U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 1O-QSB
Quarterly-report under Section 13 or 15 (d) of the Securities Exchange Act of
1934. For the quarterly period ended December 31 1997.
Commission file number 0-11476
HEALTHWATCH. INC.,
Exact Name of Small Business Issuer as Specified in Its Charter
Minnesota 84-0916792
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
2445 Cades Way, Vista California 92083
(Address of Principal Executive Offices)
(760) 598-4333
(Issuer's Telephone Number, Including Area Code)
- --------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports) and (2)
has been subject to such filing requirements for the past 90 days.
Yes __X__ No____
Number of registrant's common shares outstanding at February 18, 1998:
2,120,351 (Note 11).
Traditional Small Business Issuer (check one)
Yes __X__ No____
<PAGE>
PART I. FINANCIAL INFORMATION
HEALTHWATCH, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
ASSETS 1997 1997
------------ ------------
<S> <C> <C>
Current assets
Cash and marketable securities (Note 9) $ 657,114 $ 44,634
Accounts Receivable, net of allowance for doubtful accounts
of $22,701 and $21,125, respectively 225,419 289,817
Inventory (Note 4) 578,833 676,467
Other Current Assets 90,756 46,827
------------ ------------
Total current assets 1,552,122 1,057,745
Property and equipment, net 47,337 64,329
Intangible assets, net 798,969 922,392
Other assets 39,640 44,283
------------ ------------
Total assets $ 2,438,068 $ 2,088,749
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 190,576 $ 266,932
Accrued compensation and payroll taxes 216,387 229,685
Other accrued expenses - related parties -0- 44,318
Other accrued expenses - unrelated parties 267,023 275,248
Deferred revenue 105,721 65,255
Current portion of debentures payable - related parties (Note 5) 30,000 30,000
Current portion of debentures payable - unrelated parties (Note 5) 550,000 550,000
------------ ------------
Total liabilities $ 1,359,707 $ 1,461,438
------------ ------------
Shareholders' equity:
Cumulative preferred stock, $.35 par value; 285,714 shares
authorized, 0 and 0 shares issued and outstanding, respectively
(Notes 9 and 11) -0- -0-
Common stock, $.35 par value; 2,857,143 shares authorized,
2,118,351 and 702,017 issued and outstanding, respectively
(Notes 6,7, 8, 9, and 11) 741,423 245,706
Additional paid-in capital 16,898,765 14,584,414
Accumulated deficit (15,170,747) (14,152,922)
Equity adjustment from foreign currency translation (50,455) (49,887)
Unrealized holding loss on investment (Note 10) (1,340,625) -0-
------------ ------------
Total shareholders' equity 1,078,361 627,311
------------ ------------
Total liabilities and shareholders' equity $ 2,438,068 $ 2,088,749
============ ============
</TABLE>
<PAGE>
HEALTHWATCH, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
-------------------------- --------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Product sales $ 297,214 $ 486,558 $ 664,639 $ 996,780
Product cost of sales 271,778 424,361 619,558 847,734
----------- ----------- ----------- -----------
Gross profit 25,436 62,197 45,081 149,046
Operating costs and expenses:
Selling, general and administrative 387,024 356,874 828,536 747,706
Depreciation and amortization 70,206 58,405 140,413 145,603
Research and development 22,235 89,185 64,859 190,146
----------- ----------- ----------- -----------
Total operating costs and expenses 479,465 504,464 1,033,808 1,083,455
----------- ----------- ----------- -----------
Loss from continuing operations (454,029) (442,267) (988,727) (934,409)
Other income (expense):
Interest expense (13,980) (17,142) (30,150) (33,727)
Miscellaneous 1,052 -0- 1,052 -0-
----------- ----------- ----------- -----------
Total other income (expense) (12,928) (17,142) (29,098) (33,727)
----------- ----------- ----------- -----------
Net loss $ (466,957) $ (459,409) $(1,017,825) $ (968,136)
=========== =========== =========== ===========
Net loss per share $ (.28) $ (1.17) $ (.83) $ (2.55)
----------- ----------- ----------- -----------
Weighted average number of shares
outstanding (Note 11) 1,668,141 391,724 1,222,644 380,239
=========== =========== =========== ===========
</TABLE>
<PAGE>
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
-------------------------- --------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (466,957) $ (459,409) $(1,017,825) $ (968,136)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Stock issued as payment of expenses 30,723 89,463 87,723 117,939
Depreciation and amortization 70,208 58,405 140,415 145,603
Gain on extinguishment of debt (1,052) -0- (1,052) -0-
Decrease (increase) in assets:
Accounts receivable (89,809) 3,206 64,398 44,860
Inventory 44,034 (9,114) 97,634 35,036
Other current assets (46,996) 10,928 (43,929) (17,013)
Other assets 2,437 2,282 4,643 4,543
Increase (decrease) in liabilities:
Accounts Payable (36,071) (46,475) (75,304) (66,136)
Accrued expense - related parties (2,298) (36,504) (29,256) (51,892)
Accrued expenses - unrelated parties (29,977) (19,151) (8,225) (24,225)
Deferred revenue (6,990) 2,518 40,466 (28,031)
----------- ----------- ----------- -----------
Net cash used in operating activities $ (532,748) $ (403,851) $ (740,312) $ (807,452)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property & equipment -0- (9,776) -0- (9,776)
----------- ----------- ----------- -----------
Net cash provided by investing
activities -0- (9,776) -0- (9,776)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds (costs) of issuance of
common stock 557,749 25,909 768,985 272,100
Payments received on stock subscriptions -0- 450,000 -0- 554,568
----------- ----------- ----------- -----------
Net cash provided by (used in)
financing activities 557,749 475,909 768,985 826,668
----------- ----------- ----------- -----------
Effect of exchange rate changes on cash (3,956) 4,160 (568) 3,800
----------- ----------- ----------- -----------
Increase (decrease) in cash 21,045 66,442 28,105 13,240
Cash - beginning of period 51,694 25,881 44,634 79,083
----------- ----------- ----------- -----------
Cash - end of period $ 72,739 $ 92,323 $ 72,739 $ 92,323
=========== =========== =========== ===========
</TABLE>
<PAGE>
HEALTH WATCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996
(UNAUDITED)
Note 1: Principles of Presentation
The accompanying unaudited financial statements reflect all adjustments which in
the opinion of management are necessary for a fair presentation of the Company's
financial position as of December 31, 1997, and it's results of operations and
cash flows for the three months and six months ended December 31, 1997 and 1996.
This report should be read in conjunction with the Company's Financial
Statements and Notes thereto contained in the Company's Annual Report on Form
l0-KSB for the year ended June 30, 1997.
Note 2: Management's Operating Plans
As a result of recurring losses and negative cash flow from operations,
management has reviewed its operational and financial plans relative to the
Company's ability to continue in existence. Management's plans in this regard,
include expanding its products and services to include medical equipment and
services for monitoring, capturing and managing medical information. This
business is expected to include both the development and sale of application
processing systems such as registration, medical records and billing systems and
the acquisition of healthcare system integrators in major metropolitan areas
throughout the United States. The Company expects to begin marketing its new
systems integration product during 1998.
Note 3: Net Income (Loss) per Share
The net income (loss) per share in the fiscal 1997 and 1996 periods were
computed based on the weighted average number of shares outstanding during the
periods without taking into effect outstanding options as their effect would be
either anti-dilutive or dilutive by less than 3%. See Note 11.
Note 4: Inventory
Inventory consisted of the following at December 31, 1997 and June 30, 1997:
12/31/97 6/30/97
-------- --------
Raw materials $376,241 $508,147
Work in process 115,767 83,551
Finished goods 86,825 84,769
-------- --------
$578,833 $676,467
======= =======
Note 5: Debentures Payable
Debentures payable accrue interest at an annual rate of 10%, payable quarterly.
The maturity date for debentures with an aggregate value of $555,000, originally
scheduled to mature September 1, 1997, along with $55,464 of accrued interest
payable at December 31,1997, were extended to March 1. 1998.
Note 6: Supplemental schedule of non-cash operating, investing and financing
activities
The Company issued an aggregate of 24,948 shares and 44,948 shares valued at
$59,083 and $116,083 during the three and six-month periods ended December 31,
1997, respectively. Of this amount, 10,000 shares valued at $22,000 were issued
in payment of certain employees' salary deferrals, of which $11,000 were
included in accrued liabilities-related parties at September 30, 1997 and
9,048 shares valued at $25,303 were issued for services provided by a related
party. Of this amount, $17,360 were included in accrued liabilities-related
parties at September 30, 1997. An additional 18,800 shares valued at $53,160
were issued during the six-month period
<PAGE>
ended December 31, 1997 for payment of other consulting services and 7,100
shares value at $15,620 were issued as employee stock bonuses.
Note 7: Common Stock
During the three and six months ended December 31, 1997, the Company issued
364,333 shares and 37,822 shares of Common Stock for $557,750 and $90,433,
respectively, as the result of option and warrant exercises. The Company issued
an additional 5,783 shares as the result of warrant exercises that were
subscribed for prior to the end of fiscal 1997. During November 1997 the Company
exchanged an additional 880,000 shares of its Common Stock for 1,100,000 shares
of HALIS, Inc. ("HALIS") common stock. The exchange ratio being based on the
market value for each company's common stock at the time that the transaction
was negotiated. Additionally, HALIS converted 4,166 shares of Series H Preferred
Stock valued at $125,000 into 83,333 shares of the Company's Common Stock.
Note 8: HALIS business collaboration.
During the fourth quarter of calendar 1997, the Company completed negotiations
regarding a series of transactions with HALIS; two officers and directors of
HALIS; MERAD Corporation, a Georgia corporation ("MERAD"), which is a
wholly-owned subsidiary of Paul Harrison Enterprises, Inc. ("PHE"), an affiliate
of HALIS; and several shareholders of HALIS. These transactions followed the
execution during August 1997, by HealthWatch and HALIS of a letter of intent
which contemplated a merger of the two companies.
