SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|X| Preliminary Proxy Statement |_| Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
|_| Definitive Proxy Statement
|_| Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
HealthWatch, Inc.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
<PAGE>
PRELIMINARY
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
OF
HEALTHWATCH, INC.
To the Shareholders of HealthWatch, Inc.:
PLEASE TAKE NOTICE that the Annual Meeting of Shareholders of
HealthWatch, Inc., will be held at 11:00 a.m. (Pacific time) on Friday, March
20, 1998, at the Company's offices, 2445 Cades Way, Vista, California, to
consider and act upon the following matters:
I. To elect directors.
II. To approve an amendment to the Company's Articles of
Incorporation to increase the authorized Common Stock to 50
million shares, par value $.01 per share, and to increase the
Preferred Stock to 5 million shares, par value $.01 per share.
III. To transact such other business as may properly come before the
meeting.
Accompanying this Notice are a Proxy and Proxy Statement and a copy of
the Company's 1997 Annual Report on Form 10-KSB as filed with the Securities and
Exchange Commission. Whether or not you expect to be present at the meeting,
please sign and date the Proxy and return it to the Company. The Proxy may be
revoked at any time prior to the time that it is voted. Only shareholders of
record at the close of business on February 5, 1998, will be entitled to vote at
the meeting.
BY ORDER OF THE BOARD OF DIRECTORS
Paul W. Harrison
Chairman of the Board
February 20, 1998
<PAGE>
PRELIMINARY
PROXY STATEMENT
HEALTHWATCH, INC.
2445 Cades Way
Vista, California 92083
Annual Meeting of Shareholders
March 20, 1998
GENERAL
The enclosed Proxy is solicited by the Board of Directors of
HealthWatch, Inc. ("HealthWatch" or the "Company"). Such solicitation is being
made by mail and may also be made by directors, officers, and employees of the
Company personally or by telephone. Any Proxy given pursuant to such
solicitation may be revoked by the shareholder at any time prior to the voting
of the Proxy by filing with the Company either a written revocation or a later
dated Proxy or by attendance and voting in person at the meeting. Shares
represented by Proxies will be voted as specified in such Proxies, and if no
choice is specified, will be voted in favor of the Board of Directors' nominees
to the Board and for the amendment to the Articles of Incorporation.
Votes cast by proxy or in person at the Annual Meeting will be
tabulated by the election inspectors appointed for the meeting who will
determine whether or not a quorum is present. The election inspectors will treat
abstentions as shares that are present and entitled to vote for purposes of
determining the presence of a quorum but as unvoted for purposes of determining
the approval of any matter submitted to the shareholders for a vote. If a broker
indicates on the Proxy that it does not have discretionary authority as to
certain shares to vote on a particular matter, those shares will not be
considered as present and entitled to vote with respect to that matter.
All of the expenses involved in preparing, assembling and mailing this
Proxy Statement and the material enclosed herewith will be paid by the Company.
Directors will not be separately compensated for soliciting proxies. The Company
may reimburse banks, brokerage firms and other custodians, nominees and
fiduciaries for reasonable expenses incurred by them in sending proxy material
to beneficial owners of stock. This Proxy Statement and accompanying form of
Proxy are being mailed to shareholders on or about February 20, 1998.
PROPOSALS OF SHAREHOLDERS
Proposals of shareholders of the Company intended to be presented at
the Company's next annual meeting of shareholders must be received by the
President of the Company at the above address no later than November 25, 1998,
in order for any such proposals to be included in the Company's Proxy Statement
and form of Proxy relating to that meeting.
OUTSTANDING STOCK
Common Stock, $.07 par value ("Common Stock"), of which there were
10,601,755 shares outstanding on the record date, constitutes the only class of
outstanding voting securities issued by the Company. Each shareholder will be
entitled to cast one vote for each share of Common Stock held. Votes may be cast
in person or by proxy. Only shareholders of record at the close of business on
February 5, 1998, will be entitled to vote at the meeting.
The following table sets forth as of February 5, 1998, the shares of
Common Stock and percentage of total shares owned by the shareholders known to
beneficially own 5% of the Company's outstanding shares of Common Stock, each
director and nominee for election to the Board of Directors of the Company and
as to all officers and directors as a group. All persons indicated have (unless
indicated to the contrary) sole or shared with spouse voting and dispositive
power over such shares.
