies;

     o    holding a special meeting of shareholders for the purpose of
          considering the approval of the merger agreement;

     o    recommending to our shareholders, through our board of directors,
          approval and adoption of the merger agreement and the transactions
          contemplated by the merger agreement;

     o    preparing and mailing this proxy statement to our shareholders as soon
          as practicable after the date of the merger agreement;

     o    using our best efforts to locate and deliver to Merge Technologies
          certain missing records;

     o    using our best efforts to resolve, in a manner reasonably satisfactory
          to Merge Technologies, our outstanding options and warrants for shares
          our capital stock;

     o    committing or omitting to take any act which will cause a termination
          of or a breach or default under any contract to which we are bound;

     o    taking any action that could reasonably be expected to adversely
          affect our ability to perform the merger agreement;

     o    making any voluntary bankruptcy filing, an assignment for the benefit
          of others or any other similar action; or

     o    making any new tax election.

         The merger agreement contains additional covenants of the parties
relating to the period during or after the closing of the merger including:

     o    each parties' covenant to take actions reasonably represented as are
          necessary or desirable to carry out the purposes of the merger
          agreement;


                                      -33-


<PAGE>


     o    cooperation in contesting or defending lawsuits;

     o    preparation and filing of tax returns;

     o    Dr. Faliks' covenant not to disclose confidential information and not
          to compete with us for a 5 year period after the closing of the merge;

     o    Merge Technologies' covenant to cause us to repay the $1,000,000
          principal amount demand notes issued by us to Dr. Faliks;

      Dr. Faliks' agreement not to transfer, pledge or otherwise dispose of any
      shares of common stock of AccuImage held of record by him.

      For a discussion of the additional covenants relating to receipt of
acquisition proposals, see "The Merger -- Interests of AccuImage's Directors and
Executive Officers in the Merger -- No Solicitation by AccuImage" on
page [     ].

      The covenants in the merger agreement are complicated and not easily
summarized. You are urged to read carefully and in their entirety the sections
of the merger agreement entitled "Pre-Closing Covenants" and "Post Closing
Covenants." The merger agreement is attached to this proxy statement as ANNEX A.

AMENDMENT

     The merger agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties thereto.

ASSIGNMENT

      Neither the merger agreement nor any of the rights, interests or
obligations under the merger agreement may be assigned by any of the parties to
the merger agreement (whether by operation of law or otherwise) without the
prior written consent of the other parties; provided that Merge Technologies may
without consent assign its rights to any person acquiring all or substantially
all of the stock or assets of ADI Acquisition Corp. from Merge Technologies.


                                      -34-


<PAGE>


                                VOTING AGREEMENT


      THE FOLLOWING DESCRIPTION SUMMARIZES THE MATERIAL PROVISIONS OF THE VOTING
AGREEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE COMPLETE TEXT OF
THE VOTING AGREEMENT. A COPY OF THE VOTING AGREEMENT EXECUTED BY DR. FALIKS AND
MERGE TECHNOLOGIES IS INCLUDED IN THIS PROXY STATEMENT AS ANNEX C AND YOU SHOULD
READ IT CAREFULLY AND IN ITS ENTIRETY.

     As an inducement for Merge Technologies to enter into the merger agreement,
Dr. Faliks, entered into the voting agreement with Merge Technologies. At the
time the voting agreement was entered into, Dr. Faliks owned 34,050,000 shares
of our common stock, or approximately 59.4% of our shares then outstanding. On
December 13, 2004, Dr. Faliks contributed back to the company all 9,000,000
shares of common stock that he purchased or was granted during calendar year
2004. Merge Technologies and ADI Acquisition Corp. consented to that
contribution by Dr. Faliks. Dr. Faliks continues to beneficially own
approximately 51.8% of our common stock, and is also our Chairman, director,
President and Chief Executive Officer. Pursuant to the voting agreement, Dr.
Faliks has agreed, among other things, to vote or cause to be voted all shares
of our common stock over which he has voting power:

     o    in favor of approval and adoption of the merger agreement, the merger
          and the other transactions contemplated by the merger agreement; and

     o    against any agreements or any other action which is intended or could
          reasonably be expected to impede, interfere with, delay or adversely
          affect the merger and the other transactions contemplated by the
          merger agreement.

     Pursuant to the voting agreement, Dr. Faliks has granted to Merge
Technologies an irrevocable proxy to vote all of the shares owned by him in
accordance with the voting agreement on any matters which may be presented to
our shareholders with respect to the merger agreement, the merger, the other
transactions contemplated by the merger agreement or any takeover proposal
involving us by a third party and any other matters which could reasonably be
expected to impede, interfere, delay or adversely affect the merger and the
other transactions contemplated by the merger agreement.

      In connection with the voting agreement, Dr. Faliks further agreed not to
sell or transfer his shares of our common stock prior to the termination of the
voting agreement.

     The voting agreement and all obligations thereunder other than the option
described in the following paragraph terminate upon the termination of the
Merger Agreement.

     Under the voting agreement, Dr. Faliks granted to Merge Technologies an
option to purchase all, but not fewer than all, of the shares of AccuImage
common stock owned by Dr. Faliks, exercisable for a period of two years from the
date of termination of the merger agreement, at an exercise price per share
equal to ninety-five percent (95%) of the consideration that would have been
paid per share under the merger agreement. The option is exercisable only if the
merger agreement is terminated pursuant to certain designated provisions of the
merger agreement.


                                      -35-


<PAGE>


         SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT


      The following table indicates the beneficial ownership, as of the close of
business on [ ], 2004, of our common stock by (i) each person (or group of
persons who have agreed to act together with respect to such stock) who is known
by us to own beneficially 5% or more of the outstanding shares of our common
stock; (ii) each of our directors; (iii) our chief executive officer and each of
the other named executive officers; and (iv) our directors and executive
officers as a group. At such date, we knew of no person that beneficially owned
more than 5% of the outstanding shares of our common stock other than as set
forth below.

      The following table does not reflect that certain shares of common stock
may be deemed to be beneficially owned by Merge Technologies pursuant to the
voting agreement with Dr. Faliks. See "Voting Agreement" on page [ ].

     The information on beneficial ownership in the table and the footnotes
thereto is based upon AccuImage's records and the most recent Schedule 13D or
13G filed by each such person or entity and information supplied to the Company
by such person or entity. Unless otherwise indicated, each person has sole
voting power and sole investment power with respect to the shares shown.

                                                 AMOUNT AND NATURE
                  NAME & ADDRESS OF              OF BENEFICIAL        PERCENT
TITLE OF CLASS    BENEFICIAL OWNER(1)            OWNERSHIP (2)        OF CLASS
______________    ___________________            _________________    ________

Common Stock      Aviel Faliks, Ph.D             25,050,000           46.9(3)%

Common Stock      Joel L. Blank, Ph.D              -                     *

Common Stock      C. Allen Wall, M.D.             7,313,577(4)        13.7%

Common Stock      Chung Lew                       1,866,667(5)         3.5%

Common Stock      Leon Kaufman, Ph.D.               -                    *

Common Stock      Shelly Powers                     -                    *

Common Stock      Oscar Gils Carbo                  -                    *

Common Stock      Hirsch Handmaker, M.D.            -                    *

                  All Directors and Executive
Common Stock      Officers as a Group            27,784,167           52.0%

(*)      Less than 1.0%.
(1)      The address for each of the individuals listed, unless otherwise
         stated, is: 400 Oyster Point Boulevard, Suite 201, South San Francisco,
         California 94080.
(2)      As of the Record Date, 48,336,295 shares of common stock were
         outstanding and options and warrants on 5,075,830 shares were
         outstanding. Unless otherwise noted, the security ownership disclosed
         in this table is of record and beneficial. The term beneficial
         ownership with respect to a security is defined by Rule 13d-3 under the
         Securities Exchange Act of 1934 as consisting of sole or shared voting
         power (including the power to vote or direct the vote) and/or sole or
         shared investment power (including the power to dispose or direct the
         disposition) with respect to the security through any contact,
         arrangement, understanding, relationship, or otherwise. Stock warrants
         and options are exercised for AccuImage's common stock.
(3)      Dr. Faliks' beneficial ownership percentage for purposes of this table
         is less than 50% because computations include outstanding options and
         warrants. Dr. Faliks' ownership of shares entitled to vote as of the
         record date is 51.8%
(4)      Includes 3,000,000 shares owned directly, 3,378,577 owned by C. A. Wall
         Family Foundation, which is beneficially owned and controlled by Dr.
         Wall, and 935,000 vested stock options, as of September 30, 2004 or
         exercisable within 60 days thereafter.
(5)      Includes 1,500,000 shares owned directly and 300,000 warrants and
         66,667 vested stock options exercisable for common stock.


                                      -36-


<PAGE>


                                  OTHER MATTERS


      As of the date of this proxy statement, our board of directors knows of no
matters that will be presented for consideration at the special meeting other
than as described in this proxy statement. Should any other matter requiring a
vote of the shareholders arise, the persons named as proxies on the enclosed
proxy card will vote the shares represented thereby in accordance with their
best judgment.









                                      -37-


<PAGE>


                       WHERE YOU CAN FIND MORE INFORMATION


      We file annual, quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
any reports, statements or other information that AccuImage files with the
Securities and Exchange Commission at the Securities and Exchange Commission's
Public Reference Room, 450 Fifth Street, N.W., Washington, D.C. 20549. Please
call the Securities and Exchange Commission at 1-800-SEC-0330 for further
information on the operation of the Public Reference Room. These Securities and
Exchange Commission filings are also available to the public at the Internet
site maintained by the Securities and Exchange Commission at http://www.sec.gov.
Our Internet site address is http://www.AccuImage.com. However, any information
that is included on or linked to our Internet site is not a part of this proxy
statement.









                                      -38-


<PAGE>


                                     ANNEX A


================================================================================





                                MERGER AGREEMENT



                                  BY AND AMONG



                        MERGE TECHNOLOGIES INCORPORATED,

                             ADI ACQUISITION CORP.,

                           ACCUIMAGE DIAGNOSTICS CORP.

                                       AND


               THE PRINCIPAL SHAREHOLDER OF ACCUIMAGE DIAGNOSTICS
                                  CORPORATION







                                NOVEMBER 24, 2004





================================================================================


<PAGE>


                                TABLE OF CONTENTS

                                                                            PAGE




RECITALS......................................................................1

SECTION 1. DEFINITIONS........................................................1

SECTION 2. THE MERGER; CLOSING; EFFECTIVE TIME................................8

          2.1  THE MERGER.....................................................8

          2.2  CLOSING........................................................8

          2.3  EFFECTIVE TIME.................................................9

          2.4  CHARTER AND BYLAWS.............................................9

          2.5  DIRECTORS AND OFFICERS.........................................9

          2.6  EFFECT OF THE MERGER ON SHARES.................................9

          2.7  EXCHANGE OF SHARES FOR MERGER CONSIDERATION...................11

          2.8  ADJUSTMENT FOR CLOSING BALANCE SHEET..........................12

          2.9  HOLDBACK......................................................13

SECTION 3. REPRESENTATIONS AND WARRANTIES OF COMPANY AND THE
              PRINCIPAL SHAREHOLDER..........................................13

          3.1  ORGANIZATION..................................................13

          3.2  AUTHORIZATION OF TRANSACTION..................................13

          3.3  NONCONTRAVENTION; CONSENTS....................................14

          3.4  CAPITALIZATION................................................15

          3.5  FINANCIAL STATEMENTS; SEC FILINGS.............................16

          3.6  UNDISCLOSED LIABILITIES.......................................18

          3.7  SUBSEQUENT EVENTS.............................................19

          3.8  ACCOUNTS RECEIVABLE...........................................20

          3.9  TAX MATTERS...................................................20

          3.10 CONTRACTS.....................................................22

          3.11 REAL PROPERTY.................................................24

          3.12 INVENTORY.....................................................25

          3.13 TITLE AND RELATED MATTERS.....................................26

          3.14 INTELLECTUAL PROPERTY.........................................26

          3.15 LITIGATION....................................................27

          3.16 EMPLOYEE BENEFITS.............................................27


                                      -i-


<PAGE>


          3.17 LABOR RELATIONS; EMPLOYEES....................................29

          3.18 ENVIRONMENTAL MATTERS.........................................30

          3.19 LEGAL COMPLIANCE..............................................32

          3.20 PERMITS.......................................................32

          3.21 AFFILIATE AGREEMENTS..........................................33

          3.22 INSURANCE.....................................................33

          3.23 BANK ACCOUNTS AND POWERS......................................33

          3.24 BROKERS' FEES.................................................34

          3.25 CERTAIN PAYMENTS..............................................34

          3.26 CUSTOMER RELATIONSHIPS........................................34

          3.27 VENDORS.......................................................34

          3.28 BOARD APPROVAL................................................35

          3.29 BOOKS AND RECORDS.............................................35

          3.30 ANTITRUST LAW COMPLIANCE......................................35

          3.31 PRODUCT LIABILITY.............................................35

          3.32 FULL DISCLOSURE...............................................36

          3.33 INTERNAL CONTROL OVER FINANCIAL REPORTING.....................36

          3.34 COMPLIANCE WITH SOX...........................................36

SECTION 4. REPRESENTATIONS AND WARRANTIES OF MERGE...........................37

         4.1  ORGANIZATION...................................................37

         4.2  AUTHORIZATION OF TRANSACTION...................................37

         4.3  NONCONTRAVENTION; CONSENTS.....................................37

SECTION 5. PRE-CLOSING COVENANTS.............................................38

         5.1  GENERAL........................................................38

         5.2  NOTICES AND CONSENTS...........................................38

         5.3  CARRY ON IN ORDINARY COURSE....................................38

         5.4  NO DEFAULT.....................................................39

         5.5  FULL ACCESS....................................................40

         5.6  NOTICE OF DEVELOPMENTS.........................................40

         5.7  NO SOLICITATION OF TRANSACTIONS................................40


                                      -ii-


<PAGE>


         5.8  TAX MATTERS....................................................42

         5.9  NEW OEM CONTRACTS..............................................42

         5.10 PROXY STATEMENT................................................43

         5.11 COMPANY SHAREHOLDERS' MEETING..................................44

         5.12 MISSING RECORDS................................................44

         5.13 OPTIONS; WARRANTS..............................................44

SECTION 6. POST-CLOSING COVENANTS............................................44

          6.1 GENERAL........................................................44

          6.2 LITIGATION SUPPORT.............................................45

          6.3 AGREEMENTS REGARDING TAX MATTERS...............................45

          6.4 CONFIDENTIAL INFORMATION.......................................45

          6.5 COVENANT NOT TO COMPETE; SOLICITATION..........................46

          6.6 PAYMENT OF PRINCIPAL SHAREHOLDER'S NOTE........................46

SECTION 7. CLOSING CONDITIONS................................................46

          7.1 CONDITIONS TO OBLIGATION OF MERGE..............................46

          7.2 CONDITIONS TO OBLIGATION OF THE COMPANY AND ITS SHAREHOLDERS...49

SECTION 8. REMEDIES FOR BREACHES OF THIS AGREEMENT...........................50

          8.1 SURVIVAL.......................................................50

          8.2 INDEMNIFICATION PROVISIONS FOR BENEFIT OF MERGE................50

          8.3 INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE COMPANY..........51

          8.4 INDEMNIFICATION PROCEDURES.....................................51

          8.5 BASKET; CAP; SOLE SOURCES OF INDEMNIFICATION...................52

          8.6 RIGHT OF SET-OFF...............................................52

          8.7 DISPUTE RESOLUTION.............................................52

SECTION 9. TERMINATION.......................................................53

          9.1 TERMINATION....................................................53

          9.2 EFFECT OF TERMINATION..........................................54

SECTION 10. MISCELLANEOUS....................................................55

          10.1 PRESS RELEASES AND ANNOUNCEMENTS..............................55

          10.2  EXPENSES; TRANSFER TAXES.....................................55


                                     -iii-


<PAGE>


          10.3  WAIVER.......................................................56

          10.4  FURTHER ASSURANCES...........................................56

          10.5  NO THIRD-PARTY BENEFICIARIES.................................56

          10.6  SUCCESSORS AND ASSIGNS.......................................56

          10.7  SEVERABILITY.................................................57

          10.8  COUNTERPARTS; FACSIMILE SIGNATURES...........................57

          10.9  DESCRIPTIVE HEADINGS; CONSTRUCTION...........................57

          10.10 NOTICES......................................................57

          10.11 ENTIRE AGREEMENT.............................................59

          10.12 AMENDMENTS...................................................59

          10.13 TIME OF ESSENCE..............................................59

          10.14 INCORPORATION OF EXHIBITS AND SCHEDULES......................59

          10.15 ATTORNEYS' FEES; GOVERNING LAW...............................59


                                      -iv-


<PAGE>


                                    EXHIBITS

Consulting Agreement...................................................Exhibit A
Escrow Agreement.......................................................Exhibit B
Items for Opinion of Counsel of Company................................Exhibit C
Items for Opinion of Counsel to Merge..................................Exhibit D

                                    SCHEDULES

Subsidiaries and Affiliates.........................................Schedule 3.1
Liens and Encumbrances; Consents....................................Schedule 3.3
Capitalization .....................................................Schedule 3.4
Company Financial Statements........................................Schedule 3.5
Undisclosed Liabilities.............................................Schedule 3.6
Conduct of Business.................................................Schedule 3.7
Accounts Receivable.................................................Schedule 3.8
Tax Matters.........................................................Schedule 3.9
Contracts .........................................................Schedule 3.10
Leases.............................................................Schedule 3.11
Title..............................................................Schedule 3.13
Intellectual Property..............................................Schedule 3.14
Litigation.........................................................Schedule 3.15
Employee Benefit Plans.............................................Schedule 3.16
Labor Relations; Employees  .......................................Schedule 3.17
Legal Compliance...................................................Schedule 3.19
Permits............................................................Schedule 3.20
Affiliate Agreements...............................................Schedule 3.21
Insurance..........................................................Schedule 3.22
Bank Accounts......................................................Schedule 3.23
Customers .........................................................Schedule 3.26
Vendors............................................................Schedule 3.27
Internal Controls Over Financial Reporting.........................Schedule 3.33


<PAGE>


                                MERGER AGREEMENT

         THIS MERGER AGREEMENT (the  "AGREEMENT") is made and entered into as of
the 24th day  November,  2004 by and among MERGE  TECHNOLOGIES  INCORPORATED,  a
Wisconsin  corporation  ("MERGE"),  ADI ACQUISITION  CORP., a Nevada corporation
("ACQUISITION SUB"), ACCUIMAGE DIAGNOSTICS CORP., a Nevada corporation (together
with its  subsidiaries  and  predecessors,  the  "COMPANY"),  and  AVIEL  FALIKS
("PRINCIPAL SHAREHOLDER").

                                    RECITALS

         A. The Company is  presently  engaged in the  business of  development,
marketing and support of software for the visualization, analysis and management
of  medical  imaging  data whose  primary  function  is to  enhance  physicians'
interpretation  of  data  from  medical  imaging  modalities  such  as  computed
tomography  ("CT"),   magnetic  resonance  ("MR")  and  ultrasound  through  the
application of  three-dimensional  ("3D") computer graphics and image processing
technologies (collectively the "Business").

         B. The  respective  boards of directors  of each of MERGE,  ACQUISITION
SUB, and the COMPANY have  determined  that the merger of  Acquisition  Sub with
into the Company (the "Merger") upon the terms and subject to the conditions set
forth in this Agreement is advisable and have approved the Merger.

         C. The Principal  Shareholder owns 34,050,000  Shares of the Company on
the date hereof and has  entered in a Voting,  Proxy and Option  Agreement  with
Merge on the date hereof (the "Voting  Agreement")  approving the Merger and the
transactions contemplated by this Agreement, subject to the conditions set forth
in the Voting Agreement.

         D. The  parties  desire to make  certain  representations,  warranties,
covenants and agreements as set forth in this Agreement.

         NOW,  THEREFORE,  in consideration of the mutual  agreements  contained
herein and for other good and  valuable  consideration,  the value,  receipt and
sufficiency  of which are  hereby  acknowledged,  the  parties  hereto  agree as
follows:

                             SECTION 1. DEFINITIONS

         For purposes of this  Agreement,  the following terms have the meanings
set forth below:

         "ACQUISITION  PROPOSAL"  means any offer or  proposal  made by a Person
other than Merge or Acquisition  Sub  concerning any (a) merger,  consolidation,
business  combination  or  similar  transaction  involving  the  Company  or any
subsidiary  of the  Company  pursuant to which the  stockholders  of the Company
immediately  prior to such transaction  would own less than 85% of the aggregate
voting power of the entity  surviving or resulting from such transaction (or the


                                       1


<PAGE>


ultimate  parent  entity  thereof),   (b)  sale,   exclusive  license  or  other
disposition,   directly  or  indirectly,   of  assets  of  the  Company  or  its
subsidiaries  representing 15% or more of the consolidated assets of the Company
and its subsidiaries;  (c) issuance, sale or other disposition of securities (or
rights to purchase,  or instruments  convertible into, or exchangeable for, such
securities) by the Company  representing  15% or more of the voting power of the
Company;  or (d)  transaction  in  which  any  Person  or  group  shall  acquire
beneficial  ownership (as defined in Rule 13d-3 under the Exchange  Act), or the
right to acquire beneficial  ownership of 15% or more of the outstanding capital
stock of the Company.

         "AFFILIATE"  has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act of 1934, as amended.

         "AFFILIATED  GROUP"  means any  affiliated  group within the meaning of
Section 1504(a) of the Code or any similar provision of state,  local or foreign
Law.

         "AGREEMENT"  means this  Merger  Agreement,  as the same may be amended
from time to time in accordance with the terms hereof.

         "ANCILLARY   AGREEMENTS"  means  the  Voting   Agreement,   the  Escrow
Agreement,  the Consulting Agreement,  and any Employment Agreement to be signed
at Closing by an employee of the Company and Merge or any  Affiliate of Merge or
a Principal Shareholder.

         "CODE" means the Internal Revenue Code of 1986, as amended.

         "COMPANY"   means   AccuImage   Diagnostics   Corporation,   a   Nevada
corporation, its subsidiaries and its predecessors.

         "CONSULTING  AGREEMENT'  means the Consulting  Agreement in the form of
EXHIBIT A between Merge and Principal Shareholder to be signed at Closing.

         "CONTRACTS"  means,  collectively,  all leases,  licenses,  agreements,
purchase orders, indentures,  contracts, commitments, bids and proposals, Plans,
guarantees,  letters of credit, bonds, notes,  mortgages,  indemnities,  and all
orders outstanding for the purchase or provision of materials, goods or services
by the Company, in each case whether written or oral,  including those listed on
SCHEDULE 3.10, to which the Company is a party.

         "EMPLOYEE  PENSION  BENEFIT  PLAN" has the meaning set forth in Section
3(2) of ERISA.

         "EMPLOYEE  WELFARE  BENEFIT  PLAN" has the meaning set forth in Section
3(1) of ERISA.


                                       2


<PAGE>


         "ENVIRONMENTAL,   HEALTH,  AND  SAFETY  LIABILITIES"  means  any  cost,
damages, expense, liability, obligation or other responsibility, including those
of the foregoing  which are latent,  contingent or potential in nature,  arising
from or under any Environmental Law and consisting of or relating to:

               (a)  any  environmental,  health or safety  matters or conditions
                    (including on-site or off-site  contamination,  occupational
                    safety and health, and regulation of chemical  substances or
                    products);

               (b)  fines, penalties,  judgments, awards, settlements,  legal or
                    administrative proceedings, damages, losses, claims, demands
                    and response,  investigative,  remedial, or inspection costs
                    and expenses arising under any Environmental Law;

               (c)  financial  responsibility under any Environmental Law or any
                    Law  related to  occupational  safety and health for cleanup
                    costs or corrective  action,  including  any  investigation,
                    cleanup,  removal,   containment  or  other  remediation  or
                    response actions required by any  Environmental Law (whether
                    or not such  action has been  required or  requested  by any
                    Governmental Entity or any other Person) and for any natural
                    resource damages; or

               (d)  any other compliance, corrective, investigative, or remedial
                    measures required under any Environmental Law.

         The terms "removal" and "remediation," and "responsive  action" include
the types of activities covered by the United States Comprehensive Environmental
Response,  Compensation,  and Liability Act, 42 U.S.C. Section 9601 et. seq., as
amended ("CERCLA").

         "ENVIRONMENTAL  LAW" means any Law with respect to the  preservation of
the environment or the promotion of worker health and safety,  including any Law
relating to Hazardous  Materials,  drinking water,  surface water,  groundwater,
wetlands, landfills, open dumps, storage tanks, underground storage tanks, solid
waste, waste water,  storm water run-off,  noises,  odors, air emissions,  waste
emissions or wells.  Without limiting the generality of the foregoing,  the term
encompasses  each of the  following  statutes  and the  regulations  promulgated
thereunder,  and any similar  applicable  state,  local or foreign Law,  each as
amended  (a)  CERCLA,  (b) the  Solid  Waste  Disposal  Act,  (c) the  Hazardous
Materials  Transportation  Act,  (d) the Toxic  Substances  Control Act, (e) the
Clean Water Act, (f) the Clean Air Act, (g) the Safe Drinking Water Act, (h) the
National  Environmental  Policy Act of 1969,  (i) the Superfund  Amendments  and
Reauthorization  Act of 1986,  (j) Title  III of the  Superfund  Amendments  and
Reauthorization Act, (k) the Federal Insecticide,  Fungicide and Rodenticide Act
and (l)  the  provisions  of the  Occupational  Safety  and  Health  Act of 1970


                                       3


<PAGE>


relating to the  handling of and  exposure to  Hazardous  Materials  and similar
substances.

         "ERISA" means the Employee  Retirement  Income Security Act of 1974, as
amended.

         "ESCROW AGENT" means The Capital Trust Company of Delaware.

         "ESCROW  AGREEMENT' means the Escrow  Agreement among Merge,  Principal
Shareholder and the Escrow Agent, in  substantially  the form of EXHIBIT B to be
signed prior to Closing.

         "GAAP" means United States generally accepted accounting principles, as
in effect as of the date of this Agreement.

         "GOVERNMENTAL  ENTITY"  means any  government  or any  agency,  bureau,
board, commission, court, department, official, political subdivision,  tribunal
or other  instrumentality  of any government,  whether federal,  state or local,
domestic or foreign.

         "HAZARDOUS  ACTIVITY"  means the  distribution,  generation,  handling,
importing,  management,   manufacturing,   processing,  production,  refinement,
Release,  storage,  transfer,  transportation,  treatment or use  (including any
withdrawal or other use of  groundwater)  of Hazardous  Materials in, on, under,
about or from the  facilities  or any part thereof into the  environment,  other
than in  ordinary  use in  compliance  with Laws,  and any other act,  business,
operation  or  thing  that  poses an  unreasonable  risk of harm to  persons  or
property  on or off  the  facilities,  or  that  may  affect  the  value  of the
facilities of the Company.

         "HAZARDOUS MATERIALS" means each and every element, compound,  chemical
mixture,  contaminant,  pollutant,  material,  waste or other  substance that is
defined,  determined or identified as hazardous or toxic under any Environmental
Law or the Release of which is prohibited under any  Environmental  Law. Without
limiting the generality of the  foregoing,  the term will include (a) "hazardous
substances" as defined in CERCLA, the Superfund  Amendments and  Reauthorization
Act of 1986, or Title III of the Superfund  Amendments and  Reauthorization  Act
and regulations promulgated  thereunder,  each as amended, (b) "hazardous waste"
as  defined  in  the  Solid  Waste  Disposal  Act  and  regulations  promulgated
thereunder,  each as  amended,  ( c)  "hazardous  materials"  as  defined in the
Hazardous   Materials   Transportation  Act  and  the  regulations   promulgated
thereunder,  each as amended,  (d) "chemical substance or mixture" as defined in
the Toxic Substances Control Act and regulation promulgated thereunder,  each as
amended, (e) petroleum and petroleum products and byproducts and (f) asbestos.