HALIS and HealthWatch had originally planned to merge. Following discussions,
HALIS and HealthWatch determined that it would be preferable for the two
companies to adopt a shared business development strategy, but for HealthWatch
to remain a separate company. To implement this strategy, HealthWatch and HALIS
have entered into a business collaboration agreement whereby HealthWatch and
HALIS will share sales prospects and HealthWatch will develop technology and an
integration database engine designed to monitor, capture and manage medical
information at the point of care.
In addition, the Company has obtained a license from MERAD to certain artificial
intelligence computer software and a multimedia database utility, and has
retained MERAD to develop proprietary software technology which will be used to
expand HealthWatch's product offerings to include products and services
specially focused on monitoring, capturing and managing medical information at
the point of care. Further, Paul Harrison, Chairman of the Board, Chief
Executive Officer and President of HALIS and Larry Fisher, a Director and
Executive Vice-President, Chief Administrative Officer and Secretary of HALIS
have joined the HealthWatch Board of Directors.
During the quarter ended December 31, 1997, PHE, Mr. Fisher and two
non-affiliated shareholders of HALIS exchanged 1,100,000 of their shares of
HALIS stock for 880,000 shares of the Company's Common Stock and PHE was granted
an option to acquire 320,000 additional shares of HealthWatch Common Stock in
exchange for 400,000 additional shares of HALIS common stock, the exchange ratio
being based on the market value for each company's common stock at the time that
the transaction was negotiated; and HALIS and private investors acquired an
aggregate of 432,667 shares of the Company's Common Stock for an aggregate
purchase price of $649,000.
Note 9: Subsequent events
During February 1998, (i) PHE and its assigns exercised the option to exchange
400,000 HALIS shares for 320,000 shares of HealthWatch Common Stock; (ii) PHE
exchanged an additional 1,262,000 HALIS shares for 378,000 shares of HealthWatch
Common Stock; and (iii) private investors acquired 105,883 shares of HealthWatch
Common Stock or stock equivalents for $133,813. Set forth below is a proforma
balance sheet for the Company as of December 31, 1997, adjusted to reflect the
Company's investment in HALIS common stock (based on the closing sale price for
such stock on December 31, 1997) and the sale of the Company's securities which
occured subsequent to December 31, 1997.
<PAGE>
HEALTHWATCH, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
December 31, 1997 (unaudited)
ASSETS
Actual As Adjusted
------------ ------------
Current Assets
Cash and marketable securities $ 657,114 $ 1,673,864
Accounts Receivable, net
of allowance for doubtful
accounts of $22,701 225,419 225,419
Inventory 578,833 578,833
Other current assets 90,756 90,756
------------ ------------
Total current assets 1,552,122 2,568,872
Property and equipment, net 47,337 47,337
Intangible assets, net 798,969 798,969
Other assets 39,640 39,640
------------ ------------
Total Assets $ 2,438,068 $ 3,454,818
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities $ 1,359,707 $ 1,359,707
Shareholders' equity
Cummulative preferred stock,
$.35 par value, 0 and 3,627
shares, respectively -0- 1,269
Common Stock, $.35 par
value, 2,118,351 and 2,850,301
shares, respectively 741,423 997,605
Additional paid-in-capital 16,898,765 17,658,064
Accumulated deficit (15,170,747) (15,170,747)
Equity adjustment from foreign
currency translation (50,455) (50,455)
Unrealized holding loss on investment (1,340,625) (1,340,625)
------------ ------------
Total Shareholders' Equity 1,078,361 2,095,111
------------ ------------
Total Liabilities and
Shareholders' Equity $ 2,438,068 $ 3,454,818
============ ============
<PAGE>
Note 10: Marketable securities - unrealized holding loss.
During the six months ended December 31, 1997, the Company exchanged 880,000
shares of its Common Stock for 1,100,000 shares of HALIS common stock. The
market value of these securities was $1.75 per share or $1,925,00 aggregate at
the time of acquisition. At December 31, 1997, the market value of the Company's
investment in HALIS based on the last sale price of the HALIS stack on December
31, 1997, was $.53125 per share or $584,375 in the aggregate. At December 31,
1997, the unrealized holding loss on this investment was $( 1,340,625).
Note 11:
On February 11, 1998, the Company announced a one-for-five reverse split of the
Company's Common Stock effective February 23, 1998. The primary reason for the
reverse stock split was to meet The Nasdaq Stock Market, Inc.'s new $1.00
minimum bid requirement. All share, per share, weighted average share, preferred
stock, stock option and stock warrant information in these financial statements
has been restated to reflect the split.
<PAGE>
HEALTHWATCH, INC.
MANAGEMENT DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
In recent years, the markets in which the Company participates have experienced
significant changes and a period of uncertainty due to proposed changed in
health-care administration in the United Sates and efforts by health-care
organizations to reduce their operating costs and the cost of health-care in
general. As a result, the Company has focused its products in the hospital
marketplace in anticipation of lower sales directly to physicians. The Company
believes that the major changes which have been introduced to the health-care
industry will place greater emphasis on lower-cost products. While medical
standards for safety and effectiveness are expected to remain strong, costs are
expected to be a deciding factor on health-care purchases.
HealthWatch has incurred losses from operations in each of its last three fiscal
years. The Company is seeking to sell its Cambridge service and supply business
and expects to discontinue offering the Cambridge line of products. During the
quarter ended March 31, 1997, the Company reported the first sales of the Pacer,
its new IV product. During October 1997, the Company initiated efforts to expand
its product and service offerings to include the monitoring, capturing and
management of medical information. An important element of HealthWatch's
business strategy for fiscal 1998 is to expand through acquisitions.
Results of Operations
Revenues declined 28% during the first quarter of fiscal 1998, compared so the
similar period in fiscal 1997, due primarily to a decline in product sales. The
Company believes that product sales were depressed largely due to the
unavailability of its enhanced MVL product during the three and six months ended
December 31, 1997. At December 31, 1997, the Company had six systems on
backorder. Shipments of the enhanced MVL product commenced during the third
quarter of fiscal 1998.
Gross margins were 9% and 7% for the 1998 quarter and six-month periods
respectively, compared to 13% and 15% for the similar 1997 periods. The lower
gross margins in 1998 were due primarily to the decreased sales revenues during
the period.
Selling, general and administrative expenses as a percent of sales were 130% and
125% for the 1998 quarter and six-month periods, respectively, compared with 73%
and 75% for the similar 1997 periods. This increase was due primarily to the
lower sales level and the planned expenditures associated with the enhanced MVI.
product launch.
<PAGE>
HEALTHWATCH, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CONTINUED
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company had $298,158 of cash and accounts receivable.
Due to the Company's operating losses, it has been required to raise additional
debt and equity capital to fund its operations. Capital expenditures during this
period have been limited to routine capital purchases. Since the beginning of
fiscal 1998, the Company has raised $1,023,079 through the sale of 642,103
shares of its common stock, including shares issuable upon conversion of
securities convertible into common stock. In addition, the Company acquired
2,362,000 shares of the common stock of HALIS, Inc. in exchange for 1,578,600
shares of the Company's common stock. This investment was made in connection
with the Company's decision to expand its product and service offerings to focus
on the monitoring, capturing and management of medical information and the
development of a joint venture and co-marketing arrangement with HALIS. While
the HALIS common stock was acquired for investment purposes, the shares are
marketable and could be sold if required to provide working capital to the
Company.
The Company has recently relocated its manufacturing facilities and reduced its
corporate office space which will result in an approximately $10,000 per month
reduction in facilities expenses and since the beginning of the fourth quarter
of fiscal 1997, has reduced its number of employees by approximately 19, in
order to reduce operating expenses. The Company's 10% Convertible Secured
Debentures in the principal amount of $580,000 were due and payable on September
1, 1997. The Company obtained extensions of the due date for the payment of
$555,000 principal amount of such Debentures to March 1, 1998. The Company
believes it needs to raise approximately $1,100,000 of working capital in
addition to that already raised and committed in fiscal 1998 to sustain
operations during the next twelve months and to pay the Debentures. The Company
is considering additional private placements of its securities and has initiated
discussions regarding a possible public offering of its securities late in
fiscal 1998 or early in fiscal 1999. There can be no assurance that the Company
will be able to raise additional debt or equity capital or, if it is able to
raise additional capital, the price at which such capital would be available.
The Company considers its investment in HALIS to be a long-term investment.
However, in the event that the Company is unable to raise additional capital, it
may be required to sell shares of the HALIS common stock. The HALIS common stock
is traded in the over-the-counter market on the NASDAQ Bulletin Board. While the
2,362,000 shares of HALIS common stock owned by the Company represents less than
6% of the total outstanding shares of HALIS common stock, the Company's ability
to sell its HALIS shares could be adversely affected by the limited trading
volume for HALIS' stock and the requirement that the Company sell its HALIS
shares in accordance with Rule 144 promulgated by the Securities and Exchange
Commission which could limit the number of HALIS shares which could be sold in
any three-month period to approximately 420,000 shares There can be no assurance
as to the price the Company could receive for the HALIS common stock if it were
required to sell the stock to raise additional working capital.
SAFE HARBOR STATEMENT
Information and statements in this report, other than historical information,
should he considered forward looking and reflect management's current views of
future events and financial performance that involve a number of risks and
uncertainties. The factors that could cause actual results to differ materially
include, but are not limited to, the items discussed under Item I -- "BUSINESS"
in the Company's Annual Report, Form l0-KSB, for the fiscal year ended June 30,
1997.
<PAGE>
PART II. OTHER INFORMATION
Items l, 4 and 5.