<PAGE>
Name and Address of Beneficial
Owner, Name of Director or
Nominee or Identity of Group Amount Beneficially Owned Percentage
- ---------------------------- ------------------------- ----------
Paul W. Harrison 4,450,000(1)(2) 35.2%
9040 Rosewell Road
Suite 470
Atlanta, Georgia 30350
Larry Fisher 923,333(1) 8.5%
9040 Rosewell Road
Suite 470
Atlanta, Georgia 30350
Lindley S. Branson 460,475(1) 4.2%
Richard T. Chase 60,714(1) *
Sanford L. Schwartz 134,909(1)(3) 1.3%
All Officers, Directors and Nominees 6,913,177(1)(2)(3) 50.3%
as a Group (9 persons)
- --------------------
* Less than one percent of shares outstanding.
(1) Includes for the following persons the number of shares set forth
opposite their name which are issuable within 60 days of the date of
this Proxy Statement upon exercise of outstanding stock purchase
options or warrants or conversion of outstanding debentures:
Harrison--2,033,333 shares; Fisher--323,333 shares; Branson--276,904
shares; Case--60,000 shares; Schwartz--101,071 shares; and all officers
and directors as a group--3,152,974 shares.
(2) Includes 2,000,000 shares owned by Paul Harrison Enterprises, Inc.
("PHE"), of which Mr. Harrison is an officer and director and major
shareholder, 416,667 shares owned by HALIS, Inc. ("HALIS"), of which
Mr. Harrison is the Chairman of the Board of Directors and Chief
Executive Officer and a major shareholder and 1,600,000 shares subject
to issuance pursuant to exercise of options held by PHE.
(3) Includes shares owned by Creative Business Strategies, Inc. ("CBS").
Mr. Schwartz is an officer, director and principal shareholder of CBS.
During 1997, the Company completed a series of transactions with HALIS,
Inc., a Georgia corporation, two officers and directors of HALIS; MERAD
Corporation, a Georgia corporation ("MERAD"), which is a wholly-owned subsidiary
of Paul Harrison Enterprises, Inc., 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, based in Atlanta, Georgia, is a publicly-traded company
(OTC Bulletin Board Symbol: "HLIS"), which supplies information technology
services focused on the healthcare industry. Utilizing advanced healthcare
models and information technology, HALIS has developed the HALIS Health Care
Enterprise System, a single program which integrates all of the major functions
needed by clinics, hospitals, healthcare practices, payers, long-term care
facilities, laboratories, pharmacies and home healthcare facilities. HALIS is
implementing a corporate strategy which combines external acquisitions and
internal sales growth.
<PAGE>
HALIS and HealthWatch had originally planned to merge. Following
discussions, HALIS and HealthWatch determined that it would be preferable, at
that time, 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 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
specifically 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
joined the HealthWatch Board of Directors.
In connection with these transactions, PHE (an investment firm
controlled by Mr. Harrison), Mr. Fisher and two non-affiliated shareholders of
HALIS exchanged 1,100,000 of their shares of HALIS common stock for 4,400,000
shares of the Company's Common Stock and PHE was granted an option to exchange
an additional 400,000 shares of HALIS common stock for an additional 1,600,000
shares of HealthWatch 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 invested $125,000 in HealthWatch in consideration for
which HALIS acquired 416,667 shares of HealthWatch Common Stock. Following these
transactions, HALIS, PHE and Mr. Fisher owned an aggregate of 3,106,667 shares
of HealthWatch Common Stock representing approximately 29% of the Company's then
outstanding shares of Common Stock and PHE owned an option to acquire an
additional 1,600,000 shares of the Company's Common Stock which, if exercised,
would increase the percentage of the Company's Common Stock owned by HALIS, PHE
and Mr. Fisher in the aggregate to approximately 38% of the outstanding shares
of the Company's Common Stock following the exercise of this option. Subsequent
to these transactions, Mr. Harrison and Mr. Fisher were granted options to
acquire an aggregate of 1,150,000 shares of the Company's Common Stock at
$.53125 per share and acquired options for an aggregate of 166,666 shares at
$.34375 per share in connection with short-term loans to the Company of $34,000.
