EXHIBIT 10

                       SUBSCRIPTION AND PURCHASE AGREEMENT


         THIS SUBSCRIPTION AND PURCHASE AGREEMENT (the "Agreement") dated as of
the 14th day of November, 1996 by and between HEALTHWATCH, INC., a Minnesota
corporation (the "Company"), and _______________ (the "Investor"). Investor and
other investors purchasing Units (as defined herein) pursuant to similar
Subscription and Purchase Agreements are herein referred to collectively as
"Investors."

         In consideration of the mutual promises, representations, warranties,
covenants and conditions set forth in this Agreement, the Company and the
Investor mutually agree as follows:


                                    ARTICLE 1

                            DESCRIPTION OF FINANCING

         1.1 AUTHORIZATION OF THE UNITS. The Company has authorized the issuance
and sale of 500,000 Units (the "Units"), each Unit consisting of one share of
Series B Convertible Preferred Stock which has the rights, preferences and
obligations as set forth in the Certificate of Designation of Series B
Convertible Preferred Stock attached hereto as Exhibit A (the "Series B Stock"),
and three common stock purchase warrants (the "Warrants") which are in
substantially the form of Exhibit B. The Series B Stock, Warrants and shares of
the Company's common stock issuable upon conversion of the Series B Stock and
the exercise of the Warrants (the "Common Stock") are sometimes referred to
herein as the "Securities."

         1.2 PURCHASE AND SALE OF THE UNITS. Subject to the terms and conditions
of this Agreement and in reliance upon the representations and warranties
contained herein, the Company agrees to sell to Investor, and Investor agrees to
purchase the Units subscribed for in Section 10.1.

         1.3 CLOSINGS. Closings of the purchase and sale of the Units shall take
place by mail or facsimile on November 14, 1996, January 15, 1997 and March 15,
1997. At the Closings, the Company shall deliver to Investors the shares of
Series B Stock and the Warrants representing the Units being purchased by each
Investor registered in the name of the Investor, against delivery to the Company
by the Investor of a certified or cashier's check or other form of payment
acceptable to the Company in the amount of the purchase price of the Units
subscribed for in Section 10.1 below. At the first Closing, 200,000 Units shall
be purchased, and at each of the second and third Closings, 150,000 Units shall
be purchased.


                                    ARTICLE 2

                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

         The Company hereby represents and warrants to the Investors that:

         2.1 MISLEADING STATEMENTS; BALANCE SHEET AND CAPITALIZATION. No
representation or warranty by the Company in this Agreement or in any written
statement or certificate furnished or to be furnished to the Investor pursuant
to this Agreement or in connection with the transactions contemplated by this
Agreement, when taken together, contains or will contain any untrue statement of
a material fact or omits or will omit to state a material fact necessary to make
the statements therein made not misleading. A copy of the Company's Annual
Report Form 10-KSB) for the fiscal year ended June 30, 1996 has previously been
provided to Investors.

         2.2 DISCLOSURE. The Company has fully provided Investors with all the
information which Investors have requested for deciding whether to purchase the
Units, and all information which the Company reasonably believes is necessary to
enable the Investors to make an informed decision.

         2.3 BINDING OBLIGATION. This Agreement and each additional agreement
expressly contemplated by this Agreement, constitute a valid and legally binding
obligation of the Company.


                                    ARTICLE 3

                   REPRESENTATIONS AND WARRANTIES OF INVESTORS

         Investor represents and warrants that:

         3.1 HIGH RISK INVESTMENT. The Investor is aware that investment in the
Units and the Common Stock involves substantial risks. The Investor represents
that Investor understands that an investment in this Offering should be
considered only by a person able to withstand a total loss of such investment.

         3.2 BINDING OBLIGATION. This Agreement and each additional agreement
expressly contemplated by this Agreement, constitute a valid and legally binding
obligation of the Investor.

         3.3 NASD MATTERS. Neither the Investor nor any corporation or
organization of which Investor is an officer or partner, any corporation or
organization of which Investor, directly or indirectly, is the beneficial owner
of 10% or more of any class of equity securities, any trust or other estate in
which Investor has a substantial beneficial interest or as to which Investor
serves as trustee or in a similar fiduciary capacity or, Investor's spouse, or
any relative of Investor, or any relative of Investor's spouse, who has the same
home as Investor is a member of the National Association of Securities Dealers,
Inc. ("NASD"), is affiliated with a member of the NASD or is a person associated
with a member of the NASD, it being understood that affiliation or association
includes ownership of 5% or more of the equity securities of any such member,
except as indicated on Exhibit C hereto.


                                    ARTICLE 4

                        FEDERAL AND OTHER SECURITIES LAWS

         4.1 INVESTMENT REPRESENTATIONS AND WARRANTIES. Investor further
represents and warrants that:

                  (a) Investment Experience. The Investor represents that
         Investor is an "accredited investor" as defined in Regulation D
         promulgated by the Securities and Exchange Commission and is
         experienced in evaluating and extending financing to companies such as
         the Company, has such knowledge and experience in financial and
         business matters as to be capable of evaluating the merits and risks of
         the investment, and has the ability to bear the economic risks of the
         investment and to make an informed investment decision with respect
         thereto. The Investor further represents that Investor has had, during
         the course of the transaction and prior to the purchase of the Units,
         the opportunity to ask questions of and receive answers from, the
         Company concerning the terms and conditions of the Offering and to
         obtain additional information (to the extent the Company possessed such
         information or could acquire it without unreasonable effort or expense)
         necessary to verify the accuracy of any information furnished to or to
         which Investor had access.