Not applicable
Item 2. Changes in Securities and Use of Proceeds
During October 1997, the Company completed negotiations regarding a
series of transactions with HALIS; two officers and directors of HALIS; MERAD
Corporation; and several shareholders of HALIS. In connection with these
transactions, HALIS agreed to convert 4,166 shares of the Company's Series H
Preferred Stock which HALIS had acquired during August and September 1997 for an
aggregate purchase price of $125,000 into 83,333 shares of the Company's common
stock; the Company exchanged 880,000 shares of its common stock for 1.100,000 of
the common stock of HALIS owned by certain shareholders of HALIS; and certain
private investors purchased 349,333 shares of the Company's common stock for an
aggregate consideration of $524,000. No underwriters were involved in any of the
foregoing transactions. During February 1998, the Company exchanged an
additional 698,600 shares of its common stock for 1,662,000 shares of HALIS
common stock and sold 105,884 shares of its common stock for $133,813 to five
private investors. The Company issued the securities without registration under
the Securities Act of 1933, as amended, in reliance upon an exemption from the
registration requirements of such Act contained in Section 4(2) thereof. All of
the foregoing securities were acquired for investment purposes.
Item 3. Defaults upon Senior Securities
On September 30, 1997, $580,000 principal amount of the Company's 10%
Secured Convertible Debentures ("Debentures") were due and payable. The Company
was unable to pay the Debentures in accordance with their terms and as of the
date of this report holders who hold an aggregate of $555,000 principal amount
of such Debentures has agreed to extend the due date therefor to March 1, 1998.
The Company will not be able to repay the Debentures on March 1, 1998 and
intends to seek a further extension in the due date thereof.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits--
10.1 Business Collaboration Agreement dated as of October
10, 1997 between the Company and HALIS, Inc.
10.2 License and Software Development Agreement dated as
of October 10, 1997 between the Company and MERAD
Corporation
10.3 Consulting Agreement dated as of October 10, 1997
among the Company, Paul Harrison Enterprises, Inc.
and Paul Harrison.
10.4 Consulting Agreement dated as of October 10, 1997
between the Company and Larry Fisher.
27 Financial Data Schedule
(b) Reports on Form 8-K. During the quarter ended December 31, 1997,
the Company filed a report on Form 8-K -- Item 5, dated October 17, 1997.
<PAGE>
SIGNATURES
In accordance with the Exchange Act, the registrant caused this report to be
signed by the undersigned, thereunto duly authorized.
Date: February 20, 1998
HealthWatch, Inc.
By /s/Daniel J. Kelly
----------------------------------------
Daniel J. Kelly
(President & Chief Executive Officer)
By /s/Annette Agner
----------------------------------------
Annette Agner
(Chief Financial and Accounting Officer)
EXHIBIT 10.1
BUSINESS COLLABORATION AGREEMENT
This Agreement (the "Agreement") is made as of the 10th day of October
1997, by and between HALIS, Inc., a Georgia corporation ("HALIS") and
HealthWatch, Inc., a Minnesota corporation ("HealthWatch").
WHEREAS, HALIS supplies information technology and services to the
healthcare industry.
WHEREAS, HealthWatch develops, manufacturers and sells medical products
to the healthcare industry.
WHEREAS, HealthWatch has retained MERAD Corporation ("MERAD") to
develop proprietary software technology for HealthWatch which will be used to
expand HealthWatch's product offerings to include products and services
specifically focused on monitoring, capturing and managing medical information
at the point of care.
WHEREAS, HALIS believes that the market for its information technology
and services will be expanded by the development and successful implementation
of HealthWatch's technology which will greatly enhance the ability to more
efficiently enter patient information generated at the point of care into the
healthcare information chain.
WHEREAS, HealthWatch's business plan includes the expansion of its
business by acquiring companies which provide services at the point of care,
which distribute healthcare monitoring and measuring devices which can be
connected through new software to information processing systems and system
integrators who provide hardware and software solutions to healthcare and other
industries.
WHEREAS, HALIS believes the development of a network of such companies
by HealthWatch and the ability to offer and sell the HALIS information
technology and services to existing customers of HealthWatch would be of
significant value to HALIS and its ability to successfully market its healthcare
information technology and services.
NOW, THEREFORE, in consideration of the above recitals and the promises
set forth in this Agreement, the parties agree as follows:
1. HALIS Investment. HALIS and HealthWatch hereby agree that the HALIS
investment which was initially to have been in the form of a purchase of shares
of HealthWatch's Preferred Stock, be amended and that the HALIS investment of
$125,000 be represented by the issuance to HALIS of 416,667 shares of
HealthWatch's common stock, par value $.07 per share, such shares to be subject
to the same representations and warranties and undertakings contained in the
Purchase Agreement between HALIS and HealthWatch relating to the proposed
purchase of the Preferred Stock.
<PAGE>
2. Distribution of Products. HALIS hereby grants to HealthWatch a
non-exclusive right to market and distribute the HALIS products in any market in
which HALIS has not granted or does not grant in the future exclusive
distribution rights to the product to another company and HealthWatch hereby
grants to HALIS a similar non-exclusive right to distribute the HealthWatch
information technology software being developed by HealthWatch in any market in
which HealthWatch has not granted or does not grant in the future exclusive
distribution rights to such product to another company. In consideration for the
sale of any such products, HALIS shall pay to HealthWatch and HealthWatch shall
pay to HALIS, as the case may be, a commission equal to 10% of the gross
purchase price for such product by the HealthWatch or HALIS customer, as the
case may be, such commission to be deemed to be earned upon payment and
successful delivery and installation of any product to the customer.
3. Use of Services. HALIS agrees to use its best efforts to utilize the
services of a HealthWatch-related company wherever and whenever reasonably
possible and HealthWatch agrees to use its best efforts to utilize the services
of a HALIS-related company wherever and whenever reasonably possible when, in
either case, contracting with third parties to provide services to or in
connection with the sale, delivery and installation of products and/or services.
This commitment assumes that the products and services provided by the other in
any particular market are substantially equal or superior to similar products
and services offered by others in such markets and that the costs thereof are
competitive with such similar products provided by the other companies.
4. Shared Facilities. Wherever and whenever possible, HALIS agrees to
use its best efforts to give HealthWatch access to its facilities and
HealthWatch agrees to use its best efforts to give HALIS access to its
facilities, all on a temporary basis as reasonably requested by HALIS or
HealthWatch, as the case may be, in order to permit the requesting company to
obtain an initial and temporary location in a market in which the other company
has previously established a presence and in which the requesting company
desires to establish a presence. Any such facilities will be provided subject to
the reimbursement of the providing company's reasonable costs incurred in
connection with the providing of such facilities.
5. Collaboration. HALIS and HealthWatch each agree to work closely with
the other to help the other expand its respective business; provided, however,
that each company shall be free to work with any company, including a competitor
of the other, if it believes it to be in its best interest to work with such
other company in lieu of a collaborative effort between the two companies.
6. Term. The term of this Agreement shall be for one year commencing on
October 10, 1997, and shall be automatically extended for additional one-year
terms, unless terminated by one of the parties by giving sixty-day written
notice prior to the end of any one-year term to the other party.
<PAGE>
7. Relationship of Parties. Each party is independent of the other
party and shall not be deemed to be an agent, consultant, partner or joint
venturer of the other.
8. Confidential Information. Each party hereto agrees not to directly
or indirectly use or disclose any Confidential Information of the other, except
to the extent required to further the purposes and intent of this Agreement. For
purposes hereof, Confidential Information shall mean any item which is
transferred by HALIS to HealthWatch or by HealthWatch to HALIS, whether in human
or machine-readable form, which is marked Confidential Information (or
comparable legend). Information transferred verbally will only be considered
Confidential Information if it is identified as such at the time of transfer,
and is thereafter embodied in a document marked as set forth upon and provided
to the receiving party within thirty days from the day of the verbal disclosure.
Unless otherwise expressly authorized by HALIS, in the case of HALIS
Confidential Information, HealthWatch agrees, and in the case of HealthWatch
Confidential Information, HALIS agrees, for a period of three years from the
date of receipt of Confidential Information, to use the same measures to avoid
dissemination of such Confidential Information, including partial or complete
copies thereof, to any third party as HALIS or HealthWatch, as the case may be,
employs with respect to information of its own that it does not desire to be
disseminated. Notwithstanding any other provisions to this Agreement, HALIS
acknowledges with respect to HALIS Confidential Information and HealthWatch
acknowledges with respect to HealthWatch Confidential Information, that
Confidential Information shall not include information which:
(a) is or becomes publicly known through no wrongful act of
HALIS in respect to HALIS Confidential Information, or HealthWatch with
respect to HALIS Confidential Information; or
(b) is already known to HALIS in the case of HealthWatch
Confidential Information and to HealthWatch with respect to HALIS
Confidential Information at the time of disclosure; or
(c) is rightfully received by HALIS in respect to HealthWatch
Confidential Information and HealthWatch in respect to HALIS
Confidential Information from a third party without breach of this
Agreement; or
(d) is furnished to a third party by HealthWatch with respect
to HealthWatch Confidential Information and by HALIS with respect to
HALIS Confidential Information without a disclosure restriction on the
third parties' rights; or
(e) if explicitly approved for release by written
authorization by HealthWatch with respect to HealthWatch Confidential
Information and by HALIS with respect to HALIS Confidential
Information.
<PAGE>
9. Miscellaneous.
9.1 Integration. This Agreement embodies the entire agreement
and understanding among the parties relative to the subject matter
hereof and supersedes all prior agreements and understanding relating
to such subject matter.
9.2 Georgia Law. This Agreement and the rights of the parties
shall be governed by and construed and enforced in accordance with the
laws of the State of Minnesota.
9.3 Counterparts. This Agreement may be executed in several
counterparts and as so executed shall constitute one agreement binding
on the parties hereto.
9.4 Binding Effect. Except as herein or otherwise provided to
the contrary, this Agreement shall be binding upon and inure to the
benefit of the parties and their respective heirs, successors, assigns
and personal representatives; provided, however, that neither party may
assign its rights or obligations hereunder without the prior written
consent of the other.