See "Information Concerning Directors and Officers--Certain Transactions."
ELECTION OF DIRECTORS
Proxies returned by shareholders will be voted at the meeting, in the
absence of contrary indication, in favor of the election of the following four
persons as directors. Richard T. Case and Sanford L. Schwartz, were elected as
directors at the Special Meeting of Shareholders held on April 15, 1997 and Paul
W. Harrison and Larry Fisher were appointed to the Board during November 1997,
in each case, to hold office until the next Annual Meeting of Shareholders and
thereafter until their successors have been duly elected and qualified, unless a
prior vacancy shall occur by reason of their death, resignation or removal from
office.
Although management has no reason to believe that any of the nominees
will be unable to serve as a director, if that contingency should occur, it is
intended that the shares represented by the Proxies will be voted, in the
absence of contrary indication, for any substitute nominee designated by the
Board of Directors, unless the Board determines to reduce its size
appropriately. Proxies will not be voted for more than four nominees to the
Board of Directors.
The nominees to the Board of Directors of the Company are as follows:
Name Director Since Age Positions with the Company
- ---- -------------- --- --------------------------
Paul W. Harrison November 1997 43 Chairman of the Board of
Directors
Richard T. Case(1)(2) April 1997 47 Director
<PAGE>
Larry Fisher November 1997 53 Director
Sanford L. Schwartz(2) 1983 47 Director
- ----------------------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
Paul W. Harrison has served as Chairman of the Board and Chief
Executive Officer of HALIS, Inc., a healthcare information systems company,
since November 1996. In addition, Mr. Harrison has been the managing member of
AUBIS since February 1995, a director of AUBIS Hospitality Systems, Inc. ("AHS")
since June 1994 and a director of AHS since January 1995. Mr. Harrison has 20
years of professional experience in the United States and internationally in
investments, management consulting, and information technology. Mr. Harrison has
created and sold various software technology companies over his career that
specialized in the healthcare and information technology markets. In 1994, he
acquired Wiporwil Systems and Peripheral Design to form AUBIS, L.L.C. Prior to
founding AUBIS, L.L.C., Mr. Harrison started and later sold Biven, a technology
company, to HBO & Company ("HBOC"). Biven enabled HBOC to enter the highly
competitive managed healthcare information technology segment of the industry.
Mr. Harrison served as a senior executive of HBOC until 1995. Prior to Biven,
Mr. Harrison owned and operated several technology development companies
supporting the healthcare industry. Mr. Harrison has also invested in the
development of the Chemical Sciences Center at the Scripps Research Institute,
is on the Scripps Research Presidents Council, and is a Louis Pasteur Fellow.
Mr. Harrison is also active in private investment funds and is a well known
supporter of health related charities.
Richard T. Case. Mr. Case has been President of Benchmark Associates, a
business consulting firm since 1985. Mr. Case was President of PolyMedica
Industries, Inc., a medical products company from May 1990 to July 1992. Mr.
Case served as a director of the Company from 1990 to 1994.
Larry Fisher has served as Executive Vice President of HALIS, Inc.
since June 1997. Mr. Fisher was the founder of Fisher Business Systems, Inc.
("Fisher"), the predecessor of HALIS, and served as a director since its
organization in 1979. Mr. Fisher subsequently served as President, Chief
Executive Officer and Treasurer of Fisher from 1979 to 1992, and as Chairman of
the Board, from December 1992 to November 1996. He led the development of the
first generation of Fisher's products for the hospitality marketplace and is a
recognized leader in the industry. Under his management, Fisher developed the
first integrated point-of-sale and back office system for the food service
industry. He also directed Fisher's efforts in the development of its second
generation touch screen system. Prior to 1979, Mr. Fisher was employed by IBM
for 11 years in several executive sales and marketing positions. In his last
such position, Mr. Fisher was responsible for creating, implementing and
monitoring national marketing programs for the retail and hospitality
industries.
Sanford L. Schwartz. Mr. Schwartz, Chairman of the Board of Directors
of the Company, has been a consultant with Creative Business Strategies, Inc., a
business/development consulting firm, since July 1992. He served as Chief
Executive Officer of the Company from June 1983 to September 1993 and as
Chairman of the Board of Directors from June 1983 to November 1997. Mr. Schwartz
is a director of Renaissance Entertainment Corporation.