                  (b) Acquisition for Investment for Investor's Own Account.
         This Agreement is made with the Investor in reliance upon Investor's
         representation to the Company, which by its acceptance hereof the
         Investor hereby confirms and which by acceptance of any of the
         Securities, the Holder thereof shall also confirm, that the Units are
         being and the Common Stock will be, unless such securities have been
         registered pursuant to the Securities Act of 1933, as amended (the
         "1933 Act"), and applicable state blue sky laws, acquired for
         investment for Investor's own account, not as a nominee or agent and
         not with a view to the sale or distribution of any part thereof. Any
         resales of the Securities will be in conformity with applicable law. By
         executing this Agreement, Investor further represents that Investor
         does not have any contract, undertaking, agreement, or arrangement with
         any person in violation of any federal or state law to sell, transfer,
         or grant participations to such person, or to any third person, with
         respect to the Securities. Investor realizes that the basis for the
         exemption from the registration requirements of the 1933 Act relied
         upon by the Company in connection with the Offering, may not be present
         if, notwithstanding such representation, the Investor has in mind
         merely acquiring the Securities for a fixed or determinable period and
         selling them in the future, and Investor hereby confirms the absence of
         any such intention.

                  (c) Transfer or Disposition of Securities. The Investor
         understands that the Securities may not be sold, transferred, or
         otherwise disposed of without registration under the 1933 Act, and that
         in the absence of an effective registration statement, such securities
         must be held indefinitely. The Investor represents that, in the absence
         of an effective registration statement, it will sell, transfer, or
         otherwise dispose of such securities only in a manner consistent with
         the representations set forth herein and in accordance with the
         provisions of this Agreement.

         4.2 CERTIFICATE LEGENDS. The Investor agrees that all certificates
evidencing the Securities shall bear a legend in substantially the following
form, and by which the Investor agrees to be bound:

         THE SECURITY DESCRIBED HEREIN HAS NOT BEEN REGISTERED UNDER THE
         SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT") OR UNDER THE
         SECURITIES LAWS OF ANY STATE. NO SALE OR DISTRIBUTION OF THIS SECURITY
         MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED
         THERETO OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY
         THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE 1933 ACT AND
         APPLICABLE STATE BLUE SKY LAWS.

         4.3 STOP TRANSFER INSTRUCTION. The Company shall make a notation
regarding the restrictions on transfer of the Securities in its stock books, and
the Company shall not be required to transfer on its books any of such
securities that have been sold or transferred in violation of any of the
provisions of this Agreement, or to treat as the owner of such securities any
transferee to whom such securities have been so transferred.


                                    ARTICLE 5

               CONDITIONS TO INVESTOR'S OBLIGATIONS AT THE CLOSING

         The obligations of the Investor under Section 1.2 of this Agreement and
Investors pursuant to other similar agreements, are subject to the fulfillment
on or before the Closing of each of the following conditions:

         5.1 REPRESENTATIONS AND WARRANTIES TRUE ON THE CLOSING DATE. The
representations and warranties of the Company contained in Article 2 shall be
true on and as of the Closing with the same force and effect as if they had been
made at the Closing.

         5.2 PERFORMANCE. The Company shall have conformed and complied with all
agreements and conditions contained in this Agreement required to be performed
or complied with by it on or before the Closing.

         5.3 QUALIFICATIONS. All authorizations, approvals, or permits, if any,
of any governmental authority or regulatory body of any state, that are required
in connection with the lawful issuance and sale of the Securities pursuant to
this Agreement shall have been duly obtained and shall be effective on and as of
the Closing.

         5.4 DELIVERY OF CERTIFICATES. The Investor shall have received one or
more Series B Stock and Warrant certificates representing the Units which the
Investor is purchasing at the Closing.


                                    ARTICLE 6

               CONDITIONS TO THE COMPANY'S OBLIGATIONS AT CLOSING

         The obligations of the Company under Section 1.2 of this Agreement are
subject to the fulfillment on or before the Closing of each of the following
conditions as to the Investor:

         6.1 REPRESENTATIONS AND WARRANTIES TRUE ON THE CLOSING. The
representations and warranties of Investors contained in Articles 3 and 4 shall
be true on and as of the Closing with the same force and effect as if they had
been made at the Closing.

         6.2 QUALIFICATIONS. All authorizations, approvals, or permits, if any,
of any governmental authority or regulatory body of any state that are required
in connection with the lawful issuance and sale of the Securities pursuant to
this Agreement shall have been duly obtained and shall be effective on and as of
the Closing.

         6.3 PAYMENT OF PURCHASE PRICE. Investors shall have delivered to the
Company the total consideration for the Securities which the Investors are
purchasing at the Closing.


                                    ARTICLE 7

                                   SECURITIES

         7.1      REGISTRATION AND TRANSFER OF SECURITIES.

                  (a) The Company shall, at all times while any Securities are
         outstanding, act as the registrar of the Series B Stock and Warrants
         and shall cause to be kept at its principal office in California, or in
         such other place or places and by such other registrar or registrars,
         if any, as the Company may designate, a register in which shall be
         entered the names and addresses of the holders of the Securities
         ("Holders") and particulars of the Securities held by them respectively
         and of all transfers of Securities. The name of the Holder shall be
         noted on the certificates for the Securities by the Company or other
         registrar.

                  (b) No transfer of Securities shall be valid unless made by
         the Holder or his executors or administrators or other legal
         representatives or his or their attorney duly appointed by an
         instrument in writing in form and execution satisfactory to the
         Company, upon compliance with the provisions of this Agreement and the
         Series B Stock and Warrants, as the case may be, and such other
         requirements as the Company and/or other registrar may reasonably
         prescribe, and unless such transfer shall have been duly entered on the
         appropriate register and/or noted on such Warrant by the Company or
         other registrar. The person in whose name a Warrant is registered shall
         be deemed to be the owner thereof.