9.5 Modification. This Agreement shall not be modified or
amended except by a written instrument signed by the parties.
9.6 Severability. The invalidity or partial invalidity of any
portion of this Agreement shall not invalidate the remainder thereof,
and said remainder shall remain in full force and effect. Moreover, if
one or more of the provisions contained in this Agreement shall, for
any reason, be held to be excessively broad as to scope, activity,
subject or otherwise, so as to be unenforceable at law, such provision
or provisions shall be construed by the appropriate judicial body by
limiting or reducing it or them, so as to be enforceable to the maximum
extent compatible with then applicable law.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
HALIS, INC.
By /s/ Paul Harrison
------------------------------------
Its Chief Executive Officer
--------------------------------
<PAGE>
HEALTHWATCH, INC.
By /s/ Daniel J. Kelly
------------------------------------
Its President
--------------------------------
EXHIBIT 10.2
LICENSE AND SOFTWARE DEVELOPMENT AGREEMENT
THIS LICENSE AND SOFTWARE DEVELOPMENT AGREEMENT (the "Agreement"), made
and entered into as of the 10th day of October, 1997, by and between
HEALTHWATCH, INC., a Minnesota Corporation (the "Company") and MERAD
CORPORATION, a Georgia corporation ("Licensor").
WITNESSETH:
WHEREAS, Licensor owns all right, title and interest in and to certain
computer architecture concepts, algorithms and processes for the building of
Computer Systems, which computer architecture, concepts, algorithms and
processes is presently known as MERAD ("MERAD");
WHEREAS, the Company wishes to retain Licensor for purposes of
utilizing MERAD to develop certain healthcare software for the Company, such
software to have the capabilities and specifications as more fully described on
Exhibit A attached hereto and incorporated herein by reference (the "Software");
NOW, THEREFORE, in consideration of the premises and the mutual
promises and covenants contained herein and of other good and valuable
consideration, the receipt, adequacy and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Development of Enhancements. Licensor hereby agrees to undertake the
development of the Software for the benefit of the Company. Licensor shall
immediately commence the development of the Software, and shall apply such
resources and efforts as is reasonably necessary to complete such task in
compliance with the terms and provisions and timetable included in the
deliverable schedule attached as Exhibit B and incorporated herein by reference
(the "Deliverable Schedule"). Any changes in the Software or the Deliverable
Schedule shall be agreed to in writing between the Company and Licensor in order
for such changes to become effective against either party.
2. Ownership of Software. In consideration of Company's retention of
Licensor hereunder, Licensor hereby assigns to the Company all rights, including
copyrights and patent rights, that may be created in the Software, or any
documentation or ancillary documents, data bases, and other forms of media
developed by Licensor with respect to the Software. Licensor understands and
acknowledges that the Software and all of such ancillary works and documentation
shall be deemed "works made for hire" as that term is defined by the applicable
laws of the United States regarding copyrights and patents. Licensor
acknowledges that the Company shall have complete, absolute and exclusive
ownership of the Software and the ancillary works and documentation, free and
clear of the rights of any third person or entity, except for the rights of
third patty vendors whose software is properly embodied into the
<PAGE>
Software and is subject to a transferable license from such third patty vendors,
but only to the extent such third patty vendor's software is contemplated by the
parties to be embodied into the Software. Licensor agrees to execute any
additional documentation as may be requested by the Company affirming that the
Software and the ancillary works and documentation is in fact works for hire and
belong exclusively to the Company limited only to the extent set forth above.
Licensor specifically agrees that it shall not at any time contest the Company's
proprietary rights in or title to the Software, works or documentation developed
for the Company hereunder.
3. Compensation. Commencing January 1, 1998, the Company shall pay
Licensor a development fee of $15,000.00 per month for 24 months to develop the
Software for the Company plus the following fee based on the gross proceeds
derived by the Company from the use of the Software: (i) 5% of the first
$5,000,000 of such revenues; (ii) 2.5% of any such revenues in excess of
$5,000,000 but less than $10,000,001; and 1% of any such revenues in excess of
$10,000,000 (the "Development Fee"). The Development Fee shall be payable
bi-weekly, or such other time frame that the parties may agree, but only to the
extent any work product of Licensor is deemed acceptable to the Company, and is
in substantial compliance with the specifications for the Software, as the same
may be amended (the "Specifications"). If the Specifications are amended, the
Development Fee shall be revised as may be mutually agreed upon between the
parties and documented in writing.
4. Use of Subcontractors. Licensor shall be entitled to use its
employees and third party subcontractors to work on the Software and related
works and documentation. All such employees and third pasties shall execute,
prior to providing any such services with respect to the development of the
Software and related works and documentation, an agreement in form reasonably
satisfactory to the Company which obligates such third parties to maintain in
confidence the confidential information of the Company that may be provided to
them or comes into their possession, and provides for an assignment to Licensor
of all rights of such third parties in the Software, works and documentation, so
that such rights may be transferred to the Company as required by Licensor in
this Agreement.
5. Use of Trademarks, Copyrighted Material and Patents. Licensor
acknowledges that the Software, including the Software Documentation (as
hereinafter defined), and the name HEALTHWATCH (hereinafter the "Mark"), may be
protected under the laws of the United States by one or more registered or
unregistered trademarks and/or copyrights in favor of the Company. Licensor
further acknowledges that the Software may be subject to one or more patent
applications filed by the Company with the United States Patent and Trademark
Office (the "Patents"). The Company agrees that Licensor shall have the right to
use the Mark, the Software and the Software Documentation in connection with the
performance of Licensor's duties hereunder for so long as this Agreement is in
force and effect. Licensor acknowledges that all rights in and to the Mark, the
Software, the Patents and the Software Documentation are and shall remain the
sole and exclusive property of the Company and that Licensor shall have no
ownership rights or other rights in the Mark, the Software, the Patents or the
Software Documentation other than the right to use the same on the conditions
stated in this Agreement. The Mark, or any mark confusingly similar to the same,
shall not be used by Licensor in conjunction with any other use or product,
other than as expressly permitted herein or with the
<PAGE>
prior written consent of the Company. Licensor specifically agrees that it shall
not at any time, contest the Company's proprietary rights in or title to the
Mark, the Software, the Patents or the Software Documentation. For purposes of
this Agreement, "Software Documentation" shall refer to such materials, in
either written, audio, video or machine readable form, created by or for the
Company which are intended to describe the use or characteristics of the
Software.
6. Representations and Warranties of Licensor.
(a) Licensor represents and warrants that it has the power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder, and acknowledges that it has the sole and exclusive responsibility
for the supervision, management and control of the use of the Software by it,
its employees and subcontractors. Licensor further represents that the Software
will be an original work created for the Company and will perform in accordance
with the specifications therefore, and that no party other than the Company will
have any rights in the Software and related works and documentation, except for
the rights of third party vendors whose software is properly embodied into the
Software and is subject to a transferable license from such third party vendor,
but only to the extent such third party vendor's software is contemplated by the
parties to be embodied into the Software. OTHER THAN THESE EXPRESS WARRANTIES,
LICENSOR MAKES NO OTHER EXPRESS OR IMPLIED WARRANTIES OF ANY KIND WHATSOEVER TO
THE COMPANY, INCLUDING ANY AND ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR
A PARTICULAR OR INTENDED PURPOSE. LICENSOR EXPRESSLY DISCLAIMS ANY WARRANTY THAT
THE SOFTWARE WILL MEET ANY PARTICULAR REQUIREMENT OR BUSINESS NEED OF THE
COMPANY OTHER THAN BEING IN SUBSTANTIAL COMPLIANCE WITH THE SPECIFICATIONS
THEREFOR.
(b) EXCEPT As EXPRESSLY STATED ABOVE, IN NO EVENT SHALL, LICENSOR BE
LIABLE TO THE COMPANY FOR ANY LOST PROFITS, LOST SAVINGS OR OTHER INCIDENTAL OR
CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT LIMITED TO, DAMAGES ARISING FROM OR AS
A RESULT OF THE USE OR THE INABILITY TO USE THE SOFTWARE FOR ANY REASON
WHATSOEVER, OR THE LOSS OF DATA OR OTHER PROPRIETARY INFORMATION OF THE COMPANY
OR DAMAGE TO ANY OF THE COMPANY'S SOFTWARE, HARDWARE OR ANY OTHER PERIPHERAL
COMPUTER EQUIPMENT.
7. Termination and Duties Upon Termination.
(a) Notwithstanding any provision in this Agreement to the contrary,
this Agreement may be terminated by the Company upon the breach of any provision
of this Agreement by Licensor, which breach continues after Licensor receives
written notice from the Company of such claim of breach and the failure and
refusal of Licensor to immediately correct or refrain from the activity
constituting the breach.
(b) In the event of termination of this Agreement for any reason,
Licensor agrees to immediately discontinue and refrain from any further use of
the Software, the Software Documentation or the Mark and shall immediately
deliver to the Company the original and any
<PAGE>
copies of the Software and the Software Documentation that it may have in its
possession or under its control, or arrange for the delivery of any copies not
under its control within ten (10) days after the termination of the Agreement.
(c) Notwithstanding the termination of this Agreement, for any reason,
the restrictions provided for in Paragraph 8 below, governing confidentiality,
shall survive this Agreement and shall continue to be binding upon Licensor as
provided therein. Nothing herein shall be construed as limiting any remedy that
the Company may have against Licensor, at law or in equity, as a result of
Licensor's breach of any part of this Agreement.
8. Confidentiality. Licensor acknowledges that the Software and the
Software Documentation are proprietary and confidential to the Company and may
constitute trade secrets and know-how of the Company. Licensor further
acknowledges that it may receive confidential information relating to the
business and affairs of the Company that are not generally known to the public.
