As filed with the Securities and Exchange Commission on May 6, 1999
Registration No. 333-75657
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
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PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
ONHEALTH NETWORK COMPANY
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(Exact name of registrant as specified in its charter)
WASHINGTON 7372 41-1686038
(State of incorporation Primary Standard Industrial (IRS Employer
or organization) Classification Code Number Identification No.)
808 HOWELL STREET, SUITE 400
SEATTLE, WASHINGTON 98101
(206) 583-0100
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(Address, including zip code, and telephone number including area code, of
registrant's principal executive office)
ROBERT N. GOODMAN, CHIEF EXECUTIVE OFFICER
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808 HOWELL STREET, SUITE 400
SEATTLE, WASHINGTON 98101
(206) 583-0100
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(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies of all communications to:
C. Kent Carlson
Christopher H. Cunningham
Preston Gates & Ellis LLP
701 Fifth Avenue Suite 5000
Seattle, Washington 98104-7078
(206) 623-7580
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AT SUCH TIME OR
TIMES AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT AS THE SELLING
SHAREHOLDERS SHALL DETERMINE.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If any of the Securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act, check the following box: |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
An exhibit index appears on page 1 of PART II
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Subject to Completion dated May 6, 1999
PROSPECTUS
152,561 Shares
OnHealth Network Company
Common Stock, $.01 par value per share
We are offering on behalf of the selling shareholders listed below and
on page 14 of this prospectus, a total of 152,561 shares of common stock that we
are obligated to issue on their exercise of warrants.
Our common stock is listed on the Nasdaq SmallCap Market under the
ticker symbol "ONHN". On May 4, 1999, the closing price of one share of OnHealth
common stock on the Nasdaq SmallCap Market was $14.25. We will receive none of
the proceeds from the sale of the Shares, but will receive approximately
$821,300 if all of the warrants are exercised.
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD PURCHASE
SHARES ONLY IF YOU CAN AFFORD A COMPLETE LOSS. SEE "RISK FACTORS" BEGINNING ON
PAGE 4.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SHARES OR PASSED UPON THE ADEQUACY
OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this prospectus is May ___, 1999
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TABLE OF CONTENTS
About OnHealth Network Company.................................................3
Recent Developments............................................................3
Risk Factors...................................................................4
Use of Proceeds...............................................................13
Description of Our Securities.................................................14
Selling Shareholders..........................................................14
Plan of Distribution..........................................................15
Legal Matters.................................................................16
Experts.......................................................................16
Where You Can Find More Information...........................................17
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS AND IN ANY ACCOMPANYING PROSPECTUS SUPPLEMENT. NO
ONE HAS BEEN AUTHORIZED TO PROVIDE YOU WITH DIFFERENT INFORMATION.
THE SHARES OF COMMON STOCK ARE NOT BEING OFFERED IN ANY JURISDICTION
WHERE THE OFFER IS NOT PERMITTED.
YOU SHOULD NOT ASSUME THAT THE INFORMATION IN THIS PROSPECTUS OR ANY
PROSPECTUS SUPPLEMENT IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE
FRONT OF THE DOCUMENTS.
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ABOUT ONHEALTH NETWORK COMPANY
We intend to become the premier source of health-related information on
the world wide web. In the past, under the name IVI Publishing, Inc., we
published in CD-ROM and other formats health related information for some of
America's best-known health-care facilities in partnership with some of
America's most prestigious media firms. Historically, our business revolved
around the cable television, CD-ROM and online interactive media markets.
With the rapid rise of the internet as a source of information for
consumers, we have re-focused our business into creating a web site for
consumers of health information that is:
o easy to use;
o provides custom features for users; and
o encourages frequent usage.
Our flagship web site, located at www.onhealth.com, opened in July 1997
and was re-released in July of 1998.
We hope to distinguish ourselves by "cutting through the clutter" of
the internet becoming the source for health-related information by locating and
packaging up-to-date and reliable information. By doing so, we hope to attain a
large number of consumers visiting our web site, which is essential to obtaining
advertising revenues.
