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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K\A
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________TO__________.
COMMISSION FILE NUMBER 0-22212
ONHEALTH NETWORK COMPANY
(Exact name of registrant as specified in its charter)
WASHINGTON 41-1686038
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
808 HOWELL STREET, SUITE 400
SEATTLE, WASHINGTON 98101
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (206) 583-0100
__________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to the
Form 10-K. [ ]
Aggregate market value of voting stock held by non-affiliates of the
registrant as of March 9, 1999: $178,383,285
Number of shares outstanding of the registrant's class of common stock as of
March 9, 1999: 15,856,292
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth are the executive officers and directors of the Company as of
April 7, 1999.
Name Age Title
- --------------------- ------- -------------------------------------------------
Robert N. Goodman 46 Chief Executive Officer, President and Director
Rebecca Farwell 37 General Manager
Michael D. Conway 30 Vice President of Finance, Controller, Secretary
and Principal Financial Officer
Michael A. Brochu 45 Chairman of the Board
Ann Kirschner 48 Director
Ram Shriram 41 Director
Rick Thompson 39 Director
Executive officers of the Company are elected at the discretion of the
Board of Directors with no fixed term. There are no family relationships between
or among any of the executive officers or directors of the Company.
ROBERT N. GOODMAN joined the Company in November 1997 as President and Chief
Executive Officer and a member of the Company's Board of Directors. From April
1997 to November 1997, he was the director of business development for MSNBC
Interactive News, LLC. From December 1995 to April 1997, Mr. Goodman was an
independent consultant working for Microsoft Corporation. From October 1995 to
November 1995, Mr. Goodman was in the process of moving from San Francisco, CA
to Seattle, WA. From November 1993 to October 1995, he was Assistant General
Counsel for The 3DO Company.
REBECCA FARWELL joined the Company in February 1998 and currently serves as
General Manager. Prior to that, she was the editorial director for Discovery
Channel Online (DCOL) and Discovery Publishing. She began her career at The
Discovery Channel in 1987 as the managing editor of The Discovery Channel
Magazine.
MICHAEL D. CONWAY joined the Company in January 1998 as Controller and Vice
President of Finance. In April 1998, he was named Principal Financial Officer
and Secretary. From November 1997 to December 1997, he worked as an independent
consultant for PhotoDisc, Inc., a developer of high-resolution photographs on
CD-ROM, and Sierra On-Line, Inc., a leader in entertainment software. From May
1996 to October 1997, Mr. Conway served as the Accounting Manager at Sierra
On-Line, Inc. From August 1994 to May 1996, Mr. Conway served as a Senior
Accountant at Deloitte & Touche LLP. From October 1992 to August 1994, he held
various positions at KPMG Peat Marwick including Senior Accountant. Mr. Conway
received his B.A. in Economics/Accounting from Claremont McKenna College, and
his M.B.A. from the Claremont Graduate School's Peter Drucker School of
Management.
MICHAEL A. BROCHU has been a Director of the Company since April 1997 and has
also served as Chairman of the Board of Directors of the Company since October
1997. Mr. Brochu has served as President and Chief Executive Officer of Primus,
Inc., a leader in entertainment software, since November 1997. From October 1995
to October 1997, he served as President and Chief Operating Officer of Sierra
On-Line, Inc., a computer game software developer, and as its Chief Financial
Officer and Executive Vice President from July 1994 to October 1995. From 1987
to July 1994, Mr. Brochu served in the positions of Senior Vice President, Chief
Financial Officer and Chief Operating Officer of Burlington Environmental, Inc.,
a division of Burlington Resources, Inc.
ANN KIRSCHNER has been a Director of the Company since February 1998. Ms.
Kirschner is currently the executive director of Columbia Media Enterprises.
From December 1994 to December 1998, she served as Vice President of NFL
Interactive for NFL Enterprises, Inc. Ms. Kirschner was responsible for the
launch of the NFL's official Web site, the official Super Bowl Web site and Team
NFL. Prior to December 1994, she served as President of Comma Communications for
more than two years.