Licensor shall not use or disclose any information received from the Company
under this Agreement relating to the Company's business or products, or that it
learns from its use of the Software for any purpose other than the use intended
and authorized by this Agreement. Licensor agrees that such disclosure to or use
by any party other than employees or subcontractors of Licensor to whom
disclosure must be made in order for Licensor to perform its obligations
hereunder, or threatened disclosure or use, will be a material breach of this
Agreement and the Company shall be entitled to injunctive or other equitable
relief to prevent unauthorized use or disclosure. The foregoing restrictions on
disclosure of information shall apply so long as the information has not
properly come into the public domain through such disclosure by the Company or
otherwise. Licensor further agrees that Licensor shall not itself, or permit
others to copy, disclose, recreate or modify the Software without the prior
written permission of the Company.
9. Miscellaneous.
(a) Relationship of the Parties. At all times hereunder, with respect
to this Agreement, Licensor shall be considered an independent contractor and
the relationship of the Company to Licensor shall be that of vendor and vendee,
and shall not be construed to constitute the relationship between the Company
and Licensor as that of partners, joint venturers, principal and agent or
employer and employee.
(b) No Transfer or Assignment of License. This Agreement and the rights
and obligations granted and assumed herein may not be transferred or assigned by
either party by sale, merger, acquisition or otherwise, without the prior
written consent of the other party, which consent shall not be unreasonably
withheld.
(c) Binding Effect Subject to subparagraph (b) hereinabove, this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors, assigns and legal representatives.
(d) Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
prior negotiations,
<PAGE>
representations or agreements, whether written or oral. Any modification of this
Agreement shall be in writing, executed with the same formality as this
Agreement and signed by a duly authorized representative of each of the parties
hereto.
(e) Severability. Should any part or provision of this Agreement be
held unenforceable or in conflict with the laws of any jurisdiction, then such
part or provision shall be completely severable from this Agreement and the
validity of the remaining parts or provisions shall not be affected by such
holding.
(f) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Georgia, and the parties agree that the
appropriate courts in the State of Georgia shall be the proper venue for the
resolution of any disputes arising hereunder.
(g) Notices. All notices required or permitted to be given hereunder
shall be in writing and deemed duly given and delivered or sent by registered or
certified mail, postage prepaid, return receipt requested, addressed as follows:
If to the Company:
HEALTHWATCH, INC.
2445 Codes Way
Vista, California 92083
Attn: President
If to Licensor:
MERAD Corporation
3390 Peachtree Road, NE
Suite 1000, Lenox Towers
Atlanta, GA 30326
Attn: President
(h) Waiver of Default. The waiver of any default or breach under this
Agreement by either party shall not constitute a waiver of any rights for any
subsequent default or breach.
(i) Section Headings. The section headings in this Agreement are for
reference purposes only and shall not affect the interpretation of this
Agreement,
<PAGE>
(j) Time is of the Essence. Time is of the essence of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
HEALTHWATCH, INC.
By:
-----------------------------------
Daniel J. Kelly, President
MERAD CORPORATION
By:
-----------------------------------
Paul W. Harrison, President
EXHIBIT 10.3
CONSULTING AGREEMENT
This CONSULTING AGREEMENT ("Agreement") is made this 10th day of
October, 1997 by and between HealthWatch, Inc., a Minnesota corporation with its
principal offices located at 2445 Cades Way, Vista, California 92083 (the
"Company"), and Paul Harrison, ("Harrison") and Paul Harrison Enterprises, Inc.
("PHE") (Harrison and PHE collectively, the "Consultants").
RECITALS
A. The Company desires to retain the services of Consultants as independent
contractors in accordance with this Agreement.
B. The Consultants desire to render services for the Company as independent
contractors in accordance with this Agreement.
AGREEMENT
In consideration of the above recitals and the promises set forth in
this Agreement, the parties agree as follows:
1. Consulting Services. During the "Term of Services" (which shall mean the
period of time described in Section 3 hereof), Harrison agrees to serve on the
Company's Board of Directors; and Consultants agree to: assist the Company in
raising working capital through the sale of its securities; assist the Company
in identifying businesses to be acquired by the Company; assist the Company in
acquiring businesses identified by Consultants or others; work with the
Company's management to maximize management's performance and contributions to
the Company; and provide any other services agreed to by the parties
(collectively, the "Services"). Consultants shall devote Consultants' best
efforts in rendering the Services, it being understood that Harrison is a
full-time employee of HALIS, Inc.
2. Consideration for Services. As consideration for the Services, the Company
hereby grants Harrison a Nonstatutory Stock Option pursuant to the Company's
1995 Stock Option Plan to purchase up to 750,000 shares of the Company's Common
Stock at an exercise price of $0.53125 per share (the fair market value for the
Company's Common Stock on the date hereof), the terms of which option are set
forth in Schedule I hereto, shall loan Harrison up to $200,000, such loan to be
in accordance with the terms of the Promissory Note attached hereto as Schedule
II and shall pay PHE a fee of $5,000 per month commencing on January 1, 1998.
3. Term of Services. The Term of Services shall commence on October 10, 1997 and
end on December 31, 1998 (the "Termination Date"), unless earlier terminated or
extended by the parties pursuant to this Agreement.
4. Extension of Services. At any time before the Termination Date, the Company
and Consultants may agree to renew and extend the Term of Services for such
additional periods as the parties may agree.
5. Termination of Services. This Agreement and the Services may be terminated
before the Termination Date only as follows:
<PAGE>
(a) This Agreement and the Services shall automatically terminate upon
the death or permanent disability of Harrison.
(b) This Agreement and the Services may terminate at any time upon
mutual agreement of the parties.
6. Relationship of Parties. Consultants are independent contractors and not
employees or agents of the Company.
7. Employment Taxes and Benefits. To the extent required under applicable law,
Consultants shall report as income all compensation received by Consultants
pursuant to this Agreement and pay all taxes due on such compensation.
Consultants are solely responsible for all federal, state and local taxes which
may be payable in connection with the Services or this Agreement.
8. Expenses. The Company will reimburse Consultants for reasonable out-of pocket
expenses, which have been approved by the Company and are incurred by
Consultants in rendering the Services. For all such expenses, Consultants shall
furnish to the Company statements, receipts and vouchers as and when required by
and to the reasonable satisfaction of the Company.
9. Indemnification. Consultants shall indemnify and hold harmless the Company
and its employees, officers, directors, representatives, and agents from any and
all claims and expenses (including court costs and reasonable fees of attorneys
and other professionals) arising from any obligation imposed on the Company to
pay any withholding taxes, social security, unemployment insurance, workers'
compensation insurance, disability insurance or similar items, including
interest and penalties thereon, in connection with any payments made to
Consultants pursuant to this Agreement.
10. Ownership of Creative Works. Harrison and PHE agree to promptly disclose to
the Company in writing any invention, improvement, concept, design, work of
authorship, trademark, discovery or idea (whether patentable or not and
including those which may be subject to copyright protection) generated,
conceived, or reduced to practice by the Consultants, or either of them, alone
or in conjunction with others in connection with the Services (collectively,
"Creative Works"). Consultants agree that the Creative Works shall be considered
a "work made for hire" as defined in the Copyright Act at 17 U.S.C. Section 101.
Consultants agree that all Creative Works are the exclusive property of the
Company and hereby assign to the Company all rights in the Creative Works
including, without limitation, all patent, copyrights, trademark and trade
secret rights (collectively, "Intellectual Property Rights"). Consultants or
either of them shall hereafter execute such assignments and other documents, and
take such other action as the Company reasonably requests, without payment of
additional consideration, as may be necessary or advisable to convey full
ownership to the Company of all Intellectual Property Rights to the Creative
Works and to protect the Company's interest in the Creative Works.
Notwithstanding any provision herein to the contrary, this Agreement does not
apply to any invention or other Creative Works generated, conceived, or reduced
to practice by the Consultants alone or in conjunction with others in connection
with services which Consultants perform for others, including HALIS, Inc., for
which no equipment, supplies, facility, or trade secret information of the
Company was used and which was developed entirely on Consultants' own time, and
which does not relate directly to the business of the Company or to its actual
or demonstrably anticipated research or development, or which does not result
from any work performed by Consultants for the Company.
11. Confidential Information. Consultants acknowledge and agree that the
Creative Works and all other nonpublic information concerning the Company or its
business and disclosed to or developed by
<PAGE>
Consultants, are valuable trade secrets of the Company and shall remain
confidential (collectively, "Confidential Information"). Consultants shall not
use or disclose any Confidential Information or copy or remove any records,
documents or other materials from the premises of the Company, except to the
extent necessary for rendering the Services and with the Company's prior
consent.
12. Return of Confidential Information. At any time upon request by the Company,
Consultants shall (a) promptly return to the Company (or destroy if requested by
the Company) all items and materials which contain Confidential Information and
(b) certify in writing to the Company that all such items and materials in the
possession or control of Consultants and which contain Confidential Information
have been returned or destroyed.
13. Non-Solicitation Covenants. Harrison and PHE covenant that Consultants
shall, during the term of this Agreement, and for one year following the
termination or expiration of this Agreement, comply with the following separate
and independent covenants:
(a) Consultants will not, without the prior written consent of the
Company, either directly or indirectly, on Consultants' own behalf or
in the service or on behalf of others, solicit, divert, or appropriate,
or attempt to solicit, divert, or appropriate, to any competing
enterprise, any person or entity that was a customer of the Company
during the Term of this Agreement.
(b) Consultants will not, without the Company's prior written consent,
either directly or indirectly, on Consultants' own behalf or in the
service or on behalf of others, solicit, divert, or hire away, or
attempt to solicit, divert, or hire away, to any competing enterprise,
any person employed by the Company or one of its affiliates, whether or
not such employee is a full-time or a temporary employee of the Company
or such affiliate and whether or not such employment is pursuant to
written agreement and whether or not such employment is at will.