         7.2 EXCHANGES OF SECURITIES. Certificates for Series B Stock or
Warrants of any authorized denomination may be exchanged for certificates of any
other authorized denomination or denominations, any such exchange to be for
certificates of an equal amount, as requested by the Holders. Any exchange of
certificates may be made at the offices of the Company or at the offices of any
registrar where a register is maintained for the Securities pursuant to the
provisions of Section 7.1. Any Securities tendered for exchange together with a
sum sufficient to cover any tax or other governmental charge payable in
connection with the transfer shall be surrendered to the Company or appropriate
registrar and shall be canceled.


                                    ARTICLE 8

                               REGISTRATION RIGHTS

         8.1 REGISTRATION. The Company will promptly, upon request of Investors
holding 100,000 of the Units offered hereby, take all necessary steps to
register, or quality, under the 1993 Act and the securities laws of such states
as the Investors may reasonably request, the shares of Common Stock issuable
upon conversion of the Series B Stock and exercise of the Warrants, provided,
however, in each case, that the Company shall not for any purpose be required to
execute a general consent to service of process or to quality to do business as
a foreign corporation in any jurisdiction wherein it is not so qualified. The
Company shall be obligated to prepare, file and cause to become effective only
three registration statements pursuant to this Section 8.1 and to pay all costs
and expenses associated with such registration statements as provided in Section
8.2. The Company shall keep effective and maintain any registration,
qualification, notification or approval specified in this Section 8.1 for a
period of up to one hundred eighty (180) days.

         8.2 EXPENSES. With respect to the inclusion of securities in a
registration statement pursuant to Section 8.1, the Company shall bear the
following fees, costs and expenses: all registration, filing and NASD fees,
printing expenses, fees and disbursements of counsel and accountants for the
Company, and legal fees and disbursements and other expenses of complying with
state securities laws of any jurisdictions in which the securities to be offered
are to be registered or qualified. Fees and disbursements of special counsel and
accountants for the Investors, underwriting discounts and commissions, and
transfer taxes for Investor and any other expenses relating to the sale of
securities by the Investors not expressly included above shall be borne by the
Investors.

         8.3 INDEMNIFICATION. The Company hereby indemnifies the Investors and
the officers and directors, if any, who control any Investor, within the meaning
of Section 15 of the 1933 Act, against all losses, claims, damages, and
liabilities caused by (1) any untrue statement or alleged untrue statement of a
material fact contained in any Registration Statement or Prospectus (and as
amended or supplemented if the Company shall have furnished any amendments
thereof or supplements thereto), any Preliminary Prospectus or any state
securities law filings; (2) any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading except insofar as such losses, claims, damages, or
liabilities are caused by any untrue statement or omission contained in
information furnished in writing to the Company by Investors expressly for use
therein; and each Investor by Investor's acceptance hereof severally agrees that
it will indemnity and hold harmless the Company, each of its officers who signs
such Registration Statement, and each person, if any, who controls the Company,
within the meaning of Section 15 of the 1933 Act, with respect to losses,
claims, damages, or liabilities which are caused by any untrue statement or
alleged untrue statement, omission or alleged omission contained in information
furnished in writing to the Company by such Holder expressly for use therein.


                                    ARTICLE 9

                                  MISCELLANEOUS

         9.1 SURVIVAL OF WARRANTIES. The warranties, representations and
covenants contained in or made pursuant to this Agreement shall survive the
execution and delivery of this Agreement and the Closing and shall in no way be
affected by any investigation of the subject matter thereof made by or on behalf
of the Company or the Investors, as the case may be.

         9.2 ENTIRE AGREEMENT. This Agreement and the Exhibits hereto constitute
the entire agreement between the parties, and no party shall be liable or bound
to another party in any manner by any warranties, representations or covenants
except as specifically set forth herein or therein. The terms and conditions of
this Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any third party any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.

         9.3 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.

         9.4 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.

         9.5 NOTICES. Any notice required or permitted under this Agreement
shall be given in writing and shall be deemed effectively given upon personal
delivery or seven (7) days after deposit with the United States Post Office, by
registered or certified mail, postage prepaid, addressed to the Company at 2445
Cades Way, Vista, California 92083, and to the Investor at the address specified
below or at such other address as a party may designate by ten (10) days'
advance written notice to the other parties.

         9.6 EXPENSES. The Company shall pay all costs and expenses that it
incurs with respect to the negotiation, execution, delivery and performance of
the offering, and each Investor shall pay all costs and expenses that it incurs
with respect to the negotiation, execution, delivery and performance of this
Agreement.

         9.7 SEVERABILITY. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provisions shall be excluded from
this Agreement, and the balance of this Agreement shall be interpreted as if
such provisions were so excluded and shall be enforceable in accordance with its
terms.

         9.8 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.


                                   ARTICLE 10

                                  SUBSCRIPTION

         10.1 SUBSCRIPTION AMOUNT. The undersigned hereby subscribes for the
number of Units set forth opposite undersigned's name (500,000 Units in the
aggregate for all Investors) and shall tender at the Closing on __________,
199_, a certified check or bank draft in the aggregate amount of $______________
($2.25 per Unit) payable to the Company in full payment for such subscription.

         10.2 RESALE COMPLIANCE. The undersigned agrees to comply with the 1933
Act and the rules and regulations promulgated thereunder, and any other relevant
securities legislation and policies governing the purchase, holding and resale
of the Units subscribed for, including, without limitation, applicable state
Blue Sky laws.



Entered into this ____ day of November, 1996.


                                             ___________________________________
                                             (Name) (Please Print)


                                             ___________________________________
                                             (Signature)


                                             ___________________________________
                                             (Mailing Address)


                                             ___________________________________
                                             (Registration Instructions)


         THIS SUBSCRIPTION IS ACCEPTED BY THE COMPANY ON THE __ DAY OF NOVEMBER
1996.