RAM SHRIRAM has been a Director of the Company since February 1998. Mr. Shriram
is Vice-President of Business Development at Amazon.com, an Internet retailer.
Prior to being acquired by Amazon.com, Mr. Shriram served as President and Chief
Operating Officer of Junglee Corporation, a company that enables Web users to
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locate, compare and transact goods and services on the Internet. Previously, Mr.
Shriram served as Vice President of Netscape Communications Corporation from
February 1994 to February 1998. Mr. Shriram was Netscape's Director, Channel
Sales of Network Computing Devices from October 1990 to November 1994.
RICK THOMPSON has been a Director of the Company since February 1998. Mr.
Thompson has served as Vice President and General Manager of Microsoft
Corporation's Hardware Division since October 1987. Mr. Thompson manages the
division's product lines and oversees development.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth all cash compensation paid or to be paid
by the Company, as well as certain other compensation paid or accrued, during
each of the Company's last three fiscal years to each person who served as Chief
Executive Officer during fiscal 1998 and the only other executive officers who
earned more than $100,000 in salary and bonuses in 1998.
<TABLE>
<CAPTION>
Long Term Compensation
---------------------------------
Awards Payouts
------------------------ -------
Annual Restricted
Compensation Stock All Other
Name and Principal Fiscal ----------------------------------- Awards LTIP Compensation
Position Year Salary ($) Bonus($) Other ($) ($) Options ($) ($)
- ------------------------ ------- ------------ --------- ---------- ---------- --------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert N. Goodman 1998 180,000 - - - 300,000 - -
President and Chief 1997 18,548 - - - 450,000 - 35,000
Executive Officer (2)
Rebecca Farwell 1998 123,559 - - 115,000 - 50,000
General Manager (1)
- --------------
<FN>
(1) Ms. Farwell joined the Company on February 2, 1998. All Othe
Compensation consists of relocation paid to Ms. Farwell during 1998.
(2) Mr. Goodman joined the Company on November 24, 1997 at an annual salary
of $180,000. All Other Compensation consists of a one-time bonus paid
to Mr. Goodman during 1997.
</FN>
</TABLE>
3
<PAGE>
OPTION GRANTS DURING 1998 FISCAL YEAR
The following table provides information regarding stock options granted
during fiscal 1998 to the named executive officers in the Summary Compensation
Table. The Company has not granted any stock appreciation rights.
<TABLE>
<CAPTION>
Potential Realizable Value at
Percent of Assumed Annual Rates of Stock
Total Options Price Appreciation for Option
Number of Shares Granted to Exercise or Term(2)
Underlying Employees Base Price Expiration -----------------------------
Name Options Granted In Fiscal Year Per Share(1) Date 5% 10%
- ------------------ --------------- --------------- ------------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Robert N. Goodman 300,000 (3) 17.17% $6.25 06/15/08 $ 1,179,177 $ 2,988,267
Rebecca Farwell 100,000 (4) 5.72% $3.00 02/01/08 $ 188,668 $ 478,123
15,000 (5) 0.86% $6.25 06/15/08 $ 58,959 $ 149,413
- ------------------
<FN>
(1) The exercise price is equal to the fair market value of the Common
Stock on the date of each grant.
(2) The potential realizable value portion of the foregoing table
illustrates value that might be realized upon exercise of the options
immediately prior to the expiration of their term, assuming the
specified compounded rates of appreciation on the Company's Common
Stock over the term of the options. These numbers do not take into
account provisions of certain options providing for termination of the
option following termination of employment, nontransferability or
vesting over periods of up to five years.
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(3) The option was granted on June 16, 1998 and will become exercisable to
the extent of 60,000 shares on June 16 of each year beginning June 16,
1999 through June 16, 2003.
(4) The option was granted on February 2, 1998 and became exercisable to
the extent of 25,000 shares on February 2, 1999, 2,083 shares on each
of March 2, 1999, April 2, 1999 and May 2, 1999 and will become
exercisable to the extent of 2,083 shares on the 2nd day of each month
from June 2, 1999 through February 2, 2002.