14. Remedies. In addition to any other remedies, the Company shall have a right
of injunctive relief for breach of Sections 11, 12 and 13 by Consultants. The
prevailing party in any action or claim under this Agreement shall have the
right to recover reasonable attorneys' fees and costs.
15. General. Each of the parties shall pay their own expenses incurred in the
preparation and negotiation of this Agreement. The provisions of Sections 9, 10,
11, 12, 13 and 14 above shall survive the expiration or termination of this
Agreement or any renewal of the term of this Agreement. Consultants may not
assign this Agreement or delegate the Services without the Company's prior
written consent. No amendment to this Agreement or waiver of the rights or
obligations of either party shall be effective unless in writing signed by the
parties. This Agreement is governed by the laws of the State of Georgia. If any
provision of this Agreement is held invalid or unenforceable by any court of
competent jurisdiction, the other provisions of this Agreement will remain in
full force and effect. Any provision of this Agreement held invalid or
unenforceable only in part or degree will remain in full force and effect to the
extent not held invalid or unenforceable. Any notices, consents or other
communications pursuant to this Agreement must be in writing and delivered by
mail, courier or facsimile (with written confirmation of receipt) to the address
of the recipient party shown above (or to such other address provided by such
notice). This Agreement contains the entire agreement and understanding of the
parties concerning the subject matter of this Agreement. This Agreement may be
signed by facsimile and in counterparts.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
COMPANY
HealthWatch, Inc.
By:
------------------------------------------
Its:
-----------------------------------------
CONSULTANTS
----------------------------------------------
Paul Harrison
Paul Harrison Enterprises, Inc.
By:
------------------------------------------
Paul Harrison, Its Chief Executive Officer
<PAGE>
SCHEDULE I
HEALTHWATCH, INC.
NONSTATUTORY STOCK OPTION AGREEMENT
UNDER THE 1995 STOCK OPTION PLAN
Between:
HEALTHWATCH, INC. (the "Company") and Paul Harrison (the "Consultant"), dated
October 10, 1997.
The Company hereby grants to the Consultant an option (the "Option")
under the HealthWatch, Inc., 1995 Stock Option Plan (the "Plan") to purchase
750,000 shares (the "Shares") of the Company's common stock under the terms and
conditions set forth below. The terms and conditions applicable to the Option
are as follows:
1. Nonstatutory Stock Option. The Option shall be a Nonstatutory Stock
Option, as defined in the Plan.
2. Purchase Price - The purchase price of the stock is $0.53125 per
share which is not less than the Fair Market Value of the Shares.
3. Period of Exercise - The Option will expire on the date (the
"Expiration Date") seven years from the date of this Agreement. The Option may
be exercised for up to, but not in excess of, the amounts of shares subject to
the Option specified below, based on the Consultant's number of months of
providing continuous services to the Company from the date hereof pursuant to
that certain Consulting Agreement between the Company and Consultant dated
October 10, 1997 (the "Consulting Agreement"). In applying the following
limitations, the amount of shares, if any, previously purchased by Consultant
shall be counted in determining the amount of shares the Consultant can purchase
at any time in accordance with said limitations. The Consultant may exercise the
Option in the amounts and in accordance with the conditions set forth below:
(a) At any time during the first 12 months of such continuous
service, the Option may be exercised for up to 250,000 of the shares
subject to the Option.
(b) After 12 months of such continuous service, the Option may
be exercised for not in excess of 350,000 of the shares originally
subject to the Option;
<PAGE>
(c) After 36 months of such continuous service, the Option may
be exercised for not in excess of 550,000 of the shares originally
subject to the Option;
(d) At the expiration of 48 months of such continuous service,
the Option may be exercised at any time and from time to time within
its terms in whole or in part, but it shall not be exercisable after
the Expiration Date.
(e) Notwithstanding the foregoing, the extent to which the
Option may be exercised shall be accelerated as follows in the event
that any of the following shall occur:
(i) If the Company successfully raises at least
$200,000 of additional working capital within twelve months of the date
of this Agreement, the Option may be exercised for up to 100,000 of the
shares originally subject to the Option plus any other shares otherwise
subject to exercise pursuant to subparagraphs 3(a), (b) and (e) of this
Agreement.
(ii) If the Company successfully raises $1,000,000 in
addition to the $200,000 referred to in subparagraph 3(e)(i) hereof of
additional working capital within twelve months of the date of this
Agreement, the Option may be exercised for up to 100,000 of the shares
originally subject to the Option plus any other shares otherwise
subject to exercise pursuant to subparagraphs 3(a), (b) and (e) of this
Agreement.
(iii) If the Company completes the acquisition by
June 30, 1999 of other businesses which have in the aggregate annual
revenues of at least $5,000,000, the Option may be exercised for up to
100,000 of the shares originally subject to the Option plus any other
shares otherwise subject to exercise pursuant to subparagraphs 3(a),
(b), (c) and (e) of this Agreement.
(iv) If the Company completes the acquisition by June
30, 2000 of other businesses which have in the aggregate annual
revenues (including businesses which are part of the $5,000,000 amount
referred to in subparagraph 3(e)(iii) hereof) of at least $15,000,000,
the Option may be exercised for up to 100,000 of the shares originally
subject to the Option plus any other shares otherwise subject to
exercise pursuant to subparagraphs 3(a), (b), (c) and (e) of this
Agreement.
4. Transferability - This Option is not transferable except by will or
the laws of descent and distribution and may be exercised during the lifetime of
the Consultant only by the Consultant. If the Consultant dies, the Option may be
exercised (to the extent exercisable by the Consultant at the date of death) by
the legal representative of Consultant or by a person who acquired the right to
exercise such option by bequest or inheritance or by reason of the death of the
Consultant.
<PAGE>
5. Termination of Services - In the event that services of the
Consultant with the Company pursuant to the Consulting Agreement are terminated,
the Option may be exercised (to the extent exercisable at the date of
termination) by the Consultant, but the Option shall terminate with respect to
any of the Shares not then exercisable. Thereafter, the Option shall remain
outstanding and may be exercised to the extent exercisable at the date of
termination in accordance with the terms of the Option at any time prior to the
Expiration Date.
6. No Guarantee of Continued Service - This Agreement shall in no way
restrict the right of the Company to terminate the Consulting Agreement and
Consultant's services thereunder.
7. Registration of Shares - The shares of the Company's common stock
issuable upon exercise of the Option shall, at the time of exercise of the
Option, be subject to an effective registration statement under the Securities
Act of 1933.
8. Method of Exercise; Use of Company Stock - The Option may be
exercised, subject to the terms and conditions of this Agreement, by written
notice to the Company. The notice shall be in the form attached to this
Agreement and will be accompanied by payment (in such form as the Company may
specify) of the full purchase price of the shares to be issued, and in the event
of an exercise under the terms of paragraph 4 hereof, appropriate proof of the
right to exercise the Option. The Company will issue and deliver certificates
representing the number of shares purchased under the Option, registered in the
name of the Consultant (or other purchaser under paragraph 4 hereof) as soon as
practicable after receipt of the notice.
When exercising this Option Consultant may make payment either in money
or, if approved by the Board of Directors, by tendering shares of the Company
Stock owned by the Consultant, or by a combination of the two. Where shares of
stock of the Company are employed to pay all or part of the exercise price, the
shares of said stock shall be valued at their Fair Market Value at the time of
payment.
9. Withholding - In any case where withholding is required or advisable
under federal, state or local law in connection with any exercise by Consultant
hereunder, the Company is authorized to withhold appropriate amounts from
amounts payable to Consultant, or may require Consultant to remit to the Company
an amount equal to such appropriate amounts.
Consultant acknowledges and understands that under the provisions of
the Internal Revenue Code as presently in effect, the Consultant will have
taxable compensation income at the date of exercise of the Option equal to the
difference between the purchase price under the Option and the then Fair Market
Value of the stock. Consultant specifically agrees that as a condition to
permitting exercise, the Company may require that appropriate arrangements for
withholding be made with the Consultant as provided above.
10. Merger, Consolidation or Acceleration Event - The terms of this
Agreement are subject to modification upon the occurrence of certain events as
described in of the Plan.
<PAGE>
11. Incorporation of Plan - This Agreement is made pursuant to the
provisions of the Plan, which Plan is incorporated by reference herein. Terms
used herein shall have the meaning employed in the Plan, unless the context
clearly requires otherwise. In the event of a conflict between the provisions of
the Plan and the provisions of this Agreement, the provisions of the Plan shall
govern.
HEALTHWATCH, INC.
ACCEPTED:
By
--------------------------------------
Its
- ------------------------------------ -------------------------------------
Consultant
<PAGE>
HEALTHWATCH, INC.
NOTICE OF EXERCISE OF NONSTATUTORY STOCK OPTION ISSUED
UNDER THE 1995 STOCK OPTION PLAN
To: Stock Option Committee
HEALTHWATCH, INC.
2445 Cades Way
Vista, California 92083
I hereby exercise my Option dated __________, 199__ to purchase shares
of $0.07 par value common stock of the Company at the option exercise price of
$_________ per share. Enclosed is a certified or cashier's check in the total
amount of $_________, or payment in such other form as the Company has
specified.
I represent to you that I am acquiring said shares for investment
purposes and not with a view to any distribution thereof. I understand that my
stock certificate may bear an appropriate legend restricting the transfer of my
shares and that a stop transfer order may be placed with the Company's transfer
agent with respect to such shares.