                                   HEALTHWATCH, INC.


                                   By: ___________________________________
                                            Its___________________________



                                                                       EXHIBIT A
                         CERTIFICATE OF THE DESIGNATION,
                   PREFERENCES, RIGHTS AND LIMITATIONS OF THE
                     SERIES B CONVERTIBLE PREFERRED STOCK OF
                                HEALTHWATCH, INC.


         HealthWatch, Inc., hereinafter called the "Corporation", a corporation
organized and existing under the Minnesota Business Corporation Act does hereby
certify that, pursuant to authority conferred upon the Board of Directors by the
Articles of Incorporation, as amended, of the Corporation, said Board of
Directors at a meeting duly called and held on November __, 1996, and at which a
quorum was at all times present, duly adopted a Resolution providing for the
issuance of a series of 500,000 shares of Series B Convertible Preferred Stock,
which Resolution is as follows:

         "RESOLVED, that pursuant to the authority expressly granted to and
vested in the Board of Directors of this Corporation in accordance with the
provisions of its Articles of Incorporation, as amended, a series of Preferred
Stock of the Corporation be and it hereby is given the distinctive designation
of "Series B Convertible Preferred Stock" (hereinafter referred to as the
"Series B Stock"), said Series to consist of Five Hundred Thousand (500,000)
shares of the stated value of Two Dollars and Twenty-Five Cents ($2.25) per
share. The preferences and relative, participating, optional or other special
rights, and the qualifications, limitations or restrictions thereof shall be as
follows:

         1.       Dividends

         (a)      The holders of shares of Series B Stock shall be entitled to
                  receive dividends at the rate of $0.225 per share (as adjusted
                  for any stock dividends, combinations or splits with respect
                  to such shares) per annum, payable out of funds legally
                  available therefor. Such dividends shall commence upon
                  issuance and shall be payable when, as and if declared by the
                  Board of Directors, in preference to any dividend to any other
                  shares of Preferred Stock or Common Stock, and shall be
                  cumulative. Dividends shall be paid quarterly on June 30,
                  September 30, December 31 and March 31, commencing June 30,
                  1997, to holders of record as of the close of business five
                  business days before the dividend payment date.

         (b)      No dividends (other than those payable solely in the Common
                  Stock of the Corporation) shall be paid on any other shares of
                  Preferred Stock or Common Stock of the Corporation during any
                  fiscal year of the Corporation until dividends, combinations
                  or splits with respect to such shares) on the Series B Stock
                  shall have been paid or declared and set apart during that
                  fiscal year and any prior year in which dividends accumulated
                  but remain unpaid. Following any such payment or declaration,
                  the holders of any other shares of Preferred Stock and Common
                  Stock shall be entitled to receive dividends, payable out of
                  funds legally available therefor, when, as and if declared by
                  the Board of Directors.

         (c)      No right shall accrue to holders of shares of Series B Stock
                  by reason of the fact that dividends on said shares are not
                  declared in any prior year, nor shall any undeclared or unpaid
                  dividend bear or accrue any interest.

         In the event the Corporation shall declare a distribution payable in
securities of other persons, evidences of indebtedness issued by the Corporation
or other persons, assets (excluding cash dividends) or options or rights to
purchase any such securities or evidences of indebtedness, then, in each such
case the holders of the Series B Stock shall be entitled to a proportionate
share of any such distribution as though the holders of the Series B Stock were
the holders of the number of shares of Common Stock of the Corporation into
which their shares of Series B Stock are convertible as of the record date fixed
for the determination of the holders of Common Stock of the Corporation entitled
to receive such distribution.

         2.       Liquidation Preference

         (a)      In the event of any liquidation, dissolution or winding up of
                  the Corporation, whether voluntary or involuntary, the holders
                  of the Series B Stock shall be entitled to receive, prior and
                  in preference to any distribution of any of the assets or
                  surplus funds of the Corporation to the holders of any other
                  shares of Preferred Stock and Common Stock by reason of their
                  ownership thereof, the amount of $2.25 per share (as adjusted
                  for any stock dividends, combinations or splits with respect
                  to such shares), plus all accrued or declared but unpaid
                  dividends on such share for each shares of Series B Stock then
                  held by them. If upon the occurrence of such event, the assets
                  and funds thus distributed among the holders of the Series B
                  Preferred Stock shall be insufficient to permit the payment to
                  such holders of the full aforesaid preferential amount, then
                  the entire assets and funds of the Corporation legally
                  available for distribution shall be distributed ratably among
                  the holders of the Series B Stock in proportion to the
                  preferential amount each such holder is otherwise entitled to
                  receive.

         (b)      After payment to the holders of the Series B Stock of the
                  amounts set forth in Section 2(a) above, and the payment to
                  the holders of any other series of Preferred Stock which may
                  hereafter be established by the Board of Directors of any
                  liquidation preferences for such additional series of
                  Preferred Stock, the entire remaining assets and funds of the
                  Corporation legally available for distribution, if any, shall
                  be distributed among the holders of the Common Stock and the
                  Series B Stock and any other series of Preferred Stock which
                  may hereafter be established by the Board of Directors in
                  proportion to the shares of Common Stock then held by them and
                  the shares of Common Stock which they then have the right to
                  acquire upon conversion of the shares of Series B Stock and
                  any other series of Preferred Stock which may hereafter be
                  established by the Board of Directors then held by them.

         (c)      Whenever the distribution provided for in this Section 2 shall
                  be payable in securities or property other than cash, the
                  value of such distribution shall be the fair market value of
                  such securities or other property as determined in good faith
                  by the Board of Directors.