(5) The option was granted on June 16, 1998 and will become exercisable to
the extent of 3,750 shares on June 16, 1999 and to the extent of 312
shares on the 16th day of each month from July 16, 1999 through June
16, 2002.
</FN>
</TABLE>
OPTION EXERCISES DURING 1998 FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table provides information as to options exercised by the
named executive officers in the Summary Compensation Table during 1998 and the
number and value of all outstanding options at December 31, 1998.
The Company has no outstanding stock appreciation rights.
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In-the-Money
Options at Options at
Shares December 31, 1998 December 31, 1998
Acquired Value Exercisable/ Exercisable/
Name On Exercise Realized Unexercisable Unexercisable(1)
- ------------------- ------------- ---------- ---------------------- ------------------
<S> <C> <C> <C> <C>
Robert N. Goodman - - 90,625 exercisable $ 226,563
659,375 unexercisable $ 898,437
Rebecca Farwell - - 0 exercisable -
115,000 unexercisable $ 200,000
- ---------------
<FN>
(1) Value is calculated on the basis of the difference between the option
exercise price and $5.00, the closing sale price for the Company's
Common Stock at December 31, 1998 as quoted on the Nasdaq SmallCap
Market, multiplied by the number of shares underlying the option.
</FN>
</TABLE>
COMPENSATION OF DIRECTORS
DIRECTORS' FEES. The Company's directors receive no fees for attendance
at meetings of the Board of Directors, but they are reimbursed for out-of-pocket
expenses relating to attendance at the meetings; however, Mr. Brochu is paid an
annual fee of $30,000 for his services as Chairman of the Board, as well as
out-of-pocket expenses.
STOCK OPTION GRANTS TO NON-EMPLOYEE DIRECTORS. The Company's 1997 Stock
Option Plan provides for the automatic option grant of stock options to each
director who is not an employee of the Company (a "Non-Employee Director"). Each
Non-Employee Director who is elected for the first time as a director is
automatically granted a nonqualified option to purchase 25,000 shares of the
Common Stock at an option price per share equal to 100% of the fair market value
of the Common Stock on the date of the Non-Employee Director's initial election,
which option is exercisable, to the extent of 6,250 shares immediately and on
each of the first three anniversaries of the date of grant. All options granted
pursuant to these provisions shall expire on the earlier of (i) one year after
the optionee ceases to be a director and (ii) ten (10) years after the date of
grant.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
In August 1996, the Company entered into a two-year employment agreement
with Joy Solomon, former President and Chief Executive Officer, pursuant to
which Ms. Solomon received an annual base salary of $171,000. Pursuant to a
Separation Agreement and Release of Claims ("Separation Agreement") entered into
between the Company and Ms. Solomon, Ms. Solomon's employment with the Company
terminated on December 31, 1997. Under the Separation Agreement, Ms. Solomon
will receive her base salary as in effect on December 31, 1997 for the period
January 1, 1998 through June 30, 1999. In addition, the Separation Agreement
amended Ms. Solomon's stock options to provide that the options shall continue
to vest according to their respective vesting schedules until June 30, 1999 and
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shall be exercisable to the extent vested until the respective original
expiration dates. The Separation Agreement contains mutual releases and is
subject to confidentiality provisions.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee (the "Committee") of the Board of Directors,
consisting of Messrs. Shriram, Goodman and Brochu has furnished the following
report on executive compensation.
The Company's executive compensation program is administered by the
Committee. The Committee, which is composed of two independent directors and an
employee, establishes and administers the Company's executive compensation
policies and plans and administers the Company's stock option and other
equity-related employee compensation plans. The Committee considers internal and
external information in determining officers' compensation.
Compensation Philosophy
The Company's compensation policies for executive officers are based on
the belief that the interests of executives should be closely aligned with those
of the Company's shareholders. The Compensation policies are designed to achieve
the following objectives:
Offer compensation opportunities that attract highly qualified
executives, reward outstanding initiative and achievement, and retain the
leadership and skills necessary to build long-term shareholder value.