I request that my shares be issued to me as follows:
-------------------------------------------
(Print your name in the form in which you wish to have the shares registered)
-------------------------------------------
(Social Security Number)
-------------------------------------------
(Street and Number)
-------------------------------------------
(City) (State) (Zip Code)
Dated: , 199 . Signature:
------------------- --- -------------------------------
<PAGE>
SCHEDULE II
PROMISSORY NOTE
$ , 1998
-------------------------- ----------------------
FOR VALUE RECEIVED, the undersigned Maker promises to pay to
HealthWatch, Inc., or order, at 2445 Cades Way, Vista, California, or such other
place as the holder of this Note may designate in writing to Maker, the
principal sum of _____________________________________ Dollars ($_____________),
together with simple interest on the unpaid principal balance from the date of
this Note until fully paid at the rate of seven percent (7%) per annum.
Principal and interest are due and payable in lawful money of the United States
of America.
Principal and interest are due and payable in four (4) consecutive
annual installments in the amount of _______________________________________
Dollars ($_____________) each, on July 1, 1999, July 1, 2000, July 1, 2001 and
July 1, 2002 when the entire unpaid principal balance and all accrued but unpaid
interest under this Note shall be immediately due and payable. Each annual
installment payment shall be applied first to accrued but unpaid interest and
the remainder to principal.
This Note may be fully or partially prepaid at any time during the term
of this Note without penalty or premium. Any prepayment shall be applied first
to accrued but unpaid interest and the remainder to the principal portions of
the monthly installments due under this Note in the inverse order the monthly
installments become due.
If default occurs in the payment of any amount due under this Note when
due, the entire principal balance and accrued but unpaid interest under this
Note shall at once become due and payable, without notice, at the option of the
holder of this Note. Any failure to exercise such option shall not constitute a
waiver of the right to exercise it in the event of any subsequent default.
Maker waives presentment, dishonor, protest, demand, diligence, notice
of protest, notice of demand, notice of dishonor, notice of nonpayment, and any
other notice of any kind otherwise required by law in connection with the
delivery, acceptance, performance, default, enforcement or collection of this
Note and expressly agrees that this Note, or any payment hereunder, may be
extended or subordinated (by forbearance or otherwise) at any time, without in
any way affecting the liability of Maker.
Maker agrees to pay on demand all costs of collecting or enforcing
payment under this Note, including attorneys' fees and legal expenses, whether
suit be brought or not, and whether through courts of original jurisdiction,
courts of appellate jurisdiction, or bankruptcy courts, or through other legal
proceedings.
<PAGE>
This Note may not be amended or modified, nor shall any waiver of any
provision hereof be effective, except only by an instrument in writing signed by
the party against whom enforcement of any amendment, modification, or waiver is
sought.
This Note shall be governed by and construed according to the laws of
the State of Georgia.
MAKER:
----------------------------------------
PAUL HARRISON
EXHIBIT 10.4
CONSULTING AGREEMENT
This CONSULTING AGREEMENT ("Agreement") is made effective this 10th day
of October, 1997 by and between HealthWatch, Inc., a Minnesota corporation with
its principal offices located at 2445 Cades Way, Vista, California 92083 (the
"Company"), and Larry Fisher (the "Consultant").
RECITALS
A. The Company desires to retain the services of Consultant as an independent
contractor in accordance with this Agreement.
B. The Consultant desires to render services for the Company as an independent
contractor in accordance with this Agreement.
AGREEMENT
In consideration of the above recitals and the promises set forth in
this Agreement, the parties agree as follows:
1. Consulting Services. During the "Term of Services" (which shall mean the
period of time described in Section 3 hereof), Consultant agrees to serve on the
Company's Board of Directors; assist the Company in raising working capital
through the sale of its securities; assist the Company in identifying businesses
to be acquired by the Company; assist the Company in acquiring businesses
identified by Consultant or others; work with the Company's management to
maximize management's performance and contributions to the Company; and provide
any other services agreed to by the parties (collectively, the "Services").
Consultant shall devote Consultant's best efforts in rendering the Services, it
being understood that Consultant is a full-time employee of HALIS, Inc.
2. Consideration for Services. As consideration for the Services, the Company
hereby grants Consultant a Nonstatutory Stock Option pursuant to the Company's
1995 Stock Option Plan to purchase up to 400,000 shares of the Company's Common
Stock at an exercise price of $0.53125 per share (the fair market value for the
Company's Common Stock on the date hereof), the terms of which option are set
forth in Schedule I hereto.
3. Term of Services. The Term of Services shall commence on October 10, 1997 and
end on December 31, 1998 (the "Termination Date"), unless earlier terminated or
extended by the parties pursuant to this Agreement.
4. Extension of Services. At any time before the Termination Date, the Company
and Consultant may agree to renew and extend the Term of Services for such
additional periods as the parties may agree.
5. Termination of Services. This Agreement and the Services may be terminated
before the Termination Date only as follows:
(a) This Agreement and the Services shall automatically terminate upon
the death or permanent disability of Consultant.
<PAGE>
(b) This Agreement and the Services may terminate at any time upon
mutual agreement of the parties.
6. Relationship of Parties. Consultant is an independent contractor and not an
employee or agent of the Company.
7. Employment Taxes and Benefits. To the extent required under applicable law,
Consultant shall report as income all compensation received by Consultant
pursuant to this Agreement and pay all taxes due on such compensation.
Consultant is solely responsible for all federal, state and local taxes which
may be payable in connection with the Services or this Agreement.
8. Expenses. The Company will reimburse Consultant for reasonable out-of pocket
expenses, which have been approved by the Company and are incurred by Consultant
in rendering the Services. For all such expenses, Consultant shall furnish to
the Company statements, receipts and vouchers as and when required by and to the
reasonable satisfaction of the Company.
9. Indemnification. Consultant shall indemnify and hold harmless the Company and
its employees, officers, directors, representatives, and agents from any and all
claims and expenses (including court costs and reasonable fees of attorneys and
other professionals) arising from any obligation imposed on the Company to pay
any withholding taxes, social security, unemployment insurance, workers'
compensation insurance, disability insurance or similar items, including
interest and penalties thereon, in connection with any payments made to
Consultant pursuant to this Agreement.
10. Ownership of Creative Works. Consultant agrees to promptly disclose to the
Company in writing any invention, improvement, concept, design, work of
authorship, trademark, discovery or idea (whether patentable or not and
including those which may be subject to copyright protection) generated,
conceived, or reduced to practice by the Consultant alone or in conjunction with
others in connection with the Services (collectively, "Creative Works").
Consultant agrees that the Creative Works shall be considered a "work made for
hire" as defined in the Copyright Act at 17 U.S.C. Section 101. Consultant
agrees that all Creative Works are the exclusive property of the Company and
hereby assigns to the Company all rights in the Creative Works including,
without limitation, all patent, copyrights, trademark and trade secret rights
(collectively, "Intellectual Property Rights"). Consultant shall hereafter
execute such assignments and other documents, and take such other action as the
Company reasonably requests, without payment of additional consideration, as may
be necessary or advisable to convey full ownership to the Company of all
Intellectual Property Rights to the Creative Works and to protect the Company's
interest in the Creative Works.
Notwithstanding any provision herein to the contrary, this Agreement does not
apply to any invention or other Creative Works generated, conceived, or reduced
to practice by the Consultant alone or in conjunction with others in connection
with services which Consultant performs for others, including HALIS, Inc., for
which no equipment, supplies, facility, or trade secret information of the
Company was used and which was developed entirely on Consultant's own time, and
which does not relate directly to the business of the Company or to its actual
or demonstrably anticipated research or development, or which does not result
from any work performed by Consultant for the Company.
11. Confidential Information. Consultant acknowledge and agree that the Creative
Works and all other nonpublic information concerning the Company or its business
and disclosed to or developed by Consultant, are valuable trade secrets of the
Company and shall remain confidential (collectively, "Confidential
Information"). Consultant shall not use or disclose any Confidential Information
or copy or remove any
<PAGE>
records, documents or other materials from the premises of the Company, except
to the extent necessary for rendering the Services and with the Company's prior
consent.
12. Return of Confidential Information. At any time upon request by the Company,
Consultant shall (a) promptly return to the Company (or destroy if requested by
the Company) all items and materials which contain Confidential Information and
(b) certify in writing to the Company that all such items and materials in the
possession or control of Consultant and which contain Confidential Information
have been returned or destroyed.
13. Non-Solicitation Covenants. Consultant covenants that Consultant shall,
during the term of this Agreement, and for one year following the termination or
expiration of this Agreement, comply with the following separate and independent
covenants:
(a) Consultant will not, without the prior written consent of the
Company, either directly or indirectly, on Consultant's own behalf or
in the service or on behalf of others, solicit, divert, or appropriate,
or attempt to solicit, divert, or appropriate, to any competing
enterprise, any person or entity that was a customer of the Company
during the Term of this Agreement.
(b) Consultant will not, without the Company's prior written consent,
either directly or indirectly, on Consultant's own behalf or in the
service or on behalf of others, solicit, divert, or hire away, or
attempt to solicit, divert, or hire away, to any competing enterprise,
any person employed by the Company or one of its affiliates, whether or
not such employee is a full-time or a temporary employee of the Company
or such affiliate and whether or not such employment is pursuant to
written agreement and whether or not such employment is at will.
14. Remedies. In addition to any other remedies, the Company shall have a right
of injunctive relief for breach of Sections 11, 12 and 13 by Consultant. The
prevailing party in any action or claim under this Agreement shall have the
right to recover reasonable attorneys' fees and costs.
15. General. Each of the parties shall pay their own expenses incurred in the
preparation and negotiation of this Agreement. The provisions of Sections 9, 10,
11, 12, 13 and 14 above shall survive the expiration or termination of this
Agreement or any renewal of the term of this Agreement. Consultant may not
assign this Agreement or delegate the Services without the Company's prior
written consent. No amendment to this Agreement or waiver of the rights or
obligations of either party shall be effective unless in writing signed by the
parties. This Agreement is governed by the laws of the State of Georgia. If any
provision of this Agreement is held invalid or unenforceable by any court of
competent jurisdiction, the other provisions of this Agreement will remain in
full force and effect. Any provision of this Agreement held invalid or
unenforceable only in part or degree will remain in full force and effect to the
extent not held invalid or unenforceable. Any notices, consents or other
communications pursuant to this Agreement must be in writing and delivered by
mail, courier or facsimile (with written confirmation of receipt) to the address
of the recipient party shown above (or to such other address provided by such
notice). This Agreement contains the entire agreement and understanding of the
parties concerning the subject matter of this Agreement. This Agreement may be
signed by facsimile and in counterparts.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
COMPANY
HealthWatch, Inc.