         3.       Voting Rights

         Unless and except to the extent otherwise required by law, the holders
of the Series B Stock shall have no voting power; provided that if any dividends
on the Series B Stock declared by the Board of Directors in accordance with
Section 1 hereof have not been paid for a period of one year or more, the
holders of Series B Stock shall, until such dividends have been paid, be
entitled, with the holders of the Common Stock, voting as a class, to vote or
act by written consent for the election of directors, with the number of votes
per share of Series B Stock in such election to be equal to the number of shares
of Common Stock then issuable upon conversion of such Series B Stock. Unless and
except to the extent otherwise required by law, the holders of the Series B
Stock shall have no right to vote as a class with respect to any matter. Should
the Series B Stock be entitled to vote on any matter pursuant to a requirement
of law, each holder of such stock shall be entitled to one vote in respect to
each share of such stock held of record in respect to such matter, unless some
other vote is required by law.

         4.       Conversion of Series B Stock into Common Stock

         (a)      Subject to the provisions of this Section 4, the holder of
                  record of any share or shares of Series B Stock shall have the
                  right, at his option, at any time after issuance, to convert
                  each said share or shares of Series B Stock into three (3)
                  fully-paid and non-assessable shares of Common Stock, $.07 par
                  value (hereinafter referred to as "Common Stock), of the
                  Corporation. The Corporation shall not be required to issue
                  fractional shares in connection with the conversion of any of
                  the Series B Stock and shall, in lieu thereof, pay to the
                  holder requesting conversion, an amount equal to the value
                  (determined in accordance with the foregoing) of such
                  fractional share.

         (b)      Any holder of a share or shares of Series B Stock desiring to
                  convert such Series B Stock into Common Stock, shall surrender
                  the certificate or certificates representing the share or
                  shares of Series B Stock so to be converted, duly endorsed (if
                  required by the Corporation) to the Corporation or in blank,
                  at the office of any Transfer Agent for the Series B Stock (or
                  such other place as may be designated by the Corporation), and
                  shall give written notice to the Corporation at said office
                  that he elects to convert the same as provided above, and
                  setting forth the name or names (with the address or
                  addresses) in which the shares of Common Stock are to be
                  issued.

         (c)      Conversion of Series B Stock shall be subject to the following
                  additional terms and provisions:

                  (1)      As promptly as practicable after the surrender for
                           conversion of any Series B Stock, the Corporation
                           shall deliver or cause to be delivered at the
                           principal office of the Transfer Agent for the Series
                           B Stock (or such other place as may be designated by
                           the Corporation), to or upon the written order of the
                           holder of such Series B Stock, certificates
                           representing the shares of Common Stock issuable upon
                           such conversion issued in such name or names as such
                           holder may direct. Shares of the Series B Stock shall
                           be deemed to have been converted as of the close of
                           business on the date of the surrender of the Series B
                           Stock for conversion, as provided above, and the
                           rights of the holders of such Series B Stock shall
                           cease at such time, and the person or persons in
                           whose name or names the certificates for such shares
                           are to be issued shall be treated for all purposes as
                           having become the record holder or holders of such
                           Common Stock at such time; provided, however, that
                           any such surrender on any date when the stock
                           transfer books of the Corporation shall be closed
                           shall constitute the person or persons in whose name
                           or names the certificate for such shares are to be
                           issued as the record holder or holders thereof for
                           all purposes at the close of business on the next
                           succeeding day on which such stock transfer books are
                           open.

                  (2)      The Corporation shall make no payment or adjustment
                           on account of any dividends accrued on the shares of
                           Series B Stock surrendered for conversion.

                  (3)      The Corporation shall at all times reserve and keep
                           available solely for the purpose of issuance upon
                           conversion of Series B Stock, as herein provided,
                           such number of shares of Common Stock as shall be
                           issuable upon the conversion of all outstanding
                           Series B Stock.

         (d)      The issuance of certificates for shares of Common Stock upon
                  conversion of the Series B Stock shall be made without charge
                  for any tax in respect of such issuance. However, if any
                  certificate is to be issued in a name other than that of the
                  holder of record of the Series B Stock so converted, the
                  person or persons requesting the issuance thereof shall pay to
                  the Corporation the amount of any tax which may be payable in
                  respect of any transfer involved in such issuance, or shall
                  establish to the satisfaction of the Corporation that such tax
                  has been paid or is not due and payable.

         5.       General

         (a)      Conversion adjustment. In the event that the Corporation shall
                  at any time prior to conversion either (a) subdivide the
                  outstanding shares of Common Stock into a greater number of
                  shares, (b) combine the outstanding shares of Common Stock
                  into a smaller number of shares, (c) change the outstanding
                  shares of Common Stock into the same or a given number of
                  shares of any other class or classes of stock, (d) declare on
                  or in respect of the Common Stock a dividend payable in shares
                  or other securities of the Corporation, then the holders of
                  the Series B Stock shall be entitled to receive the same
                  number of shares or other securities of the Corporation, or
                  shall be entitled to subscribe for and purchase at the same
                  price that the shares or securities are offered to holders of
                  Common Stock, the number of such shares or the amount of such
                  securities as will represent the same proportion of the
                  outstanding Common Stock prior to such increase or decrease as
                  they would have been entitled to receive or subscribe for, as
                  the case may be, had they been holders of the number of shares
                  of Common Stock into which their shares of Series B Stock were
                  convertible on the record date for any such dividend or
                  subscription. The Board of Directors shall determine what
                  adjustments shall be made in the Stated Value and in the
                  market prices for the Corporation's Common Stock in order to
                  appropriately reflect and account for any such change.