We were originally incorporated in 1990 in the State of Minnesota under
the name Interactive Television, Inc. We changed our name to Interactive
Ventures, Inc. in 1991, IVI Publishing, Inc. in 1993, and in connection with our
move to Washington and re-incorporation there, OnHealth Network Company in June
of 1998. Our principal executive offices are located at:
808 Howell Street, Suite 400
Seattle, Washington 98101
(206) 583-0100
RECENT DEVELOPMENTS
On October 30, 1998, we sold 1,000,898 shares of our common stock. On
December 14, 1998, we sold an additional 542,419 shares of our common stock. The
shares of common stock issued on October 30, 1998 and December 14, 1998 were
issued to two different accredited investors. In connection with issuing these
shares, we entered into agreements that could have obligated us, if the price of
the common stock declined below certain levels, to issue additional shares of
common stock. Such "reset" provisions only relate to those shares that were
purchased by the two investors on October 30, 1998 and December 14, 1998. As of
March 31, 1999, all shares of common stock subject to the reset provisions have
been sold and no such reset provisions apply to any of our outstanding common
stock.
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On January 29, 1999, we completed the private placement of 2,596,000
shares of Common Stock, at a negotiated price of $5.50 per share, to the selling
shareholders listed in the selling shareholder table in the amounts set forth in
such table.
RISK FACTORS
An investment in the shares of common stock offered in this prospectus
involves a high degree of risk. Before purchasing any shares, you should
consider the following discussion of risks as well as all other information in
this prospectus.
SINCE WE RECENTLY CHANGED OUR BUSINESS FOCUS, WE ESSENTIALLY ARE A NEW COMPANY
AND ACCORDINGLY ARE SUBJECT TO THOSE RISKS ASSOCIATED WITH A NEW COMPANY.
Even though we were founded in 1990, we have only been active online
since 1996 and the onhealth.com web site was not actually "launched" until the
summer of 1998. As a result, our company is essentially a new venture.
Our ability to generate profits, if ever, will rely on our ability:
o to attract consumers to our web site;
o to attract advertisers to our web site;
o to succeed in creating an e-commerce solution as a part of the
onhealth.com web site; and
o to control costs.
We anticipate continued significant operating losses at least through
1999, as the OnHealth web site is improved and marketed and the OnHealth network
is enhanced. We make no assurances that profitability will ever be attained.
OUR BUSINESS MODEL IN THE SHORT TERM RELIES TO A LARGE EXTENT ON ADVERTISING
REVENUES FROM THE INTERNET. INTERNET ADVERTISING IS NOT AN ESTABLISHED MODE OF
ADVERTISING.
We anticipate that a substantial portion of our revenues will come from
the sale of advertisements on our web pages. While we are in the early stages of
implementing our advertising program, to generate significant advertising
revenues, several things need to happen:
o Advertisers must accept the internet as an attractive place to
advertise;
o We need to attract a large number of consumers to our web site; and
o Those consumers need to have demographic characteristics attractive
to advertisers.
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OUR SUCCESS DEPENDS IN LARGE PART ON THE CONTINUING EFFORTS OF TWO INDIVIDUALS.
Our development and operation is substantially dependent on the
services of our President and Chief Executive Officer, Robert N. Goodman and on
our General Manager, Rebecca Farwell. If we lost the services of either Mr.
Goodman or Ms. Farwell, our business would be severely affected. In addition, to
a lesser extent, we are dependent on the continued service of certain other
people in management and our software engineering personnel. Losing any of our
management team could have a significant negative effect on our business.
Qualified replacements could be difficult or impossible to find or retain.
THE INTERNET ADVERTISING MARKET IS IMMATURE AND WE DEPEND ON THE USE OF
IMPRESSIONS TO MEASURE TRAFFIC TO ONHEALTH.COM.
Advertising sales on the internet is an extremely competitive market
that is constantly changing. Advertising rates quoted by different vendors vary
widely, and that makes it difficult for us to project future levels of
advertising revenues. To date, advertisers have not, by their actions, shown
that they believe in the internet as a legitimate advertising medium compared to
traditional advertising media like television, radio, newspapers or magazines.
Since the industry is in its infancy, universally accepted standards measuring
how effective a particular internet advertisement is have not been established
or widely embraced.
Internet advertising rates are based in part on third-party estimates
of an individual's use of an internet site. These estimates of use are called
impressions. Such estimates are often based on sampling techniques or other
imprecise measures, and may materially differ from our own estimates. We do not
know if advertisers will accept our or other parties' measurements of
impressions.
SINCE OUR ADVERTISING CONTRACTS ARE FOR SHORT TERMS AND OFTEN GUARANTEE A
MINIMUM NUMBER OF IMPRESSIONS, WE CANNOT BE SURE IN THE FUTURE THAT WE WILL
CONTINUE TO ATTRACT INTERNET ADVERTISERS.