By:
----------------------------------
Its:
---------------------------------
CONSULTANT
-------------------------------------
Larry Fisher
<PAGE>
SCHEDULE I
HEALTHWATCH, INC.
NONSTATUTORY STOCK OPTION AGREEMENT
UNDER THE 1995 STOCK OPTION PLAN
Between:
HEALTHWATCH, INC. (the "Company") and Larry Fisher (the "Consultant"), dated
October 10, 1997.
The Company hereby grants to the Consultant an option (the "Option")
under the HealthWatch, Inc., 1995 Stock Option Plan (the "Plan") to purchase
400,000 shares (the "Shares") of the Company's common stock under the terms and
conditions set forth below. The terms and conditions applicable to the Option
are as follows:
1. Nonstatutory Stock Option. The Option shall be a Nonstatutory Stock
Option, as defined in the Plan.
2. Purchase Price - The purchase price of the stock is $0.53125 per
share which is not less than the Fair Market Value of the Shares.
3. Period of Exercise - The Option will expire on the date (the
"Expiration Date") seven years from the date of this Agreement. The Option may
be exercised for up to, but not in excess of, the amounts of shares subject to
the Option specified below, based on the Consultant's number of months of
providing continuous services to the Company from the date hereof pursuant to
that certain Consulting Agreement between the Company and Consultant dated
October 10, 1997 (the "Consulting Agreement"). In applying the following
limitations, the amount of shares, if any, previously purchased by Consultant
shall be counted in determining the amount of shares the Consultant can purchase
at any time in accordance with said limitations. The Consultant may exercise the
Option in the amounts and in accordance with the conditions set forth below:
(a) At any time during the first 12 months of such continuous
service, the Option may be exercised for up to 50,000 of the shares
subject to the Option.
(b) After 12 months of such continuous service, the Option may
be exercised for not in excess of 90,000 of the shares originally
subject to the Option;
(c) After 36 months of such continuous service, the Option may
be exercised for not in excess of 320,000 of the shares originally
subject to the Option;
<PAGE>
(d) At the expiration of 48 months of such continuous service,
the Option may be exercised at any time and from time to time within
its terms in whole or in part, but it shall not be exercisable after
the Expiration Date.
(e) Notwithstanding the foregoing, the extent to which the
Option may be exercised shall be accelerated as follows in the event
that any of the following shall occur:
(i) If the Company successfully raises at least
$500,000 of additional working capital within twelve months of the date
of this Agreement, the Option may be exercised for up to 190,000 of the
shares originally subject to the Option plus any other shares otherwise
subject to exercise pursuant to subparagraphs 3(a), (b) and (e) of this
Agreement.
(ii) If the Company successfully raises $700,000 in
addition to the $500,000 referred to in subparagraph 3(e)(i) hereof of
additional working capital within twelve months of the date of this
Agreement, the Option may be exercised for up to 40,000 of the shares
originally subject to the Option plus any other shares otherwise
subject to exercise pursuant to subparagraphs 3(a), (b) and (e) of this
Agreement.
(iii) If the Company completes the acquisition by
June 30, 1999 of other businesses which have in the aggregate annual
revenues of at least $5,000,000, the Option may be exercised for up to
40,000 of the shares originally subject to the Option plus any other
shares otherwise subject to exercise pursuant to subparagraphs 3(a),
(b), (c) and (e) of this Agreement.
(iv) If the Company completes the acquisition by June
30, 2000 of other businesses which have in the aggregate annual
revenues (including businesses which are part of the $5,000,000 amount
referred to in subparagraph 3(e)(iii) hereof) of at least $15,000,000,
the Option may be exercised for up to 40,000 of the shares originally
subject to the Option plus any other shares otherwise subject to
exercise pursuant to subparagraphs 3(a), (b), (c) and (e) of this
Agreement.
4. Transferability - This Option is not transferable except by will or
the laws of descent and distribution and may be exercised during the lifetime of
the Consultant only by the Consultant. If the Consultant dies, the Option may be
exercised (to the extent exercisable by the Consultant at the date of death) by
the legal representative of Consultant or by a person who acquired the right to
exercise such option by bequest or inheritance or by reason of the death of the
Consultant.
5. Termination of Services - In the event that services of the
Consultant with the Company pursuant to the Consulting Agreement are terminated,
the Option may be exercised (to
<PAGE>
the extent exercisable at the date of termination) by the Consultant, but the
Option shall terminate with respect to any of the Shares not then exercisable.
Thereafter, the Option shall remain outstanding and may be exercised to the
extent exercisable at the date of termination in accordance with the terms of
the Option at any time prior to the Expiration Date.
6. No Guarantee of Continued Service - This Agreement shall in no way
restrict the right of the Company to terminate the Consulting Agreement and
Consultant's services thereunder.
7. Registration of Shares - The shares of the Company's common stock
issuable upon exercise of the Option shall, at the time of exercise of the
Option, be subject to an effective registration statement under the Securities
Act of 1933.
8. Method of Exercise; Use of Company Stock - The Option may be
exercised, subject to the terms and conditions of this Agreement, by written
notice to the Company. The notice shall be in the form attached to this
Agreement and will be accompanied by payment (in such form as the Company may
specify) of the full purchase price of the shares to be issued, and in the event
of an exercise under the terms of paragraph 4 hereof, appropriate proof of the
right to exercise the Option. The Company will issue and deliver certificates
representing the number of shares purchased under the Option, registered in the
name of the Consultant (or other purchaser under paragraph 4 hereof) as soon as
practicable after receipt of the notice.
When exercising this Option Consultant may make payment either in money
or, if approved by the Board of Directors, by tendering shares of the Company
Stock owned by the Consultant, or by a combination of the two. Where shares of
stock of the Company are employed to pay all or part of the exercise price, the
shares of said stock shall be valued at their Fair Market Value at the time of
payment.
9. Withholding - In any case where withholding is required or advisable
under federal, state or local law in connection with any exercise by Consultant
hereunder, the Company is authorized to withhold appropriate amounts from
amounts payable to Consultant, or may require Consultant to remit to the Company
an amount equal to such appropriate amounts.
Consultant acknowledges and understands that under the provisions of
the Internal Revenue Code as presently in effect, the Consultant will have
taxable compensation income at the date of exercise of the Option equal to the
difference between the purchase price under the Option and the then Fair Market
Value of the stock. Consultant specifically agrees that as a condition to
permitting exercise, the Company may require that appropriate arrangements for
withholding be made with the Consultant as provided above.
10. Merger, Consolidation or Acceleration Event - The terms of this
Agreement are subject to modification upon the occurrence of certain events as
described in of the Plan.
11. Incorporation of Plan - This Agreement is made pursuant to the
provisions of the Plan, which Plan is incorporated by reference herein. Terms
used herein shall have the meaning
<PAGE>
employed in the Plan, unless the context clearly requires otherwise. In the
event of a conflict between the provisions of the Plan and the provisions of
this Agreement, the provisions of the Plan shall govern.
HEALTHWATCH, INC.
ACCEPTED:
By
------------------------------------
Its
- -------------------------------- ---------------------------------
Consultant
<PAGE>
HEALTHWATCH, INC.
NOTICE OF EXERCISE OF NONSTATUTORY STOCK OPTION ISSUED
UNDER THE 1995 STOCK OPTION PLAN
To: Stock Option Committee
HEALTHWATCH, INC.
2445 Cades Way
Vista, California 92083
I hereby exercise my Option dated ___________, 199__ to purchase shares
of $0.07 par value common stock of the Company at the option exercise price of
$_________ per share. Enclosed is a certified or cashier's check in the total
amount of $________, or payment in such other form as the Company has specified.
I represent to you that I am acquiring said shares for investment
purposes and not with a view to any distribution thereof. I understand that my
stock certificate may bear an appropriate legend restricting the transfer of my
shares and that a stop transfer order may be placed with the Company's transfer
agent with respect to such shares.
I request that my shares be issued to me as follows:
-------------------------------------------
(Print your name in the form in which you wish to have the shares registered)
-------------------------------------------
(Social Security Number)
-------------------------------------------
(Street and Number)
-------------------------------------------
(City) (State) (Zip Code)
Dated: , 199 . Signature:
------------------- --- -------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 72,739
<SECURITIES> 584,375
<RECEIVABLES> 248,120
<ALLOWANCES> (22,701)
<INVENTORY> 578,833
<CURRENT-ASSETS> 1,552,122
<PP&E> 766,082
<DEPRECIATION> (718,745)
<TOTAL-ASSETS> 2,438,068
<CURRENT-LIABILITIES> 1,359,707
<BONDS> 580,000
0
0
<COMMON> 741,423
<OTHER-SE> 336,938
<TOTAL-LIABILITY-AND-EQUITY> 2,438,068
<SALES> 664,639
<TOTAL-REVENUES> 664,639
<CGS> 619,558
<TOTAL-COSTS> 619,558
<OTHER-EXPENSES> 1,033,808
<LOSS-PROVISION> 22,701
<INTEREST-EXPENSE> 30,150
<INCOME-PRETAX> (1,017,825)
<INCOME-TAX> 0
<INCOME-CONTINUING> (988,727)
<DISCONTINUED> 0
<EXTRAORDINARY> 1,052
<CHANGES> 0
<NET-INCOME> (1,017,825)
<EPS-PRIMARY> (0.83)
<EPS-DILUTED> (0.83)
</TABLE>