         "INTELLECTUAL   PROPERTY"   means,   collectively,    patents,   patent
disclosures,  trademarks,  service  marks,  trade  dress,  logos,  trade  names,
copyrights and mask works,  and all  registrations,  applications,  reissuances,
continuations, continuations-in-part,  revisions, extensions, reexaminations and
associated  goodwill with respect to each of the  foregoing,  computer  software


                                       4


<PAGE>


(including source and object codes), computer programs,  computer data bases and
related  documentation  and  materials,  data,  documentation,   trade  secrets,
confidential  business  information  (including ideas,  formulas,  compositions,
inventions,  know-how,  manufacturing  and production  processes and techniques,
research and development  information,  drawings,  designs, plans, proposals and
technical  data,  financial,  marketing  and business  data and pricing and cost
information)  and  other  intellectual  property  rights  (in  whatever  form or
medium).

         "IRS" means the Internal Revenue Service of the U.S.  Department of the
Treasury.

         "LAW"  means  any  constitutional   provision,   statute,   law,  rule,
regulation, Permit, decree, injunction,  judgment, order, ruling, determination,
finding or writ of any Governmental Entity.

         "LIEN" means any mortgage,  pledge,  security interest,  charge, claim,
suretyship,  attachment,  restriction or encumbrance, other than (a) mechanics',
materialmens' and similar liens with respect to amounts not yet due and payable,
(b)  liens  for Taxes not yet due and  payable  and (c)  liens  securing  rental
payments under capital lease arrangements.

         "NET ASSET VALUE" means total  assets  minus total  liabilities  of the
Company determined in accordance with GAAP.

         "ORGANIZATIONAL  DOCUMENTS"  means,  collectively,  (a) the articles or
certificate of incorporation  and the bylaws of a corporation;  (b) any charter,
operating  agreement and similar  documents  adopted or filed in connection with
the creation,  formation or organization  of a Person;  and (c) any amendment to
any of the foregoing.

         "PBGC" means the Pension Benefit Guaranty Corporation.

         "PERMIT" means any license, permit, franchise, certificate of authority
or order, or any waiver of the foregoing, issued by any Governmental Entity.

         "PLAN" means any written plan, fund, program,  policy,  payroll policy,
contract or  commitment,  whether  qualified or not qualified for federal income
tax  purposes,  whether for the benefit of a single  individual or more than one
individual  whether or not subject to ERISA,  which is (a) an  Employee  Pension
Benefit Plan, (b) an Employee  Welfare Benefit Plan or (c) an incentive,  bonus,
employment,   equity,   retention,   non-competition,   deferred   compensation,
severance,  change in control or ownership or other benefit  compensatory  plan,
fund, program, policy,  agreement,  contract or commitment of the Company or any
Affiliate of the Company for employees, former employees, directors, independent
contractors,  former  independent  contractors  or  their  dependents  or  their
beneficiaries.


                                       5


<PAGE>


         "PERSON" means an individual, a partnership,  a corporation,  a limited
liability  company,  an  association,  a joint stock  company,  a trust, a joint
venture, an unincorporated organization or a Governmental Entity.

         "PROHIBITED  TRANSACTION"  has the  meaning set forth in Section 406 of
ERISA and Section 4975 of the Code.

         "REGULATORY  AGENCY" means (i) the Securities and Exchange  Commission,
(ii) any self-regulatory  organization  (including NASDAQ),  and (iii) any other
federal, state or foreign governmental or regulatory agency or authority.

         "RELATED  PERSON"  means with respect to a particular  individual:  (a)
each other member of such individual's  Family;  (b) any Person that is directly
or  indirectly  controlled  by such  individual  or one or more  members of such
individual's Family; (c) any Person with respect to which such individual or one
or more  members of such  individual's  Family  serves as a  director,  officer,
partner,  executor,  or trustee  (or in a similar  capacity).  "RELATED  PERSON"
means,  with  respect to a specified  Person other than an  individual:  (a) any
Person  that  directly  or  indirectly  controls,   is  directly  or  indirectly
controlled  by, or is directly or  indirectly  under  common  control  with such
specified  Person;  (b) any  Person  that  holds a 5% or more  voting  or equity
interest in such  specified  Person;  (c) each Person that serves as a director,
officer,  partner, executor or trustee of such specified Person (or in a similar
capacity);  (d) any Person with respect to which such specified Person serves as
a general partner or a trustee (or in a similar  capacity);  and (e) any related
Person of any  individual  described  in clause (b) or (c). For purposes of this
definition, the "FAMILY" of an individual includes (i) the individual,  (ii) the
individual's  spouse and former  spouses,  (iii) any other natural person who is
related to the individual or the individual's  spouse as a parent or descendant,
and (iv) any other natural person who resides with such individual.

         "RELEASE"   means  any  spilling,   leaking,   emitting,   discharging,
depositing, escaping, leaching, dumping or other releasing into the environment,
whether intentional or unintentional.

         "SCHEDULES" means,  collectively,  the disclosure schedules attached to
this Agreement,  which are incorporated into the Agreement in their entirety and
made a part thereof.

         "SHARES" means all of the issued and outstanding  voting and non-voting
shares of capital stock of the Company.

         "SHAREHOLDERS" means the owners of all the Shares of the Company.

         "SUPERIOR  PROPOSAL" means any bona fide written offer or proposal made
by a Person  other than  Merge or  Acquisition  Sub that  concerns  any  merger,
consolidation,  tender offer,  exchange offer,  asset acquisition  (including by
exclusive license), stock or other securities issuance,  business combination or
similar transaction involving the Company or any subsidiary of the Company that,


                                       6


<PAGE>


if  consummated,  would  result in a third party (or its  stockholders)  owning,
directly or indirectly, a majority of the Shares then outstanding (or a majority
of the voting power of the shares of capital stock of the surviving  entity in a
merger, or of the direct or indirect parent of the surviving entity in a merger)
or a majority of the assets of the Company  and its  subsidiaries  prior to such
transaction,  which the Board of  Directors  of the Company  determines  in good
faith (after  consultation with a recognized  financial  advisor) to be (i) more
favorable  to the  stockholders  of the Company  from a financial  point of view
(taking into account  probability  of closing and all other terms and conditions
of such proposal and this  Agreement  and any changes to the financial  terms of
this  Agreement  proposed by Merge in response to such offer or otherwise)  than
the Merger; and (ii) reasonably capable of being completed,  taking into account
all  financial,  legal  regulatory  and other aspects of the  proposal,  and the
identity of the Person making the proposal.

         "TAX RETURN" means any return, declaration, report, claim for refund or
information  return or statement  relating to Taxes,  including  any schedule or
attachment thereto.

         "TAX" means any  federal,  state,  local or foreign  net income,  gross
income, gross receipts, sales, use, ad valorem,  transfer,  franchise,  profits,
license, lease, service, service use, withholding,  payroll, employment, excise,
severance,   environmental,   capital  stock,  social  security,   unemployment,
disability,  real  property,  personal  property,   registration,  value  added,
alternative,  add-on minimum,  stamp,  occupation,  premium,  windfall  profits,
customs, duties or other tax, fee, assessment or charge, including any interest,
penalty or addition thereto.

         "TRANSFER  AGENT" means Pacific Stock Transfer  Company,  the Company's
current transfer agent for its Shares.

         In addition,  the following  terms shall have the meanings  ascribed to
them in the section number opposite such term:

         "ACCOUNTS RECEIVABLE".......................................Section 3.8
         "AUDITOR" ..................................................Section 2.8
         "BALANCE SHEET".............................................Section 3.8
         "BALANCE SHEET PROCEDURES"..................................Section 2.8
         "BASKET AMOUNT".............................................Section 8.5
         "BY-LAWS"...................................................Section 2.4
         "BUSINESS".....................................................Recitals
         "CERTIFICATE"............................................Section 2.6(a)
         "CERTIFICATE OF MERGER".....................................Section 2.3
         "CHARTER"...................................................Section 2.4
         "CLOSING"...................................................Section 2.2
         "CLOSING DATE" Section..............................................2.2
         "CLOSING DATE BALANCE SHEET"Section.................................2.8
         "COMPANY BALANCE SHEET".....................................Section 3.5


                                       7


<PAGE>


         "COMPANY SEC REPORTS".......................................Section 3.5
         "CONSULTING AGREEMENT..........................................Section1
         "DAMAGES"...................................................Section 8.2
         "DISSENTING SHAREHOLDER"....................................Section 2.6
         "DISSENTING SHARES".........................................Section 2.6
         "EDGAR".....................................................Section 3.5
         "EFFECTIVE TIME"............................................Section 2.3
         "ESCROW AGREEMENT"............................................Section 1
         "EXCLUDED SHARES"...........................................Section 2.6
         "FILED COMPANY SEC REPORTS".................................Section 3.5
         "FINANCIAL STATEMENTS"...................................Section 3.5(b)
         "HOLDBACK"..................................................Section 2.9
         "INDEMNIFIED BUYERS"........................................Section 8.2
         "MERGE COMPANIES"........................................Section 2.6(a)
         "MERGER".......................................................Recitals
         "MERGER CONSIDERATION"......................................Section 2.3
         "NEVADA SECRETARY"..........................................Section 2.3
         "NEVADA STATUTE"............................................Section 2.1
         "PRELIMINARY  CLOSING BALANCE SHEET"........................Section 2.8
         "SEC"....................................................Section 3.5(a)
         "SOX".......................................................Section 3.5
         "SURVIVING CORPORATION".....................................Section 2.1
         "TARGET AMOUNT".............................................Section 2.8
         "VOTING AGREEMENT".............................................Recitals
         "YEAR-END BALANCE SHEET".................................Section 3.5(e)

                 SECTION 2. THE MERGER; CLOSING; EFFECTIVE TIME

         2.1.THE MERGER.

         Upon  the  terms  and  subject  to the  conditions  set  forth  in this
Agreement,  at the Effective  Time (as defined in Section 2.3)  Acquisition  Sub
shall be merged with and into the Company and the separate  corporate  existence
of Acquisition  Sub shall  thereupon  cease.  The Company shall be the surviving
corporation in the Merger (sometimes  hereinafter  referred to as the "Surviving
Corporation"),  and the separate corporate existence of the Company with all its
rights, privileges,  immunities, powers and franchises shall continue unaffected
by the Merger. The Merger shall have the effects specified in the Nevada General
Corporation Law (the "Nevada Statute").

         2.2      CLOSING.

         The closing of the Merger (the  "Closing")  shall take place (i) at the
offices of Michael Best & Friedrich  LLP,  100 E.  Wisconsin  Avenue,  Milwaukee
Wisconsin  on the  second  business  day  after  the day on which the last to be
fulfilled or waived of the  conditions set forth in Section 7 shall be satisfied
or waived in accordance with this Agreement (other than those conditions that by
their nature are to be satisfied at the Closing,  but subject to the fulfillment


                                       8


<PAGE>


or waiver of those  conditions)  or (ii) at such other  place and time and/or on
such other date as the  Company  and Merge may agree in  writing  (the  "Closing
Date").

         2.3      EFFECTIVE TIME.

         As soon as  practicable  following the Closing on the Closing Date, the
Company  and Merge will  cause a  certificate  of merger  (the  "Certificate  of
Merger") to be executed,  acknowledged  and filed with the Secretary of State of
the State of Nevada (the "Nevada  Secretary") as provided in Section  92A.200 of
the Nevada Statute.  As part of such filing, a plan of merger in form reasonably
acceptable to Merge and the Company will be filed with the Nevada Secretary. The
Merger shall  become  effective  at the time the  Certificate  of Merger is duly
filed with the Secretary of State of the State of Nevada (the "Effective Time").

         2.4      CHARTER AND BYLAWS.

         The  Certificate  of  Incorporation  of  Acquisition  Sub as in  effect
immediately   prior  to  the  Effective   Time  shall  be  the   certificate  of
incorporation of the Surviving  Corporation (the "Charter"),  until duly amended
as provided  therein or by applicable  Law. The bylaws of Acquisition  Sub as in
effect  immediately  prior to the  Effective  Time  shall be the  bylaws  of the
Surviving Corporation (the "By-Laws"), until duly amended as provided therein or
by applicable Law.

         2.5. DIRECTORS AND OFFICERS.

         The directors of Acquisition Sub at the Effective Time shall,  from and
after the Effective  Time, be the directors of the Surviving  Corporation  until
their  successors  have been duly  elected or appointed  and  qualified or until
their earlier death,  resignation or removal in accordance  with the Charter and
the By-Laws.  The officers of Acquisition Sub at the Effective Time shall,  from
and after the Effective Time, be the officers of the Surviving Corporation until
their  successors  have been duly  elected or appointed  and  qualified or until
their earlier death,  resignation or removal in accordance  with the Charter and
the By-Laws.

         2.6  EFFECT OF THE MERGER ON SHARES.

                  (a) At the Effective Time, by virtue of the Merger and without
any action on the part of the holder of any  Shares of the  Company,  each Share
issued and  outstanding  immediately  prior to the  Effective  Time  (other than
"Excluded Shares" as defined below) shall be converted into the right to receive
the proportionate  share of Six Million Dollars  ($6,000,000) which amount shall
include the Holdback (as defined in Section 2.9) (the "Merger Consideration").

                  Shares owned by Merge,  Acquisition Sub or any other direct or
indirect  Subsidiary of Merge  (collectively,  the "Merge  Companies") or Shares
that are owned by the  Company  or any  direct  or  indirect  subsidiary  of the


                                       9


<PAGE>


Company,  and in each  case  not held on  behalf  of third  parties,  or  Shares
("Dissenting Shares") that are owned by shareholders ("Dissenting Shareholders")
who do not vote to approve the Merger and comply with all the  provisions of the
Nevada  Statute  concerning  the right of holders of Shares to dissent  from the
Merger  and  require  payment  of fair value (as that term is used in the Nevada
Statute)  for  their  Shares  shall be an  "Excluded  Share"  and  collectively,
"Excluded  Shares" for purposes of this  Agreement.  At the Effective  Time, all
Shares  shall no longer be  outstanding  and shall be  canceled  and retired and
shall  cease  to  exist,  and  each  certificate  (a   "Certificate")   formerly
representing  any of such Shares (other than Excluded  Shares) shall  thereafter
represent only the right to receive the Merger Consideration.

                  The   portion  of  the  Merger   Consideration   due  to  each
Shareholder on the Closing Date (other than  Dissenting  Shareholders)  shall be
his or her proportionate ownership of the outstanding Shares as of Closing.

                  (b)  Dissenting  Shares.   Notwithstanding  anything  in  this
Agreement  to the  contrary,  any  Dissenting  Shares  shall not be converted as
described in Section  2.6(a),  but shall be converted  into the right to receive
such  consideration as may be determined to be due to the respective  Dissenting
Shareholders  pursuant to the Nevada Statute.  If, after the Effective Time, any
Dissenting  Shareholder  withdraws  his demand or fails to perfect or  otherwise
loses his rights as a Dissenting  Shareholder  to payment of fair value,  in any
case pursuant to the Nevada Statute,  his Shares shall be deemed to be converted
as of the Effective  Time into the right to receive his  proportionate  share of
the Merger Consideration.  The Company shall give Merge (i) prompt notice of any
demands  for  fair  value  for  Shares  received  by the  Company  and  (ii) the
opportunity to participate in and direct all  negotiations  and proceedings with
respect to any such demands.  The Company  shall not,  without the prior written
consent of Merge,  make any payment with respect to, or settle,  offer to settle
or otherwise  negotiate,  any such  demands.  Any amounts paid to the holders of
Dissenting  Shares  in  excess  of  their  proportionate  share  of  the  Merger
Consideration, and the costs of all proceedings, including attorneys' and expert
witness fees, in resolving the claim of any Dissenting Shareholder,  shall be an
amount to be  indemnified  under Section 8 or paid out of the  Holdback,  at the
option of Merge

                  (c) Cancellation of Shares.  Each Share issued and outstanding
immediately  prior to the Effective Time and owned by any of the Merge Companies
or owned by the Company or any direct or indirect  subsidiary of the Company (in
each case other than Shares that are owned on behalf of third  parties),  shall,
by  virtue of the  Merger  and  without  any  action  on the part of the  holder
thereof, cease to be outstanding,  shall be canceled and retired without payment
of any consideration therefor and shall cease to exist.

                  (d)  Acquisition  Sub. At the  Effective  Time,  each share of
Common  Stock,  par  value  $.01  per  share,  of  Acquisition  Sub  issued  and
outstanding  immediately  prior to the  Effective  Time  shall be  automatically
converted into one share of common stock of the Surviving Corporation.


                                       10


<PAGE>


         2.7      EXCHANGE OF SHARES FOR MERGER CONSIDERATION.

                  (a) Payment Procedures. At the Closing, Merge shall deliver to
the Transfer Agent, for delivery to each of the Shareholders (other than holders
of  Excluded  Shares)  such  Shareholder's  proportionate  share  of the  Merger
Consideration  due at Closing in exchange  for Shares being  surrendered  except
that the Holdback shall be delivered by Merge to the Escrow Agent at Closing for
deposit  pursuant to the Escrow  Agreement.  Upon surrender of a Certificate (or
affidavit of loss in lieu thereof) for  cancellation to the Transfer Agent,  the
holder of such  Certificate  shall be entitled  to receive in exchange  therefor
(after giving effect to any tax withholding  required by Law) (i) a check in the
amount of the holder's  proportionate  share of the Merger  Consideration  based
upon the number of Shares  represented by such Certificate (or affidavit of loss
in  lieu  thereof),  and the  Certificate  so  surrendered  shall  forthwith  be
canceled.  No interest  will be paid or accrued on any amount  payable  upon due
surrender of the Certificates. In the event of a transfer of ownership of Shares
that is not  registered in the transfer  records of the Transfer  Agent, a check
for any cash to be paid upon due  surrender  of the  Certificate  may be paid to
such a  transferee  if the  Certificate  formerly  representing  such  Shares is
presented to the Transfer  Agent,  accompanied by all documents  required by the
Transfer  Agent to evidence and effect such  transfer  and to evidence  that any
applicable stock transfer taxes have been paid or are not applicable.

                  (b)  Transfers.  After the Effective  Time,  there shall be no
transfers on the stock transfer  books  regarding the Company of the Shares that
were outstanding immediately prior to the Effective Time.

                  (c) Lost, Stolen or Destroyed  Certificates.  In the event any
Certificates  shall have been lost,  stolen or destroyed,  upon the making of an
affidavit  of that fact by the Person  claiming  such  Certificates  to be lost,
stolen or destroyed and execution of an indemnity agreement in form satisfactory
to Merge  and the  Transfer  Agent  and  further,  if  required  by Merge or the
Transfer  Agent,  the  posting by such Person of a bond in  customary  amount as
indemnity  against  any claim that may be made  against it with  respect to such
Certificates,  the Transfer Agent may issue in exchange for such lost, stolen or
destroyed  Certificates  a check  in the  amount  (after  giving  effect  to any
required  tax  withholdings)  proportionate  share of the  Merger  Consideration
represented by such lost, stolen or destroyed Certificate deliverable in respect
of, the Shares represented by such Certificates pursuant to this Agreement.


                                       11


<PAGE>


         2.8      ADJUSTMENT FOR CLOSING BALANCE SHEET.

                  (a)  ADJUSTMENT.  Merge shall be reimbursed by the amount that
the Net Asset Value (as hereinafter defined) of the Company determined as of the
Closing Date is less than $-220,168  (negative  $220,168) (the "Target Amount").
The amount of any such adjustment shall be paid to Merge from the Holdback.

                  (b) Net Asset Value.  For purposes of this  Section,  the term
"Net Asset  Value" means the net asset value  reflected  in the Closing  Balance
Sheet (as hereinafter defined), except that the following shall be excluded from
the calculation of any Net Asset Value: (i) cash received upon exercise of stock
options for Shares  exercised  after  September 30, 2004;  (ii) up to $80,000 of
legal fees incurred by the Company in connection  with the Merger,  as evidenced
by invoices of legal  counsel  for the Company  prepared in a manner  consistent
with past practices;  and (iii) operating  losses of the Company incurred in the
ordinary  course  of  business  from and  after  October  1, 2004 (not to exceed
$40,000 per full calendar month, prorated to the Closing Date).

                  (c) Five days prior to the  Closing  Date,  the  Company  will
prepare a Preliminary  Balance Sheet in accordance  with GAAP which has properly
accrued for all  amounts  owed to vendors and  employees,  current and  previous
management  and properly  reserved for bad debt and all pending,  threatened and
contingent  liabilities  required  to be  reserved  for  under  GAAP  up to  and
including the Closing Date (such balance sheet, the "Preliminary  Balance Sheet"
and such procedures, the "Balance Sheet Procedures"). If the Preliminary Balance
Sheet  indicates that the Net Asset Value is less than the Target Amount,  Merge
may deduct the difference from the Merger Consideration.

                   The final  balance sheet as of the Closing Date (the "Closing
Date Balance  Sheet") will be prepared by Merge and  delivered to the  Principal
Shareholder within one hundred eighty (180) days after Closing. The Closing Date
Balance Sheet shall be prepared consistent with the Balance Sheet Procedures. If
the  Principal  Shareholder  notifies  Merge within  thirty (30) days  following
receipt  of the  Closing  Date  Balance  Sheet  that the  Principal  Shareholder
disagrees with the Closing Date Balance Sheet, the parties shall attempt in good
faith to resolve such dispute as soon as possible.  If the parties are unable to
resolve such dispute within thirty (30) days after the Merge's receipt of notice
from the  Principal  Shareholder,  such dispute  shall be submitted to a neutral
office of nationally recognized independent  accountants (the "Auditor") jointly
chosen by, and mutually  acceptable to, the Principal  Shareholder and Merge for
the purpose of resolving  the dispute set forth in such  notice.  If the parties
are not able to agree on the Auditor  within thirty (30) days, the Auditor shall
be the Milwaukee Office of Grant Thornton or Deloitte Touche.  The Auditor shall
review and decide the issue or issues that are subject of such dispute within 30
days. The decision of the Auditor shall be binding on the parties.  The fees and
costs of the Auditor  shall be borne equally by the  Principal  Shareholder  and
Merge (50%).  Any amount by which the Net Asset Value, as finally  determined in
the Closing Date Balance  Sheet,  is less than the Target Amount (other than any
amount already withheld from the Merger  Consideration) shall at Merge's option,
either  first be paid  out of the  Holdback  referred  to in  Section  2.9 or be
subject to  indemnification  as provided in Section 8. The Merger  Consideration
shall not be increased if the Closing Date Balance Sheet Net Asset Value shows a
lower net loss than the Target Amount.


                                       12


<PAGE>


         2.9      HOLDBACK.

         $1,000,000 of the Merger  Consideration  shall be deposited by Merge at
Closing  with  the  Escrow  Agent to be  governed  by the  terms  of the  Escrow
Agreement (the  "Holdback").  At the conclusion of the escrow Merge will pay the
Principal  Shareholder  simple  interest  out of its  own  funds  to the  extent
sufficient funds are not in Escrow,  at the rate of five percent (5%) per annum,
on the net adjusted balance of the Holdback outstanding at the end of the escrow
period (i.e.  original  balance  less amounts due to Merge under  Section 2.8 or
Section 8 of this  Agreement)  and due to Principal  Shareholder.  Such interest
will be calculated  from the Closing Date. No interest shall be paid by Merge or
out of the Escrow to  Principal  Shareholder  from and after the Closing Date on
amounts paid to Merge out of the Escrow.

     SECTION 3. REPRESENTATIONS AND WARRANTIES OF COMPANY AND THE PRINCIPAL
                                   SHAREHOLDER

         The Company and the Principal Shareholder,  jointly and severally prior
to the  Closing,  and the  Principal  Shareholder  by himself from and after the
Closing,  hereby  represent  and  warrant  to,  and  covenant  with,  Merge  and
Acquisition  Sub as of the date of this Agreement and as of the Closing Date, as
follows, it being agreed that a disclosure  applicable to one representation and
warranty shall be deemed to modify and provide  information  with respect to the
other  representations  and  warranties  to which the  disclosure  is reasonably
believed to be relevant without the necessity of repetition:

         3.1      ORGANIZATION.

         The Company is a corporation  duly organized,  validly  existing and in
good standing under the Laws of the State of Nevada. The Company and each of its
Affiliates  is duly  qualified  or licensed to conduct  business  and is in good
standing  under  the  Laws of  each  jurisdiction  where  the  character  of the
properties owned, leased or operated by it or the nature of its activities makes
such  qualification  necessary,  a list of which is set forth on  SCHEDULE  3.1,
except where the failure to so qualify would not have a material  adverse effect
on the business or assets of the Company.  The Company has full corporate  power
and authority necessary to own or lease its assets and property, and to carry on
the Business and to own and use the properties owned and used by it. The Company
has  delivered to Merge copies of the  Organizational  Documents of the Company,
each as amended to date, and each such document is in full force and effect. The
Company is not in violation of its Organizational Documents.  SCHEDULE 3.1 lists
all Affiliates of the Company,  indicating the  jurisdiction of incorporation or
organization  of each  Affiliate.  The  Company  does not  control,  directly or
indirectly,  or have any direct or indirect  ownership or equity interest in any
Person.

         3.2      AUTHORIZATION OF TRANSACTION.

         The execution and delivery of this  Agreement and the  consummation  of
the transactions  contemplated hereby have been duly authorized by all necessary
action  on the part of the  Board of  Directors  of the  Company  and,  prior to
Closing,  will  be  authorized  by  all  necessary  action  on the  part  of the
Shareholders.  The Company and the Principal  Shareholder  have the absolute and


                                       13


<PAGE>


unrestricted  right,  power,  authority and capacity  (including  full corporate
power and  authority) or have taken all  requisite  action to enable the Company
and the  Principal  Shareholder  to execute and deliver this  Agreement  and the
Ancillary Agreements and to perform their obligations  hereunder and thereunder.
This  Agreement has been,  and upon Closing will be, duly executed and delivered
by the Company and the Principal Shareholder.  When duly executed and delivered,
this Agreement  constitutes,  and each of the Ancillary  Agreements delivered in
conjunction  with this Agreement,  when executed and delivered will  constitute,
the valid and legally binding  obligation of the Company and/or of the Principal
Shareholder as the case may be, each  enforceable in accordance  with its terms,
subject to (i) laws of general  application  relating to bankruptcy  insolvency,
and the relief of debtors, and (ii) general equitable principles.

         3.3      NONCONTRAVENTION; CONSENTS.

                  (a) Except as set forth on Schedule  3.3,  the  execution  and
delivery of this  Agreement and the Ancillary  Agreements by the Company and the
Principal Shareholder  contemplated by this Agreement,  and the consummation and
performance  by the Company and the Principal  Shareholder  of the  transactions
contemplated  hereby or  thereby,  will not:  (i)  violate  any Law to which the
Company or the Principal  Shareholder or by which either of them or any of their
respective  properties are bound or affected;  (ii) violate any provision of the
Organizational  Documents  of the  Company;  (iii)  result  in any  breach of or
constitute  a default  (or an event  that  with  notice or lapse of time or both
would become a default) under or impair the Company's rights or alter the rights
or  obligations  of any  third  party  under,  or give to others  any  rights of
termination,  amendment,  acceleration  or  cancellation  of,  or  result in the
creation of a Lien on any of the  properties or assets of the Company,  pursuant
to any Contract,  Permit, or other instrument or obligation to which the Company
is a party or by which the Company or its properties are bound or affected.

                  (b) SCHEDULE  3.3 lists all  consents,  waivers and  approvals
required to be obtained in connection with the  consummation  and performance of
the  transactions  contemplated  hereby under any of the Contracts or Permits to
which the Company or the Principal  Shareholder is a party. No Contract to which
the Company is a party has been  amended to increase  the amount  payable by the
Company  thereunder or otherwise modify the terms thereof in order to obtain any
such consent, approval or authorization.