Substantially all of our advertising contracts have been for terms
averaging one to three months in length, with relatively few longer-term
advertising contracts. We cannot assure you that our current advertisers will
continue to purchase advertisements on our web site. In addition, our
advertising contracts typically guarantee the advertiser a minimum number of
impressions. To the extent that minimum impression levels are not achieved for
any reason, we may be required to "make good" or provide additional impressions
after the contract term. Providing additional impressions may adversely affect
the availability of advertising inventory. This may, in turn, adversely affect
our business, results of operations and financial condition.
IN ORDER TO COMPETE FOR ADVERTISING DOLLARS WITH THE GROWING NUMBER OF INTERNET
WEB SITES, WE MUST CONTINUE TO ENHANCE AND DEVELOP OUR WEB SITE.
To remain competitive with other internet companies, including the
numerous other internet health-related web sites, we must continue to enhance
and improve the responsiveness, functionality and features of OnHealth.com and
develop other products and services. We plan to develop and introduce new
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features, functions, products and services, such as increased capabilities for
user personalization and interactivity and electronic commerce. This will
require us to:
o develop or license increasingly complex technology; and
o create a easy to use and functional electronic commerce component to
our web site.
It is possible that we may not succeed in developing or introducing
such features, functions, products and services in order to attract consumers.
Such failure would likely have a seriously negative effect on our business.
SINCE INTERNET ADVERTISING MARKET IS NOT YET AN ESTABLISHED ADVERTISING MEDIUM,
OUR REVENUE STREAMS IN THE FUTURE ARE UNPREDICTABLE. ALSO, SINCE MANY
ADVERTISERS ADVERTISE MORE DURING THE TRADITIONAL HOLIDAY SEASON, OUR QUARTERLY
RESULTS MAY FLUCTUATE.
Because our online operating history is limited and the economics of
the internet are still evolving, it is difficult to forecast future revenues
with any accuracy. The advertising and retail industries usually experience
their best quarter in the fourth quarter of each year, and to the extent that we
rely upon advertising revenues, our revenues could similarly fluctuate. Since
our expense levels are based upon anticipated advertising and licensing revenue,
we may not be able to adjust spending in a timely manner to compensate for any
unexpected decline in revenue. As a result, any significant decline in relation
to our expectations would have an immediate adverse impact on our business.
TO SUCCESSFULLY COMPETE IN THE INTERNET HEALTH FIELD, WE MUST CONTINUE TO
IMPROVE THE PRODUCT WE OFFER OUR USERS AND THE NUMBER OF USERS USING OUR WEB
SITE.
To do so, we plan to significantly increase our operating expenses to:
o develop new distribution channels thus increasing traffic to our web
site;
o fund greater levels of research and development;
o add editorial content;
o increase our sales and marketing operations;
o broaden our customer support capabilities; and
o establish brand identity and strategic alliances.
Based on our current cash on hand, we expect to have sufficient
resources to operate at least through December 31, 1999. Such planned
expansions, however, will require substantial capital beyond our current
resources. We cannot guarantee that such capital will be available, or if
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available, that the terms that such capital is available will be acceptable to
us. If we raise additional cash through the issuance of equity or convertible
debt securities:
o the percentage ownership of our shareholders will be reduced;
o shareholders may experience additional dilution; and
o such securities may have rights, preferences or privileges senior to
those of the holders of common stock.
SINCE MUCH OF OUR REVENUE DEPENDS ON SHORT-TERM RELATIONSHIPS WITH OTHERS, IF
SUCH RELATIONSHIPS DO NOT CONTINUE, OUR REVENUES WILL DECREASE.
We are and will continue to depend on a number of third-party
relationships to increase traffic on onhealth.com in order to generate
advertising revenues. We are generally dependent on other web site operators
that provide links to onhealth.com.
Most of our arrangements with third-party internet sites:
o do not require future minimum commitments to use our services;
o are not exclusive; and
o are short-term or may be terminated at the convenience of the other
party.
In addition, we do not have agreements with many web site operators
that provide links to onhealth.com, and such web site operators may terminate
such links at any time without notice. As a result, we cannot assure you that
our existing relationships will result in sustained business relationships or
the generation of significant revenues for us. Failure of one or more of our
strategic relationships to achieve or maintain market acceptance or commercial
success or the termination of one or more successful strategic relationships
could have a material adverse effect on our business.
SINCE THE INTERNET ADVERTISING AND HEALTH CARE MARKETS ARE EXTREMELY
COMPETITIVE, IT IS IMPORTANT THAT WE ESTABLISH OUR WEB SITE AS A LEADER IN OUR
FIELD.
We believe that the principal competitive factors in attracting
advertisers to our site include:
o the amount of traffic on our web site,
o brand recognition,
o customer service,
o the demographics of our user base,
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o our ability to offer targeted audiences; and
o the overall cost effectiveness of the advertising medium we offer.
