Cash-strapped Merge Healthcare Inc. has agreed to terms to receive $20 million in financing that will enable the company to settle a class action securities lawsuit.

The West Allis-based medical imaging software and services provider announced today that it has entered into a securities purchase agreement and related agreements with Merrick RIS LLC for $20 million in financing through a private placement. The company intends to sell a $15 million senior secured term note due 2010 and 6.8 million shares of the company's common stock as partial consideration for the term note and 14.3 million shares of the company's common stock for 35 cents per share.

The private placement is scheduled to close on or about June 3.

After accounting for transactions costs, closing fees and the payment of prepaid interest, the net proceeds of the private placement to the company will be approximately $16.6 million.

The term note will bear annual interest at 13.0 percent, payable quarterly.

In connection with the private placement, Merrick will be entitled to designate five people on Merge's 11-member board.

Merge Healthcare also today announced that it has entered into an agreement in principle with the plaintiff in the consolidated securities class action suits filed against the company. The suit alleged that the company and some of its key officers misrepresented the firm's financial health. With the agreement, Merge will pay $3.0 million to the plaintiff, and Merge's insurance carriers will pay $13.0 million to settle the complaint.

On Nov. 22, 2006, the U.S. District Court for the Eastern District of Wisconsin granted a motion to approve Southwest Carpenters Pension Trust as lead plaintiff in the case.

"We are pleased that Merrick has partnered with the Company and provided this financing package. The financing should provide us with the necessary liquidity as we continue our attempts to grow our revenues and align expenses with the revenues of the business and regain our position as a growing and profitable provider of healthcare diagnostic imaging software and services," said Merge Healthcare president and chief executive officer Kenneth Rardin. "The agreement in principle to settle the securities class action is another significant step forward for Merge Healthcare, especially when coupled with the previously announced agreement in principle to settle the company's derivative action. We are excited that we can now focus on the go forward strategy of Merge Healthcare."