                  (c) Except as set forth on Schedule 3.3, no consent, approval,
order or  authorization  of or  registration,  declaration  or  filing  with any
Governmental  Entity,  is  required  by or with  respect  to the  Company or the
Principal  Shareholder  in  connection  with the  execution and delivery of this
Agreement  or  the  consummation  of the  transactions  contemplated  hereby  or
thereby.


                                       14


<PAGE>


         3.4. CAPITALIZATION.

                  (a)  SCHEDULE 3.4 sets forth for the Company (i) the number of
shares of authorized  capital stock,  (ii) the number of issued and  outstanding
capital stock of each class of the shares,  (iii) the names of its directors and
elected  officers and (iv) the names each Person owning  options or warrants for
Shares and the number of shares,  options,  warrants, and convertible securities
owned by such  Person and  obtainable  upon  exercise in full of all options and
warrants.  All of the issued  and  outstanding  Shares of  capital  stock of the
Company,  and all Shares  issuable  upon  exercise  of  outstanding  options and
warrants,  have been duly  authorized  and are  validly  issued,  fully paid and
nonassessable  and are not subject to preemptive  rights whether  created by (i)
statute, (ii) the Organizational Documents of the Company or (iii) any agreement
or document to which the Company or any Affiliate thereof is a party or by which
it is bound.  The Principal  Shareholder  holds of record and owns  beneficially
good, valid and marketable title to all of the outstanding Shares of the Company
listed on SCHEDULE 3.4, free and clear of any  restrictions  on transfer  (other
than restrictions  under the Securities Act of 1933, as amended,  and applicable
state  securities  Laws),  Taxes,  Liens,  options,  warrants,  purchase rights,
contracts, agreements, commitments, equities, claims or demands.

                  (b) Except as set forth in SCHEDULE  3.4,  there are no equity
securities,  partnership  or  limited  liability  company  interests  or similar
ownership interests of any class of the Company, or any securities  exchangeable
or convertible  into or exercisable for such equity  securities,  partnership or
limited  liability company  interests or similar  ownership  interests,  issued,
reserved for issuance or  outstanding.  Except for  securities the Company owns,
directly or indirectly, there are no equity securities, partnership interests or
similar  ownership  interests of any class of any subsidiary of the Company,  or
any security  exchangeable  or convertible  into or exercisable  for such equity
securities,  partnership  interests  or  similar  ownership  interests,  issued,
reserved for issuance or outstanding. Except as set forth in SCHEDULE 3.4, there
are  no  outstanding  or  authorized  options,   warrants,   equity  securities,
partnership  or  limited   liability  company  interests  or  similar  ownership
interests,  calls,  rights  (including  purchase  rights,  subscription  rights,
conversion rights,  preemptive rights,  exchange rights, rights related to stock
appreciation,  phantom stock or profit participation, or similar rights), or any
commitments,  contracts or  agreements  (all of the  foregoing of which shall be
terminated  on or before the Closing Date) of any character to which the Company
is a party or by  which it is bound  obligating  the  Company  or the  Principal
Shareholder to issue, deliver,  sell, or cause to be issued,  delivered or sold,
or repurchase, redeem or otherwise acquire, or cause the repurchase,  redemption
or acquisition, of any shares of capital stock, partnership interests or similar
ownership  interests of the Company or obligating the Company to grant,  extend,
accelerate  the  vesting  of or  enter  into any such  option,  warrant,  equity
security, call, right, commitment, contract or agreement.

                  (c) All Shares and all options, warrants, convertible or other
securities  of the Company have been issued in  compliance  with all  applicable
federal and state securities laws and any applicable pre-emptive rights.

                  (d) The Principal Shareholder has good title to his 34,050,000
Shares,  free and  clear  from  any  Lien,  preemptive  right,  voting  trust or
shareholder agreement,  exception,  proxy, option, put, call, or any third-party


                                       15


<PAGE>


right  of any  kind or  nature  whatsoever  except  the  Voting  Agreement.  The
Principal  Shareholder  has full and sole  voting  power  (in the case of voting
Shares owned by such  Person) over his Shares and has the full right,  power and
authority  to deliver his Shares to Merge in exchange  for his pro rata share of
the Merger Consideration in the manner provided for in this Agreement.

         3.5      FINANCIAL STATEMENTS; SEC FILINGS.

                  (a)  The  Company  has on a  timely  basis  filed  all  forms,
reports,  and  documents  required  to be filed by it with  the  Securities  and
Exchange  Commission  ("SEC")  since  January  1, 2001.  SCHEDULE  3.5 lists and
(except to the extent available in full without  redaction on the SEC's web site
through the Electronic Data Gathering,  Analysis and Retrieval  System ("EDGAR")
two days prior to the date of this Agreement)  contains true and complete copies
in the form filed with the SEC of (i) the Company's  Annual Reports on Form 10-K
SB for each fiscal year of the Company  ending on or after  December  31,  1999;
(ii) its  Quarterly  Reports on Form 10-Q SB for each of the first three  fiscal
quarters in each of the fiscal  years of the  Company  referred to in clause (i)
above;  (iii)  all  proxy  statements  relating  to the  Company's  meetings  of
shareholders  (whether annual or special) held, and all  information  statements
relating to  shareholder  consents  since the beginning of the first fiscal year
referred to in clause (i) above; (iv) all certifications and statements required
by (A) Rule 13a-14 or 15d-14 under the  Exchange  Act or (B) 18 U.S.C.  ss. 1350
(Section  906 of the  Sarbanes-Oxley  Act of 2002  ("SOX"))  with respect to any
report  referred to in clause (i) or (ii) above;  (v) all other forms,  reports,
registration  statements,  and other documents (other than preliminary materials
if the corresponding  definitive  materials are contained in Schedule 3.5) filed
by the  Company  with the SEC  since the  beginning  of the  first  fiscal  year
referred to in clause (i) above (the forms,  reports,  registration  statements,
and other documents referred to in clauses (i), (ii), (iii), (iv), and (v) above
are,  collectively,  the "Company SEC Reports"  and, to the extent  available in
full without redaction on the SEC's web site through EDGAR two days prior to the
date of this Agreement, are, collectively, the "Filed Company SEC Reports"); and
(vi) all comment letters received by the Company from the staff of the SEC since
January 1, 2001,  and all  responses to such comment  letters by or on behalf of
the  Company.  All  matters  and  statements  made  in  the  certifications  and
statements  referred  to in clause  (iv) above are  accurate.  The  Company  SEC
Reports (x) were or will be prepared in accordance with the  requirements of the
Securities  Act  and  the  Exchange  Act,  as  applicable,  and  the  rules  and
regulations thereunder and (y) did not at the time they were filed with the SEC,
or will not at the time  they  are  filed  with  the  SEC,  contain  any  untrue
statement  of a material  fact or omit to state a material  fact  required to be
stated therein or necessary in order to make the statements made therein, in the
light of the  circumstances  under  which they were made,  not  misleading.  The
Company maintains  disclosure controls and procedures as required by Rule 13a-15
or 15d-15 under the Exchange Act. Schedule 3.5 contains true and complete copies
of all written  descriptions of and all policies,  manuals,  and other documents
promulgating  such disclosure  controls and  procedures.  Except as disclosed in
Filed Company SEC Reports,  each  director and executive  officer of the Company
has filed with the SEC on a timely basis  complete and accurate  versions of all
statements  required  by  Section  16(a) of the  Exchange  Act and the rules and


                                       16


<PAGE>


regulations  thereunder  since January 1, 2001. As used in this Section 3.5, the
term  "filed"  shall be  broadly  construed  to  include  any  manner in which a
document or information is furnished,  supplied,  or otherwise made available to
the SEC, including, but not limited to, as may be required pursuant to Item 9 or
12 of Form 8-K.

                  (b)  The  financial  statements  of the  Company  included  or
incorporated  by  reference  in any Company SEC Reports  (including  the related
notes) complied as to form, as of the respective dates of filing of such Company
SEC Reports with the SEC, in all material  respects with  applicable  accounting
requirements  and the  rules and  regulations  of the SEC with  respect  thereto
(including,   without  limitation,   Regulation  S-B),  have  been  prepared  in
accordance with GAAP (except, in the case of unaudited financial statements,  to
the extent  permitted by Regulation  SB for  Quarterly  Reports on Form 10-Q-SB)
applied on a consistent  basis throughout the periods involved (except as may be
indicated in the notes  thereto) and fairly present the  consolidated  financial
condition of the Company at the dates  thereof and the  consolidated  results of
operations  and cash flows for the periods then ended  (subject,  in the case of
unaudited  statements,  to notes and normal year-end audit adjustments that were
not, or with respect to any such financial  statements  contained in any Company
SEC Reports to be filed  subsequent  to the date hereof are not  expected to be,
material in amount or effect).  Schedule 3.5 lists  copies of the  documentation
creating or governing,  all "off-balance sheet arrangements" (as defined in Item
303(c) of Regulation SB) in effect with respect to the Company during any period
covered by any of the Company SEC Reports  that was  required to be disclosed in
any Company SEC Report.  Odenburg,  Ullakko Murenishi & Company,  LLP, which has
expressed its opinion with respect to the consolidated  financial  statements of
the Company included in Company SEC Reports  (including the related notes) filed
after January 1, 2003, (x) is a registered public accounting firm (as defined in
Section  2(a)(12) of SOX),  (y) to the  Company's  knowledge,  after  reasonable
inquiry,  is and has been  throughout  the  periods  covered  by such  financial
statements  "independent"  with  respect to the  Company  within the  meaning of
Regulation S-X, and (z) to the Company's  knowledge,  after reasonable  inquiry,
is, and has been  throughout the periods  covered by such financial  statements,
with respect to the Company,  in compliance with  subsections (g) through (l) of
Section  10A of the  Exchange  Act.  Pohl  McNabola  Berg & Company  LLP,  which
expressed its opinion with respect to the consolidated  financial  statements of
the Company included in Company SEC Reports  (including the related notes) filed
prior to January 1,  2003,  (y) to the  Company's  knowledge,  after  reasonable
inquiry,  was  throughout  the  periods  covered  by such  financial  statements
"independent"  with respect to the Company within the meaning of Regulation S-X,
and (z) to the Company's knowledge, after reasonable inquiry, was throughout the
periods covered by such financial  statements,  with respect to the Company,  in
compliance with  subsections (g) through (l) of Section 10A of the Exchange Act.
SCHEDULE  3.5  lists all  non-audit  services  performed  by  Odenburg,  Ullakko
Murenishi  & Company,  LLP or Pohl  McNabola  Berg & Company LLP for the Company
since January 1, 2003.

                  (c)  Except  as and to the  extent  set  forth on the  audited
balance  sheet of the Company as of  September  30,  2004,  including  all notes
thereto (the "Year-end  Balance  Sheet")  attached to this Agreement as SCHEDULE


                                       17


<PAGE>


3.5(c),  the Company has no liabilities  or  obligations of any nature  (whether
accrued,  absolute,  contingent,  or  otherwise)  that would be  required  to be
reflected on a balance sheet,  or in the notes  thereto,  prepared in accordance
with GAAP,  except (i) for  liabilities or obligations  incurred in the ordinary
course of business  since  September  30,  2004,  that would not have a material
adverse  effect on the  Company,  or (ii) as  otherwise  reflected  in the Filed
Company SEC Reports.

         3.6      UNDISCLOSED LIABILITIES.

         The  Company  has no  material  liabilities  or  obligations  of a type
required  to be  disclosed  on a balance  sheet or in the  related  notes to the
combined financial statements prepared in accordance with GAAP (whether known or
unknown, absolute or contingent, liquidated or unliquidated, or due or to become
due) except for liabilities and obligations which are: (a) reflected or reserved
for on the  Financial  Statements  or (b) that have arisen since the date of the
last  Year-end  Balance  Sheet in the  ordinary  course of the  operation of the
Company (all of which  material  liabilities  and  obligations  are set forth on
SCHEDULE 3.6 and none of which results from,  arises out of,  relates to, is the
nature of or was caused by any breach of  contract,  breach of  warranty,  tort,
infringement or violation of Law) except as disclosed on such Schedule.


                                       18



<PAGE>

         3.7      SUBSEQUENT EVENTS.

         Since December 31, 2003, there has not been any material adverse change
in  the  business,  condition,   operations,   properties,  assets,  results  of
operations  or  prospects  of  the  Company  nor  has  any  event   occurred  or
circumstance arisen that could reasonably be expected to result in such material
adverse  change.  Except as set forth in SCHEDULE 3.7, since the end of its last
fiscal year, the Company has conducted its business only in the ordinary  course
of business and there has not been any:

                  (a)  single  transaction  in an amount  exceeding  $10,000  or
series of related  transactions that result in expenditures in excess of $25,000
(not including compensation paid in the ordinary course of business);

                  (b)  change in the  Company's  authorized  or  issued  capital
stock; grant of any stock option or right to purchase shares of capital stock of
the Company; issuance of any security convertible into such capital stock; grant
of  any  registration  rights;  purchase,   redemption,   retirement,  or  other
acquisition  by the  Company  of  any  shares  of any  such  capital  stock;  or
declaration  or  payment of any  dividend  or other  distribution  or payment in
respect of shares of capital stock;

                  (c) amendment to the Organizational Documents of the Company;

                  (d)  payment  or  increase  by the  Company  of  any  bonuses,
salaries,  or other  compensation  to any  shareholder,  director,  officer,  or
(except  in the  ordinary  course  of  business)  employee  or  entry  into  any
employment,  severance,  separation,  or similar  agreement  with any  director,
officer or employee, except for the salaries and bonuses set forth upon SCHEDULE
3.7, the amount of which  bonuses is consistent  with the past  practices of the
Company;

                  (e)  adoption  of, or increase in the  payments to or benefits
under, any profit sharing,  bonus, deferred  compensation,  savings,  insurance,
pension,  retirement or other Employee Benefit Plan for or with any employees of
the Company;

                  (f) damage to or  destruction or loss of any asset or property
of the Company,  whether or not covered by insurance,  materially  and adversely
affecting the properties,  assets, business, financial condition or prospects of
the Company, taken as a whole;

                  (g)  entry  into,  termination  of,  or  receipt  of notice of
termination of (i) any cooperative,  marketing, license, distributorship,  sales
representative, joint venture, credit or similar agreement, or (ii) any Contract
or  transaction,  or series of related  Contracts or  transactions,  involving a
total commitment by or to the Company of more than $25,000.00,  except for sales
(but not terminations) to customers in the ordinary course of business;


                                       19


<PAGE>


                  (h)  sale  (other  than  sales  in  the  ordinary   course  of
business), lease or other disposition of any asset or property of the Company or
mortgage,  pledge or imposition of any Lien on any material asset or property of
the Company;

                  (i)  cancellation  or  waiver of any  claims or rights  with a
value to the Company in excess of $10,000;

                  (j) material change in the accounting  methods,  principles or
practices used by the Company;

                  (k)  any  revaluation  by the  Company  of any of its  assets,
including  writing down the value of capitalized  inventory or writing off notes
or Accounts  Receivable  (defined  below) other than in the  ordinary  course of
business;

                  (l) agreement,  whether oral or written,  by the Company to do
any of the foregoing; or

                  (m) Contracts  awarded to the Company,  including  those as to
which work has not yet  commenced,  that include prices at levels not reasonably
expected,  to yield profits at the Company's  usual and customary  profitability
margins.

         3.8      ACCOUNTS RECEIVABLE.

         All  accounts  receivable  of the  Company  that  are  included  in the
Year-end  Balance  Sheet or on the  accounting  records of the Company as of the
Closing Date or the  Preliminary  Balance  Sheet  (collectively,  the  "ACCOUNTS
RECEIVABLE")  represent or will  represent  valid  obligations  accounted for in
accordance  with  GAAP  applied  on a basis  consistent  with  that  used in the
preparation  of the  Financial  Statements  arising from sales  actually made or
services  actually  performed  in the  ordinary  course  of  business.  All such
Accounts  Receivable  on the  Preliminary  Balance  Sheet  will be or have  been
collected,  net of the  respective  reserves  shown on the  Preliminary  Balance
Sheet, within 90 days following the Closing Date. The reserves maintained by the
Company are adequate and  calculated  consistent  with past practice and, in the
case of the  reserve  as of the  Closing  Date,  will not  represent  a  greater
percentage  of the Accounts  Receivable  as of the Closing Date than the reserve
reflected in the Year-end  Balance Sheet  representing  the Accounts  Receivable
reflected  therein  and will not  represent  a  material  adverse  change in the
composition of such Accounts Receivable in terms of aging). There is no contest,
claim or right of set-off,  under any  Contract  with any obligor of an Accounts
Receivable  relating  to the amount or  validity  of such  Accounts  Receivable.
SCHEDULE 3.8 contains a complete and accurate list of all Accounts Receivable as
of the date hereof, which list sets forth the aging of such Accounts Receivable.

         3.9      TAX MATTERS.

                  (a) The Company  filed all Tax Returns that it was required to
file and all such Tax Returns  relating to the Company were correct and complete
in all respects.  Except as set forth on SCHEDULE  3.9(a)(1),  all Taxes owed by


                                       20


<PAGE>


the  Company,  whether or not shown on any Tax Return,  have been paid when due.
Except as set forth on  SCHEDULE  3.9(a)(2),  the Company is not  currently  the
beneficiary  of any  extension of time within  which to file any Tax Return.  No
claim  with  respect  to the  Company  has ever been made by an  authority  in a
jurisdiction where the Company does not file Tax Returns that any such entity is
or may be subject to taxation by that  jurisdiction.  There is no Lien affecting
the  Shares or any of the  assets or  properties  of the  Company  that arose in
connection with any failure or alleged failure to pay any Tax.

                  (b) The Company has  withheld  and paid all Taxes  required to
have been  withheld  and paid in  connection  with  amounts paid or owing to any
employee,  independent contractor,  creditor, the Principal Shareholder or other
party.

                  (c) No taxing  authority will assess any additional  Taxes for
any period for which Tax Returns relating to the Company have been filed.  There
is no dispute or claim  concerning  any Tax liability of the Company  claimed or
raised by any authority.  SCHEDULE  3.9(c) lists all federal,  state,  local and
foreign  income Tax  Returns of the  Company  for the past six years,  indicates
those Tax Returns  that have been audited and  indicates  those Tax Returns that
currently  are the subject of audit.  The Company has delivered to Merge correct
and complete copies of all federal income Tax Returns,  examination  reports and
statements of deficiencies  assessed against or agreed to by the Company for the
past three years.

                  (d) The Company has not waived any statute of  limitations  in
respect  of Taxes or  agreed to any  extension  of time  with  respect  to a Tax
assessment or deficiency.

                  (e) All  material  elections  in effect as of the date  hereof
with respect to Taxes  affecting  the Company are set forth on SCHEDULE 3.9. The
Company is not or will not be  required to  recognize  positive  adjustments  to
income pursuant to Section 481 of the Code.

                  (f) There are no  outstanding  rulings  of,  or  requests  for
rulings from, any tax authority  addressed to the Company that are, or if issued
would be, binding on the Company.

                  (g) Except as set forth on SCHEDULE  3.9, the Company is not a
party to any joint venture,  partnership or other  arrangement or contract which
could be treated as a partnership for federal income tax purposes.

                  (h) The Company has not filed a consent under  Section  341(f)
of the Code concerning  collapsible  corporations.  The Company has not made any
payments,  is not  obligated  to make  any  payments  and is not a party  to any
agreement  that under any  circumstances  could obligate it to make any payments
that will not be fully  deductible  under Section 280G of the Code.  The Company
has not been a United States real property holding  corporation with the meaning
of Section  897(c)(2)  of the Code during the  applicable  period  specified  in
Section  897(c)(1)(A)(ii)  of the Code. The Company has disclosed on its federal


                                       21


<PAGE>


income  Tax  Returns  all  positions  taken  therein  that  could give rise to a
substantial  understatement  of federal income Tax within the meaning of Section
6662 of the Code.

                  (i) None of the assets or  properties  of the Company  secures
any debt the interest on which is tax-exempt  under Section  103(a) of the Code.
None of the assets or  properties of the Company are  "tax-exempt  use property"
within the meaning of Section 168(h) of the Code. The transactions  contemplated
by this Agreement are not subject to Tax withholding  pursuant to the provisions
of Section 3406 or Subchapter A of Chapter 3 of the Code or any other  provision
of applicable  Law. The Principal  Shareholder  is a United States Person within
the meaning of the Code.

                  (j) Except as set forth on SCHEDULE  3.9, the Company is not a
party to any Tax allocation or Tax sharing agreement. The Company (i) is not and
has not been a member  of an  Affiliated  Group  filing a  consolidated  federal
income Tax Return,  and (ii) has not any  liability  for the Taxes of any Person
under Treasury  Regulation  Section 1.1502-6 (or any similar provision of state,
local or foreign Law), as a transferee or successor, by contract or otherwise.

                  (k) No taxing  authority  will  assess any  additional  income
Taxes against any Affiliated Group for any period during which the Company was a
member of such  group.  There is no dispute or claim  concerning  any income Tax
liability  of any  Affiliated  Group for any  taxable  period  during  which the
Company was a member of such group either (i) claimed or raised by any authority
in writing or (ii) as to which the Company  has  knowledge  based upon  personal
contact with any agent of such  authority.  Except as set forth in SCHEDULE 3.9,
no Affiliated  Group has waived any statute of  limitations  with respect to any
income  Taxes or agreed to any  extension  of time with respect to an income Tax
assessment or deficiency  for any taxable  period during which the Company was a
member of such group.

                  (l) The unpaid  taxes of the Company do not and will not as of
the Closing Date exceed the reserves for tax liability set forth on its Year-end
Balance Sheet.

                  (m) All net  operating  losses  ("NOL's") set forth in the Tax
Returns are valid.

     (n) No new  material  book  deficiencies  are  expected for the fiscal year
ended September 30, 2004.

         3.10     CONTRACTS.

                  (a) Except for the  Contracts  listed on  SCHEDULE  3.10,  the
Company  is not a party to or  otherwise  bound  by any  written  or  oral:  (i)
mortgage,  indenture,  credit agreement,  security agreement,  note, installment
obligation  or  other  instrument  relating  to the  borrowing  of  money;  (ii)
guarantee of any  obligation;  (iii) letter of credit,  bond or other  indemnity
(including letters of credit, bonds or other indemnities as to which the Company


                                       22


<PAGE>


is the beneficiary  but excluding  endorsements of instruments for collection in
the ordinary course of the operation of the Company);  (iv) currency or interest
rate  swap,  collar  or hedge  agreement;  (v)  offset,  countertrade  or barter
agreement;  (vi)  agreement  for the  sale,  lease or other  disposition  by the
Company  to any  Person of any  material  amount of its  assets  other  than the
retirement or other disposition of assets no longer useful to the Company or the
sale of  finished  products  and  spare  parts  in the  ordinary  course  of the
operation of the Company;  (vii) agreement  requiring the payment by the Company
of more than  $10,000 in any  12-month  period for the  purchase or lease of any
machinery, equipment or other capital assets; (viii) agreement providing for the
lease or sublease by the Company (as lessor, sublessor,  lessee or sublessee) of
any real estate or personal property; (ix) distributor,  representative,  broker
or  advertising  agreement  that is not  terminable by the Company at will or by
giving notice of thirty (30) days or less,  without  liability;  (x)  collective
bargaining  agreement,  employment,  change of control,  severance or consulting
agreement or agreement  providing  for  severance  payments or other  additional
rights or benefits  (whether or not  optional);  (xi) joint  venture  agreement;
(xii) agreement  requiring the payment to the Company by any other Person (other
than a division,  unit or  Affiliate of the Company) of more than $10,000 in any
12-month  period for the  purchase of goods or services;  (xiii) any  agreement,
contract or commitment  currently in force  relating to the  acquisition  by the
Company  of assets  not in the  ordinary  course of  business  or any  ownership
interest  in any  corporation,  partnership,  joint  venture  or other  business
enterprise; (xiv) agreement (including purchase orders, work assignment requests
and work assignment  authorizations) between the Company and any other division,
unit or Affiliate of the Company or Shareholder  requiring payments to or by the
Company of more than $10,000 in any 12-month period;  (xv) license or sublicense
agreement  with  respect  to any  item  of  Intellectual  Property  (whether  as
licensor,  licensee,  sublicensor  or  sublicensee);  (xvi)  agreement  imposing
non-competition or exclusive dealing  obligations on the Company which otherwise
contains  any  covenant  that limits the freedom of the Company to engage in any
line of business  anywhere in the world or compete with any Person or grants any
exclusive   distribution  rights;  (xvii)  Contract  that  is  material  to  the
operations,  financial  condition  or  prospects  of the Company and that is not
otherwise reflected on the Schedules;  or (xviii) any Plan,  including any stock
option plan,  stock  appreciation  right plan or stock purchase plan, any of the
benefits  of which will be  increased,  the vesting of benefits of which will be
accelerated,  or amounts which may become payable  (whether  currently or in the
future) to current or former employees,  officers or directors of the Company by
the occurrence of, as a result of or in connection with any of the  transactions
contemplated by this Agreement or the Ancillary Agreements,  or the value of any
of  the  benefits  of  which  will  be  calculated  on the  basis  of any of the
transactions contemplated by this Agreement or any of the Ancillary Agreements.

                  (b) The  Company  has  delivered  or made  available  to Merge
correct and complete copies of each written Contract listed on SCHEDULE 3.10, as
amended to date, and a written summary setting forth the terms and conditions of
each oral  Contract  referred  to on such  Schedule.  Each  Contract is a valid,
binding and enforceable  obligation of the Company, and, to the knowledge of the
Principal Shareholder,  the other party or parties thereto, and is in full force
and effect.  Except as set forth on SCHEDULE  3.10:  (i) neither the Company nor


                                       23


<PAGE>


any other party  thereto  has, to the  knowledge of the  Principal  Shareholder,
breached,  violated or defaulted under, or received notice that it has breached,
violated or defaulted  under,  any Contract set forth on SCHEDULE 3.10;  (ii) no
event,  occurrence or condition  exists that, with the lapse of time, the giving
of notice,  or both, would  constitute a breach,  violation or default under any
Contract listed on SCHEDULE 3.10 by the Company or any other party thereto;  and
(iii) the Company has not waived or released  any of its  material  rights under
any Contract.

         3.11     REAL PROPERTY.

                  (a) The Company does not own any real property.

                  (b)  SCHEDULE  3.11  lists all lease and  sublease  agreements
relating to real  property  leased or subleased by the Company.  With respect to
each such lease and sublease:

                         (i)  such  lease or  sublease  constitutes  the  entire
agreement  to which the  Company  is a party with  respect to the real  property
leased thereunder;

                         (ii) there is no agreement, whether written or oral, to
which the Company is a party that will  shorten the duration of the term of such
lease or sublease as a result of the consummation of the transaction pursuant to
this Agreement;

                         (iii)  the   Company  has  not   assigned,   subleased,
transferred,  conveyed, mortgaged, deeded in trust or encumbered any interest in
the leasehold or subleasehold;

                         (iv) all facilities leased or subleased thereunder have
received all approvals of Governmental Entities (including all Permits) required
in connection  with the operation  thereof and have been operated and maintained
in accordance  with all applicable Laws to the extent operated and maintained by
the Company and to the knowledge of the Company and the Principal Shareholder by
any other party which has contracted with the Company;

                         (v)  there is no  action,  suit or  proceeding  pending
against  the  Company  or, to the any  action,  suit or  proceeding  pending  or
threatened  against  the  Company  or any  third  party  that  would  materially
interfere  with the quiet  enjoyment  of such  leased  real  property  after the
Closing Date;

                         (vi) all facilities leased or subleased  thereunder are
supplied with utilities and other  services  necessary for the operation of such
facilities; and

                  (c)  To  the  knowledge  of  the  Company  and  the  Principal
Shareholder,  no fact or condition exists that is reasonably likely to result in
the  discontinuation of presently available or otherwise necessary water, sewer,
gas,  electric,  telephone,  drainage or other utilities or services relating to
the real property leased by the Company.