There are a number of competitors delivering online health content who
will also seek such advertising revenues, and it is likely that more competitors
will emerge in the near future. Such competitors include, among others:
o WebMD;
o Mayo Health O@SIS;
o Dr. Koop; and
o IntelliHealth, among others.
Many of these competitors have more cash available to spend, have
longer operating histories and better brand recognition than we do. Some have
internal distribution or other opportunities to support their business that we
neither have nor are able to replicate for a reasonable investment. As expressed
above, we believe that the number of other health care internet companies that
on internet-based advertising revenue, will increase substantially in the
future. Accordingly, we will likely face increased competition, resulting in
increased pricing pressures on our advertising rates, which could have a
material adverse effect on our business.
MUCH OF OUR WEB SITE RELIES ON OWNED OR LICENSED INTELLECTUAL PROPERTY AND WE
CANNOT BE SURE THAT THAT SUCH RIGHTS ARE PROTECTED FROM THE USE OF OTHERS,
INCLUDING POTENTIAL COMPETITORS.
We regard much of our web site and its technology as proprietary and
try to protect it by relying on:
o Trademarks;
o copyrights;
o trade secret laws; and
o restrictions on disclosure and transferring title.
In addition, we have entered into confidentiality agreements with our
consultants. In connection with our license agreements with third parties, we
seek to control access to and distribution of our technology, documentation and
other proprietary information. Even with all of these precautions, it could be
possible for someone else to either copy or otherwise obtain and use our
proprietary information without our authorization or to develop similar
technology independently. Effective trademark, copyright and trade secret
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protection may not be available in every country that our services are made
available through the internet, and policing unauthorized use of our proprietary
information is difficult and expensive. We cannot be sure that the steps we have
taken will prevent misappropriation of our proprietary information. This could
have a material adverse effect on our business. In the future, we may need to go
to court to either enforce our intellectual property rights, to protect our
trade secrets or to determine the validity and scope of the proprietary rights
of others. Such litigation might result in substantial costs and diversion of
resources and management attention.
We currently license from third parties certain technologies
incorporated into onhealth.com. As we continue to introduce new services that
incorporate new technologies, we may be required to license additional
technology from others. We cannot be sure that these third-party technology
licenses will continue to be available on commercially reasonable terms, if at
all.
SINCE THE INTERNET, AND OUR WEB SITE, ARE EASILY ACCESSIBLE THROUGHOUT THE
WORLD, IT IS POSSIBLE THAT WE COULD FACE LIABILITY FOR PRODUCTS SOLD OVER, OR
INFORMATION RETRIEVED FROM, OUR WEB SITE.
Because any of the materials on our web site may be downloaded or
viewed, and such materials could be sent to others, potentially, we could be
sued for:
o defamation;
o negligence;
o copyright or trademark infringement; or
o other theories based on the nature and content of such materials.
We could also be exposed to liability with respect to third-party
information that may be accessible:
o through our web site, or
o through content and materials that may be posted by our users on
discussion boards that we offer.
Such claims might include, that by directly or indirectly providing
links to web sites operated by third parties, we are liable for copyright or
trademark infringement or other wrongful actions by such third parties through
such web sites. It is also possible that, if any third-party information
provided on our web site contains errors, third parties could make claims
against us for losses they incur relying on such information. Even if such
claims do not result in liability, we could incur significant costs in
investigating and defending against such claims.
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SINCE OUR WEB SITE RELIES ON THE INTERNET AND OTHER TECHNOLOGY, IT WOULD BE
SUBJECT TO RISKS IF THEY FAILED OR BECAME UNRELIABLE.
All companies that rely on the internet are dependent upon the
continuous, reliable and secure operation of internet servers and related
hardware and software. If that service is interrupted, consumers would be
inconvenienced and commercial clients would suffer from a loss in advertising or
transaction delivery. This would result in a revenue loss to us. Even though our
computer and communications hardware are protected through physical and software
safeguards, they are still vulnerable to fire, earthquake, flood, power loss,
telecommunications failures, physical or software break-ins and similar events.
We do not have a complete back-up for all of our computer and telecommunications
facilities and do not carry business interruption insurance to protect us in the
event of a catastrophe. Such an event could lead to significant negative impacts
on our business. We also depend on third parties to provide users with web
browsers and internet and online services necessary for access to our web site.
In the past, users have occasionally experienced difficulties with internet and
online services due to system failures, including failures unrelated to our
systems. Any sustained disruption in internet access provided by third parties
could have a material adverse effect on our business.