         (b)      Merger. In the event the Corporation at any time while any of
                  the shares of Series B Stock are outstanding shall be
                  consolidated with or merged into any other corporation or
                  corporations, or shall sell or lease all or substantially all
                  of its property and business as an entirety, lawful provision
                  shall be made as part of the terms of such consolidation,
                  merger, sale, or lease so that the holder of any shares of
                  Series B Stock may thereafter receive in lieu of such shares
                  of Common Stock otherwise issuable to him upon conversion of
                  his shares of Series B Stock, but at the conversion rate which
                  would otherwise be in effect at the time of conversion as
                  hereinbefore provided, the same kind and amount of securities
                  or assets as may be issuable, distributable, or payable upon
                  such consolidation, merger, sale, or lease, with respect to
                  shares of Common Stock of the Corporation. The Board of
                  Directors shall determine what adjustments shall be made in
                  the Stated Value and in the market prices for the
                  Corporation's Common Stock in order to appropriately reflect
                  and account for any such change.

         (c)      Nothing herein shall be deemed to require the Corporation in
                  the event of any such subdivision, combination,
                  reclassification, recapitalization, consolidation, merger or
                  sale of assets, or liquidation, dissolution or winding up, to
                  issue or distribute fractional interests in shares of capital
                  stock or any other security of the Corporation or another
                  issuer, and the Corporation may make such arrangements as the
                  Board of Directors of the Corporation shall approve with
                  respect to any such event for settlement in lieu of issuance
                  of a fractional interest in a share of capital stock or other
                  security of the Corporation or another issuer to any holder of
                  the Series B Stock.

         (d)      The shares of Series B Stock shall not be subject to the
                  operation of a purchase, retirement or sinking fund.

         (e)      The issuance of additional shares of Series B Stock shall not
                  be subject to any restrictions as to issuance, nor shall the
                  holders of the Series B Stock be entitled to any restriction
                  with respect to the issuance of shares of any other series of
                  the Corporation's Common Stock or Preferred Stock, or as to
                  the powers, preferences or rights of any such other series;
                  provided that no series of additional shares of Preferred
                  Stock shall have any liquidation or other similar rights in
                  preference to the Series B Stock."


         IN WITNESS WHEREOF, I have hereunto subscribed my hand this _____ day
of November 1996.

                                                     HealthWatch, Inc.


                                                     By
                                                              Lindley S. Branson



                                                                       EXHIBIT B

        SEE PARAGRAPH 8 FOR RESTRICTIONS ON THE TRANSFER OF THIS WARRANT


No. VW-___
                                                                Warrant
                                                     to Purchase _______ Shares

                        WARRANT TO PURCHASE SECURITIES OF
                                HEALTHWATCH, INC.


         THIS CERTIFIES THAT for value received ____________ is entitled,
subject to the terms and conditions hereinafter set forth, to purchase from
HEALTHWATCH, INC., a Minnesota corporation (the "Company"), _____________ fully
paid and non-assessable shares of Common Stock of the Company (herein called the
"Common Stock"), upon presentation and surrender of this Warrant with the
Subscription Form duly executed, at the principal office of the Company or at
such other office as shall have theretofore been designated by the Company by
notice pursuant hereto and upon payment therefor of the Purchase Price, in
lawful money of the United States of America, determined as set forth below. The
term of this Warrant shall commence on the date hereof, and terminate, if not
exercised prior thereto, at 5:00 p.m. California Time, on November 14, 1998.

         This Warrant is subject to the following terms and conditions:

         1. The purchase rights represented by this Warrant are exercisable at
the option of the Holder, in whole at any time, or in part from time to time
(but not as to a fractional share of stock). In the case of the purchase of less
than all the securities purchasable under this Warrant, the Company shall cancel
this Warrant upon the surrender hereof and shall execute and deliver a new
Warrant of like tenor for the balance of the securities purchasable hereunder.

         2. The purchase price for each security purchasable pursuant to the
exercise of this Warrant shall be Two Dollars ($2.00) per share to be acquired,
such price being sometimes hereinafter referred to as the "Base Purchase Price".
The Base Purchase Price and, from time to time, the number of securities subject
to purchase hereunder are subject to adjustment in certain circumstances
provided for below, and the Base Purchase Price, as it may be adjusted from time
to time, is hereinafter referred to as the "Purchase Price".

                  (a) In case the Company shall (i) pay a dividend in shares of
         its capital stock (other than an issuance of shares of capital stock to
         holders of Common Stock who have elected to receive a dividend in
         shares in lieu of cash), (ii) subdivide its outstanding shares of
         Common Stock, (iii) reduce, consolidate or combine its outstanding
         shares of Common Stock into a smaller number of shares, or (iv) issue
         by reclassification of its shares of Common Stock any shares of the
         Company, the Purchase Price in effect immediately prior thereto shall
         be adjusted to that amount determined by multiplying the Purchase Price
         in effect immediately prior to such date by a fraction, of which the
         numerator shall be the number of shares of Common Stock outstanding on
         such date before giving effect to such division, subdivision,
         reduction, combination or consolidation or stock dividend and of which
         the denominator shall be the number of shares of Common Stock after
         giving effect thereto. Such adjustment shall be made successively
         whenever any such effective date or record date shall occur. An
         adjustment made pursuant to this subsection (a) shall become effective
         retroactively, immediately after the record date in the case of a
         dividend and shall become effective immediately after the effective
         date in the case of a subdivision, reduction, consolidation,
         combination or reclassification.

                  (b) If the Capital Stock of the Company shall be changed into
         the same or a different number of shares of any class or classes of
         stock, whether by capital reorganization, reclassification or otherwise
         (other than a subdivision or combination of shares or stock dividend
         provided for above, or a reorganization, merger, consolidation or sale
         of substantially all of the Company's assets), then, and in each such
         event, the Holder of this Warrant shall have the right thereafter to
         purchase the kind and amount of shares of stock and other securities
         and property receivable upon such reorganization, reclassification, or
         other change which could have been purchased pursuant to the exercise
         of this Warrant, as reasonably determined by the Company's board of
         directors, immediately prior to such reorganization, reclassification,
         or change, all subject to further adjustment as provided herein.