                                       24


<PAGE>



                  (d) All of the real  property  leased by the Company,  and all
components  of all  improvements  included  within such  leased  real  property,
including the roofs and structural  elements  thereof and the sprinkler and fire
protection,  heating,  ventilation,  air  conditioning,   plumbing,  electrical,
mechanical,  sewer,  waste  water,  storm water,  paving and parking  equipment,
systems and  facilities  included  therein,  are in good  condition  and repair,
working order and repair and do not require  material  repair or  replacement in
order to serve their intended purposes in all material  respects,  including use
and  operation  consistent  with their  present  use and  operation,  except for
scheduled  maintenance,  repairs and  replacements  conducted or required in the
ordinary  course of the operation of such leased real property.  The Company has
made all material repairs and  replacements  required to be made by it under the
real estate leases and subleases to which the Company is a party.

                  (e)  Other  than  options,  rights of first  refusal  or other
similar  arrangements  in favor of the  Company  under the leases and  subleases
relating to the real property leased by the Company, the Company has not entered
into any  contract,  arrangement  or  understanding  with  respect to the future
ownership,  development,  use,  occupancy  or  operation  of any  parcel of real
property leased by the Company.

                  (f) There are no pending or, to the  knowledge  of the Company
and the  Principal  Shareholder,  threatened  or  contemplated  condemnation  or
eminent domain  proceedings that affect the real property leased by the Company,
and the Company has not received any notice,  oral or written,  of the intention
of any  Governmental  Entity  or  other  Person  to take or use all or any  part
thereof.

                  (g) During the Company' s occupancy, none of the real property
leased by the Company or any part thereof has  suffered  any material  damage by
fire or other casualty that has not been completely restored.

                  (h) The Company has not  received  any written  notice for any
insurance  company  that has issued a policy to the Company  with respect to any
real property leased by the Company  requiring the performance of any structural
or other repairs or alterations to such property.

         3.12     INVENTORY.

         All inventory of the Company, consists of a quality and quantity usable
and salable in the ordinary  course of business,  except for obsolete  items and
items  of  below-standard  quality,  all  of  which  have  been  written-off  or
written-down  to net  realizable  value in the Year-end  Balance Sheet or on the
accounting  records of the Company as of the Closing  Date,  as the case may be.
All inventories not written-off  have been priced at the lower of cost or market
on a first in, first out basis. The quantities of each item of inventory are not
excessive,  but are reasonable in the present  circumstances of the Company. All
work in  progress  of the Company  existing  as of the  Closing,  whether or not
reflected in any of the Year-end  Balance Sheet,  is billable and collectable at


                                       25


<PAGE>


the  Company's  usual and customary  rates and carries the  Company's  usual and
customary profitability margins.

         3.13     TITLE AND RELATED MATTERS.

         Except  as set  forth  on  SCHEDULE  3.13,  the  Company  has  good and
marketable  title,  or,  in the case of  leased  properties  and  assets,  valid
leasehold  interests in, to all the properties and assets  purported to be owned
or leased, respectively,  by it, free and clear of all Liens. The properties and
assets  owned and leased by the Company  include  sufficient  tangible  personal
property to conduct the  business  and  operations  of the Company as  presently
conducted.  All material items of tangible  personal property owned or leased by
the Company are in good operating  condition and repair,  ordinary wear and tear
excepted,  and are suitable for the purposes for which they are presently  being
used and presently  proposed to be used. Each item of tangible personal property
owned or used by the Company  immediately  prior to the Closing will be owned or
available for use by the Company on identical  terms and conditions  immediately
subsequent to the Closing.

         3.14     INTELLECTUAL PROPERTY.

                  (a) The Company owns or has the right to use pursuant to valid
license, sublicense,  Contract or permission all Intellectual Property necessary
or desirable  for their  operations  as presently  conducted  and as the Company
presently proposes to be conducted.  Each item of Intellectual Property owned or
used by the Company  immediately  prior to the Closing will continue to be owned
or available for use by the Company as survivor of the Merger on identical terms
and conditions  immediately  subsequent to the Closing. The execution,  delivery
and performance of this  Agreement,  and the  consummation  of the  transactions
contemplated  hereby  and  thereby,  will not (i)  constitute  a  breach  of any
instrument  or Contract  governing  any  Intellectual  Property,  (ii) cause the
forfeiture or  termination  or give rise to a right of forfeiture or termination
of any  Intellectual  Property or (iii) impair the right of the Company or Merge
to use, sell or license any Intellectual Property or portion thereof.

                  (b) The  Company  has not  interfered  with,  infringed  upon,
misappropriated  or otherwise come into conflict with any Intellectual  Property
rights  of  third  parties.  Neither  the  provision  of  any  service  nor  the
manufacture,  marketing,  license,  sale  or  intended  use  of any  product  or
technology  currently  licensed  or sold or  under  development  by the  Company
violates  any  license or  Contract  between  the Company and any third party or
infringes  any third party  intellectual  property  rights.  The Company has not
received  any  charge,  complaint,  claim,  demand or notice  alleging  any such
interference,  infringement,  misappropriation or violation (including any claim
that the Company must license or refrain  from using any  Intellectual  Property
rights of any third party). No third party has interfered with,  infringed upon,
misappropriated  or otherwise come into conflict with any Intellectual  Property
rights of the Company. Except as set forth on SCHEDULE 3.14, the Company has not
licensed  or  permitted  any  third  party to  exploit  any of the  Intellectual
Property.


                                       26


<PAGE>


                  (c) SCHEDULE 3.14  identifies  each patent or  registration of
Intellectual  Property owned by the Company or for which an application filed by
the Company is pending,  and identifies  each license,  sublicense,  Contract or
permission pursuant to which the Company uses any item of Intellectual Property.

                  (d)  The  Company  and  the  Intellectual  Property  will  not
interfere with,  infringe upon,  misappropriate  or otherwise come into conflict
with any  intellectual  property  rights  of third  parties  as a result  of the
continued  operation  of the  business  of the  Company  now or in the future as
presently conducted or as proposed to be conducted or as otherwise  contemplated
by the Consulting Agreement.

         3.15     LITIGATION.

                  Except as set forth on SCHEDULE  3.15,  the Company is not (a)
subject to any unsatisfied  judgment order, decree,  stipulation,  injunction or
charge or (b) a party to or is  threatened  to be made a party to,  any  charge,
complaint, action, suit, proceeding, hearing or investigation of or in any court
or  quasi-judicial  or  administrative  agency of any federal,  state,  local or
foreign  jurisdiction.   There  are  no  judicial  or  administrative   actions,
proceedings or investigations  pending,  or, to the knowledge of the Company and
the  Principal  Shareholder,  threatened,  that  question  the  validity of this
Agreement or any of the Ancillary  Agreements or any action taken or to be taken
by the Company or Principal Shareholder in connection with this Agreement or any
of the other agreements  contemplated  hereby or that, if adversely  determined,
would  have a  material  adverse  effect  upon the  Company's  or the  Principal
Shareholder's  ability  to enter into or perform  their  obligations  under this
Agreement or any of the other agreements to which they are a party.

         3.16     EMPLOYEE BENEFITS.

         Except  for  Plans of the  Company  disclosed  on  SCHEDULE  3.16,  the
Company,  which for purposes of this Section 3.16 shall  include any  Affiliate,
does  not  sponsor,  maintain,  have any  obligation  to  contribute  to or have
liability  under,  and is not  otherwise  a party to any Plan or other  employee
benefit  arrangements  and payroll  practices.  With respect to each Plan of the
Company and to the extent applicable:

                  (a) Each Plan has been  maintained  and operated in compliance
in all material  respects with its terms and with the  applicable  provisions of
ERISA, the Code,  including  Section 408 thereof,  all regulations,  rulings and
other authority issued  thereunder,  and all other applicable  governmental laws
and  regulations,  including all tax rules for which  favorable tax treatment is
intended;

                  (b)  All  contributions   required  by  Law  or  any  Plan  or
applicable collective bargaining agreement (including all employer contributions
and  employee  salary  reduction  contributions  for any period on or before the
Closing Date) have been made under any such Plan (without  regard to any waivers
granted under Section 412 of the Code to any fund, trust, or account established


                                       27


<PAGE>


thereunder or in connection  therewith) have been made or will have been made by
the due date thereof.  All accrued  contributions,  premiums and other  payments
that would be (without regard to the transactions  contemplated hereby), but are
not yet, due from any of the Company or  associates  to (or under) any Plan have
been adequately and properly provided for on the Preliminary Balance Sheet;

                  (c) The SEP IRA Plan  set  forth on  SCHEDULE  3.16  qualified
under Section 401(a) of the Code prior to its termination in 2004;

                  (d) Except as set forth on SCHEDULE  3.16,  no Plan that is an
Employee  Welfare Benefit Plan provides for continuing  benefits or coverage for
any  participant  or  beneficiary  of a  participant  after  such  participant's
termination of employment,  except to the extent  required by law; and there has
been no violation of Section 4980B of the Code or Sections 601-608 of ERISA with
respect to any such Plan that could result in any material liability;

                  (e)  With  respect  to each  such  Plan,  true,  correct,  and
complete  copies  of the  applicable  following  documents  have  been  filed or
distributed  appropriately  and made  available  to Merge:  (i) all current Plan
documents, and any amendment thereto; (ii) Forms 5500, financial statements, and
actuarial  reports  for the  last  three  (3) plan  years;  (iii)  summary  plan
descriptions;  (iv) the most recent  determination  letter received from the IRS
and (v) the related  trust  agreements,  insurance  contracts  and other funding
agreements that implement such Plans;

                  (f) The Company has never  contributed  to or been required to
contribute to any Multiemployer Plan;

                  (g) SCHEDULE 3.16 includes a workers'  compensation  paid loss
summary  through  October  31, 2004 on an accident  year  basis.  SCHEDULE  3.16
additionally  includes a listing  through the Closing  Date of all open  workers
compensation claims showing claimant name, claim number, description,  paid loss
and case reserve;

                  (h) The Company has never been nor is a party to or  otherwise
bound by any advance  agreement  or similar  arrangement  with any  Governmental
Entity  or  regulatory  body  relating  to  the   allowability,   allocation  or
reimbursement  of benefit costs or other matters in connection  with any Company
Plan;

                  (i) Except as provided on SCHEDULE  3.16, no Plan contains any
provision that would prohibit the  transactions  contemplated  by this Agreement
and  the  Ancillary  Agreements  or  that  would  give  rise  to any  severance,
termination  or  other  payments   solely  as  a  result  of  the   transactions
contemplated by this Agreement and the Ancillary Agreements;

                  (j) Any Plan (or prospective, unaccrued and unvested liability
related  thereto)  is by its  terms  able to be  amended  or  terminated  by the
Company;


                                       28


<PAGE>


                  (k) There are no liabilities  or  obligations  relating to any
individual's  current or former  employment  with the Company or its  Affiliates
arising in  connection  with any  violation of any  applicable  Law prior to the
Closing Date;

                  (l) There have been no Prohibited Transactions with respect to
such Plans,  no fiduciary has any liability for breach of fiduciary  duty or any
other  failure  to act or  comply  in  connection  with  the  administration  or
investment of the assets of such Plans, and no action, suit, proceeding, hearing
or  investigation  with respect to the  administration  or the investment of the
assets of such Plans  (other than  routine  claims for  benefits)  is pending or
threatened.

                  (m)  Neither the Company  nor the  Principal  Shareholder  has
communicated to any employee  (excluding  internal  memoranda to management) any
plan or  commitment,  whether or not legally  binding,  to create any additional
material  Plan or  materially  modify or change any Plan that  would  affect any
employee or  terminated  employee of the Company or any of its  Affiliates  in a
material manner;

                  (n) No individual classified as a non-employee for purposes of
receiving employee benefits (such as an independent contractor, leased employee,
consultant or special  consultant),  regardless of treatment for other purposes,
is eligible to participate in or receive  benefits under any Plan which does not
specifically provide for their participation. A list of all non-employees is set
forth on SCHEDULE 3.16.

                  (o)  Except for the SEP IRA Plan set forth on  SCHEDULE  3.16,
the Company has never sponsored an Employee Pension Benefit Plan.

                  (p) The Company has never self insured any  employee  benefit,
including  employees' health insurance program,  except as disclosed in SCHEDULE
3.16.

         3.17     LABOR RELATIONS; EMPLOYEES.

                  (a) None of the Company's employees are represented by a labor
union or similar  collective  bargaining  organization  in connection with their
employment  by the  Company.  There  are no  controversies  pending  or,  to the
knowledge of the Company and the Principal  Shareholder,  threatened between the
Company and any current or former  employee of the Company or any labor or other
collective  bargaining unit  representing  any current or former employee of the
Company that could reasonably be expected to result in a labor strike,  lockout,
dispute,  slow-down or work stoppage or otherwise have a material adverse effect
on the  financial  condition,  operations  or prospects  of the Company.  To the
knowledge  of  the  Company  and  the   Principal   Shareholder,   there  is  no
organizational  effort presently being made or threatened by or on behalf of any
labor union or collective  bargaining  organization with respect to employees of
the Company.  The Company is and has been in material  compliance  with all Laws
regarding employment  practices,  terms and conditions of employment,  and wages


                                       29


<PAGE>


and  hours  (including   ERISA,  the  Workers   Adjustment  and  Retraining  and
Notification Act or any similar state or local law).

                  (b) SCHEDULE  3.17(b) contains a complete and accurate list of
the  following  information  for  each  employee  or  director  of the  Company,
including each employee on leave of absence or layoff  status:  name; job title;
current  compensation  paid or  payable  and any  change in  compensation  since
December  31,  2003;  vacation  accrued;  and service  credited  for purposes of
vesting and eligibility to participate under the Company's pension,  retirement,
profit-sharing,   thrift-savings,  deferred  compensation,  stock  bonus,  stock
option,  cash bonus,  employee stock ownership  (including  investment credit or
payroll  stock  ownership),  severance  pay,  insurance,  medical,  welfare,  or
vacation plan,  other Employee  Pension Benefit Plan or Employee Welfare Benefit
Plan, or any other employee benefit Plan or any director plan.

                  (c) No  employee  or director of the Company is a party to, or
is  otherwise   bound  by,  any   agreement  or   arrangement,   including   any
confidentiality,  noncompetition, or Intellectual Property or proprietary rights
agreement,  between  such  employee or director and any other Person that in any
way adversely  affects or will affect the performance of his or her duties as an
employee or director of the Company or the ability of the Company to conduct its
business.  To the  knowledge of the Company and the  Principal  Shareholder,  no
director,  officer, key employee or group of employees of the Company intends to
terminate his or her employment with the Company.

                  (d)  Neither  the  Principal  Shareholder  nor the Company has
guaranteed or promised continuing employment to any employee,  and the Principal
Shareholder  and the Company  understand  that business  conditions will dictate
appropriate employment levels after the Closing.

                  (e) SCHEDULE  3.17(e) contains a complete and accurate list of
the following  information for each retired employee or director of the Company,
or their dependents,  receiving benefits or scheduled to receive benefits in the
future:  name;  pension  benefit;  pension  option  election;   retiree  medical
insurance coverage; retiree life insurance coverage; and other benefits.

         3.18     ENVIRONMENTAL MATTERS.

                  (a)  The  Company  is,  and at all  times  has  been,  in full
compliance  with,  and has not been and is not in violation of or liable  under,
any Environmental Law. Neither the Company nor the Principal Shareholder has any
basis to expect, nor has either of them or any Person for whose conduct they are
or may be held to be  responsible,  received  any  actual or  threatened  order,
notice  or other  communication  from (i) any  Governmental  Entity  or  private
citizen  acting in the public  interest,  or (ii) the  current or prior owner or
operator  of any  facilities  used,  owned or  operated  by the  Company  or the
property  on which  such  facilities  are,  or were  located,  of any  actual or
potential  violation or failure to comply with any Environmental  Law, or of any
actual  or  threatened   obligation  to  undertake  or  bear  the  cost  of  any
Environmental,  Health,  and  Safety  Liabilities  with  respect  to  any of the


                                       30


<PAGE>


facilities or any other properties or assets (whether real, personal,  or mixed)
in which the Company has or had an interest,  or with respect to any property or
facility  at or to  which  Hazardous  Materials  were  generated,  manufactured,
refined,  transferred,  imported, used or processed by the Company or any Person
for  whose  conduct  it is  found to be  responsible,  or from  which  Hazardous
Materials  have  been  transported,   treated,  stored,  handled,   transferred,
disposed, recycled or received.

                  (b) There are no pending or threatened  claims,  encumbrances,
or other restrictions of any nature,  resulting from any  Environmental,  Health
and Safety  Liabilities or arising under or pursuant to any  Environmental  Law,
with respect to or affecting any of the  facilities or any other  properties and
assets  (whether  real,  personal,  or mixed) in which the Company has or had an
interest.

                  (c) Neither the Principal  Shareholder nor the Company has any
basis to expect, nor has either of them or any Person for whose conduct they are
or may be held responsible,  received, any citation, directive, inquiry, notice,
order,  summons,  warning  or other  communication  that  relates  to  Hazardous
Materials,  Hazardous Activity or any alleged,  actual or potential violation or
failure to comply  with any  Environmental  Law,  or of any  alleged,  actual or
potential  obligations  to  undertake  or bear  the  cost of any  Environmental,
Health,  and Safety  Liabilities  with respect to any of the  facilities  or any
other  properties  or assets  (whether  real,  personal,  or mixed) in which the
Company has or had an  interest,  or with respect to any property or facility to
which  Hazardous  Materials  generated,   manufactured,   refined,  transferred,
imported, used or processed by the Company or any Person for whose conduct it is
found to be  responsible,  have  been  transported,  treated,  stored,  handled,
transferred, disposed, recycled or received.

                  (d) Neither the Principal  Shareholder nor the Company, or any
Person for whose conduct they are or may be held responsible, has Environmental,
Health, and Safety Liabilities with respect to the facilities or with respect to
any other properties and assets (whether real, personal,  or mixed) in which the
Company (or any predecessor) has or had an interest,  or any such other property
or assets.

                  (e)  There are no  Hazardous  Materials,  except  as  properly
stored in compliance with  Environmental  Laws in commercial  containers also in
compliance  therewith for day-to-day use in the ordinary and usual course of the
Company's  business,  present  on or  in  the  environment  at  the  facilities,
including any Hazardous  Materials  contained in barrels,  above or  underground
storage tanks, landfills,  land deposits,  dumps, equipment (whether moveable or
fixed) or other  containers,  either  temporary or  permanent,  and deposited or
located  in land,  water,  sumps or any  other  part of the  facilities  or such
adjoining  property,  or  incorporated  into any  structure  therein or thereon.
Neither  the  Principal  Shareholder  nor the  Company,  or any Person for whose
conduct they are or may be held responsible,  or any other Person, has permitted
or conducted,  or is aware of, any Hazardous  Activity conducted with respect to
the facilities or any other properties or assets,  (whether real,  personal,  or
mixed) in which the Company has or had an interest.


                                       31


<PAGE>


                  (f) There has been no  Release  or,  to the  knowledge  of the
Company  and the  Principal  Shareholder,  threat of  Release  of any  Hazardous
Materials  at or  from  the  facilities  or at any  other  locations  where  any
Hazardous  Materials  were  generated,   manufactured,   refined,   transferred,
produced,  imported, stored,  distributed,  handled, managed, Released, treated,
used or processed from or by the facilities,  or from or by any other properties
and assets (whether real, personal, or mixed) in which the Company has or had an
interest, whether by the Company or any Person.

                  (g) The  Company  has  delivered  to Merge  true and  complete
copies and results of any  reports,  studies,  analyses,  tests,  or  monitoring
possessed  or  initiated by the Company  pertaining  to  Hazardous  Materials or
Hazardous Activities in, on, or under the facilities,  or concerning  compliance
by the  Company,  or by any  Person  for  whose  conduct  it are or may be  held
responsible, with Environmental Laws.

         3.19     LEGAL COMPLIANCE.

         Except as set forth on SCHEDULE  3.19,  the Company has fully  complied
with  all   applicable   Laws  and  no  action,   suit,   proceeding,   hearing,
investigation,  charge,  complaint,  claim,  demand or notice  has been filed or
commenced  against or, to the knowledge of the Principal  Shareholder,  has been
threatened   against  the  Company  alleging  any  failure  to  so  comply.   No
investigation  or review by any  Governmental  Entity is pending  or  threatened
against the  Company  and no  Governmental  Entity has  indicated  in writing or
orally,  an  intention  to conduct the same.  There is no  agreement,  judgment,
injunction,  order or  decree  binding  upon  the  Company,  which  has or could
reasonably  be expected to have the effect of  prohibiting  or impairing (i) any
business  practice of the Company,  (ii) any  acquisition  by or property of the
Company or (iii) the conduct of business by the Company.

         3.20     PERMITS.

         SCHEDULE 3.20  contains a true and complete list and brief  description
of all of the Permits  required  to allow,  in  accordance  with the Laws of any
Governmental  Entity,  the continued  operation of the business as now conducted
(or proposed to be conducted under existing  Contracts),  and the Company is the
authorized legal holder of the Permits. Each of the Permits is valid and in full
force and effect,  the Company is in compliance  with all the  provisions of the
Permits in all material  respects.  The Company has not received notice that any
Governmental  Entity  has  instituted  any  proceedings  for  the  cancellation,
non-renewal or modification of any of the Permits; there is no reason why any of
such  Permits  will,  upon  their  scheduled  expiration  or as a result  of the
Closing,  not be  renewable  or  reissuable  in the  ordinary  course or will be
issuable or reissuable only with the imposition of a material condition.


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<PAGE>


         3.21     AFFILIATE AGREEMENTS

         SCHEDULE 3.21 sets forth: (i) a list of each and every written Contract
or  arrangement;  (ii) a brief  description  in  reasonable  detail  of all oral
Contracts  or  arrangements  in effect  that  relate to, in either  case (x) the
provision of products or services to the Company by any Principal Shareholder of
the Company,  officer,  director or employee, or any Related Person or Affiliate
of the Company or any Principal  Shareholder of the Company or (y) the provision
of products or services by the Company to the  Principal  Shareholder,  officer,
director  or  employee,  or any Related  Person or  Affiliate  of any  Principal
Shareholder  of the  Company,  officer,  director or  employee.  The Company has
delivered to Merge correct and complete copies of each such written  Contract or
arrangement,  as amended to date. Except as set forth on SCHEDULE 3.21, all such
Contracts and  arrangements  with Related Parties are on terms no less favorable
than those that could be obtained in arms-length  transactions  with non-related
parties.  Except as set forth on SCHEDULE  3.21, no  Shareholder of the Company,
officer,  director or employee of the Company has any interest in any  property,
real or personal,  tangible or intangible, used in or pertaining to the business
of the Company.

         3.22     INSURANCE.

         SCHEDULE 3.22 contains a correct and complete list and  description  by
type of all policies of fire,  liability,  directors' and officers',  errors and
omissions,  workers'  compensation  and other forms of insurance,  including all
group insurance programs, owned or held by the Company. All such policies are in
full force and effect,  and no written notice of cancellation or termination has
been received with respect to any such policy. Except as noted on SCHEDULE 3.22,
all premiums with respect to all insurance  policies  covering all periods up to
and including the date hereof have been paid. Such policies,  (a) are sufficient
for  compliance  with  all  material  requirements  of Law  and of all  material
Contracts  to which the  Company  is a party,  (b) are  valid,  outstanding  and
enforceable  policies as against the Company, (c) provide insurance coverage for
the assets and operations of the Company that, in the reasonable judgment of the
Principal Shareholder and the management of the Company, is adequate in light of
risks of the Company's business as heretofore conducted, (d) will remain in full
force and effect through the respective dates set forth in SCHEDULE 3.22 without
the payment of  additional  premiums and (e) will not in any way be affected by,
or  terminate  or lapse by reason  of,  the  transactions  contemplated  by this
Agreement  or the  Ancillary  Agreements.  The Company has not been  refused any
insurance  with  respect  to its  assets or  operations,  nor has any  insurance
carrier  to which it has  applied  for any such  insurance  or with which it has
carried insurance limited its coverage.

         3.23     BANK ACCOUNTS AND POWERS.

         SCHEDULE  3.23 lists each bank,  trust  company,  savings  institution,
brokerage  firm,  mutual  fund or other  financial  institution  with  which the
Company has an account or safe deposit box relating to the Company and the names
and  identification of all Persons  authorized to draw thereon or to have access
thereto. SCHEDULE 3.23 lists the names of each Person holding powers of attorney
or agency authority from the Company and a summary of the terms thereof.


                                       33


<PAGE>


         3.24     BROKERS' FEES.

         The Principal  Shareholder,  the Company and their agents have not, nor
will they incur, directly or indirectly,  any liability or obligation to pay any
fees or  commissions  to any  broker,  finder  or  agent  with  respect  to this
Agreement or any Ancillary Agreement or of any of the transactions  contemplated
hereby or thereby.

         3.25     CERTAIN PAYMENTS.

         Neither the Company nor any director,  officer,  agent,  or employee of
the Company,  or to the knowledge of the Company and the Principal  Shareholder,
any  Person  associated  with or acting  for or on behalf  of the  Company,  has
directly or indirectly (a) made any contribution,  gift, bribe, rebate,  payoff,
influence payment,  kickback or other payment to any Person,  private or public,
regardless  of form,  whether  in  money,  property  or  services  (i) to obtain
favorable  treatment in securing business,  (ii) to pay for favorable  treatment
for  business  secured,  (iii) to  obtain  special  concessions  or for  special
concessions already obtained,  for or in respect of the Company or any Affiliate
of the  Company,  or  (iv)  in  violation  of any  Law,  or (b)  established  or
maintained any fund or asset that has not been recorded in the books and records
of the Company.

         3.26     CUSTOMER RELATIONSHIPS.

         Except as set forth in SCHEDULE  3.26,  there has not been, and neither
the Company nor the Principal  Shareholder has knowledge of circumstances giving
rise to cause  either of them to  reasonably  believe  that  there  will be, any
adverse  change  in the  Company's  relations  with any of its  customers  since
December 31, 2003, whether as a result of the transactions  contemplated by this
Agreement or the Ancillary Agreements, or otherwise.  SCHEDULE 3.26 sets forth a
true and complete list of the Company's ten (10) largest customer accounts as of
the date  hereof.  No current  customer  of the  Company has advised the Company
that, as a result of the  transactions  contemplated by this Agreement or any of
the Ancillary Agreements,  it is terminating the handling of its business by the
Company,  as a whole  or in part,  or  reducing  its  future  spending  with the
Company.  Except as set forth in SCHEDULE  3.26,  the Company is not involved in
any material claim or controversy with any customer.

         3.27     VENDORS.

         SCHEDULE  3.27  contains an accurate and complete list of the Company's
ten (10)  largest  vendors  as of the date  hereof.  No vendor has  canceled  or
otherwise  terminated,  modified or threatened to cancel or otherwise terminate,
or to modify, its relationship with the Company. Except as set forth on SCHEDULE
3.27, the Company is not involved in any material claim or controversy  with any
vendor.


                                       34


<PAGE>


         3.28     BOARD APPROVAL.

         The  Board  of  Directors  of  the  Company  has  determined  that  the
transactions  contemplated  by this  Agreement  are  fair  to,  and in the  best
interests  of, the Company and the  Shareholders,  and the Board of Directors of
the  Company  has  approved  this  Agreement  and the Voting  Agreement  and the
transactions contemplated thereby.

         3.29     BOOKS AND RECORDS.

         Except as set forth on Schedule 3.29, all accounts, stock record books,
ledgers and other  records  related to the  business  of the  Company  have been
properly  and  accurately  kept  and  completed  in  all  material  respects  in
accordance  with  reasonable  business  practices,  and  there  are no  material
inaccuracies or discrepancies of any kind contained or reflected therein. Except
as set forth on Schedule 3.29, the minute books of the Company contain  accurate
and complete records of all material corporate actions taken by the Shareholders
of the Company,  the Board of Directors and committees of the Board of Directors
which are  required  to be  approved  by them.  To the extent  that any  records
related to the Company are missing  from or not  included in the minute books of
the Company (the "Missing  Records"),  the Company  represents and warrants that
the Missing Records contain or reflect no action,  decisions or practices in any
way inconsistent with the business of the Company as currently conducted or with
the  representations of the Company and the Principal  Shareholder  contained in
this Agreement.