IT IS POSSIBLE THAT WE MAY HAVE YEAR 2000 PROBLEMS. AS A RESULT, OUR COMPUTER
SYSTEMS COULD FAIL.
The Year 2000 issue is the potential for system and processing failures
of date-related data and the result of computer-controlled systems using two
digits rather than four to define the applicable year. For example, computer
programs that have time-sensitive software may recognize a date using 00 as the
year 1900 rather than the year 2000. This could result in system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in similar normal business activities.
We could be affected by Year 2000 issues related to non-compliant
information technology systems or non-IT systems that we operate or that are
operated by third parties. We have substantially completed assessment of our
internal and external, or third-party, IT systems and non-IT systems. At this
point in our assessment, we are not currently aware of any Year 2000 problems
relating to systems we operate or that are operated by third parties that would
have a material effect on our business, results of operations or financial
condition, without taking into account our efforts to avoid such problems. Based
on our assessment to date, we do not anticipate that costs associated with
remediating our non-compliant IT systems or non-IT systems will be material,
although there can be no assurance to such effect.
The most likely worst case Year 2000 scenario is a failure beyond our
control, such as a prolonged telecommunications or electrical failure. Such a
failure would:
o prevent us from operating our business;
o prevent users from accessing our web site; or
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o change the behavior of advertising customers or persons accessing
our web site.
We believe that the primary business risks, in the event of such
failure, would include:
o lost advertising revenues;
o increased operating costs, loss of customers or persons accessing
our web site, or
o other business interruptions of a material nature, as well as claims
of mismanagement, misrepresentation, or breach of contract.
Any such problems would have a material adverse effect on our business.
We have not made any contingency plans to address such risks.
IN ORDER TO KEEP OUR EXPENSES REASONABLE, IT IS IMPORTANT THAT WE MANAGE OUR
GROWTH.
To accommodate the demand of additional editorial content and
distribution channels for the OnHealth network, our employee base could grow
significantly from our December 31, 1998 level of 34 employees. The expansion of
our workforce could place a significant strain on our management, financial
resources and infrastructure. Competition for attracting and retaining qualified
employees is intense. We cannot be sure that we will be able to attract and
retain employees with the appropriate skill sets, or that we will be able to
manage growth effectively. If we are unable to manage growth in the coming
years, there could be an adverse affect on our operations.
WE ARE IN LITIGATION AND COULD BE REQUIRED TO MAKE PAYMENTS TO THOSE WHO HAVE
SUED US.
In February 1996, we were sued in Hennepin County, Minnesota District
Court by T. Randal Productions . In its lawsuit, T. Randal made various claims,
including misappropriation of corporate opportunities and trade secrets and
sought award of damages, in excess of $10.0 million. In November 1997, a jury
awarded T. Randal $480,000 plus interest for damages sustained to its business.
T. Randal moved for a new trial and for judgment notwithstanding the verdict.
The jury verdict was upheld by the trial court. T. Randal appealed this decision
to the Minnesota Court of Appeals. In March 1999, the Minnesota Court of Appeals
upheld the decision of the trial court. We believe T. Randal may request a
rehearing.
SINCE OUR WEB SITE RELIES ON SOME CONTENT THAT WE DO NOT CREATE, IT IS POSSIBLE
THAT WE MAY NOT BE ABLE TO PROVIDE SUCH CONTENT IN THE FUTURE.
We produce only a portion of the editorial content found on the
OnHealth network. Accordingly, we rely on third-parties that have the expertise,
technical capability, name recognition, and willingness to syndicate product
content for branding and distribution by others. As health-related content grows
on the web, there will be increasing competition for the best health information
suppliers. This may result in:
o a competitor acquiring a key supplier on an exclusive basis; or
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o in significantly higher content prices.
Such an outcome could make our web site less attractive or useful for a
user, and could reduce our profitability. Either event could have a material and
adverse impact on our business.
LAWS RELATING TO THE INTERNET THAT COULD BE PASSED COULD LIMIT THE CONTENT OR
PRODUCTS WE OFFER OR PLAN TO OFFER.
There are currently few laws or regulations that specifically regulate
communications or commerce on the internet. However, with the growing popularity
of online usage, various new laws could be passed that could affect:
o privacy;
o intellectual property rights;
o marketing,
o content; or
o the distribution of health care products over the internet.
The adoption of additional laws in this field may reduce consumer
demand for online services, or adversely impact our cost of doing business.
Either outcome could have a material adverse affect on our business.
OUR NETWORK COULD BE PENETRATED. THIS COULD RESULT IN A DISRUPTION IN OUR WEB
SITE.