                  (c) If at any time or from time to time there shall be a
         capital reorganization of the stock of the Company (other than a
         subdivision, combination, reclassification or exchange of shares
         provided for elsewhere herein) or a merger or consolidation of the
         Company with or into another corporation, or the sale of all or
         substantially all of the Company's properties and assets to any other
         person, then, as a part of such reorganization, merger, consolidation
         or sale, provision shall be made as reasonably determined by the
         Company's board of directors so that the Holder of this Warrant shall
         thereafter be entitled to receive upon exercise of this Warrant, the
         number of shares of stock or other securities or property of the
         Company or of the successor corporation resulting from such merger or
         consolidation or sale, to which a Holder of stock deliverable upon
         exercise of this Warrant would have been entitled on such capital
         reorganization, merger, consolidation or sale.

                  (d) The adjustments provided for herein are cumulative and
         shall apply to successive divisions, subdivisions, reductions,
         combinations, consolidations, issues, distributions or other events
         contemplated herein resulting in any adjustment under the provisions of
         this section, provided that, notwithstanding any other provision of
         this section, no adjustment of the Purchase Price shall be required
         unless such adjustment would require an increase or decrease of at
         least 1% in the Purchase Price then in effect; provided, however, that
         any adjustments which by reason of this subsection (d) are not required
         to be made shall be carried forward and taken into account in any
         subsequent adjustment.

                  (e) Upon each adjustment of the Purchase Price, the Company
         shall give prompt written notice thereof addressed to the registered
         Holder of this Warrant at the address of such Holders as shown on the
         records of the Company, which notice shall state the Purchase Price
         resulting from such adjustment and the increase or decrease, if any, in
         the number of shares issuable upon the exercise of this Warrant,
         setting forth in reasonable detail the method of calculation and the
         facts upon which such calculation is based.

         3.       In case at any time:

                  (a) The Company shall declare any cash dividend on its Common
         Stock at a rate in excess of the rate of the last cash dividend
         theretofore paid;

                  (b) The Company shall pay any dividend payable in stock upon
         its Common Stock or make any distribution (other than regular cash
         dividends) to the holders of its Common Stock;

                  (c) The Company shall offer for subscription pro rata to the
         holders of its Common Stock any additional shares of stock of any class
         or other rights;

                  (d) There shall be any capital reorganization, or
         reclassification of the capital stock of the Company or consolidation
         or merger of the Company with, or sales of all or substantially all of
         its assets to, another corporation; or

                  (e) There shall be a voluntary or involuntary dissolution,
         liquidation or winding up of the Company;

then, in any one or more of said cases, the Company shall give written notice,
by first class mail, postage prepaid, addressed to the Holder at the address of
such holder as shown on the books of the Company, of the date on which (1) the
books of the Company shall close or a record shall be taken for such dividend,
distribution or subscription rights, or (2) such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up shall take place, as the case may be. Such notice shall also specify
the date as of which the holders of Common Stock of record shall participate in
such dividend, distribution or subscription rights, or shall be entitled to
exchange their Common Stock for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation, or winding up, as the case may be. Such written notice shall be
given at least 20 days prior to the action in question and not less than 20 days
prior to the record date or the date on which the Company's transfer books are
closed in respect thereto.

         4. If any event occurs as to which, in the sole opinion of the Board of
Directors of the Company, the other provisions of this Warrant are not strictly
applicable or if strictly applicable would not fairly protect the rights of the
Holder in accordance with the essential intent and principles of such
provisions, then the Board of Directors shall make such adjustment in the
application of such provisions as may be necessary, in the sole judgment of such
Board, in accordance with such essential intent and principles, to protect such
rights as aforesaid.

         5. Exercise of this Warrant shall be made by the surrender hereof by
the Holder to the Company at its principal office together with (i) the attached
Subscription Form designating the number of shares of Common Stock being
purchased, (ii) a certified check or cash in payment for such shares and (iii) a
letter of transmittal setting forth the computation of the amount of said
payment. The Company shall thereafter promptly (in any event within seven (7)
business days after such exercise) issue certificates for securities of the
Company purchased at the Purchase Price in effect at the time of such exercise.
The Holder shall be deemed to be the record owner of such securities as of the
close of business on the date of such exercise. The Holder shall not be entitled
to receive a fractional share, but in lieu thereof the Company shall pay in cash
an amount equal to the market value of such fractional share if stock has a
market value, or if not, the book value of such fractional share. The Company
shall thereupon cancel this Warrant; and in the event that less than the entire
number of shares purchasable are purchased, shall issue a new Warrant for the
number not so purchased.

         6. This Warrant shall be redeemable, in whole or in part, at the option
of the Company by resolution of its Board of Directors, at any time and from
time to time on or after November 14, 1996, and prior to any exercise thereof at
a redemption price in cash equal to $.50 per Warrant to be redeemed (the
"Redemption Price"). Not less than 30 nor more than 60 days prior to the date
fixed for redemption, a notice (the "Redemption Notice") specifying the time and
place thereof and the Redemption Price per Warrant to be redeemed shall be given
by mail to the holders of record of the Warrants selected for redemption at
their respective addresses as the same shall appear on the books of the Company.
The holders of the Warrants to be redeemed shall have the right to exercise such
Warrants at any time prior to any such redemption. Upon tender of the Redemption
Price in accordance with the Redemption Notice, the Warrants to be redeemed as
indicated in the Redemption Notice shall no longer be deemed to be outstanding
and the holders thereof shall have no claim against the Company, except the
right to receive the Redemption Price payable upon such redemption, without
interest, upon surrender (and endorsement, if required by the Company) of the
Warrant certificates.