         3.30     ANTITRUST LAW COMPLIANCE.

         The  Company  has not  violated  in any  respect,  received a notice or
charge  asserting any violation,  or engaged in conduct that may be construed as
price  fixing or any other  violation  of the Sherman  Act, the Clayton Act, the
Robinson-Patman Act or the Federal Trade Commission Act, each as amended, or any
other federal or state Law related to antitrust or competition.

         3.31     PRODUCT LIABILITY.

         The  Company  has no  liability,  whether  known  or  unknown,  whether
absolute or contingent, whether liquidated or unliquidated and whether due or to
become due, and there exists no past or present fact,  situation,  circumstance,
status, condition,  activity,  practice,  occurrence,  event, incident,  action,
failure to act or transaction that forms or could form the basis for any present
or future liability,  charge,  complaint,  action,  suit,  proceeding,  hearing,
investigation,  claim or demand against the Company arising out of any injury to
persons  or  property  as a result of the  ownership,  possession  or use of any
product manufactured, sold, leased or delivered by the Company or as a result of
any service provided by the Company.


                                       35


<PAGE>


         3.32     FULL DISCLOSURE.

         All documents and other papers delivered by or on behalf of the Company
or the  Principal  Shareholder  in  connection  with  this  Agreement  are true,
complete,  correct and authentic in all respects.  No representation or warranty
of any of the Principal  Shareholder or the Company contained in this Agreement,
and no  statement  contained  in any  document  or  certificate  required  to be
delivered  by the Company or the  Principal  Shareholder  to Merge or any of its
representatives  pursuant  to the  terms  of  this  Agreement  or the  Ancillary
Agreements  (including  the Schedules  hereto and thereto),  contains any untrue
statement  of a  material  fact or omits to state on an  appropriate  schedule a
material  fact  necessary  to make the  representation,  warranty or  statements
contained herein or therein not misleading. There is no fact that the Company or
the  Principal  Shareholder  have not  disclosed  to Merge in  writing  that the
Company or Principal Shareholder  reasonably believe has or will have a material
adverse  effect on the  financial  conditions,  operations  or  prospects of the
Company  or a  material  adverse  effect on the  ability  of the  Company or the
Principal  Shareholder  of the Company to perform  this  Agreement  or any other
agreements contemplated hereby to which any of them is a party.

         3.33     INTERNAL CONTROL OVER FINANCIAL REPORTING.

         The Company  maintains  books of account which  accurately  and validly
reflect all loans,  mortgages,  collateral,  and other business transactions and
maintain  proper and adequate  internal  control over financial  reporting which
provide  assurance that (a) receipts and expenditures are made and access to the
Company's   assets  is   permitted   only  in   accordance   with   management's
authorization;  (b) the books and records of the Company  accurately  and fairly
reflect in reasonable  detail the transactions and dispositions of the assets of
the Company;  (c) the  reporting  of the assets of the Company is compared  with
existing assets at regular intervals; (d) transactions are recorded as necessary
to permit preparation of financial  statements of the Company in accordance with
GAAP  and  to  maintain  accountability  for  the  assets  of the  Company;  (e)
unauthorized  acquisition,  use, or  disposition of the assets of the Company is
prevented;  and  (f)  accounts,  notes,  and  other  transactions  are  recorded
accurately,  and proper and adequate  procedures  are  implemented to effect the
collection  thereof on a current and timely basis.  Schedule 3.33 identifies all
significant  deficiencies  or material  weaknesses in the internal  control over
financial reporting of the Company.

          3.34    COMPLIANCE WITH SOX.

         The Company is in compliance  with the  provisions of SOX applicable to
it as of the  date  hereof  and has  implemented  such  programs  and has  taken
reasonable  steps,  upon the advice of the  Company's  independent  auditors and
outside counsel,  respectively,  to ensure the Company's future  compliance (not
later than the relevant  statutory and regulatory  deadlines  therefor) with all
provisions  of SOX which shall become  applicable  to the Company after the date
hereof.


                                       36


<PAGE>


               SECTION 4. REPRESENTATIONS AND WARRANTIES OF MERGE

         Merge and  Acquisition Sub represent and warrant to, and covenant with,
the Company and the Principal  Shareholder  as of the date of this Agreement and
as of the Closing Date, as follows:

         4.1      ORGANIZATION.

         Merge  and  Acquisition  Sub are  each a  corporation  duly  organized,
validly  existing and in good standing  under the laws of the State of Wisconsin
and the State of Nevada, respectively.

         4.2      AUTHORIZATION OF TRANSACTION.

         The execution and delivery of this  Agreement and the  consummation  of
the transactions  contemplated hereby have been duly authorized by all necessary
action on the part of the Board of Directors of Merge and Acquisition Sub. Merge
and Acquisition Sub have the absolute and unrestricted right,  power,  authority
and capacity  (including  full corporate  power and authority) or have taken all
requisite action to enable Merge and Acquisition Sub to execute and deliver this
Agreement and to perform their  obligations  hereunder.  This Agreement has been
duly executed and delivered by Merge and Acquisition Sub. When duly executed and
delivered,  this Agreement  constitutes the valid and legally binding obligation
of Merge and Acquisition Sub,  enforceable in accordance with its terms, subject
to (i) laws of general application  relating to bankruptcy  insolvency,  and the
relief of debtors, and (ii) general equitable principles.

         4.3      NONCONTRAVENTION; CONSENTS.

         Neither  the  execution  and the  delivery of this  Agreement,  nor the
consummation  by Merge  and  Acquisition  Sub of the  transactions  contemplated
hereby, will violate any Law to which Merge or Acquisition Sub is subject or any
provision  of the  charter or bylaws of Merge or  Acquisition  Sub.  Neither the
execution and delivery of this  Agreement or any of the Ancillary  Agreements by
Merge and Acquisition  Sub, nor the consummation by Merge and Acquisition Sub of
the transactions contemplated hereby or thereby, will constitute a violation of,
be in conflict with or constitute  or create a default  under,  any agreement or
commitment  to which  Merge  or  Acquisition  Sub is a party or by which  Merge,
Acquisition  Sub or  any  of  their  properties  is  bound  or to  which  Merge,
Acquisition Sub or any of such properties is subject.  Merge and Acquisition Sub
have given all required  notice and obtained all Permits,  consents,  approvals,
authorizations,  qualifications  and  orders  of  Governmental  Entities  as are
required  in  order  to  enable  Merge  and  Acquisition  Sub to  perform  their
obligations under this Agreement and each of the Ancillary Agreements.


                                       37


<PAGE>


                        SECTION 5. PRE-CLOSING COVENANTS

         The parties  agree as follows  with  respect to the period  between the
date of this Agreement and the Closing Date:

         5.1      GENERAL.

         Each of Merge,  the Company and the Principal  Shareholder will use its
reasonable  best  efforts to take all  actions  and to do all things  necessary,
proper  or  advisable  to  consummate  and  make   effective  the   transactions
contemplated by this Agreement (including  satisfying the closing conditions set
forth in Section 7).

         5.2      NOTICES AND CONSENTS.

         Beginning  on the date  hereof,  the  Company  will  give all  required
notices to third  parties  and will  obtain all third  party  consents  that are
required in connection  with the  transactions  contemplated  by this Agreement,
each in form and substance reasonably acceptable to Merge. A copy of such notice
or consent shall be provided to Merge as soon as practicable.

         5.3      CARRY ON IN ORDINARY COURSE.

                  (a) Between the date of this  Agreement  and the Closing Date,
the Company will conduct and carry on its business  only in the ordinary  course
consistent with past practices.  Until such time, the Company also shall use its
commercially reasonable efforts to preserve the Company's assets, relationships,
customers,  clients and  employees  and to preserve for Merge the  integrity and
reputation  of the  Company,  and  shall not take any of the  following  actions
without  the  prior  written  consent  of  Merge,  which  consent  shall  not be
unreasonably withheld:

                      (i) form or cause to be formed any subsidiary;

                      (ii)  make  any   change  in  any   executive   management
                       personnel;

                      (iii) enter  into any  contract  of  employment  with,  or
                       increase  the  compensation  paid or payable to, or enter
                       into  any new  arrangements  with,  any of its  officers,
                       directors, employees or agents or pay or become committed
                       to pay any of the  foregoing any bonuses or other special
                       compensation  except for non-management  employees in the
                       ordinary course of business;

                      (iv) amend its charter or bylaws;

                       (v)  authorize,  issue or  sell,  repurchase,  or  become
                       committed to authorize, issue or sell, or repurchase, any
                       shares  of  capital  stock or any  rights or  options  to
                       acquire capital stock except pursuant to the acceleration
                       or  exercise of rights or options  previously  granted by
                       the Company;


                                       38


<PAGE>


                      (vi) make any single  expenditure  in an amount  exceeding
                      ten thousand dollars  ($10,000),  or expenditures which in
                      the  aggregate   exceed   twenty-five   thousand   dollars
                      ($25,000), or agree to sell, transfer, assign or encumber,
                      any of the Company's  assets except in the ordinary course
                      of business;

                      (vii) pay or declare any dividends to its shareholders; or

                      (viii) pay, declare or announce any capital distribution.

                  (b) Between the date of the  Agreement  and the Closing  Date,
the Company and the Principal Shareholder further agree to:

                       (i) use their  reasonable best efforts to preserve intact
                       the current  business of the Company,  keep available the
                       services of the current officers, employees and agents of
                       the Company, and maintain the relations and goodwill with
                       customers,  vendors,  landlords,   creditors,  employees,
                       agents and others having business  relationships with the
                       Company;

                       (ii) confer with Merge concerning  operational  matters
of a material nature; and

                      (iii) otherwise  report  periodically to Merge  concerning
                      the  status  of the  business,  operations,  finances  and
                      prospects of the Company.

                           (c) Neither the Company,  the  Principal  Shareholder
nor Merge shall take any action
that could  reasonably  be expected to  adversely  affect its ability to perform
this Agreement.

                           (d) The  Principal  Shareholder  will  not  transfer,
pledge or otherwise dispose of any of
his Shares owned on the date hereof.

                           (e) The Company will not make a voluntary  bankruptcy
filing, an assignment for the
benefit of creditors or take any other similar action.

         5.4      NO DEFAULT.

         The Company  will not commit or omit to take any act which will cause a
termination of or material breach or default under any Contract or obligation to
which the Company is a party or by which its assets are bound.


                                       39


<PAGE>


         5.5      FULL ACCESS.

         Until  the  Closing  Date  and  the  consummation  of the  transactions
contemplated by this Agreement,  the Company and the Principal Shareholder agree
to give reasonable access to Merge and Merge's agents and representatives to all
assets,  properties,  contracts,  personnel, key customers,  suppliers,  agents,
books and records of the Company and/or any other data and  information  related
to the Company as Merge and/or its agents or representatives may reasonably deem
necessary,  and further agree to cause Company's  executive  employees and legal
and financial representatives to meet with Merge at mutually agreeable times and
locations and answer Merge's  questions to the best of their ability,  including
but not limited to their  assessment  of all pending,  threatened  or contingent
claims  or  lawsuits  against  the  Company.   The  Company  shall  also  afford
unrestricted   access  to  all  its  audit   papers  and  allow  Merge  and  its
representatives  the  opportunity to ask questions and receive  answers,  to the
best of their ability, of the appropriate officers and agents of the Company.

         5.6      NOTICE OF DEVELOPMENTS.

         The Company and the Principal Shareholder will each give prompt written
notice to Merge of any material  development  affecting the Company.  Each party
will  give  prompt  written  notice  to the  other of any  material  development
affecting the ability of the parties to consummate the transactions contemplated
by this Agreement or any of the Ancillary Agreements.  No such written notice of
a material  development  will be deemed to have amended the  Schedules,  to have
qualified  the  representations  and  warranties  contained  herein  or  in  the
Ancillary  Agreements,  or to have  cured  any  misrepresentation  or  breach of
warranty that otherwise might have existed  hereunder by reason of such material
development.

         5.7      NO SOLICITATION OF TRANSACTIONS.

                  (a) The  Company  agrees  that it shall  not,  and  shall  not
authorize or permit any of its directors, officers, employees or representatives
to, directly or indirectly:

                      (i) solicit, initiate, encourage,  knowingly facilitate or
induce any inquiry with respect
to, or the making, submission or announcement of, any Acquisition Proposal;

                      (ii)   participate   or  engage  in  any   discussions  or
negotiations regarding, or furnish to any
Person any  nonpublic  information  with respect to, or take any other action to
facilitate  any inquiries or the making of any proposal that  constitutes or may
reasonably be expected to lead to, any  Acquisition  Proposal,  except to notify
such  Person as to the  existence  of these  provisions  (except  to the  extent
permitted pursuant to this Section 5.7);

                      (iii)  approve,   endorse  or  recommend  any  Acquisition
Proposal with respect to the
Company (except to the extent permitted by this Section 5.7); or


                                       40


<PAGE>


                      (iv)  enter  into  any  letter  of  intent  or  similar
document  or  any  agreement,   commitment  or  understanding  contemplating  or
otherwise  relating to any  Acquisition  Proposal or a transaction  contemplated
thereby (except for  confidentiality  agreements  permitted  pursuant to Section
5.7(c)).

         The  Company   shall   immediately   terminate   all   discussions   or
negotiations,  if any,  with any third party with  respect to, or any that could
reasonably  be  expected  to lead  to or  contemplate  the  possibility  of,  an
Acquisition Proposal.  The Company shall as soon as practicable demand that each
Person which has executed,  since January 1, 2003, a  confidentiality  agreement
with the Company or any of its Affiliates or any of its or their representatives
with respect to such Person's  consideration of a possible  Acquisition Proposal
to  immediately  return or destroy  (which  destruction  shall be  certified  in
writing by such Person to the Company) all confidential  information  heretofore
furnished by the Company or any of its Affiliates or  subsidiaries or any of its
or their  representatives  to such Person or any of its Affiliates or any of its
or their representatives.

                  (b) Promptly  (but in any event within 36 hours) after receipt
of any Acquisition Proposal or any request for nonpublic  information or inquiry
which it reasonably believes could lead to an Acquisition Proposal,  the Company
shall provide Merge with written  notice of the material terms and conditions of
such Acquisition Proposal, request or inquiry, and the identity of the Person or
group making any such Acquisition  Proposal,  request or inquiry,  and a copy of
all written  materials  provided in connection with such  Acquisition  Proposal,
request or  inquiry.  After  receipt  of the  Acquisition  Proposal,  request or
inquiry, the Company shall promptly keep Merge informed in all material respects
of the status and details  (including  material  amendments or proposed material
amendments)  of any such  Acquisition  Proposal,  request or  inquiry  and shall
promptly provide to Merge a copy of all written materials  subsequently provided
in connection with such Acquisition Proposal, request or inquiry.

                  (c) If the Company receives an Acquisition  Proposal which (i)
constitutes  a Superior  Proposal  or (ii) which the Board of  Directors  of the
Company in good faith  concludes  could  reasonably  be  expected to result in a
Superior  Proposal,  the Company shall promptly  provide to Merge written notice
that shall state  expressly  (A) that it has  received an  Acquisition  Proposal
which  constitutes a Superior  Proposal or which could reasonably be expected to
result in a Superior  Proposal,  and (B) the  identity of the party  making such
Acquisition  Proposal and the material terms and  conditions of the  Acquisition
Proposal  (the  "Superior  Proposal  Notice" ) and may then  take the  following
actions (either  directly or through its subsidiaries or any of their respective
directors, officers, employees or representatives):

                         (i) furnish  nonpublic  information  to the third party
making such Acquisition Proposal, provided, that (A) prior to so furnishing, the
Company  receives  from the third  party an executed  confidentiality  agreement
containing customary  standstill  provisions and other terms and conditions that
are no less restrictive to such third party than the terms and conditions of the
nondisclosure  agreement  entered  into  between  Merge  and the  Company  dated
September 22, 2004 and (B) contemporaneously  with furnishing any such nonpublic
information to such third party, the Company  furnishes a copy of such nonpublic
information  to Merge (to the extent  such  nonpublic  information  has not been
previously so furnished); and


                                       41


<PAGE>


                         (ii)  participate  or  engage  in  any  discussions  or
negotiations with the third party with respect to the Acquisition Proposal.

                  (d) For a period  of not less than five  Business  Days  after
Merge's receipt from the Company of each Superior  Proposal Notice,  the Company
shall, if requested by Merge,  negotiate in good faith with Merge to revise this
Agreement so that the Acquisition  Proposal that constituted a Superior Proposal
no longer constitutes a Superior Proposal.

                  (e)   Notwithstanding   anything  in  this  Agreement  to  the
contrary,  in response to the receipt of a Superior  Proposal  that has not been
withdrawn and continues to  constitute a Superior  Proposal  after the Company's
compliance  with  Section  5.7(d),  the Board of  Directors  of the  Company may
withhold,  withdraw or modify the Company  Recommendation  and, in the case of a
Superior  Proposal  that is a tender or  exchange  offer  made  directly  to its
stockholders,  may recommend that its stockholders accept the tender or exchange
offer (any of the  foregoing  actions,  whether by the Board of  Directors  or a
committee  thereof,  a "Change of  Recommendation"  ) and,  pursuant  to Section
9.1(d),  may terminate this  Agreement,  if both of the following  conditions in
Sections 5.7(e)(i) and 5.7(e)(ii) are met:

                      (i)  the   approval   of  the  Merger  by  the   Company's
stockholders has not been obtained; and

                         (ii)  the  Board  of   Directors  of  the  Company  has
concluded in good faith,  following  the receipt of advice of its outside  legal
counsel,  that, in light of such Superior Proposal,  the failure of the Board of
Directors to effect a Change of  Recommendation  would result in a breach of its
fiduciary obligations to its stockholders under applicable Law.

                  (f) Nothing  contained  in this  Agreement  shall be deemed to
restrict the Company from complying with Rules 14d-9 or 14e-2.

         5.8      TAX MATTERS.

         No new  elections  with  respect  to Taxes,  or any  changes in current
elections  with respect to Taxes,  relating to or affecting  the Company will be
made by the Company after the date of this  Agreement  without the prior written
consent of Merge.

         5.9       NEW OEM CONTRACTS.

         The Company and the  Principal  Shareholder  shall have used their best
efforts to secure new OEM and distribution  contracts,  upon such terms as shall
be approved by Merge in its reasonable discretion.


                                       42


<PAGE>


         5.10     PROXY STATEMENT.

                  (a) As promptly as  practicable  after the  execution  of this
Agreement,  the Company shall prepare a proxy statement  relating to the Company
Stockholders'  Meeting (as defined herein) (together with any amendments thereof
or supplements thereto, the "Proxy Statement"). The Company shall use reasonable
best efforts to cause the Proxy Statement to comply with any requests of the SEC
and to be mailed to the Company's  stockholders as promptly as practicable after
the  Proxy  Statement  shall  have been  cleared  by the SEC.  No filing  of, or
amendment or  supplement  to, the Proxy  Statement  shall be made by the Company
without providing Merge a reasonable  opportunity to review and comment thereon,
which  comments  shall be  considered  in good faith.  The Company  shall advise
Merge,  promptly after it receives notice thereof, of any request by the SEC for
amendment of the Proxy  Statement or comments  thereon and responses  thereto or
requests by the SEC for additional information.

                  (b) The  information  supplied  by  Merge to the  Company  for
inclusion in the Proxy  Statement shall not, at (i) the time the Proxy Statement
(or any  amendment  thereof  or  supplement  thereto)  is  first  mailed  to the
stockholders  of the  Company,  and (ii) the time of the  Company  Stockholders'
Meeting,  contain any untrue  statement of a material  fact or omit to state any
material  fact  required to be stated  therein or necessary in order to make the
statements therein not misleading. If at any time prior to the Closing any event
or  circumstance  relating  to  Merge  or  any  of its  Subsidiaries,  or  their
respective officers or directors,  should be discovered by Merge which should be
set forth in an amendment or a supplement  to the Proxy  Statement,  Merge shall
promptly  inform the Company and, to the extent  required by applicable  Law, an
appropriate  amendment or supplement describing such event or circumstance shall
be promptly filed with the SEC and  disseminated to stockholders of the Company.
All documents  that Merge is  responsible  for filing with the SEC in connection
with the transactions  contemplated  herein will comply as to form and substance
in all material respects with the applicable  requirements of the Securities Act
and the rules and regulations  thereunder and the Exchange Act and the rules and
regulations thereunder.

                  (c) The  information  supplied by the Company for inclusion in
the Proxy  Statement  shall  not,  at (i) the time the Proxy  Statement  (or any
amendment thereof or supplement  thereto) is first mailed to the stockholders of
the Company, and (ii) the time of the Company Stockholders' Meeting, contain any
untrue  statement of a material fact or omit to state any material fact required
to be stated  therein or necessary in order to make the  statements  therein not
misleading.  If at any  time  prior to the  Closing  any  event or  circumstance
relating to the Company or any of its Subsidiaries, or their respective officers
or  directors,  should be discovered by the Company which should be set forth in
an amendment or a supplement to the Proxy Statement,  the Company shall promptly
inform  Merge,  and, to the extent  required by applicable  Law, an  appropriate
amendment or supplement  describing such event or circumstance shall be promptly
filed  with  the  SEC and  disseminated  to  stockholders  of the  Company.  All
documents that the Company is responsible  for filing with the SEC in connection
with the transactions  contemplated  herein will comply as to form and substance
in all material respects with the applicable  requirements of the Securities Act
and the rules and regulations  thereunder and the Exchange Act and the rules and
regulations thereunder.


                                       43


<PAGE>


         5.11     COMPANY SHAREHOLDERS' MEETING.

                  (a) The  Company  shall  duly call and hold a  meeting  of its
stockholders (the "Company Stockholders' Meeting") as promptly as practicable in
accordance with applicable Law following the date the Proxy Statement is cleared
by the SEC and after coordination with Merge, provided that the meeting shall be
held not later than March 20, 2005,  for the purpose of voting upon the adoption
of this  Agreement and approval of the Merger.  In  connection  with the Company
Stockholders' Meeting and the transactions contemplated hereby, the Company will
(i) subject to  applicable  Law,  use its  reasonable  best  efforts  (including
postponing or adjourning the Company Stockholders' Meeting to obtain a quorum or
to  solicit  additional  proxies)  to  obtain  the  necessary  approvals  by its
stockholders of this Agreement and the Merger and (ii) otherwise comply with all
legal requirements applicable to the Company Stockholders' Meeting.

                  (b) The Board of  Directors  of the  Company  shall  recommend
adoption of this Agreement and approval of the Merger by the stockholders of the
Company  (the  "Company  Recommendation").  Subject to Section  5.7, the Company
shall not  withdraw or  adversely  modify (or  propose to withdraw or  adversely
modify)  such  recommendation,  and  the  Proxy  Statement  shall  contain  such
recommendation.

         5.12     MISSING RECORDS.

         The Company  shall use its best  efforts to locate and deliver to Merge
the Missing Records.

         5.13     OPTIONS; WARRANTS.

         The Company shall use its best efforts to resolve, in a manner
reasonably satisfactory to Merge, any outstanding options and warrants for
Shares.

                        SECTION 6. POST-CLOSING COVENANTS

         The parties  agree as follows with respect to the period  following the
Closing Date:

         6.1      GENERAL.

         In case at any time  after  the  Closing  Date any  further  action  is
necessary or desirable to carry out the purposes of this Agreement,  each of the
parties will take such further  action  (including the execution and delivery of
such further  instruments  and  documents) as the other parties  reasonably  may
request,  at the sole cost and  expense  of the  requesting  party  (unless  the
requesting party is entitled to indemnification therefor under Section 8).


                                       44


<PAGE>


         6.2      LITIGATION SUPPORT.

                  (a) In the  event  and  for so  long as any  party  hereto  is
actively contesting or defending against any charge,  complaint,  action, audit,
suit, proceeding, hearing, investigation, claim or demand in connection with (i)
any transaction  contemplated under this Agreement, or (ii) any fact, situation,
circumstance,  status, condition,  activity, practice, plan, occurrence,  event,
incident,  action, failure to act or transaction on or prior to the Closing Date
involving the Company,  the other parties will  cooperate with the contesting or
defending parties and its counsel in the contest or defense,  make available its
personnel and provide such  testimony and access to its books and records as may
be necessary  in  connection  with the contest or defense,  at the sole cost and
expense of the contesting or defending party (unless the contesting or defending
party is entitled to indemnification therefor under Section 8).

                  (b)  Merge  will  cause  the  Surviving   Corporation  or  its
successor to maintain all original books, records, files, documents,  papers and
agreements pertaining to the operations of the Company as conducted prior to the
Closing Date for at least four years  following  the Closing Date or such longer
period as may be required by Law.

         6.3      AGREEMENTS REGARDING TAX MATTERS.

                  (a) Merge shall  prepare or cause to be  prepared  and file or
cause to be filed all Tax Returns  for the Company for all periods  ending on or
prior to the Closing  Date which are filed after the Closing  Date.  The Company
will  ensure that there is an adequate  accrual for the  liability  set forth in
such Tax Returns,  including  the cost of  preparation  thereof,  on the Closing
Balance Sheet.

                  (b) Merge,  the Company and the  Principal  Shareholder  shall
cooperate fully, as and to the extent reasonably requested by the other parties,
in  connection  with the filing of Tax Returns  pursuant to this Section and any
audit,  litigation or other  proceeding with respect to Taxes.  Such cooperation
shall include the  retention and (upon request by one of the other  parties) the
provision of records and information  which are reasonably  relevant to any such
audit, litigation or other proceeding.

                  (c) All tax  sharing  agreements  or similar  agreements  with
respect to or involving  the Company shall be terminated as of the Closing Date,
and after the Closing  Date,  the Company shall not be bound thereby or have any
liability thereunder.

         6.4      CONFIDENTIAL INFORMATION.

         For a period  of ten  years  after  the  Closing  Date,  the  Principal
Shareholder and his Affiliates will treat and hold as such, and will not use for
the benefit of himself or others, any confidential information, in whatever form
or medium,  concerning  the  operations  and affairs of the  Company,  except as
required by them to bring or defend any lawsuit or other proceeding  relating to
the  Company's  operations  prior  to  the  Closing  Date  or  relating  to  the
transactions  contemplated  herein in  accordance  with the  provisions  of this


                                       45


<PAGE>


Section 6.4 and Section 8.4. In the event that the Principal  Shareholder or his
Affiliates  is requested  or required  (by oral  request or written  request for
information or documents in any legal proceeding, interrogatory, subpoena, civil
investigative   demand  or  similar   process)  to  disclose  any   confidential
information,  then the  Principal  Shareholder  will  notify  Merge  promptly in
writing of the  request  or  requirement  so that Merge may seek an  appropriate
protective  order or waive  compliance with this Section 6.4. If, in the absence
of  a  protective  order  or  receipt  of  a  waiver  hereunder,  the  Principal
Shareholder or his Affiliates is, on the advice of outside counsel, compelled to
disclose any confidential  information to any Governmental  Entity or else stand
liable for contempt,  then the Principal  Shareholder  or Affiliate may disclose
such  confidential  information to such Governmental  Entity,  provided that the
Principal  Shareholder or his Affiliates will use their  reasonable best efforts
to  obtain,  at  the  request  of  Merge,  an  order  or  other  assurance  that
confidential treatment will be accorded to such confidential information.

         6.5      COVENANT NOT TO COMPETE; SOLICITATION.

         The Principal  Shareholder  agrees that for a period of five years from
and after the Closing  Date,  he will not engage  directly or  indirectly in the
Business  that the  Company  conducts.  The  "Business",  for  purposes  of this
Agreement, is defined in Recital A set forth at the beginning of this Agreement.
In addition,  for such five (5) year period, the Principal  Shareholder will not
solicit the employment of or hire any current employee of the Company.