Experienced programmers or "hackers" could attempt to penetrate our
network security. Because a hacker who is able to penetrate our network security
could misappropriate proprietary information or cause interruptions in our
products and services, we may be required to expend capital and resources to
protect against or to alleviate problems caused by such parties. In addition, we
may not have a timely remedy against a hacker who is able to penetrate our
network security. Such purposeful security breaches could have a material
adverse effect on our business, results of operations and financial condition.
In addition, the inadvertent transmission of computer viruses could expose us to
a risk of loss or litigation and potential liability.
IF TODAY'S ECONOMIC CONDITIONS DETERIORATE, OUR FUTURE SUCCESS WOULD BE
IMPACTED.
Time spent on the internet by individuals, purchases of new computers
and purchases of membership subscriptions to internet sites are typically
discretionary for consumers and may be particularly affected by adverse trends
in the general economy. The success of our operations depends to a significant
extent upon discretionary consumer spending, including economic conditions
affecting disposable consumer income such as employment, wages and salaries,
business conditions, interest rates, availability of credit and taxation, for
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the economy as a whole and in regional and local markets where we operate. In
addition, our business strategy relies on advertising by and agreements with
other internet companies. Any significant deterioration in general economic
conditions that adversely affected these companies could also have a material
adverse effect on our business.
WE HAVE NO PLANS TO PAY CASH DIVIDENDS.
We intend to retain all of our earnings, if any, for use in the
business and do not anticipate paying any cash dividends in the foreseeable
future. Pursuant to our Articles of Incorporation and Bylaws, the payment of
dividends is subject to the discretion of our Board of Directors and any terms
and conditions imposed by law.
SINCE THIS PROSPECTUS INCLUDES FORWARD LOOKING STATEMENTS, WE CAUTION YOU NOT TO
PLACE UNDUE RELIANCE ON SUCH FORWARD LOOKING STATEMENTS
Certain statements made in this prospectus, that are summarized here, are
forward-looking statements that involve risk and uncertainties, and actual
results may be materially different. Factors that could cause actual results to
differ include, but are not limited to those identified:
o The expectation that we will become the leading on-line health
information network depends on our ability to continue to:
o obtain high quality editorial content,
o implement effective traffic building programs, as well as other
general market conditions; and
o competitive conditions within the market, including, the
introduction and further development of competitive web sites.
o The expectation that we will see a growth in revenues and positive
net income as a result of our shift in focus to the on-line health
network depends on:
o customer interest,
o the ability to obtain successful revenue sources from advertisers,
and
o other general market and competitive conditions within the internet
health market.
USE OF PROCEEDS
In connection with the exercise of the warrants from the selling
shareholders, we will receive, on exercise of all of the warrants described
herein, $821,313.38. We plan to use the proceeds from these warrant exercises
for general corporate purposes. All net proceeds from the sale of the shares
covered by this prospectus will go to the selling shareholders who offer and
sell their shares. We will not receive any proceeds from sales of Shares by the
selling shareholders.
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DESCRIPTION OF OUR SECURITIES
COMMON STOCK
Our articles of incorporation authorize us to issue 29,000,000 shares
of common stock and 1,000,000 shares of preferred stock. As of March 31, 1999,
there were 15,857,854 shares of common stock outstanding. Each holder of a share
of common stock gets one vote per share on all matters submitted to a vote of
shareholders but may not cumulate votes for the election of directors. Holders
of common stock also are entitled to receive dividends as may be declared by the
Board of Directors out of funds legally available. In the event of our
dissolution, liquidation or winding up, holders of common stock are entitled to
share in all assets. Holders of common stock have no preemptive, subscription,
redemption or conversion rights. All the outstanding shares of common stock are
fully paid and nonassessable.
WARRANTS
As of March 31, 1999, we had outstanding warrants to purchase 341,213
shares of common stock with various parties with varying exercise prices and
termination dates.
SELLING SHAREHOLDERS
The following table sets forth, as of March 31, 1999, certain
information regarding the beneficial ownership of the common stock by the
selling shareholders and as adjusted to give effect to the sale of the shares
offered by this prospectus:
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
AFTER OFFERING
--------------------------
SHARES
BENEFICIALLY
OWNED PRIOR TO SHARES BEING
SELLING SHAREHOLDER OFFERING OFFERED SHARES(3) PERCENT
- ---------------------------- ---------------- ------------- ------------ ----------
<S> <C> <C> <C> <C>
Medical Innovation Fund (1) 83,784 2,890(4)(5) *
Wayne W. Mills 288,000 16,750 271,250 1.7
Ronald Eibensteiner (2) - 27,027 - -
Stern & Company - 25,000 - -
- ----------------
<FN>
* Less than one percent
(1) Timothy I. Maudlin is a general partner of Medical Innovation Fund. Mr.