During fiscal 1997, the Board of Directors met nine times. All
directors attended at least 75% of the aggregate of the total number of meetings
of the Board of Directors held during fiscal 1996 during the period for which
they were directors. During fiscal 1997, the functions which would be served by
an audit, nominating and compensation committee were reserved to the full Board
of Directors. New Audit and Compensation Committee members will be appointed
following the Annual Meeting. Directors who are not otherwise compensated by the
Company generally have been compensated through the issuance of stock options.
CERTAIN FILINGS. On May 1, 1991, comprehensive new rules promulgated by
the Securities and Exchange Commission relating to the reporting of securities
transactions by directors and officers became effective. To the
<PAGE>
Company's knowledge, based solely on a review of the copies of such reports
furnished to the Company during the fiscal year ended June 30, 1997 all required
reports were timely filed, except that Richard T. Case, a director of the
Company, failed to file one report on a timely basis reporting his ownership of
the Company's Common Stock at the time that he was elected a director of the
Company.
INFORMATION CONCERNING DIRECTORS AND OFFICERS
COMPENSATION
The following table sets forth, on an accrual basis, the aggregate cash
compensation paid by the Company and its subsidiaries during the three fiscal
years ended June 30, 1997, to the Company's Presidents and Chief Executive
Officers and Chairman of the Board of Directors. No officer or director of the
Company received compensation of $100,000 or more in fiscal 1996 or 1997.
<TABLE>
<CAPTION>
Name and Principal Fiscal Options Restricted
Position Year Salary Bonus (No. of Shares) Stock Awards
- ------------------ ------ ------ ----- --------------- ------------
<S> <C> <C> <C> <C> <C>
Daniel J. Kelly 1997 $80,770 -- 600,000 shs. --
President and CEO 1996 -- -- -- --
1995 -- -- -- --
Lindley S. Branson 1997 $53,000 -- 250,000 shs. --
President and CEO 1996 54,000 -- 18,571 shs. --
1995 -- -- -- --
Sanford L. Schwartz, 1997 $32,567(1) -- 100,000 shs. --
Chairman of the 1996 36,247(1) -- -- --
Board of Directors 1995 33,250(1) -- 11,035 shs. 36,247 shs.(1)
</TABLE>
- -----------------
(1) Includes amounts paid to Creative Business Strategies, Inc. Mr.
Schwartz is an officer, director and principal shareholder of CBS. The
fair market value as of the date of grant of the shares of Common Stock
subject to the stock award in 1995 was $81,000.
STOCK BASED COMPENSATION
The Company has a 1989 Incentive Stock Option Plan and 1993 and 1995
Stock Option Plans ("the Plans") for its key employees directors and consultants
to purchase shares of the Company's Common Stock. The Plans provide that the
purchase price of the shares covered by incentive stock options may not be less
than the fair market value of the shares on the date the option was granted.
Nonstatutory stock options granted can be granted at exercise prices of 85% or
more of the fair market value of the Company's Common Stock on the date of
grant. To date, all options granted under the Plans have been at exercise prices
equal to the fair market value of the Common Stock on the date the Company
agreed to grant the options.
The Company has, from time to time, also provided nonstatutory stock
options outside of the Plans to directors, officers and consultants and has
awarded stock grants to officers, directors, employees and consultants in
consideration for services. These nonstatutory options generally have had a term
of three to five years and have had exercise prices equal to the fair market
value of the Company's Common Stock on the date the options were granted. At
February 5, 1998, the Company had an aggregate of 3,232,812 shares reserved for
issuance pursuant to outstanding stock options under the Plans.
DIRECTORS' REPORT. On August 25, 1997, the Board of Directors unanimously
approved repricing all outstanding stock options held by current employees and
directors of the Company (a total of 1,743,571 shares), including
<PAGE>
600,000, 268,571, 60,000 and 100,000 shares subject to options held by Daniel J.