         6.6      PAYMENT OF PRINCIPAL SHAREHOLDER'S NOTE.

         At the  Closing,  Merge will cause the Company to repay the  $1,000,000
aggregate  principal  amount demand notes issued by the Company to the Principal
Shareholder, including all accrued and unpaid interest thereon.

                          SECTION 7. CLOSING CONDITIONS

         7.1      CONDITIONS TO OBLIGATION OF MERGE.

         The  obligation  of  Merge  and   Acquisition  Sub  to  consummate  the
transactions  to be performed by it in connection with the Closing is subject to
satisfaction,  or waiver, in Merge's sole discretion, at or prior to Closing, of
each of the following conditions:

                  (a) There being no material  adverse  change in the  Company's
business, operations or prospects.

                  (b)  There  being no  uncovered  material  adjustments  in the
Company's 2003 financial  performance (revenues and net income) or the Company's
year to date 2004.

                  (c) There being no uncovered material changes in the Company's
balance sheet  between the date hereof and the Closing  Date,  including but not


                                       46


<PAGE>


limited to Accounts Receivable collections, increases in debt other than debt to
finance working capital needs, and the like.

                  (d) The Company  obtaining all required  consents to change in
control of the Company  and  assignment  as it relates to all  client,  product,
licensing,  service and asset  Contracts of the Company as set forth on SCHEDULE
3.3.

                  (e) Merge securing employment  agreements with those employees
of the Company set forth on the  schedule  previously  delivered by Merge to the
Company at a compensation  level consistent with similarly situated employees of
Merge.

                  (f) Merge shall have  satisfied  itself that all  employees of
the Company have executed  confidentiality and employee invention  agreements in
form satisfactory to Merge consistent with Merge's current form of agreement.

                  (g) At the Closing, the Principal  Shareholder or the Company,
as the case may be, shall deliver to Merge the following agreements, instruments
or documents (collectively the "Closing Documents"):

                      (1) Certified Articles and Bylaws.

                      (2) Certificate of Chief Executive  Officer of the Company
as to representations and
warranties.

                      (3)  Certificate  of  the  Principal   Shareholder  as  to
representations and warranties.

                      (4) Certificate of Merger for filing in Nevada.

                      (5) Good Standing  Certificates  from the  Secretaries  of
State of Nevada and California.

                      (6) A consent from the Company's  independent  accountants
to include the Company's financial
statements with any and all filing by Merge after the Closing.

                      (7) The Consulting Agreement with Principal Shareholder.

                      (8)  Certified  resolutions  of the Board of Directors and
the Shareholders of the Company,
approving the merger and other transactions contemplated herein.

                      (9) a  certificate  executed  by the  Company  and  the
Principal Shareholder,  dated as of the Closing Date, to the effect that each of
the conditions specified above, are satisfied in all respects;


                                       47


<PAGE>


                      (10)  the  Company  shall  have  delivered  to Merge an
opinion of counsel  dated as of the Closing  Date from  Morris  Manning & Martin
LLP, with respect to the matters set forth in EXHIBIT D attached hereto;

                  (h) the  representations and warranties of the Company and the
Principal  Shareholder  set  forth  in this  Agreement  will,  individually  and
collectively,  be true and  correct in all  material  respects  at and as of the
Closing Date and such parties shall have delivered a certificate to such effect;

                  (i)  the  Company  and the  Principal  Shareholder  will  have
performed and complied with all of their covenants and obligations  hereunder in
all material respects through the Closing Date;

                  (j) there will not be any action,  suit or proceeding  pending
or threatened before any court or quasi-judicial or administrative agency of any
federal,  state, local or foreign  jurisdiction or before any arbitrator wherein
an unfavorable injunction,  judgment,  order, decree, ruling or charge would (i)
prevent consummation of any of the transactions  contemplated by this Agreement,
(ii)  cause  any  of the  transactions  contemplated  by  this  Agreement  to be
interfered with, prevented,  delayed or rescinded following consummation,  (iii)
affect materially and adversely the right of Merge following the Closing Date to
control  the Company as  survivor  of the merger  with  Acquisition  Sub or (iv)
affect  materially  and  adversely,  including  through  the  imposition  of any
divestiture  requirement,  the  right of the  Company  to own its  assets  or to
operate its  business as  presently  operated  and as  presently  proposed to be
operated (and no such injunction, judgment, order, decree, ruling or charge will
be in effect);

                  (k) there must not have been made or  threatened by any Person
other than as disclosed on the stock transfer records of the Company,  any claim
asserting that such Person (i) is the holder or the  beneficial  owner of or has
the right to acquire or to obtain beneficial  ownership of, any stock of, or any
other equity,  voting or ownership interest in, the Company, or (ii) is entitled
to all or any portion of the Merger Consideration  payable for any Shares if the
amount in controversy exceeds $25,000;

                  (l) all actions to be taken by the  Company and the  Principal
Shareholder in connection with consummation of the transactions  contemplated by
this Agreement,  and all certificates,  instruments and other documents required
to effect the transactions  contemplated hereby and thereby,  will be reasonably
satisfactory in form and substance to Merge;

                  (m)  holders of no more than five  percent  (5%) of the
outstanding  Shares  shall have  exercised  dissenters'  rights under the Nevada
Statute and not waived such rights prior to Closing;

                  (n) all  outstanding  options and warrants  for Shares  (other
than in the Voting  Agreement)  shall have been resolved in a manner  reasonably
satisfactory to Merge;

                  (o) that certain  Consulting  Arrangement  between the Company
and  Health  Care  Technology  Group  dated  January  28,  2004  shall have been
terminated on or before December 15, 2004; and

                  (p) the  Company  shall  have  entered  into a  consulting  or
similar  agreement with Leon Kaufman covering the period since expiration of his
prior  agreement with the Company on the same terms and conditions as such prior
agreement.


                                       48


<PAGE>


         7.2      CONDITIONS TO OBLIGATION OF THE COMPANY AND ITS SHAREHOLDERS.

         The  obligation  of  the  Company  and  the  Principal  Shareholder  to
consummate the  transactions  to be performed in connection  with the Closing is
subject to satisfaction of the following conditions (any of which may be waived,
in whole or in part, by the Company and the Principal Shareholder):

                  (a) the  representations  and warranties of Merge set forth in
Section 4 will be true and  correct in all  material  respects  at and as of the
Closing Date;

                  (b) Merge will have  performed  and  complied  with all of its
covenants hereunder in all respects through the Closing Date;

                  (c) there will not be any action,  suit or proceeding  pending
or threatened before any court or quasi-judicial or administrative agency of any
federal,  state, local or foreign  jurisdiction or before any arbitrator wherein
an unfavorable injunction,  judgment,  order, decree, ruling or charge would (i)
prevent  consummation of any of the transactions  contemplated by this Agreement
or (ii)  cause any of the  transactions  contemplated  by this  Agreement  to be
rescinded following consummation;

                  (d) Merge will have delivered a certificate to the effect that
each of the conditions specified above is satisfied in all respects;

                  (e) Merge will have delivered the Merger  Consideration (other
than the portion for Dissenting  Shareholders  and any amount  deducted due to a
deficiency in Net Asset Value set forth in the Preliminary Balance Sheet) due at
Closing to the Transfer Agent and the Holdback to the Escrow Agent;

                  (f)  Merge  shall  have  delivered  to  the  Company  and  the
Principal  Shareholder  an opinion of counsel  dated as of the Closing Date from
counsel  for Merge with  respect to the  matters set forth in EXHIBIT E attached
hereto;

                  (g) the  Certificate  of Merger as  provided  in  Section  2.3
hereof; and

                  (h) Merge shall have  executed and  delivered  the  Consulting
Agreement.

                  (i)  holders  of  no  more  than  five  percent  (5%)  of  the
outstanding  Shares  shall have  exercised  dissenters'  rights under the Nevada
Statute and not waived such rights prior to Closing.

                  (j) Company Shareholder approval shall be obtained.


                                       49


<PAGE>


               SECTION 8. REMEDIES FOR BREACHES OF THIS AGREEMENT

         8.1      SURVIVAL

         Except  as  otherwise  set  forth  in  Section   8.5(c),   all  of  the
representations  and  warranties  of the Company and the  Principal  Shareholder
contained in Section 3 of this Agreement or in any certificate  delivered by the
Company or the Principal Shareholder pursuant to this Agreement will survive the
Closing and  continue in full force and effect until the fourth  anniversary  of
the Closing Date in the case of the  representations and warranties set forth in
Sections 3.9 (Tax Matters), 3.14 (Intellectual Property),  3.15 (Litigation) and
3.17 (Labor Relations; Employees). All other representations and warranties will
continue  in full force and effect  until the first  anniversary  of the Closing
Date.

         8.2      INDEMNIFICATION PROVISIONS FOR BENEFIT OF MERGE

         Prior to the Closing,  the Company and the  Principal  Shareholder  and
following  the  Closing,  the  Principal  Shareholder  will  indemnify  and hold
harmless Merge, its representatives,  shareholders, and controlling persons and,
after the Closing,  the Acquisition Sub and its  representatives,  shareholders,
and controlling persons  (collectively,  the "INDEMNIFIED BUYERS") for, and will
pay to the Indemnified Buyers the amount of, any loss, liability, claim, damage,
expense (including costs of investigation and defense and reasonable  attorneys'
fees) or  diminution  of value,  whether or not  involving a  third-party  claim
(collectively,   "DAMAGES"),   arising,  directly  or  indirectly,  from  or  in
connection  with: (i) any breach of any  representation  or warranty or covenant
made by the Company or Principal  Shareholder in this Agreement,  the Schedules,
or any other  certificate or document  delivered by the Company or the Principal
Shareholder pursuant to this Agreement;  (ii) any amounts paid to the holders of
Dissenting  Shares  in  excess  of  their  proportionate  share  of  the  Merger
Consideration and the costs of all proceedings,  including attorneys' and expert
witness fees, in resolving the claim of any  Dissenting  Shareholder,  (iii) any
amount by which  the Net  Asset  Value is less  than the  Target  Amount  (which
payments shall be made pursuant to Section  2.8(a) and not otherwise  subject to
this  Section  8.2  if  made  in  accordance  with  Section  2.8(a)),  (iv)  any
outstanding  options or warrants  for  securities  of the  Company  that are not
identified or resolved to the  satisfaction of Merge as of the Closing,  (v) the
termination  of any employees of the Company  occurring at any time prior to the
Closing   including   any  failure  to  provide  or   deficiency   in  providing
post-employment  benefits and/or  insurance,  (vi) any rights of any landlord of
any property  leased or used by the Company to recapture such property or impose
any  penalty or charge in  connection  with the  Company's  performance  of it's
obligations under this Agreement, or (vii) any claim by any Person for brokerage
or finder's fees or commissions or similar  payments based upon any agreement or
understanding  alleged  to have  been  made by any such  Person  with any of the
Principal  Shareholder  or the Company (or any Person acting on their behalf) in
connection  with the  transactions  set forth herein.  The remedies set forth in
Section 8 are  exclusive  of any other  remedy  available to Merge and the other
Indemnified  Persons for a breach of this Agreement or a claim under Section 8.2


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<PAGE>


other than an  injunction  for  violation of Section 6.4  (Confidentiality)  and
Section 6.5 (Non-Competition) and Section 9 (Termination), and other than in the
case of fraud or a willful breach by the Company or the Principal Shareholder of
any  representations,  warranties  or  covenants  under  this  Agreement  or the
Ancillary Agreements.

         8.3      INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE COMPANY

         Merge will indemnify and hold harmless the Company, and its successors,
assigns,  and the  Principal  Shareholder,  and will pay to the  Company  or the
Principal  Shareholder,  as the case may be,  the  amount of any  Damages of the
Company or the Principal Shareholder arising, directly or indirectly, from or in
connection with any breach of any representation or warranty or covenant made by
Merge or  Acquisition  Sub in this  Agreement or in any  certificate or document
delivered  by  Merge  or  Acquisition  Sub  pursuant  to  this  Agreement.  Such
representations   and   warranties   shall  not   survive   the   Closing.   The
indemnification  provisions of this Section 8 are the exclusive remedy available
to the Company and the Principal  Shareholder for breaches of representations or
warranties contained in this Agreement, except in the case of fraud or a willful
breach  by  Merge  or  Acquisition  Sub of any  representations,  warranties  or
covenants under this Agreement.

         8.4      INDEMNIFICATION PROCEDURES

                  (a)  Promptly  after  discovery  or  receipt  of  notice by an
Indemnified  Buyer or the Company or the Principal  Shareholder (in each case an
"INDEMNIFIED PERSON") under this Section 8 of a claim for which indemnity may be
sought,  such  Indemnified  Person  will,  if a claim is to be made  against  an
indemnifying party, give notice to the indemnifying party of the commencement of
such claim,  but the failure to notify the  indemnifying  party will not relieve
the  indemnifying  party of any  liability  that it may have to any  Indemnified
Person,  except to the extent that the indemnifying  party demonstrates that the
defense of such action is prejudiced by the Indemnified Person's failure to give
such notice.

                  (b) If any  proceeding  referred  to in  Section 8 is  brought
against an Indemnified  Person and it gives notice to the indemnifying  party of
the commencement of such proceeding,  the indemnifying  party will pay the costs
of  defending  such  proceeding  including  costs  of  counsel  selected  by the
Indemnified  Person,  which  counsel  shall be  reasonably  satisfactory  to the
indemnifying  party.  The  Indemnified  Person  shall  control  the  defense and
settlement of the proceeding  provided that the Indemnified Person shall consult
with the  indemnifying  party.  The  indemnifying  party will,  unless the claim
involves  Taxes,  be  entitled  to  participate  in such  proceeding  unless the
indemnifying  party is also or could become a party to such  proceeding  and the
Indemnified  Person  determines in good faith that such  participation  would be
inappropriate.


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<PAGE>


         8.5      BASKET; CAP; SOLE SOURCES OF INDEMNIFICATION

                  (a) No Indemnified  Person will be entitled to indemnification
pursuant to Sections 8.2 or 8.3 unless and until the aggregate amount of Damages
with respect to which such  Indemnified  Person  would  otherwise be entitled to
assert  thereunder  exceeds  $10,000 (the "BASKET  AMOUNT").  When the aggregate
amount of Damages  exceeds  the Basket  Amount,  the  indemnified  party will be
entitled to indemnification  for all Damages,  including those within the Basket
Amount.

                  (b)  Except as  otherwise  set forth in  Section  8.5(c),  the
aggregate  amount  of all  payments  made by the  Principal  Shareholder  to all
Indemnified  Buyers in satisfaction of claims  hereunder after Closing shall not
exceed the aggregate of (i)the Holdback,  (ii)an additional $1,000,000 (not part
of the  Holdback),  and (iii) any  amounts  paid or payable  by Merge  under the
Consulting Agreement (collectively the "Cap"). Principal Shareholder will assume
100% of Damages in all cases, up to the amount of the Cap, except in the case of
Damages  for a breach of Section  3.14  (Intellectual  Property),  Merge and the
Principal Shareholder shall assume Damages in the ratio of 80% for the Principal
Shareholder  and 20% for Merge until the  amounts  under (i) and (ii) above have
been  exhausted,  and  thereafter  100% for the Principal  Shareholder up to the
remainder of the Cap until  Principal  Shareholder has paid the entire Cap. Once
Principal Shareholder has paid the entire Cap, Principal Shareholder  thereafter
will have no  further  liability,  other  than in the case of fraud or a willful
breach by the  Company  or the  Principal  Shareholder  of any  representations,
warranties or covenants under this Agreement or the Ancillary Agreements.

                  (c) In addition to all other  indemnification by the Principal
Shareholder hereunder, Principal Shareholder agrees that the indemnification for
damages  incurred in  connection  with the matters set forth in Section  8.2(iv)
shall:  (i) survive for a period of five years  following  the date on which the
final payment is made to Principal  shareholder  under the Consulting  Agreement
(the "Final Payment") and (ii) the indemnification obligation therefor shall not
exceed the amount of the Final Payment once the Company's  obligations under the
Cap have expired in accordance with Section 8.1.

         8.6      RIGHT OF SET-OFF

         During or after the  expiration of the Holdback  referred to in Section
2.9,  Merge  upon  written  notice  to a  Principal  Shareholder  specifying  in
reasonable  detail the basis for such  set-off,  Merge may set off any amount to
which it reasonably  believes in good faith to be entitled  under this Agreement
against  amounts  otherwise  payable  to the  Principal  Shareholder  under this
Agreement or the Ancillary Agreements.

         8.7      DISPUTE RESOLUTION

                  ARBITRATION. Any controversy,  dispute or claim arising out of
or  relating  to this  Agreement  (including,  but not  limited  to,  any  claim
regarding the scope or effect of this Section and any claim that this Section is


                                       52


<PAGE>


invalid or unenforceable) or the Ancillary  Agreements,  or the breach hereof or
thereof,  shall  be  settled  by a  single  arbitrator  in  binding  arbitration
conducted in Milwaukee,  Wisconsin in accordance with the Commercial Arbitration
Rules of the American  Arbitration  Association  ("AAA"),  and judgment upon the
award rendered by the arbitrator may be entered in any court having jurisdiction
thereof. The arbitrator's decision shall be in writing.

         The  arbitrator's   authority  shall  include  the  ability  to  render
equitable  types of relief and, in such event,  any aforesaid court may enter an
order enjoining and/or  compelling such actions or relief ordered or as found by
the arbitrator.  The arbitrator also shall make a determination  regarding which
party's  legal   position  in  any  such   controversy  or  claim  is  the  more
substantially  correct (the "Prevailing Party") and the arbitrator shall require
the other party to pay the legal and other  professional fees and costs incurred
by the Prevailing Party in connection with such  arbitration  proceeding and any
necessary  court action.  However,  notwithstanding  the foregoing,  the parties
expressly  agree that a court of  competent  jurisdiction  may enter a temporary
restraining order or an order enjoining a breach of this Agreement  (including a
breach of Sections  6.4 and 6.5)  pending a final award or further  order by the
arbitrator.  Such remedy,  however,  shall be cumulative and  nonexclusive,  and
shall be in addition to any other remedy to which the parties may be entitled.

                             SECTION 9. TERMINATION

         9.1      TERMINATION

         This  Agreement may be terminated at any time prior to the Closing,  by
action taken or authorized by the Board of Directors of the terminating party or
parties, whether before or after approval of the matters presented in connection
with the Merger by the stockholders of the Company:

                  (a) by mutual written consent of Merge and the Company;

                  (b) by written  notice of either the Company or Merge,  if the
Merger  shall  not have been  consummated  prior to March  31,  2005;  provided,
however,  the right to terminate this Agreement  under this Section 9.1(b) shall
not be available to any party whose failure to fulfill any obligation under this
Agreement  has been the cause of, or results  in,  the  failure of the Merger to
occur on or before such date; provided,  further,  that in the event the failure
of  the  Merger  to  be  consummated  by  such  date  is  caused  by  a  pending
investigation  or review by a Governmental  Entity,  either Merge or the Company
(unless such extending  party or such extending  party's  failure to fulfill any
obligation  under  this  Agreement  has been the cause of, or  results  in,  the
existence or continuance of the pending investigation or review) may extend such
date to April 30, 2005;

                  (c) by written  notice of either the Company or Merge,  if any
Governmental  Entity  shall have issued an order,  decree or ruling or taken any
other action  permanently  restraining,  enjoining or otherwise  prohibiting the
Merger, and such order,  decree,  ruling or other action shall have become final
and nonappealable;


                                       53


<PAGE>


                  (d) by written  notice of either the Company or Merge,  if (i)
the  Board of  Directors  of the  Company  shall  have  withdrawn  or  adversely
modified, or shall have adopted resolutions to withdraw or adversely modify, the
Company Recommendation; or (ii) the Board of Directors of the Company shall have
approved  or  recommended,  or shall  have  adopted  resolutions  to  approve or
recommend,  to the  stockholders of the Company,  an Acquisition  Proposal other
than that contemplated by this Agreement;

                  (e) by written notice of Merge,  if there has been a breach by
the  Company  or the  Principal  Shareholder  of any  representation,  warranty,
covenant or agreement  contained in this  Agreement  which (i) would result in a
failure of the condition  set forth in Section  7.1(a) or 7.1(b) and (ii) cannot
be cured  prior to March 31,  2005,  provided  that  Merge  shall have given the
Company written notice,  delivered at least ten days prior to such  termination,
stating Merge's  intention to terminate this Agreement  pursuant to this Section
9.1(e) and the basis for such termination;

                  (f) by  written  notice  of the  Company,  if there has been a
breach by Merge of any representation, warranty, covenant or agreement contained
in this  Agreement  which (i) would result in a failure of a condition set forth
in  Section  7.2(a) or 7.2(b)  and (ii)  cannot be cured  prior to the March 31,
2005, provided that the Company shall have given Merge written notice, delivered
at least ten days prior to such termination,  stating the Company's intention to
terminate this Agreement  pursuant to this Section 9.1(f) and the basis for such
termination; or

                  (g) by written  notice of either  Merge or the  Company if the
Company  Stockholder  Approval  shall  not have  been  obtained  at the  Company
Stockholders'   Meeting  duly  convened  therefor  (or  at  any  adjournment  or
postponement  thereof)  at which a quorum is  present  and the vote to adopt and
approve this Agreement is taken.

         9.2      EFFECT OF TERMINATION.

                  (a)  Limitation on Liability.  In the event of  termination of
this  Agreement by either the Company or Merge as provided in Section 9.1,  this
Agreement  shall  forthwith  become  void and  there  shall be no  liability  or
obligation on the part of Merge,  Merger Sub or the Company or their  respective
Subsidiaries, officers or directors, except with respect to Articles 8 and 9 and
with respect to any liabilities or damages  incurred or suffered by a party as a
result of the  willful  and  material  breach  by the other  party of any of its
representations,  warranties,  covenants or other  agreements  set forth in this
Agreement.

                  (b)  Termination  Fee.  In the event  that this  Agreement  is
terminated  pursuant to Section 9.1(d), (e) or (g), and an Acquisition  Proposal
with  respect  to the  Company  is  consummated  or the  Company  enters  into a
definitive  agreement with respect to an Acquisition  Proposal,  in either case,
within twenty-four months following the termination of this Agreement,  then the
Company shall pay an amount equal to the greater of (x) five percent (5%) of the
aggregate   consideration   received  in  such  Acquisition   Proposal;  or  (y)


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<PAGE>


twenty-five percent (25%) of the difference between the aggregate  consideration
received in such Acquisition Proposal and Six Million Dollars ($6,000,000) (such
amount,  the  "Termination  Fee") to Merge  within two  Business  Days after the
earlier of the  consummation  of such  Acquisition  Proposal or  execution  of a
definitive agreement with respect to such Acquisition  Proposal.  In addition to
the foregoing, if (i) this Agreement is terminated pursuant to Section 9.1(e) or
(ii) this Agreement is terminated  pursuant to Sections 9.1 (b),(d) or (g) under
circumstances  in which a  Termination  Fee is not due pursuant to the preceding
sentence, then the Company shall pay Merge an amount equal to the sum of Merge's
reasonable  documented expenses incurred in connection with the Merger.  Payment
of expenses pursuant to the foregoing  sentence shall be made not later than two
Business  Days after  delivery of notice of demand for payment and a  documented
itemization  setting forth in reasonable detail all expenses (which  itemization
may be  supplemented  and  updated  from  time to time by such  party  until the
ninetieth day after such party delivers such notice of demand for payment).

                  (c) All payments  under this Section 9.2 shall be made by wire
transfer of immediately  available funds to an account  designated by Merge. The
Company  acknowledges  that the agreements  contained in this Section 9.2 are an
integral  part of the  transactions  contemplated  by this  Agreement  and that,
without these agreements, Merge would enter into this Agreement. Accordingly, if
the Company  fails  promptly to pay any amount due  pursuant to this Section 9.2
and, in order to obtain such payment,  Merge commences a suit which results in a
judgment  against  the other  party for the fee and  expenses  set forth in this
Section 9.2, such defaulting  party shall pay to the prevailing  party its costs
and expenses (including  reasonable  attorneys' fees and expenses) in connection
with such suit, together with interest on the amount of the fee at eight percent
(8%) per annum from the date such payment was required to be made.

                            SECTION 10. MISCELLANEOUS

         10.1     PRESS RELEASES AND ANNOUNCEMENTS

         No party will issue any press release or  announcement  relating to the
subject  matter of this  Agreement  prior to the Closing  Date without the prior
approval of the other party (which approval will not be unreasonably  withheld);
PROVIDED,  HOWEVER, that any party may make any public disclosure it believes in
good faith is  required by Law (in which case the  disclosing  party will advise
the other parties prior to making such disclosure).

         10.2     EXPENSES; TRANSFER TAXES

         Except as otherwise  set forth in Sections 8 and 9 hereof,  the parties
hereto will each bear all their own legal,  accounting,  investment  banking and
other  expenses  incurred  by them or on their  behalf  in  connection  with the
transactions  contemplated by this Agreement,  whether or not such  transactions
are consummated. The Principal Shareholder will pay and hold Merge harmless from
payment of all sales,  use,  transfer,  documentary or stamp taxes and recording


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<PAGE>


and filing fees  applicable to the assignment of the their Shares to Merge or to
any other  transaction  contemplated  by this  Agreement or any of the Ancillary
Agreements. No expenses incurred by or on behalf of the Principal Shareholder or
any  of  their  Affiliates  (including  the  Company)  in  connection  with  the
transactions  contemplated  by this  Agreement will be paid by or charged to the
Company.

         10.3     WAIVER

         The rights and remedies of the parties to this Agreement are cumulative
and  not  alternative.  Neither  the  failure  nor any  delay  by any  party  in
exercising any right,  power or privilege  under this Agreement or the documents
referred to in this Agreement  will operate as a waiver of such right,  power or
privilege,  and no  single  or  partial  exercise  of any such  right,  power or
privilege  will preclude any other or further  exercise of such right,  power or
privilege or the exercise of any other right, power or privilege. To the maximum
extent  permitted by  applicable  Law, (a) no claim or right arising out of this
Agreement  or the  documents  referred  to in this  Agreement  or the  Ancillary
Agreements  can be discharged by one party,  in whole or in part, by a waiver or
renunciation  of the claim or right unless in writing signed by the other party;
(b) no  waiver  that may be given by a party  will be  applicable  except in the
specific  instance for which it is given;  and (c) no notice to or demand on one
party  will be deemed to be a waiver of any  obligation  of such party or of the
right of the party giving such notice or demand to take further  action  without
notice or demand as provided in this Agreement,  the Ancillary Agreements or the
documents referred to herein or therein.

         10.4     FURTHER ASSURANCES

         The  parties  agree (a) to  furnish  upon  request  to each  other such
further  information,  (b) to  execute  and  deliver  to each  other  such other
documents,  and (c) to do such other acts and things, all as the other party may
reasonably  request for the purpose of carrying  out the  purposes and intent of
this Agreement,  the Ancillary  Agreements and the documents  referred to herein
and therein.

         10.5     NO THIRD-PARTY BENEFICIARIES

         This  Agreement  will not confer any rights or remedies upon any Person
other  than the  Company,  the  Shareholders  and  Merge,  and their  respective
successors and permitted assigns.

         10.6     SUCCESSORS AND ASSIGNS

         No party hereto may assign or delegate  any of such  party's  rights or
obligations  under  or in  connection  with  this  Agreement  or  any  Ancillary
Agreement  without the written  consent of the other parties  hereto;  PROVIDED,
HOWEVER,  that Merge may without  consent assign its rights under this Agreement
after the Closing to any Person acquiring all or substantially  all of the stock
or assets of Acquisition Sub from Merge.  Except as otherwise expressly provided
herein,  all  covenants  and  agreements  contained in this  Agreement or in any


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<PAGE>


Ancillary Agreement by or on behalf of any of the parties hereto or thereto will
be binding upon and enforceable against the respective successors and assigns of
such  party and will be  enforceable  by and will  inure to the  benefit  of the
respective successors and permitted assigns of such party.