Maudlin served on our board of directors from August 1991 to December
11, 1998.
(2) Ronald Eibensteiner served as a member of our board of directors from
November 1997 until June 29, 1998.
(3) Assumes the sale of all of the shares being offered hereby.
(4) Includes 1,211 shares owned by Timothy I Maudlin, general partner of
Medical Innovation Fund.
(5) Includes 1,679 shares owned by Bob Nickoloff, general partner of
Medical Innovation Fund.
</FN>
</TABLE>
14
<PAGE>
OTHER THAN AS DESCRIBED ABOVE, NONE OF THE SELLING SHAREHOLDERS OR
THEIR RESPECTIVE OFFICERS AND DIRECTORS HAVE NOT HELD ANY POSITIONS OR OFFICE OR
HAD ANY OTHER MATERIAL RELATIONSHIP WITH THE COMPANY OR ANY OF OUR AFFILIATES
WITHIN THE PAST THREE YEARS.
We have agreed with the Selling Shareholders to file with the
Commission, under the Securities Act, the Registration Statement of which this
prospectus forms a part, with respect to the resale of the Shares, and have
agreed to prepare and file such amendments and supplements to the Registration
Statement as may be necessary to keep the Registration Statement effective until
the earlier of
o January 29, 2001;
o the date that all of the selling shareholders may sell all of their
shares under Rule 144(k) of the Securities Act, or
o such date that none of the selling hareholders own any of the
shares offered in this prospectus.
PLAN OF DISTRIBUTION
The selling shareholders, or their pledgees, donees, transferees or
others who succeed to their interest, may offer their shares at various times in
one or more of the following transactions:
o on the Nasdaq SmallCap Market;
o in the over-the-counter market;
o in negotiated transactions other than the Nasdaq SmallCap Market or
the over-the-counter market;
o in connection with short sales;
o by pledge to secure debts and other obligations;
o in connection with the writing of call options, in hedging
transactions and in settlement of other transactions in standardized
or over-the-counter options; or
o in a combination of any of the above transactions.
The selling shareholders may sell their shares at market prices at the
time of sale, at prices related to such prevailing market prices, at negotiated
prices or at fixed prices.
The selling shareholders may use broker-dealers to sell their shares.
If this happens, broker-dealers will either receive discounts or commissions
from the selling shareholder, or they will receive commissions from purchasers
for whom they acted as agents.
If the selling shareholders give or pledge their shares to another
person, such person may sell such shares as a selling shareholder under this
prospectus. Any shares that qualify for sale under Rule 144 of the Securities
15
<PAGE>
Act may be sold under such rule rather than pursuant to this prospectus.
LEGAL MATTERS
For purposes of this offering, Preston Gates & Ellis LLP, Seattle,
Washington, is giving its opinion on the validity of the shares.
EXPERTS
The financial statements appearing in our Annual Report (Form 10-K, as
amended) for the year ended December 31, 1998, have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report that is included
in the Form 10-K, as amended, and incorporated in this prospectus by reference.
Such financial statements are incorporated in this prospectus by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
16
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy the documents we file at
the SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. Our SEC filings are also available to the public
from the SEC's web site at http://www.sec.gov.
The SEC allows us to "incorporate by reference" the information in
documents we file with them, which means that we can disclose important
information to you by referring you to those documents. The information
incorporated by reference is considered to be part of this prospectus, and
information that we file later with the SEC will automatically update and
supersede this information. We incorporate by reference the document listed
below and any future filings we will make with the SEC under Sections 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934:
Annual Report of OnHealth Network Company on Form 10-K, as amended,
for the fiscal year ended December 31, 1998.