Kelly, Lindley S. Branson, Richard T. Case and Sanford L. Schwartz,
respectively, all of whom were directors or officers of the Company. It was the
Board of Directors' opinion that the repricing of these options was appropriate
in view of the Company's inability to provide adequate cash compensation,
particularly to its officers and directors, due to the Company's lack of working
capital. During August 1997, Daniel J. Kelly was being paid $6,500 per month,
which represented a reduction in the $12,500 per month he was to have been paid
pursuant to his employment agreement with the Company, and the Company had an
accrued obligation of $11,353 to Sanford L. Schwartz and an affiliated company
which was then past due.
The following table shows option grants during fiscal 1997 to the named
executive officers of the Company. Reference is also made to the information
included above under "Compensation."
<TABLE>
<CAPTION>
Options Granted Percent of Total Exercise Expiration
Name in Fiscal 1997 Options Granted Price Date
- ------------------- --------------- ---------------- -------- ----------
<S> <C> <C> <C> <C>
Daniel J. Kelly 600,000 shs. 37.3% $2.0625(1) 12/18/01
Lindley S. Branson 250,000 shs. 15.5% $2.0625(1) 12/16/01
Sanford L. Schwartz 100,000 shs. 6.2% $2.0625(1) 12/16/01
</TABLE>
(1) These options were replaced at an exercise price of $.56 per share, the
fair market value for the Company's Common Stock on August 25, 1997,
the date on which the replacement options were granted.
The following table shows the number of options exercised during fiscal
1997 and the 1997 fiscal year-end value of the options held at the end of the
fiscal year by the named executive officer.
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised in-the-money Options
Shares Acquired on Options at June 30, 1997 at June 30, 1997
Name Exercise of Options Exercisable/Unexercisable Exercisable/Unexercisable
- ------------------- ------------------- ------------------------- -------------------------
<S> <C> <C> <C>
Daniel J. Kelly None 0/600,000 shs. $-0-/$-0-
Lindley S. Branson None 118,511/150,000 shs. $-0-/$-0-
Sanford L. Schwartz None 61,036/50,000 shs. $-0-/$-0-
</TABLE>
CERTAIN TRANSACTIONS
During the fourth quarter of calendar 1997, the Company completed a
series of transactions with HALIS; two officers and directors of HALIS; MERAD
Corporation, which is a wholly-owned subsidiary of Paul Harrison Enterprises,
Inc., 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, at that time, to adopt a shared business development
strategy, but for HealthWatch to remain a separate company. To implement this
strategy, HealthWatch and HALIS 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 obtained a non-exclusive license from MERAD to
certain artificial intelligence computer software and a multimedia database
utility, and retained MERAD to develop proprietary software
<PAGE>
technology 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. MERAD is to be paid $15,000
per month for 24 months to develop the software and is to be paid a royalty of
from 5% to 1% of the gross proceeds the Company derives from the sale of the
software.
During the fourth quarter of calendar 1997, PHE, Mr. Fisher and two
non-affiliated shareholders of HALIS exchanged 1,100,000 of their shares of
HALIS common stock for 4,400,000 shares of the Company's Common Stock and PHE
was granted an option to acquire 1,600,000 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 acquired
416,667 shares of the Company's Common Stock for a purchase price of $125,000.
Effective October 10, 1997, PHE and Paul W. Harrison entered into a
consulting agreement with the Company which expires on December 31, 1998. The
agreement provides for, among other things, the payment to PHE commencing on
January 1, 1998 of $15,000 per month, the granting of a seven-year nonstatutory
stock option to Mr. Harrison representing the right to acquire up to 750,000
shares of the Company's Common Stock at $.53125 per share, the then fair market
value for the Company's Common Stock, and to loan to Mr. Harrison up to $200,000
payable in four equal annual installments and bearing interest at 7% per annum.
As of the date of this Proxy Statement, $0 had been borrowed pursuant to the
loan commitment.
Effective October 10, 1997, Larry Fisher entered into a consulting
agreement with the Company which expires on December 31, 1998. The agreement
provides, among other things, for the grant of a seven-year nonstatutory stock
option representing the right to acquire 400,000 shares of the Company's Common
Stock at $.53125 per share, the then fair market value for the Company's Common
Stock.