         10.7     SEVERABILITY

         Whenever  possible,  each  provision of this  Agreement  and any of the
Ancillary Agreements,  respectively, will be interpreted in such manner as to be
effective and valid under applicable Law, but if any provision hereof or thereof
is held to be prohibited by or invalid under applicable Law, such provision will
be ineffective  only to the extent of such  prohibition  or invalidity,  without
invalidating  the  remainder  of  this  Agreement  or the  particular  Ancillary
Agreement, respectively.

         10.8     COUNTERPARTS; FACSIMILE SIGNATURES

         This  Agreement  may  be  executed   simultaneously   in  two  or  more
counterparts,  any one of which need not contain the signatures of more than one
party, but all such counterparts taken together will constitute one and the same
Agreement.  Facsimile  signatures shall be deemed to be original  signatures for
all purposes under this Agreement.

         10.9     DESCRIPTIVE HEADINGS; CONSTRUCTION

         The parties have  participated  jointly in the negotiation and drafting
of  this  Agreement.  In the  event  an  ambiguity  or  question  of  intent  or
interpretation  arises,  this Agreement shall be construed as if drafted jointly
by the parties  and no  presumption  or burden of proof shall arise  favoring or
disfavoring  any party by virtue of the  authorship  of any  provisions  of this
Agreement.   The  descriptive  headings  of  this  Agreement  are  inserted  for
convenience  only and do not constitute a part of this  Agreement.  The language
used in this Agreement  will be deemed to be the language  chosen by the parties
to  express  their  mutual  intent  and no rule of strict  construction  will be
applied  against any party.  The use of the word  "including"  in this Agreement
means "including without limitation" and is intended by the parties to be by way
of example rather than limitation.

         10.10    NOTICES

         All notices,  demands or other  communications to be given or delivered
under or by reason of the  provisions of this  Agreement  will be in writing and
will be deemed to have been given (i) when delivered personally to the recipient
or when sent to the recipient by telecopy (receipt confirmed), (ii) one business
day after the date sent, when sent to the recipient by reputable express courier
service  (charges  prepaid) or (iii) three  business days after the date mailed,
when mailed to the recipient by certified or  registered  mail,  return  receipt
requested and postage prepaid.  Such notices,  demands and other  communications
will be sent to the parties at the addresses indicated below:


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<PAGE>


If to the Company or Principal Shareholder:

AccuImage Diagnostics Corporation
400 Oyster Point Boulevard, Suite 201
South San Francisco, CA 94080
Fax:   (650) 875-0194

With a copy (which shall not constitute notice) to:
Robert M. Donlon
Morris Manning & Martin LLP
201 S. College Street
Suite 2300
Charlotte, North Carolina 28244
Fax: (704) 554-5050

If to the Merge Companies:
Merge Technologies Incorporated
1126 S. 70th Street, Suite 107B
Milwaukee Wisconsin 53217
Attn: Richard A. Linden, CEO
Fax: (414) 977-4202

With copies (which shall not constitute notice)to:

Michael Best & Friedrich
Attn: Geoffrey Morgan, Esq.
100 East Wisconsin Avenue, Suite 3300
Milwaukee, Wisconsin  53202
Fax: (414) 277-0656

and

George S. Rosic, Esq.
Suite 800
1603 Orrington Avenue
Evanston, IL 60201
Fax: 847-328-1928

or to such  other  address  or to the  attention  of  such  other  party  as the
recipient party has specified by prior written notice to the other parties.


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<PAGE>


         10.11    ENTIRE AGREEMENT

         This  Agreement  (including  the  Exhibits  and  Schedules  referred to
herein)  constitutes  the entire  agreement among the parties and supersedes any
prior  understandings,  agreements or  representations  by or among the parties,
written or oral, that may have related in any way to the subject matter hereof.

         10.12    AMENDMENTS

         The  provisions  of this  Agreement  may be amended or waived only by a
written  agreement  executed  and  delivered by each of the parties  hereto.  No
course  of  dealing  between  the  parties  to this  Agreement  or any  delay in
exercising  any rights  hereunder will operate as a waiver of any rights of such
parties.

         10.13    TIME OF ESSENCE

         With  regard to all dates and time  periods set forth or referred to in
this Agreement, time is of the essence.

         10.14    INCORPORATION OF EXHIBITS AND SCHEDULES

         The  Exhibits  and   Schedules   identified   in  this   Agreement  are
incorporated herein by reference and made a part hereof.

         10.15    ATTORNEYS' FEES; GOVERNING LAW

         Except as otherwise  specifically provided herein, the prevailing party
in any  action  or  proceeding  shall  be  entitled  to  receipt  of  reasonable
attorneys'  fees from the  non-prevailing  party in such  action  or  proceeding
seeking to enforce any  provision of, or based on any right arising out of, this
Agreement.   ALL   QUESTIONS   CONCERNING   THE   CONSTRUCTION,   VALIDITY   AND
INTERPRETATION  OF THIS AGREEMENT AND THE EXHIBITS AND SCHEDULES  HERETO WILL BE
GOVERNED BY THE  INTERNAL  LAW,  AND NOT THE LAW OF  CONFLICTS,  OF THE STATE OF
WISCONSIN.


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<PAGE>


            IN WITNESS  WHEREOF,  the parties  hereto have  executed and deliver
this Agreement on the date first written above.



ACCUIMAGE DIAGNOSTICS                       MERGE TECHNOLOGIES
CORP.                                       INCORPORATED

By:  _______________________________        By:_________________________________
     Aviel Faliks, President and CEO           Richard Linden, President and CEO


                                            ADI ACQUISITION CORP.
____________________________________
Aviel Faliks, as
Principal Shareholder
                                            By: ______________________________
                                                Richard Linden, President


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<PAGE>


                                     ANNEX B


                           RIGHTS OF DISSENTING OWNERS



      NRS 92A.300 DEFINITIONS. As used in NRS 92A.300 to 92A.500, inclusive,
unless the context otherwise requires, the words and terms defined in NRS
92A.305 to 92A.335, inclusive, have the meanings ascribed to them in those
sections.
      (Added to NRS by 1995, 2086)

      NRS 92A.305 "BENEFICIAL STOCKHOLDER" DEFINED. "Beneficial stockholder"
means a person who is a beneficial owner of shares held in a voting trust or by
a nominee as the stockholder of record.
      (Added to NRS by 1995, 2087)

      NRS 92A.310 "CORPORATE ACTION" DEFINED. "Corporate action" means the
action of a domestic corporation.
      (Added to NRS by 1995, 2087)

      NRS 92A.315 "DISSENTER" DEFINED. "Dissenter" means a stockholder who is
entitled to dissent from a domestic corporation's action under NRS 92A.380 and
who exercises that right when and in the manner required by NRS 92A.400 to
92A.480, inclusive.
      (Added to NRS by 1995, 2087; A 1999, 1631)

      NRS 92A.320 "FAIR VALUE" DEFINED. "Fair value," with respect to a
dissenter's shares, means the value of the shares immediately before the
effectuation of the corporate action to which he objects, excluding any
appreciation or depreciation in anticipation of the corporate action unless
exclusion would be inequitable.
      (Added to NRS by 1995, 2087)

      NRS 92A.325 "STOCKHOLDER" DEFINED. "Stockholder" means a stockholder of
record or a beneficial stockholder of a domestic corporation.
      (Added to NRS by 1995, 2087)

      NRS 92A.330 "STOCKHOLDER OF RECORD" DEFINED. "Stockholder of record" means
the person in whose name shares are registered in the records of a domestic
corporation or the beneficial owner of shares to the extent of the rights
granted by a nominee's certificate on file with the domestic corporation.
      (Added to NRS by 1995, 2087)

      NRS 92A.335 "SUBJECT CORPORATION" DEFINED. "Subject corporation" means the
domestic corporation which is the issuer of the shares held by a dissenter
before the corporate action creating the dissenter's rights becomes effective or
the surviving or acquiring entity of that issuer after the corporate action
becomes effective.
      (Added to NRS by 1995, 2087)

      NRS 92A.340 COMPUTATION OF INTEREST. Interest payable pursuant to NRS
92A.300 to 92A.500, inclusive, must be computed from the effective date of the
action until the date of payment, at the average rate currently paid by the
entity on its principal bank loans or, if it has no bank loans, at a rate that
is fair and equitable under all of the circumstances.
      (Added to NRS by 1995, 2087)


<PAGE>


      NRS 92A.350 RIGHTS OF DISSENTING PARTNER OF DOMESTIC LIMITED PARTNERSHIP.
A partnership agreement of a domestic limited partnership or, unless otherwise
provided in the partnership agreement, an agreement of merger or exchange, may
provide that contractual rights with respect to the partnership interest of a
dissenting general or limited partner of a domestic limited partnership are
available for any class or group of partnership interests in connection with any
merger or exchange in which the domestic limited partnership is a constituent
entity.
      (Added to NRS by 1995, 2088)

      NRS 92A.360 RIGHTS OF DISSENTING MEMBER OF DOMESTIC LIMITED-LIABILITY
COMPANY. The articles of organization or operating agreement of a domestic
limited-liability company or, unless otherwise provided in the articles of
organization or operating agreement, an agreement of merger or exchange, may
provide that contractual rights with respect to the interest of a dissenting
member are available in connection with any merger or exchange in which the
domestic limited-liability company is a constituent entity.
      (Added to NRS by 1995, 2088)

      NRS 92A.370 RIGHTS OF DISSENTING MEMBER OF DOMESTIC NONPROFIT CORPORATION.
      1. Except as otherwise provided in subsection 2, and unless otherwise
provided in the articles or bylaws, any member of any constituent domestic
nonprofit corporation who voted against the merger may, without prior notice,
but within 30 days after the effective date of the merger, resign from
membership and is thereby excused from all contractual obligations to the
constituent or surviving corporations which did not occur before his resignation
and is thereby entitled to those rights, if any, which would have existed if
there had been no merger and the membership had been terminated or the member
had been expelled.
      2. Unless otherwise provided in its articles of incorporation or bylaws,
no member of a domestic nonprofit corporation, including, but not limited to, a
cooperative corporation, which supplies services described in chapter 704 of NRS
to its members only, and no person who is a member of a domestic nonprofit
corporation as a condition of or by reason of the ownership of an interest in
real property, may resign and dissent pursuant to subsection 1.
      (Added to NRS by 1995, 2088)

      NRS 92A.380 RIGHT OF STOCKHOLDER TO DISSENT FROM CERTAIN CORPORATE ACTIONS
AND TO OBTAIN PAYMENT FOR SHARES.
      1.  Except as otherwise  provided in NRS 92A.370 and 92A.390,  any
stockholder  is entitled to dissent from, and obtain payment of the fair value
of his shares in the event of any of the following corporate actions:
         (a)  Consummation  of a  conversion  or plan of merger to which the
domestic  corporation  is a  constituent entity:
              (1) If approval by the stockholders is required for the conversion
or merger by NRS 92A.120 to 92A.160, inclusive, or the articles of
incorporation, regardless of whether the stockholder is entitled to vote on the
conversion or plan of merger; or
              (2) If the  domestic  corporation  is a  subsidiary  and is merged
with its parent  pursuant to NRS  92A.180.
      (b) Consummation of a plan of exchange to which the domestic corporation
is a constituent entity as the corporation whose subject owner's interests will
be acquired, if his shares are to be acquired in the plan of exchange.
      (c) Any corporate action taken pursuant to a vote of the stockholders to
the extent that the articles of incorporation, bylaws or a resolution of the
board of directors provides that voting or nonvoting stockholders are entitled
to dissent and obtain payment for their shares.
      2. A stockholder who is entitled to dissent and obtain payment pursuant to
NRS 92A.300 to 92A.500, inclusive, may not challenge the corporate action
creating his entitlement unless the action is unlawful or fraudulent with
respect to him or the domestic corporation.
      (Added to NRS by 1995, 2087; A 2001, 1414, 3199; 2003, 3189)

       NRS 92A.390 LIMITATIONS ON RIGHT OF DISSENT: STOCKHOLDERS OF CERTAIN
CLASSES OR SERIES; ACTION OF STOCKHOLDERS NOT REQUIRED FOR PLAN OF MERGER.
      1. There is no right of dissent with respect to a plan of merger or
exchange in favor of stockholders of any class or series which, at the record
date fixed to determine the stockholders entitled to receive notice of and to
vote at the meeting at which the plan of merger or exchange is to be acted on,
were either listed on a national securities exchange, included in the national
market system by the National Association of Securities Dealers, Inc., or held
by at least 2,000 stockholders of record, unless:
      (a) The articles of incorporation of the corporation issuing the shares
      provide otherwise; or


                                      -2-


<PAGE>


     (b) The holders of the class or series are required under the plan of
merger or exchange to accept for the shares anything except:
             (1) Cash, owner's interests or owner's interests and cash in lieu
of fractional owner's interests of:
                   (I) The surviving or acquiring entity; or
                    (II) Any other entity which, at the effective date of the
plan of merger or exchange, were either listed on a national securities
exchange, included in the national market system by the National Association of
Securities Dealers, Inc., or held of record by a least 2,000 holders of owner's
interests of record; or
              (2) A combination of cash and owner's interests of the kind
described in sub-subparagraphs (I) and (II) of subparagraph (1) of paragraph
(b).
      2. There is no right of dissent for any holders of stock of the surviving
domestic corporation if the plan of merger does not require action of the
stockholders of the surviving domestic corporation under NRS 92A.130.
      (Added to NRS by 1995, 2088)


       NRS 92A.400 LIMITATIONS ON RIGHT OF DISSENT: ASSERTION AS TO PORTIONS
ONLY TO SHARES REGISTERED TO STOCKHOLDER; ASSERTION BY BENEFICIAL STOCKHOLDER.
      1. A stockholder of record may assert dissenter's rights as to fewer than
all of the shares registered in his name only if he dissents with respect to all
shares beneficially owned by any one person and notifies the subject corporation
in writing of the name and address of each person on whose behalf he asserts
dissenter's rights. The rights of a partial dissenter under this subsection are
determined as if the shares as to which he dissents and his other shares were
registered in the names of different stockholders.
      2.  A beneficial stockholder may assert dissenter's rights as to shares
held on his behalf only if:
      (a) He submits to the subject  corporation  the written  consent of the
stockholder of record to the dissent not later than the time the beneficial
stockholder asserts dissenter's rights; and
      (b) He does so with respect to all shares of which he is the beneficial
stockholder or over which he has power to direct the vote.
      (Added to NRS by 1995, 2089)

      NRS 92A.410 NOTIFICATION OF STOCKHOLDERS REGARDING RIGHT OF DISSENT.
      1. If a proposed corporate action creating dissenters' rights is submitted
to a vote at a stockholders' meeting, the notice of the meeting must state that
stockholders are or may be entitled to assert dissenters' rights under NRS
92A.300 to 92A.500, inclusive, and be accompanied by a copy of those sections.
      2. If the corporate action creating dissenters' rights is taken by written
consent of the stockholders or without a vote of the stockholders, the domestic
corporation shall notify in writing all stockholders entitled to assert
dissenters' rights that the action was taken and send them the dissenter's
notice described in NRS 92A.430.
      (Added to NRS by 1995, 2089; A 1997, 730)

      NRS 92A.420 PREREQUISITES TO DEMAND FOR PAYMENT FOR SHARES.
      1. If a proposed corporate action creating dissenters' rights is submitted
to a vote at a stockholders' meeting, a stockholder who wishes to assert
dissenter's rights:
      (a) Must deliver to the subject corporation, before the vote is taken,
written notice of his intent to demand payment for his shares if the proposed
action is effectuated; and
      (b) Must not vote his shares in favor of the proposed action.
      2. A stockholder who does not satisfy the requirements of subsection 1 and
NRS 92A.400 is not entitled to payment for his shares under this chapter.
      (Added to NRS by 1995, 2089; 1999, 1631)

      NRS 92A.430 DISSENTER'S NOTICE: DELIVERY TO STOCKHOLDERS ENTITLED TO
ASSERT RIGHTS; CONTENTS.
      1.  If a proposed  corporate  action creating  dissenters'  rights is
authorized at a stockholders'  meeting, the subject corporation shall deliver a
written dissenter's notice to all stockholders who satisfied the requirements to
assert those rights.
      2. The dissenter's notice must be sent no later than 10 days after the
effectuation of the corporate action, and must:
      (a) State where the demand for payment must be sent and where and when
certificates, if any, for shares must be deposited;
      (b) Inform the holders of shares not represented by certificates to what
extent the transfer of the shares will be restricted after the demand for
payment is received;


                                      -3-


<PAGE>

      (c) Supply a form for demanding payment that includes the date of the
first announcement to the news media or to the stockholders of the terms of the
proposed action and requires that the person asserting dissenter's rights
certify whether or not he acquired beneficial ownership of the shares before
that date;
      (d) Set a date by which the subject corporation must receive the demand
for payment, which may not be less than 30 nor more than 60 days after the date
the notice is delivered; and
      (e) Be accompanied by a copy of NRS 92A.300 to 92A.500, inclusive.
      (Added to NRS by 1995, 2089)

     NRS 92A.440  DEMAND FOR PAYMENT AND DEPOSIT OF  CERTIFICATES;  RETENTION OF
RIGHTS OF STOCKHOLDER.
      1.  A stockholder to whom a dissenter's notice is sent must:
      (a) Demand payment;
      (b) Certify whether he or the beneficial owner on whose behalf he is
dissenting, as the case may be, acquired beneficial ownership of the shares
before the date required to be set forth in the dissenter's notice for this
certification; and
      (c) Deposit his certificates, if any, in accordance with the terms of the
notice.
      2. The stockholder who demands payment and deposits his certificates, if
any, before the proposed corporate action is taken retains all other rights of a
stockholder until those rights are cancelled or modified by the taking of the
proposed corporate action.
      3. The stockholder who does not demand payment or deposit his certificates
where required, each by the date set forth in the dissenter's notice, is not
entitled to payment for his shares under this chapter.
      (Added to NRS by 1995, 2090; A 1997, 730; 2003, 3189)

       NRS 92A.450 UNCERTIFICATED SHARES: AUTHORITY TO RESTRICT TRANSFER AFTER
DEMAND FOR PAYMENT; RETENTION OF RIGHTS OF STOCKHOLDER.
      1. The subject corporation may restrict the transfer of shares not
represented by a certificate from the date the demand for their payment is
received.
      2. The person for whom dissenter's rights are asserted as to shares not
represented by a certificate retains all other rights of a stockholder until
those rights are cancelled or modified by the taking of the proposed corporate
action.
      (Added to NRS by 1995, 2090)

      NRS 92A.460 PAYMENT FOR SHARES: GENERAL REQUIREMENTS.
      1. Except as otherwise provided in NRS 92A.470, within 30 days after
receipt of a demand for payment, the subject corporation shall pay each
dissenter who complied with NRS 92A.440 the amount the subject corporation
estimates to be the fair value of his shares, plus accrued interest. The
obligation of the subject corporation under this subsection may be enforced by
the district court:
      (a) Of the county where the corporation's registered office is located; or
      (b) At the election of any dissenter residing or having its registered
office in this state, of the county where the dissenter resides or has its
registered office. The court shall dispose of the complaint promptly.
      2.  The payment must be accompanied by:
      (a) The subject corporation's balance sheet as of the end of a fiscal year
ending not more than 16 months before the date of payment, a statement of income
for that year, a statement of changes in the stockholders' equity for that year
and the latest available interim financial statements, if any;
      (b) A statement of the subject corporation's estimate of the fair value of
      the shares;
      (c) An explanation of how the interest was calculated;
      (d) A statement of the dissenter's rights to demand payment under
NRS 92A.480; and
      (e) A copy of NRS 92A.300 to 92A.500, inclusive.
      (Added to NRS by 1995, 2090)

      NRS 92A.470 PAYMENT FOR SHARES: SHARES ACQUIRED ON OR AFTER DATE OF
DISSENTER'S NOTICE.
      1. A subject corporation may elect to withhold payment from a dissenter
unless he was the beneficial owner of the shares before the date set forth in
the dissenter's notice as the date of the first announcement to the news media
or to the stockholders of the terms of the proposed action.
      2. To the extent the subject corporation elects to withhold payment, after
taking the proposed action, it shall estimate the fair value of the shares, plus
accrued interest, and shall offer to pay this amount to each dissenter who
agrees to accept it in full satisfaction of his demand. The subject corporation
shall send with its offer a statement of its estimate of the fair value of the


                                      -4-


<PAGE>


shares, an explanation of how the interest was calculated, and a statement of
the dissenters' right to demand payment pursuant to NRS 92A.480.
      (Added to NRS by 1995, 2091)

     NRS 92A.480  DISSENTER'S  ESTIMATE OF FAIR VALUE:  NOTIFICATION  OF SUBJECT
CORPORATION; DEMAND FOR PAYMENT OF ESTIMATE.
      1. A dissenter may notify the subject corporation in writing of his own
estimate of the fair value of his shares and the amount of interest due, and
demand payment of his estimate, less any payment pursuant to NRS 92A.460, or
reject the offer pursuant to NRS 92A.470 and demand payment of the fair value of
his shares and interest due, if he believes that the amount paid pursuant to NRS
92A.460 or offered pursuant to NRS 92A.470 is less than the fair value of his
shares or that the interest due is incorrectly calculated.
      2. A dissenter waives his right to demand payment pursuant to this section
unless he notifies the subject corporation of his demand in writing within 30
days after the subject corporation made or offered payment for his shares.
      (Added to NRS by 1995, 2091)

      NRS 92A.490 LEGAL PROCEEDING TO DETERMINE FAIR VALUE: DUTIES OF SUBJECT
CORPORATION; POWERS OF COURT; RIGHTS OF DISSENTER.
      1. If a demand for payment remains unsettled, the subject corporation
shall commence a proceeding within 60 days after receiving the demand and
petition the court to determine the fair value of the shares and accrued
interest. If the subject corporation does not commence the proceeding within the
60-day period, it shall pay each dissenter whose demand remains unsettled the
amount demanded.
      2. A subject corporation shall commence the proceeding in the district
court of the county where its registered office is located. If the subject
corporation is a foreign entity without a resident agent in the state, it shall
commence the proceeding in the county where the registered office of the
domestic corporation merged with or whose shares were acquired by the foreign
entity was located.
      3. The subject corporation shall make all dissenters, whether or not
residents of Nevada, whose demands remain unsettled, parties to the proceeding
as in an action against their shares. All parties must be served with a copy of
the petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
      4. The jurisdiction of the court in which the proceeding is commenced
under subsection 2 is plenary and exclusive. The court may appoint one or more
persons as appraisers to receive evidence and recommend a decision on the
question of fair value. The appraisers have the powers described in the order
appointing them, or any amendment thereto. The dissenters are entitled to the
same discovery rights as parties in other civil proceedings.
      5.  Each dissenter who is made a party to the proceeding is entitled to a
judgment:
      (a) For the amount, if any, by which the court finds the fair value of his
shares, plus interest, exceeds the amount paid by the subject corporation; or
       (b) For the fair value, plus accrued interest, of his after-acquired
shares for which the subject corporation elected to withhold payment pursuant to
NRS 92A.470.
      (Added to NRS by 1995, 2091)

      NRS 92A.500 LEGAL PROCEEDING TO DETERMINE FAIR VALUE: ASSESSMENT OF COSTS
AND FEES.
      1. The court in a proceeding to determine fair value shall determine all
of the costs of the proceeding, including the reasonable compensation and
expenses of any appraisers appointed by the court. The court shall assess the
costs against the subject corporation, except that the court may assess costs
against all or some of the dissenters, in amounts the court finds equitable, to
the extent the court finds the dissenters acted arbitrarily, vexatiously or not
in good faith in demanding payment.
      2. The court may also assess the fees and expenses of the counsel and
experts for the respective parties, in amounts the court finds equitable:
       (a) Against the subject corporation and in favor of all dissenters if the
court finds the subject corporation did not substantially comply with the
requirements of NRS 92A.300 to 92A.500, inclusive; or
      (b) Against either the subject corporation or a dissenter in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously or not in good faith with
respect to the rights provided by NRS 92A.300 to 92A.500, inclusive.
      3. If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the subject corporation, the


                                      -5-


<PAGE>


court may award to those counsel reasonable fees to be paid out of the amounts
awarded to the dissenters who were benefited.
      4. In a proceeding commenced pursuant to NRS 92A.460, the court may assess
the costs against the subject corporation, except that the court may assess
costs against all or some of the dissenters who are parties to the proceeding,
in amounts the court finds equitable, to the extent the court finds that such
parties did not act in good faith in instituting the proceeding.
      5. This section does not preclude any party in a proceeding commenced
pursuant to NRS 92A.460 or 92A.490 from applying the provisions of N.R.C.P. 68
or NRS 17.115.
      (Added to NRS by 1995, 2092)



                                      -6-


<PAGE>


                                     ANNEX C


                       VOTING, PROXY AND OPTION AGREEMENT


         THIS VOTING, PROXY AND OPTION AGREEMENT (this "Agreement") is made and
entered into as of November 24, 2004 by and between Aviel Faliks ("Shareholder")
and Merge Technologies Incorporated, a Wisconsin corporation ("Merge").

         WHEREAS, concurrently herewith, Merge, ADI Acquisition Corp., a Nevada
corporation ("Merger Sub"), AccuImage Diagnostics Corp., a Nevada corporation
(together with its subsidiaries, the "Company"), and Shareholder have entered
into a merger agreement (as amended from time to time, the "Merger Agreement")
and, unless otherwise defined herein, capitalized terms used herein shall have
the meanings ascribed thereto in the Merger Agreement; and

         WHEREAS, as of the date hereof, Shareholder is the record and
beneficial owner of that number of shares of common stock of the Company set
forth on the signature page hereof (such shares, together with any other shares
of capital stock of the Company acquired by Shareholder after the date hereof,
being collectively referred to herein as the "Shares; and

         WHEREAS, obtaining appropriate shareholder approval is a condition to
the consummation of the transactions contemplated by the Merger Agreement; and

         WHEREAS, in the event the Merger Agreement is terminated in accordance
with certain provisions of the Merger Agreement, Shareholder desires to grant
Merge an option to purchase the Shares from Shareholder.

         WHEREAS, as an inducement to Merge to enter into the Merger Agreement,
Merge and Shareholder have agreed to enter into this Agreement;

         NOW, THEREFORE, in consideration of the foregoing, the mutual covenants
and agreements set forth herein, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:

          Section 1. NO SHOP

               (a) GENERAL. Shareholder will not, and will not permit any of his
Affiliates, attorneys, representatives or agents (collectively, the
"Representatives") to, directly or indirectly, (i) discuss, negotiate,
undertake, authorize, recommend, propose or enter into, either as the proposed
surviving, merged, acquiring or acquired corporation, any transaction involving
a merger, consolidation, business combination or similar transaction involving
the Company or any purchase or disposition of any amount of the assets of the
Company outside the ordinary course of business or (ii) any purchase or


<PAGE>


disposition of any capital stock of the Company in each case other than the
transactions contemplated by the Merger Agreement (an "Alternative
Transaction"), (ii) facilitate, encourage, solicit or initiate discussions,
negotiations or submissions of proposals or offers in respect of an Alternative
Transaction, (iii) furnish or cause to be furnished, to any Person, any
information concerning the business, operations, properties or assets of the
Company in connection with an Alternative Transaction, or (iv) otherwise
cooperate in any way with, or assist or participate in, facilitate or encourage,
any effort or attempt by any other Person to do or seek any of the foregoing.

               (b) NOTIFICATION. Shareholder shall notify Merge orally and in
writing promptly (but in no event later than twenty-four (24) hours) after
receipt of any proposal or offer from any Person to effect an Alternative
Transaction or any request for non-public information relating to the Company or
for access to the properties, books or records of the Company by any Person
other than Merge. Such notice shall indicate the identity of the Person making
the proposal or offer, or intending to make a proposal or offer or requesting
non-public information or access to the books and records of the Company, the
material terms of any such proposal or offer, or modification or amendment to
such proposal or offer and copies of any written proposals or offers or
amendments or supplements thereto. The Shareholder shall keep Merge informed, on
a current basis, of any material changes in the status and any material changes
or modifications in the material terms of any such proposal, offer, indication
or request.