You may request a copy of these filings or a copy of any or all of the
documents referred to above which have been or may be incorporated in this
Prospectus by reference, at no cost, by writing us at the following address:
Corporate Secretary
808 Howell Street, Suite 400
Seattle, Washington 98101
(206) 583-0100
17
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses relating to the registration of the Shares will be borne
by the registrant. Such expenses are estimated to be as follows:
Registration Fee
Securities and Exchange Commission $ 593.77
Accountants' Fees $1,000.00
Legal Fees $6,500.00
Miscellaneous $ 500.00
---------
Total $8,593.77
Item 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article XII of the Articles of Incorporation of the Company authorizes
the Company to indemnify any present or former director or officer to the
fullest extent not prohibited by the Washington Business Corporation Act, public
policy or other applicable law. Chapter 23B.8.510 and .570 of the Washington
Business Corporation Act authorizes a corporation to indemnify its directors,
officers, employees, or agents in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including provisio
ns permitting advances for expenses incurred) arising under the 1933 Act. The
directors and officers of the Company are entitled to indemnification by the
Selling Shareholders against any cause of action, loss, claim, damage, or
liability to the extent it arises out of or is based upon the failure of the
Selling Shareholder (or his donees, legatees, or pledgees) to comply with the
Prospectus delivery requirements under the federal securities laws or any
applicable state securities laws or upon any untrue statement or alleged untrue
statement or omission or alleged omission made in this Registration Statement
and the Prospectus contained herein, as the same shall be amended or
supplemented, made in reliance upon or in conformity with written information
furnished to the Company by such Selling Shareholder.
In addition, the Company maintains directors' and officers' liability
insurance under which its directors and officers are insured against loss (as
defined in the policy) as a result of claims brought against them for their
wrongful acts in such capacities.
Item 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a)
EXHIBIT
NO. DESCRIPTION
3.1 Articles of Incorporation of the Company*
3.2 Bylaws of the Company**
5 Opinion of Preston Gates & Ellis LLP regarding legality***
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of Preston Gates & Ellis LLP****
* Incorporated by reference to Amendment Number 1 to the Form S-3 of the
Registrant filed April 28, 1999 (333-75597).
** Incorporated by reference to the Form S-3 of the Registrant filed
December 31, 1998 (333-69989).
*** Incorporated by reference to the Form S-3 of the Registrant filed April
5, 1999.
**** Contained within Exhibit 5.
1
<PAGE>
Item 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors and executive officers of the Registrant
pursuant to provisions described in Item 15 or otherwise, the Registrant has
been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director or executive officer of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director or
executive officer in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement to include any
material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement.
(2) That, for purposes of determining any liability under the
Securities Act, each filing of the Registrant's annual report pursuant to
Section 13(a) or 15(d) of the Exchange Act (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of the
Exchange Act) that is incorporated by reference in the registration statement
shall be deemed to be a new registration statement relating to the securities
offered therein and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To deliver or cause to be delivered with the Prospectus, to each
person to whom the Prospectus is sent or given, the latest annual report to
security holders that is incorporated by reference in the Prospectus and
furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3
under the Exchange Act; and where interim financial information required to be
presented by Article 3 of Regulation S-X are not set forth in the Prospectus, to
deliver or caused to be delivered to each person to whom the Prospectus is sent
or given, the latest quarterly report that is specifically incorporated by
reference in the Prospectus to provide such interim financial information.
(4) That, for the purposes of determining liability under the
Securities Act, each post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(5) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(6) That, for purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus filed as
part of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(7) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Amendment
Number 1 to its Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Seattle, State of
Washington, on the 5th day of May, 1999.
ONHEALTH NETWORK COMPANY
By: /S/ ROBERT N. GOODMAN
--------------------------------------
Robert N. Goodman
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment Number 1 to Registration Statement on Form S-3 has been signed by
the following persons in the capacities indicated on the dates set forth below.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ----------------------------------------- ---------------------------------------- ----------------
<S> <C>
May 5, 1999
/s/ ROBERT N. GOODMAN President, Chief Executive Officer,
- ---------------------------------------- Director (Principal Executive
Robert N. Goodman Officer)
May 5, 1999
/s/ MICHAEL D. CONWAY Controller, Vice President and
- ---------------------------------------- Secretary (Principal Financial and
Michael D. Conway Accounting Officer)
/s/ MICHAEL A. BROCHU April 26, 1999
- ---------------------------------------- Chairman of the Board of Directors
Michael A. Brochu
/s/ ANN KIRSCHNER Director April 24_, 1999
- ----------------------------------------
Ann Kirschner
Director May __, 1999
- ----------------------------------------
Ram Shriram
Director May __, 1999
- -----------------------------------
Rick Thompson
</TABLE>
3
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in Amendment
No. 1 to the Registration Statement (Form S-3) and related Prospectus of
OnHealth Network Company for the registration of 152,561 shares of its common
stock and to the incorporation by reference therein of our report dated March
15, 1999, with respect to the financial statements and schedule of OnHealth
Network Company included in its Annual Report (Form 10-K and 10-K/A) for the
year ended December 31, 1998, filed with the Securities and Exchange Commission.
\s\ ERNST & YOUNG LLP
Seattle, Washington
May 4, 1999