On December 18, 1996, Daniel J. Kelly entered into an employment
agreement with the Company pursuant to which he is to be paid $150,000 per
annum, is eligible for a bonus of up to one-third of his base salary and
received an option to purchase 600,000 shares of the Company's Common Stock. The
Agreement provides for a severance payment equal to five months salary if his
employment is terminated before December 31, 2000.
On January 22, 1998, Paul W. Harrison, Larry Fisher and Lindley S.
Branson each loaned the Company $17,000 for a period of 90 days. The loans bear
interest at 7% per annum. As additional compensation for making the loans, each
was granted a warrant to acquire 83,333 shares of the Company's Common Stock at
$.34375 per share, the fair market value for the Company's Common Stock on
January 22, 1998. In addition, during January 1998, a $35,000 loan which Mr.
Branson made during the fourth quarter of calendar 1997 was paid by the issuance
to Mr. Branson of 100,000 shares of the Company's Common Stock.
AMENDMENT TO ARTICLES OF INCORPORATION
TO INCREASE NUMBER OF AUTHORIZED SHARES OF
COMMON STOCK AND PREFERRED STOCK
The Company's Articles of Incorporation presently authorizes the
issuance of a total of 14,285,715 shares of Common Stock, par value $.07 per
share, and 1,428,571 shares of Preferred Stock, par value $.07 per share. At
February 5, 1998, 10,601,755 of the 14,285,715 authorized shares of Common Stock
were issued and outstanding and no shares of Preferred Stock were issued and
outstanding. In addition, at February 5, 1998, an aggregate of 6,584,214 shares
of Common Stock were reserved for issuance upon conversion of outstanding stock
options, warrants and convertible securities at prices ranging from $.34375 to
$14.00 per share, including an aggregate of 4,528,571 shares reserved for
issuance pursuant to the exercise of stock options and warrants granted to
officers and directors or their affiliates and 1,600,000 shares reserved for
issuance to PHE pursuant to an option it has to exchange up to 400,000 shares of
HALIS common stock for 1,600,000 shares of the Company's Common Stock.
The Company's Common Stock is currently listed on the Nasdaq Small Cap
Market (Symbol: HEAL). In order for the Company's Common Stock to remain listed
on the Nasdaq Small Cap Market, the Company must, among other things, maintain a
minimum tangible net worth of $2 million and, as of February 23, 1998, a minimum
<PAGE>
bid price of $1.00 per share. At December 31, 1997, the Company's tangible net
worth (as defined for purposes of satisfying the Nasdaq net worth requirement)
was $1,046,611. The Company's plans to increase its net worth in order to meet
this requirement include issuance of shares of its capital stock to raise
additional working capital and an offer to certain shareholders of HALIS to
exchange shares of their HALIS common stock for shares of HealthWatch capital
stock. The Company and HALIS are pursuing certain joint business opportunities
and HealthWatch believes that increasing HealthWatch's investment in HALIS is
consistent with the pursuit of these opportunities. HealthWatch currently owns
1,100,000 shares of HALIS' common stock (representing approximately 2.5% of
HALIS' outstanding shares of common stock) and HALIS currently owns 416,667
shares (approximately 4%) of HealthWatch's Common Stock. In addition, in
connection with an earlier exchange of shares, Paul Harrison Enterprises, Inc.,
an affiliate of HALIS was granted an option to exchange 400,000 additional HALIS
shares for 1,600,000 additional HealthWatch shares. Paul W. Harrison, the
founder and a control shareholder of PHE, was elected to the HealthWatch Board
of Directors in connection with a transaction in which certain HALIS
shareholders, including PHE, exchanged shares of HALIS common stock for shares
of HealthWatch Common Stock (see "Information Concerning Directors and
Officers--Certain Transactions"). Mr. Harrison, who is Chairman of the Board and
Chief Executive Officer of HALIS, has been elected Chairman of the Board of
HealthWatch.
Prior to the meeting of the HealthWatch shareholders scheduled for
March 20, 1998, the Company expects that PHE or its assigns and possibly other
HALIS shareholders will agree to exchange additional HALIS shares for shares of
HealthWatch's Common Stock in furtherance of HealthWatch's interest in
increasing its business relationship with and its investment in HALIS and in
order to improve HealthWatch's ability to comply with the Nasdaq tangible net
worth requirement.