         7. The Company covenants and agrees that all shares which may be issued
upon the exercise of this Warrant will, upon issuance, be duly and validly
authorized and issued, fully paid and nonassessable, and free from all taxes,
liens and charges with respect to the issue thereof. The Company further
covenants and agrees that during the period within which this Warrant may be
exercised, the Company will at all times have authorized and reserved for the
purpose of the issue upon exercise of this Warrant a sufficient number of shares
of its securities to provide for such exercise.

         8. (a) The Holder represents that he is acquiring this Warrant and, in
the absence of an effective registration statement under the Securities Act of
1933 (the "1933 Act") for the securities issuable hereunder, such securities for
the purpose of investment and not with a view to or for sale in connection with
any distribution thereof. The Holder and the holder of any securities issued
upon exercise hereof, by his acceptance hereof, agrees that he/she/it will
notify the Company in writing before selling or otherwise disposing of this
Warrant or any securities issued to him/her/it upon exercise hereof, describing
briefly the nature of any such sale or other disposition, and no such sale or
other disposition shall be made unless and until (i) the Company has received an
opinion of counsel reasonably acceptable to it that no registration (or
perfection of an exemption) under the 1933 Act is required with respect to such
sale or disposition (which opinion may be conditioned upon the transferee's
assuming the Holder's obligation under this paragraph 8) or (ii) an appropriate
registration statement with respect to such Warrant or such Common Stock, or
both, has been filed with the Securities and Exchange Commission (the
"Commission") and declared effective by the Commission. The Company may require
that this Warrant and certificates representing the securities issued upon
exercise hereof be stamped or imprinted with an appropriate legend reflecting
the foregoing restrictions. For the purposes of this paragraph 8, the term
"Securities" shall include this Warrant and the securities issued or issuable
upon the exercise hereof.

         (b) The restrictions imposed by this paragraph 8 on the transfer of 
the Securities shall terminate as to any portion of the Securities when:

                  (i) Such portion of the Securities shall have been effectively
         registered under the 1933 Act and sold by the holder thereof in
         accordance with such registration or exemption; or

                  (ii) Written opinions to the effect that such a registration
         is no longer required or necessary under any Federal or State law or
         regulation of governmental authority shall have been received from
         legal counsel for the Company and counsel for the holder of such
         portion of the Securities; or, if a favorable opinion is obtained from
         holder's counsel, and counsel for the Company declines to render such
         an opinion, upon the holder's undertaking to indemnify the Company, on
         terms satisfactory to the Company, against all liability or loss the
         Company may sustain in connection with such transfer; or

         Whenever the restrictions imposed by this paragraph 8 shall terminate,
as provided above, any holder of the Securities as to which such restrictions
shall have terminated shall be entitled to receive promptly from the Company,
without expense to him, a new certificate, not bearing the restrictive legend
referred to in clause (a) hereof.

         9. The original Holder of this Warrant has certain registration rights
with respect to the Securities, as set forth in Article 8 of the Subscription
and Purchase Agreement between such Holder and the Company.

         10. This Warrant is exchangeable, upon the surrender hereof by the
Holder at the principal office of the Company, for new warrants of like tenor
and date representing in the aggregate the right to purchase the number of
shares purchasable hereunder, each of such new Warrants to represent the right
to purchase such number of shares as shall be designated by said Holder at the
time of such surrender. Subject to paragraph 8 hereof, this Warrant and all
rights hereunder are transferable in whole or in part by the Holder, in person
or by duly authorized attorney, upon surrender of this Warrant duly endorsed, at
the principal office of the Company.

         11. Upon the receipt by the Company of evidence reasonably satisfactory
to it of the loss, theft, destruction or mutilation of this Warrant, and, in
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of this Warrant, if
mutilated, the Company will make and deliver a new Warrant of like tenor, in
lieu of this Warrant.

         12. All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been made when delivered or
mailed first-class postage prepaid or delivered to a telegraph office for
transmission:

                  (a) If to the Holder, at such address as may have been
         furnished by such holder to the Company in writing; and

                  (b) If to the Company, at such address as may have been
         furnished by the Company to the Holder of this Warrant in writing.

         13. This Warrant shall be binding upon any successors or assigns of the
Company.

         14. This Warrant shall be construed in accordance with and governed by
the laws of the State of California.

         IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed and delivered as of the date set forth below by one of its officers
thereunto duly authorized.

Dated:  _______________, 1996.

                                 HEALTHWATCH, INC.



                                 By__________________________________________
                                           Lindley S. Branson, President




                                SUBSCRIPTION FORM

               To be signed only upon exercise of Warrant


         The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for and to
purchase thereunder, __________ of the shares of Common Stock of HEALTHWATCH,
INC. to which such Warrant relates, and herewith makes payment of $___________ 
therefor, in cash or by certified check, and requests that the certificates for 
such shares be issued in the name of, and be delivered to,_____________________
_______________________________, the address for which is set forth below the
signature of the undersigned.

Dated: _______________________________


                                                 _______________________________
                                                    (Signature)

                                                 _______________________________


                                                 _______________________________
                                                    (Address)

                                                 _______________________________


                   To be signed only upon transfer of Warrant

        FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________ the right to purchase _________ shares of Common Stock of 
HEALTHWATCH, INC. to which the within Warrant relates and appoints ____________,
attorney, to transfer said right on the books of HEALTHWATCH, INC. with full 
power of substitution in the premises.

Dated: _______________________________


                                                 _______________________________
                                                    (Signature)

                                                 _______________________________
         

                                                 _______________________________
                                                    (Address)




                                                                       EXHIBIT C

                                NASD Affiliations



                     [INDICATE THAT THE INVESTOR HAS NO NASD
             AFFILIATIONS OR DESCRIBE SUCH AFFILIATIONS IN DETAIL.]