               (c) ONGOING DISCUSSIONS. Shareholder shall (and shall cause his
Representatives to) immediately cease and cause to be terminated any existing
discussions or negotiations with any Persons conducted heretofore with respect
to any of the foregoing. The Shareholder agrees not to (and to cause his
Representatives not to) release any third party from the confidentiality and
standstill provisions of any agreement relating to the Company.

          Section 2.AGREEMENT TO VOTE; DISPOSITIONS; IRREVOCABLE PROXY; OPTIONS.

               (a) AGREEMENT TO VOTE. Shareholder hereby agrees to vote the
Shares or execute a written consent in respect thereof (i) for approval and
adoption of the Merger Agreement (as amended from time to time) and the
transactions contemplated by the Merger Agreement, as applicable, at any meeting
or meetings of the shareholders of the Company at which the Merger Agreement or
the transactions contemplated thereunder are submitted for the vote of such
Shareholder or in any written consent in respect thereof, (ii) against any
Alternative Transaction, without regard to any Board recommendation to
shareholders concerning such Alternative Transaction, and without regard to the
terms of such Alternative Transaction, (iii) against any agreement, amendment of
any agreement (including the Company's Articles of Incorporation or By-Laws), or
any other action that is intended or could reasonably be expected to prevent,
impede, interfere with, delay, postpone, or discourage the transactions
contemplated by the Merger Agreement, other than those specifically permitted by
this Agreement or the Merger Agreement, or (iv) against any action, agreement,
transaction or proposal that would result in a breach of any representation,
warranty, covenant, agreement or other obligation of the Company in the Merger


                                       2


<PAGE>


Agreement. Any such vote shall be cast (or consent shall be given) by
Shareholder in accordance with the procedures relating thereto so as to ensure
that it is duly counted, including for purposes of determining that a quorum is
present and for the purposes of recording such vote (or consent).

               (b) RESTRICTIONS ON DISPOSITIONS. Shareholder hereby agrees that,
without the prior written consent of Merge, Shareholder shall not, directly or
indirectly, sell, offer to sell, give, pledge, encumber, assign, grant any
option for the sale of or otherwise transfer or dispose of, or enter into any
agreement, arrangement or understanding to sell, any Shares (collectively,
"Transfer"), and as a condition to any such Transfer which is consented to by
Merge, such transferee shall execute an agreement that is identical to this
Agreement (except to reflect the change of the identity of the holder of
Shares).

               (c) IRREVOCABLE PROXY. Subject to the last two sentences of this
subsection (c), Shareholder hereby irrevocably appoints Merge or its designee as
Shareholder's agent, attorney and proxy, to vote (or cause to be voted) the
Shares owned by Shareholder in favor of approval of the Merger Agreement and the
transactions contemplated by the Merger Agreement, as applicable. This proxy is
irrevocable and coupled with an interest and is granted in consideration of the
Company, Merge and Merger Sub entering into the Merger Agreement. In the event
that the Shareholder fails for any reason to vote the Shares in accordance with
the requirements of Section 2(a) hereof, then the proxyholder shall have the
right to vote the Shares in accordance with the provisions of the first sentence
of this subsection (c). The vote of the proxyholder shall control in any
conflict between the vote by the proxyholder of the Shares and a vote by
Shareholder of the Shares.

               (d) INCONSISTENT AGREEMENTS. Shareholder hereby agrees that, he
shall not enter into any agreement, contract or understanding with any Person
prior to the termination of the Merger Agreement directly or indirectly to vote,
grant a proxy or power of attorney or give instructions with respect to the
voting of the Shares in any manner which is inconsistent with this Agreement.

          Section 3. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDER.

Shareholder represents and warrants to Merge as follows: (i) Shareholder has all
necessary power and authority to execute and deliver this Agreement and to
perform his obligations hereunder; (ii) this Agreement has been duly executed
and delivered by Shareholder; (iii) assuming the due authorization, execution
and delivery of this Agreement by Merge, this Agreement constitutes the legal,
valid and binding agreement of Shareholder, enforceable against Shareholder in
accordance with its terms; (iv) the execution and delivery of this Agreement by
Shareholder does not conflict with or violate any law or agreement binding upon
him, nor require any consent, notification, regulatory filing or approval; (v)
except for restrictions in favor of Merge pursuant to this Agreement,
Shareholder owns, beneficially and of record, all of the Shares free and clear
of any proxy, voting restriction, adverse claim or other lien and has sole
voting power and sole power of disposition with respect to all of the Shares,
with no restrictions on Shareholder's rights of voting or disposition pertaining
thereto and no Person other than Shareholder has any right to direct or approve


                                       3


<PAGE>


the voting or disposition of any of the Shares; and (vi) as of the date hereof,
Shareholder does not own beneficially or of record any securities of the Company
other than the shares of common stock and Options with an aggregate exercise
price all as set forth on the signature page hereof.

          Section 4. REPRESENTATIONS AND WARRANTIES OF MERGE.

Merge represents and warrants to Shareholder as follows: (i) Merge has all
necessary power and authority to execute and deliver this Agreement and to
perform its obligations hereunder; (ii) this Agreement has been duly executed
and delivered by Merge; (iii) assuming the due authorization, execution and
delivery of this Agreement by Shareholder, this Agreement constitutes the legal,
valid and binding agreement of Merge, enforceable against Merge in accordance
with its terms; (iv) the execution and delivery of this Agreement by Merge does
not conflict with or violate any law or agreement binding upon it, nor require
any consent, notification, regulatory filing or approval; and (v) Merge has
filed all reports and proxy and other statements with the Securities and
Exchange Commission (the "SEC") which are required by the Exchange Act to be
filed since January 1, 2004 (collectively, and in each case including all
exhibits and schedules thereto and documents incorporated by reference therein,
the "Merge SEC Documents").

          Section 5. FURTHER ASSURANCES.

At the request of Merge, Shareholder shall
execute and deliver such additional instruments and other documents and shall
take such further actions as may be necessary or appropriate to effectuate,
carry out and comply with all of his obligations under this Agreement.

          Section 6. TERMINATION.

Except for the provisions of Section 7 hereof, this Agreement shall terminate
upon the termination of the Merger Agreement in accordance with its terms. The
foregoing shall not relieve Shareholder of any liability for breach of this
Agreement.

          Section 7. OPTION.

In the event the Merger Agreement is terminated pursuant to Sections 9.1 (b),
(d), (e) or (g) of the Merger Agreement, Shareholder hereby grants to Merge an
option to purchase all, but not fewer than all, of the Shares, exercisable for a
period of two years from the date of termination of the Merger Agreement, at an
aggregate purchase price of 0.95x the Merger Consideration per Share (the
"Option").

          Section 8. MISCELLANEOUS.

               (a) EXPENSES. Except as may be otherwise provided in this
Agreement or the Merger Agreement, each party shall bear his or its own expenses
incurred in connection with this Agreement and the transactions contemplated
hereby.

               (b) NOTICES. All notices and other communications under this
Agreement shall be in writing and shall be deemed given (i) when delivered
personally. (ii) on the third business day after being mailed by certified mail,
return receipt requested. (iii) the next business day after delivery to a
recognized overnight courier, or (iv) upon transmission and confirmation of
receipt by a facsimile operator if sent by facsimile (and shall also be


                                       4


<PAGE>


transmitted by facsimile to the Persons receiving copies thereof), to the
parties at the following addresses or facsimile numbers (or to such other
address and facsimile number as a party may have specified by notice given to
the other party pursuant to this provision):

                           If to the Shareholder:

                           24 Rozmus Ct.
                           Allendale, NJ  07401
                           Fax:  (212) 750-1525

                           With a copy (which shall not constitute notice) to:
                           Robert M. Donlon
                           Morris Manning & Martin LLP
                           201 S. College Street
                           Suite 2300
                           Charlotte, North Carolina 28244
                           Fax: (704) 554-5050

                           If to Merge:
                           Merge Technologies Incorporated
                           1126 S. 70th Street, Suite 107B
                           Milwaukee Wisconsin 53217
                           Attn: Richard A. Linden, CEO
                           Fax: (414) 977-4202

                           With copies (which shall not constitute notice)to:

                           Michael Best & Friedrich
                           Attn: Geoffrey Morgan, Esq.
                           100 East Wisconsin Avenue, Suite 3300
                           Milwaukee, Wisconsin  53202
                           Fax: (414) 277-0656

                           and

                           George S. Rosic, Esq.
                           Suite 800
                           1603 Orrington Avenue
                           Evanston, IL 60201
                           Fax: 847-328-1928

               (c) AMENDMENTS, WAIVERS, ETC. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated except by an
instrument in writing signed by Merge and Shareholder.


                                       5


<PAGE>


               (d) SUCCESSORS AND ASSIGNS. No party may assign any of its or his
rights or delegate any of its or his obligations under this Agreement without
the prior written consent of the other party, except that Merge may, without the
consent of Shareholder, assign any of its rights and delegate any of its
obligations under this Agreement to any Affiliate of Merge. Subject to the
preceding sentence, this Agreement shall be binding upon and shall inure to the
benefit of and be enforceable by the parties and their respective successors and
assigns, including without limitation any corporate successor by Merger or
otherwise. Notwithstanding any Transfer of Shares consistent with this
Agreement, the transferor shall remain liable for the performance of all
obligations of transferor under this Agreement.

               (e) NO THIRD PARTY BENEFICIARIES. Nothing expressed or referred
to in this Agreement will be construed to give any Person, other than the
parties to this Agreement, any legal or equitable right, remedy or claim under
or with respect to this Agreement or any provision of this Agreement, except to
a successor or permitted assignee under Section 5(d).

               (f) ENTIRE AGREEMENT. This Agreement embodies the entire
agreement and understanding between the parties relating to the subject matter
hereof and supersedes all prior agreements and understandings relating to such
subject matter other than the Merger Agreement and any other agreement, document
or instrument expressly referenced therein.

               (g) SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or unenforceability of
any other provisions of this Agreement.

               (h) SPECIFIC PERFORMANCE; REMEDIES CUMULATIVE. The parties hereto
acknowledge that money damages are not an adequate remedy for violations of this
Agreement and that any party, in addition to any other rights and remedies which
the parties may have hereunder or at law or in equity, may, in his or its sole
discretion, apply to a court of competent jurisdiction for specific performance
or injunction or such other relief as such court may deem just and proper in
order to enforce this Agreement or prevent any violation hereof and, to the
extent permitted by applicable law, each party waives any objection to the
imposition of such relief. All rights, powers and remedies provided under this
Agreement or otherwise available in respect hereof at law or in equity shall be
cumulative and not alternative, and the exercise or beginning of the exercise of
any thereof by any party shall not preclude the simultaneous or later exercise
of any other such rights, powers or remedies by such party.

               (i) NO WAIVER. The failure of any party hereto to exercise any
right, power or remedy provided under this Agreement or otherwise available in
respect hereof at law or in equity, or to insist upon compliance by any other
party hereto with his or its obligations hereunder, and any custom or practice
of the parties at variance with the terms hereof, shall not constitute a waiver
by such party of his or its right to exercise any such or other right, power or
remedy or to demand such compliance.


                                       6


<PAGE>


               (j) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Wisconsin without giving
effect to the principles of conflict of laws thereof.

               (k) JURISDICTION. Each of the parties hereto submits to the
exclusive jurisdiction of any state or federal court of the United States
located in the State of Wisconsin with respect to any claim or cause of action
arising out of this Agreement or the transactions contemplated hereby (and
agrees that no such action, suit or proceeding relating to this Agreement or any
transaction contemplated hereby shall be brought by him or it except in such
courts). Each of the parties hereto, irrevocably and unconditionally, waives
(and agrees not to plead or claim) any objection to the laying of venue of any
action, suit or proceeding arising out of this Agreement or the transactions
contemplated hereby in any state or federal court of the United States located
in the State of Wisconsin, or that any such action, suit or proceeding brought
in any such court has been brought in an inconvenient forum. Shareholder also
agrees that any final and unappealable judgment against such party in connection
with any such action, suit or other proceeding shall be conclusive and binding
on such party and that such award or judgment may be enforced in any court of
competent jurisdiction, either within or outside of the United States. A
certified or exemplified copy of such award or judgment shall be conclusive
evidence of the fact and amount of such award or judgment.


                                       7


<PAGE>


               (l) WAIVER OF JURY TRIAL. The parties hereto hereby waive, to the
fullest extent permitted by applicable law, any right he or it may have to a
trial by jury in respect of any litigation directly or indirectly arising out
of, under or in connection with this Agreement.

               (m) COUNTERPARTS. This Agreement may be executed by facsimile and
in any number of counterparts, each of which shall be deemed to be an original,
but all of which together shall constitute one instrument. Each counterpart may
consist of a number of copies each signed by less than all, but together signed
by all, the parties hereto.

               IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Agreement as of the date and year first written above.



                                        MERGE TECHNOLOGIES INCORPORATED


                                        By:____________________________
                                           Name:
                                           Title:


                                        _______________________________
                                        Shareholder

                                        Number of Shares Owned:  34,050,000


                                       8




<PAGE>


                                     ANNEX D


                              CONSULTING AGREEMENT


         THIS CONSULTING AGREEMENT  ("Agreement") made and entered into this ___
day of ______________, ______, by and between MERGE TECHNOLOGIES INCORPORATED, a
Wisconsin corporation ("Merge eFilm"), and AVIEL FALIKS ("Consultant").

                              W I T N E S S E T H:
         WHEREAS,  on the  date  hereof,  Merge  eFilm  has  acquired  AccuImage
Diagnostics  Corp.  (hereinafter  referred to as  "AccuImage")  by merger of its
subsidiary  into  AccuImage  pursuant to that  certain  Merger  Agreement  dated
November  24,  2004 by and among  AccuImage,  Merge  eFilm and  Consultant  (the
"Merger Agreement"); and
         WHEREAS,  Consultant  has been CEO and President of AccuImage  prior to
the  date  hereof  and  intimately  involved  in the  operations  of  AccuImage,
including its sales and business development activities to customers; and
         WHEREAS,  in order to assure its continued benefit from the experience,
advice,  ability and services of Consultant,  Merge eFilm desires to provide for
the consulting  services of Consultant,  and Consultant desires to enter into an
agreement to provide same,  all upon the terms and  conditions  hereinafter  set
forth;
         NOW THEREFORE;  in  consideration  of the premises and mutual covenants
hereinafter set forth, the parties hereto agree as follows:

     1. During the period commencing on the date hereof and ending December 31,
2007 (the "Consulting Period"), Consultant agrees to perform sales and business
development consultative services and shall, during a limited Transition Period
defined in paragraph 2 also hold himself available at reasonable times to
consult with officers, directors and representatives of Merge eFilm on
additional matters as noted in paragraph 2. Notwithstanding the foregoing,
Consultant may terminate this Agreement at any time after the Transition Period
with 30 days written notice, with or without cause, and Merge eFilm may
terminate this Agreement at any time for "Cause" as hereinafter defined. In the
event of such permitted termination by either Consultant or Merge eFilm,
Consultant shall not be entitled to receive any unpaid compensation set forth in


<PAGE>


paragraph 4, including no right to receive any pro rata portion for the year in
which notice of termination is given. For purposes of this Agreement, the term
"Cause" shall mean:

          (a)  Consultant's conviction of any felony or Consultant's conviction
               of a misdemeanor involving moral turpitude or which otherwise may
               bring disrepute upon Merge eFilm;

          (b)  the commission by Consultant of any material act of dishonesty in
               connection with the performance of any of Consultant's duties
               hereunder, including but not limited to the falsification of the
               company records, making false statements of material facts to
               third parties regarding Merge eFilm or AccuImage, and fraud,
               misappropriation or embezzlement against Merge eFilm or AccuImage
               or any of their customers or suppliers;

          (c)  any material breach by Consultant of Section 6.4
               (Confidentiality) or Section 6.5 (Non-competition) of the Merger
               Agreement;

          (d)  repeated substance abuse which results in the failure of
               Consultant to perform Consultant's duties hereunder;

          (e)  Consultant's material failure to perform Consultant's duties and
               responsibilities hereunder, provided that such failure shall not
               have been cured within ten (10) business days after Consultant is
               given notice of such failure and an opportunity to cure; and

          (f)  gross negligence or willful misconduct by Consultant in the
               performance of Consultant's duties hereunder.

     2. It is the intention of the parties to make available to Merge eFilm and
AccuImage the benefit of Consultant's experience and knowledge during the
Consulting Period in order to assist Merge eFilm and AccuImage in the following
areas:

     A.   Integration activities during the Transition Period include:

          1.   Existing customer contract reviews with Merge eFilm sales staff
          2.   Introductions and handoffs of existing customers to Merge eFilm
               sales staff
          3.   Current sales pipeline reviews, action plans, next steps and
               appropriate handoffs with Merge eFilm sales staff
          4.   Other integration activities across the business functions as
               needed and determined by the Merge eFilm Integration Project
               manager(s)


                                  Page 2 of 2


<PAGE>


     B.   Lead select new business development activities including, but not
          limited to, Hitachi, Kodak, Cerner, and distributors mutually
          identified where progress to date suggests continuing to lead the
          relationship during the Transition Period is the best way to reach
          revenue traction.

         However,  the  advisory  and  consulting  services  to be  rendered  by
Consultant hereunder are not intended to require his active participation in the
routine day-to-day administration of AccuImage.  Consultant will not be required
to be available to render  services  hereunder for any fixed portion of his time
during the  Consulting  Period,  but rather (i) during the period  from the date
hereof to 120 days following the date hereof (the "Transition Period") from time
to time as the need for his services arise as further  defined in this paragraph
2, and (ii) from and after the date hereof  through the  remaining  term of this
Agreement, if Consultant wishes, to provide additional time in a sales, business
development and marketing capacity to the customers of Merge eFilm or AccuImage,
it being  understood  that the scheduling of  Consultant's  services  during the
Transition Period shall be as reasonably determined by Consultant,  and that the
decision as to whether or not Consultant  performs services after the Transition
Period  is at the  discretion  of  Consultant.  No period  of such  advisory  or
consultative services during the Transition Period shall extend beyond three (3)
consecutive  days.  Consultant  shall be available  hereunder  during  customary
business hours, but may furnish his services by telephone,  letter or facsimile,
unless  circumstances  are such  that such  services  could  only be  reasonably
rendered in person.  Consultant's  inability to furnish advisory or consultative
services during a period of illness or other disability shall not be a violation
of this Agreement.

     3. It is acknowledged that Consultant may accept employment or offer
consulting or advisory services to other businesses or persons provided that
such services are not a violation of the restrictions set forth in Sections 6.4
and 6.5 (Confidentiality and Noncompetition) of the Merger Agreement.

     4. In consideration of the services to be rendered by Consultant hereunder
and the restrictions imposed upon Consultant under Sections 6.4 and 6.5 of the
Merger Agreement, Merge eFilm agrees to pay Consultant commission in the amount
fifteen percent (15%) of the amount by which AccuImage Software Product Revenues
(as hereinafter defined) plus AccuImage Software Intellectual Property Revenues
(as hereinafter defined) exceed $1,000,000 in any calendar year for years 2005,


                                  Page 3 of 3


<PAGE>


2006 and 2007. "AccuImage Software Product Revenues" means revenues of Merge
eFilm (determined in accordance with GAAP and Merge eFilm's revenue recognition
policy) from the sale or license of all AccuImage commercially available
products on the date hereof as listed on Exhibit A, along with subsequent
updates to those products (the "AccuImage Software Products"). "AccuImage
Software Intellectual Property Revenues" means, to the extent not included in
AccuImage Software Product Revenues, (i) all revenues of Merge eFilm (determined
in accordance with GAAP and Merge eFilm's revenue recognition policy) from the
licensing of any intellectual property acquired by Merge eFilm from AccuImage
under the Merger Agreement (the "AccuImage Software Intellectual Property"). For
purposes of the above definition, both AccuImage Software Products and AccuImage
Software Intellectual Property included as part of a Merge eFilm solution sale,
provided that such AccuImage Software Product and/or Intellectual Property are
listed as separate items in the Merge eFilm standard price list, will be
included in the AccuImage Software Product Revenues or AccuImage Software
Intellectual Property Revenues amount based on the pro-rata portion of the
AccuImage Software Product and/or Intellectual Property from the sale
represented by A/B*C, where C is the revenue allocated to all software products
(determined in accordance with GAAP and Merge eFilm's revenue recognition
policy), B is the overall list price charged by Merge eFilm for all the software
products and A is the list price established by Merge eFilm for the AccuImage
Software Product and/or AccuImage Software Intellectual Property. Consultant
shall not be entitled to any revenue arising from the sale of any patent or
other intellectual property by Merge eFilm. Such payments shall be made annually
on March 31st commencing March 31, 2006 with a final payment, if any, on March
31, 2008. In the event of Consultant's death during the term of this Agreement,
Merge eFilm shall make all payments provided for herein to the Consultant's
beneficiaries designated in writing to Merge eFilm. Consultant shall have the
right to change his designated beneficiaries from time to time by written notice
to the Company.

     5. Merge eFilm has the right to set off any amounts owed hereunder against
amounts owed by Consultant to Merge eFilm pursuant to the provisions of Section
8 (Indemnification) of the Merger Agreement.

     6. During the Consulting Period, Merge eFilm will reimburse Consultant for
reasonable out-of-pocket expenses incurred by Consultant in performing services
hereunder, including travel expenses, at the request of Merge eFilm or


                                  Page 4 of 4


<PAGE>


AccuImage; provided, that any such expense in excess of $250 shall be
pre-approved by Merge eFilm and all such expenses shall be incurred only in
accordance with Merge eFilm's travel expense policies in effect for employees
generally. Consultant shall bear all his other own expenses, including,
telecommunications and all marketing expenses in connection with the services to
be voluntarily rendered by him after the Transition Period. At all times during
this Agreement, the relationship of the parties shall be that of independent
contracting parties and not employer/employee or principal/agent. Consultant
agrees that all tax responsibility for monies received hereunder shall be solely
that of the Consultant and that Consultant shall not look to Merge eFilm or
AccuImage for any workers' compensation or other insurance, or any other benefit
(including, but not limited to, vacation pay, sick leave or pension benefits) as
a result of his/her engagement hereunder. Consultant shall have no authority to
represent himself as an employee of Merge eFilm or AccuImage or as having any
authority to bind Merge eFilm or AccuImage or any affiliated organization. Merge
eFilm shall not be required to accept any order for the sale of AccuImage
Products proposed to be made by Consultant.

     7. Consultant agrees that any employment agreements and any entitlement to
benefits he may have from AccuImage, other than COBRA related rights if
applicable, are hereby terminated.

     8. This Agreement shall be binding upon and inure to the benefit of the
parties and their respective heirs, personal representatives, successors and
assigns. The performance of this Agreement by Consultant is personal to, and not
assignable by, Consultant.

     9. Any notice required by or appropriate to this Agreement shall be in
writing and shall be deemed to have been given when personally delivered or if
deposited in the United States mail, registered or certified, proper postage
prepaid, addressed, if intended:

                  To Merge eFilm:              Chief Executive Officer
                                               Merge Technologies Incorporated
                                               1126 S. 70th Street, Suite S-107B
                                               Milwaukee, WI 53214
                                               Fax: (414) 977-4202

                  To Consultant:               Avi Faliks
                                               24 Rozmus Court
                                               Allendale, NJ 07401
                                               Fax: (212) 750-1525


                                  Page 5 of 5


<PAGE>


     10. This Agreement sets forth the entire agreement and understanding among
the parties with respect to the terms of the consultative and advisory services
to be provided by the Consultant hereunder, and no party shall be bound by any
provision other than as expressly stated in this Agreement or as subsequently
set forth in an amendment hereto adopted in the manner hereinafter provided.

     11. This Agreement may be amended only by written agreement between Merge
eFilm and the Consultant.

     12. The validity, construction and enforceability of this Agreement shall
be governed in all respects by the laws of the State of Wisconsin.

     13. This Agreement may be executed in multiple counterparts, each of which
shall be deemed an original and all of which shall constitute one and the same
agreement.

              IN WITNESS  WHEREOF,  the Company has caused this  Agreement to be
executed by its respective officers thereunto duly authorized and Consultant has
hereunto set his hand, on the day and year first above written.

              MERGE TECHNOLOGIES INCORPORATED

              By: ___________________________________
                   Chief Executive Officer

              CONSULTANT
                  ___________________________________
                   Aviel Faliks


                                  Page 6 of 6


<PAGE>


                                    EXHIBIT A
              ACCUIMAGE PRODUCTS FOR WHICH COMMISSION SHALL BE PAID


AccuScore
AccuVRT
Upow2dcm
AccuProjector
AccuTrans
AccuAviator
AccuNet
AccuAnalyzer
AccuEdit
Mega2DCM
AccuPrint
AccuFilm
AccuQuery
eStation3D
e3DViewer
e3DReceiver
AccuArchive
Time Density Analysis
AccuView
VRX
BodyWrite
EB-Flyview
SmartGate
SelfGate option for SmartGate
AccuStitch
ProjectorPro
CalScore
Ase2DCM
Calibrate
VITrak
PrimeLung
Jpeg2000
Correct option for CalScore
IlumiView
Mass option for CalScore
AccuScope


                                  Page 7 of 7


<PAGE>


                                SHAREHOLDER PROXY

                           ACCUIMAGE DIAGNOSTICS CORP.
                      400 OYSTER POINT BOULEVARD, SUITE 201
                      SOUTH SAN FRANCISCO, CALIFORNIA 94080


           THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

                _________________________________________________

         The undersigned hereby appoints Aviel Faliks and Ray Vallejo, and each
of them, with full power of substitution, as Proxy, to represent and vote all
the Shares of AccuImage Diagnostics Corp. held of record by the undersigned on
[_________ __], 2005, at the Special Meeting of Shareholders to be held on
[_________ __], 2005, or any adjournment thereof, as designated and in their
discretion as to other matters.

         Please sign exactly as your name appears on this Proxy. When shares are
held by joint tenants, both should sign. When signing as attorney, as executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other authorized
officer. If a partnership, please sign in partnership name by authorized person.

                _________________________________________________

The shares represented by this Proxy will be voted as directed by the
shareholder.
                                                                I PLAN TO ATTEND
                                                                    MEETING
                                                                      [ ]

________________________________________________________________________________

PROPOSAL 1: Approval of the transaction by which ADI Acquisition Corp. shall be
merged with and into AccuImage Diagnostics Corp., pursuant to that certain
Merger Agreement, dated as of November 24, 2004, by and among AccuImage
Diagnostics Corp., ADI Acquisition Corp., Merge Technologies Incorporated and
Dr. Aviel Faliks, the principal shareholder of AccuImage Diagnostics Corp., with
AccuImage Diagnostics Corp. surviving the merger as a wholly-owned subsidiary of
Merge Technologies Incorporated, and the approval and adoption of the Merger
Agreement and the related Plan of Merger .

FOR the proposal  [ ]     AGAINST the proposal   [ ]     WITHHELD [ ]
________________________________________________________________________________

IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS
AS MAY PROPERLY COME BEFORE THE MEETING.

________________________________________________________________________________

The undersigned hereby acknowledge receipt of (a) Notice of Special Meeting of
Shareholders to be held January [________________ ___] , 2005, and (b) the
accompanying Proxy Statement.

This Proxy, when properly executed, will be voted in the manner directed herein
by the undersigned shareholder. If no direction is made, the Proxy will be voted
FOR proposal one.


                                      -43-


<PAGE>


Please sign exactly as signature appears on this proxy card. Executors,
administrators, traders, guardians, attorneys-in-fact, etc. should give their
full titles. If signer is a corporation, please give full corporate name and
have a duly authorized officer sign, stating title. If a partnership, please
sign in partnership name by authorized person. If stock is registered in two
names, both should sign.



                       PLEASE MARK YOUR CHOICE LIKE THIS X IN BLUE OR BLACK INK.


NUMBER OF COMMON SHARES      Date ______________________________________________

                             Signature _________________________________________

                             Signature if held jointly _________________________



                                      -44-