In addition to the minimum tangible net worth requirement, as of
February 23, 1998, the listing requirements for the Nasdaq Small Cap Market will
include a requirement that companies maintain a minimum bid price for common
stock listed on the Nasdaq Small Cap Market of $1.00 per share or more. On
February 10, 1998, the closing sale price for the Company's Common Stock was
$.40625. Primarily for the purpose of satisfying the minimum bid price
requirement, the Board of Directors has authorized the implementation of a
one-for-five reverse split of the Company's Common Stock effective February 23,
1998.
Based on a one-for-five reverse stock split, the Company's current
Articles of Incorporation will be amended prior to the Annual Meeting to
decrease the authorized shares from 14,285,715 shares of Common Stock, par value
$.07 per share, to 2,857,143 shares of Common Stock, par value $.35 per share,
and from 1,428,571 shares of Preferred Stock, par value $.07 per share, to
285,714 shares of Preferred Stock, par value $.35 per share. In addition, the
issued and outstanding shares of Common Stock will be reduced from 10,601,755 to
2,120,351 shares. In the event that the shareholders approve the proposed
amendment to the Articles of Incorporation described above, the Company's
Articles of Incorporation, as so amended, would be amended to authorize the
issuance of a total of 50 million shares of Common Stock, at a reduced par value
of $.01 per share, and 5 million shares of Preferred Stock, at a reduced par
value of $.01 per share. This amendment would not change the then number of
issued and outstanding shares of the Company's Common Stock.
After giving effect to all shares reserved for issuance for outstanding
stock options, warrants and convertible securities, and the transactions
described above which the Company intends to implement in order to, among other
things, improve its ability to have its Common Stock continue to be listed on
the Nasdaq Small Cap Market, the Company does not have sufficient shares for use
in future transactions involving the issuance of shares of Common Stock,
including the potential issuance of shares upon exercise or conversion of
outstanding stock options, warrants and convertible securities. The Board of
Directors has adopted a proposed amendment to the Company's Articles of
Incorporation to increase the number of authorized shares of Common Stock to 50
million shares, par value $.01 per share, and the number of authorized shares of
Preferred Stock to 5 million shares, par value $.01 per share. The additional
stock, if so authorized, could be used at the discretion of the Board of
Directors without any further action by the shareholders, except as required by
applicable law or regulation or the rules and regulations of The Nasdaq Stock
Market, Inc., in connection with acquisitions, efforts to raise additional
capital for the Company, additional exchanges for shares of HALIS common stock
and for other corporate purposes. Shares of the stock will be issued only upon a
determination by the Board of Directors that a proposed issuance is in the best
interests of the Company.
<PAGE>
As part of its new business plan, HealthWatch plans to try to expand
its business by acquiring companies that fit into one of three of the following
models: companies which provide services at the point of care, such as home
health companies; companies which distribute healthcare, monitoring and
measuring devices which can be connected through new software being developed
for HealthWatch to processing systems elsewhere in the enterprise; and system
integrators who provide hardware and software solutions to healthcare and other
industries which can increase their focus on the growing healthcare market
utilizing the healthcare software technology currently being developed in the
systems which such integrators provide. HealthWatch does not have any agreements
or proposed agreements with any companies which would result in the issuance of
HealthWatch Common Stock to acquire such companies. However, the Company has a
non-binding letter of intent with a private systems interrogator, the
acquisition of which, if completed as being discussed, would require that the
Company obtain additional capital through the issuance of its securities, in
order to raise the cash which would be required to complete the acquisition. The
Company believes that it is important to have the ability to utilize its
securities to acquire such businesses should the opportunity arise.
The increase in authorized shares will allow the Board of Directors of
the Company to consider and, if the Board believes it to be in the best interest
of the Company, take advantage of any such acquisition possibilities. In
addition, the flexibility invested in the Company's Board of Directors to
authorize the issuance and sale of authorized but unissued shares of Common
Stock and/or to issue Preferred Stock in one or more series could enhance the
Board of Directors' bargaining capacity on behalf of the Company in a takeover
situation and could, under certain circumstances be used to render more
difficult or to discourage a merger, tender offer or proxy contest, the
assumption of control by a holder of a large block of the Company's securities,
or the removal of incumbent management, even if such a transaction were favored
by the holders of the requisite number of the then outstanding shares.
Accordingly, shareholders of the Company might be deprived of an opportunity to
consider a takeover proposal which a third party might consider if the Company
did not have authorized a significant number of unissued shares of Common Stock
and a class of authorized but unissued Preferred Stock.
The Company is not aware of any present efforts to gain control of the
Company or to organize a proxy contest. There are no "anti-takeover" measures
which are currently part of the Company's Articles of Incorporation, Bylaws or
agreements.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSED AMENDMENT TO
THE ARTICLES OF INCORPORATION. An affirmative vote by holders of a majority of
the outstanding shares of Common Stock entitled to vote at the meeting of
shareholders is required to approve the amendment.
INDEPENDENT AUDITORS
Silverman Olson Thorvilson & Kaufmann Ltd. has served as the Company's
independent auditors since the Company's formation in 1983. The Company does not
expect that a representative of Silverman Olson Thorvilson & Kaufmann Ltd. will
be present at the meeting.
OTHER MATTERS
Management does not intend to bring before the meeting any business
other than as set forth in this Proxy Statement and has not been informed that
any other business is to be presented to the meeting. If any matters other than
those referred to above should properly come before the meeting, however, it is
the intention of the persons named in the enclosed Proxy to vote such Proxy in
accordance with their best judgment.
<PAGE>
Please sign and return promptly the enclosed Proxy in the envelope
provided. The signing of a Proxy will not prevent your attending the meeting and
voting in person.
By Order of the Board of Directors
Paul W. Harrison
Chairman of the Board
February 20, 1998
<PAGE>
PRELIMINARY
HEALTHWATCH, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR
ANNUAL MEETING OF SHAREHOLDERS
MARCH 20, 1998
The undersigned shareholder of HealthWatch, Inc. (the "Company") hereby
appoints Paul W. Harrison and Daniel J. Kelly or either of them, as attorneys,
agents and proxies of the undersigned with full power of substitution in each of
them, to vote in the name and on behalf of the undersigned at the Annual Meeting
of Shareholders of the Company to be held on March 20, 1998, and at all
adjournments thereof, all of the shares of Common Stock of the Company that the
undersigned would be entitled to vote if personally present, with the powers the
undersigned would possess if personally present.
I. GRANT [ ] Authority to vote for election of Richard T. Case, Larry
Fisher, Paul W. Harrison and Sanford L. Schwartz to
serve as directors. You may withhold authority to vote
for a nominee by lining through his name.
WITHHOLD [ ]
(The Board of Directors recommends that you GRANT authority to vote for
the election of directors.)
II. FOR [ ] amending Article III of the Company's Articles of
AGAINST [ ] Incorporation to increase the authorized shares of
ABSTAIN [ ] Common Stock and Preferred Stock.
(The Board of Directors recommends that you vote FOR this proposal.)
III. In their discretion, upon such other business as may properly come before
the meeting;
all as set out in the Notice of Annual Meeting of Shareholders and Proxy
Statement dated February 20, 1998, receipt of which is hereby acknowledged.
(Continued, and to be SIGNED, on other side)
<PAGE>
(Continued from other side)
ALL SHARES WILL BE VOTED AS SPECIFIED. IF NO CHOICE IS SPECIFIED, THE
SHARES WILL BE VOTED FOR THE DIRECTORS AND FOR THE AMENDMENT TO THE ARTICLES OF
INCORPORATION, ALL AS SET FORTH IN THE PROXY STATEMENT.
Both of said attorneys or their substitutes who shall be present and
act, or if only one shall attend, then that one, shall have and may exercise all
the powers of said attorneys hereunder.
Dated
---------------------------------------
(Please insert date)
--------------------------------------------
(Signature)
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(Joint Owner's Signature)
[Signature(s) should agree with stenciled
name(s).] When signing as attorney,
guardian, executor, administrator or
trustee, please give title. If the signer is
a corporation, please give the full
corporate name and sign by a duly authorized
officer, showing his title. EACH joint owner
is requested to sign.
PLEASE EXECUTE AND RETURN THIS PROXY PROMPTLY.
YOUR COOPERATION WILL BE APPRECIATED.