Maintain a portion of executives' total compensation at risk, tied to
both the annual and long-term financial performance of the Company and the
creation of shareholder value.
Further the Company's short and long-term strategic goals and values by
aligning compensation with business objectives and individual performance.
Compensation Program
The Company's executive compensation program has three major integrated
components, base salary, incentive awards, and long term incentives.
Base Salary. Base salary levels for executive officers are determined
annually by reviewing the competitive pay practices of Internet companies of
similar size and market capitalization, the skills, performance level, and
contribution to the business of individual executives, and the needs of the
Company. Overall, the Company believes that base salaries for its executive
officers are at competitive salary levels for similar positions in these
Internet companies.
Incentive Awards. The Company's executive officers may be eligible to
receive annual cash bonus awards designed to motivate executives to attain
short-term and long-term corporate and individual management goals. The
Committee establishes the annual incentive opportunity for each executive
officer in relation to his or her base salary.
Long-Term Incentives. The Committee believes that stock options are an
excellent vehicle for compensating its officers and employees. The Company
provides long-term incentives through its 1997 Stock Option Plan, 1991 Stock
Option Plan and the 1997, 1998 and 1999 New Hire Stock Option Plans, the purpose
of which is to create a direct link between executive compensation and increases
in shareholder value. Stock options are granted at fair market value and vest in
installments generally over three to five years. When determining option awards
for an executive officer, the Committee considers the executive's current
contribution to Company performance, the anticipated contribution to meeting the
Company's long term strategic performance goals, and industry practices and
norms. Long-term incentives granted in prior years and existing levels of stock
ownership are also taken into consideration. Because the receipt of value by an
executive officer under a stock option is dependent upon an increase in the
price of the Company's Common Stock, this portion of the executive's
compensation is directly aligned with an increase in shareholder value.
Chief Executive Officer Compensation
Mr. Goodman's base salary, annual incentive award and long-term incentive
compensation are determined by the Committee based upon the same factors as
those employed by the Committee for executive officers generally. Mr. Goodman's
current annual base salary is $180,000 subject to annual review and increase by
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the Board of Directors of the Company. During fiscal 1998, Mr. Goodman was
granted options to purchase 300,000 shares of Common Stock at an exercise price
of $6.25 per share, the fair market value of the Company's Common Stock on the
date of the grant. As Mr. Goodman is a member of the Compensation Committee, he
recused himself from all discussions, deliberations and determinations relating
to the compensation of the Chief Executive Officer.
Section 162(m) Limitation
Section 162(m) of the Internal Revenue Code limits the tax deduction to
$1 million for compensation paid to certain executives of public companies.
Historically, the combined salary and bonus of each executive officer has been
well below the $1 million limit. The Committee's present intention is to comply
with Section 162(m) unless the Committee feels that required changes would not
be in the best interest of the Company or its shareholders.
COMPENSATION COMMITTEE
MICHAEL BROCHU
RAM SHRIRAM
ROBERT GOODMAN
COMMON STOCK PRICE PERFORMANCE CHART
The following graph compares the yearly percentage change in the
cumulative total shareholder return for the Company, the Nasdaq U.S. Companies
Index and the Nasdaq Computer and Data Processing Services Stock Index for the
period from December 31, 1993 to December 31, 1998. The Nasdaq Computer and Data
processing Services Stock Index is prepared by Nasdaq and includes all companies
in the Standard Industry Code 737 (computer programming, data processing and
other computer-related services) which are included in the Nasdaq U.S. Companies
Index. A list of the companies included in the Nasdaq Computer and Data
Processing Services Stock Index is available from the Company upon request. The
graph assumes that $100 was invested on December 31, 1993.
[GRAPHIC OMITTED]
<TABLE>
<CAPTION>
YEAR END
1993 1994 1995 1996 1997 1998
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
IVI Publishing, Inc./ OnHealth $100.00 $ 39.32 $ 44.87 $ 10.90 $ 8.76 $ 17.09
Network Company*
Nasdaq Index (U.S.) $100.00 $ 97.75 $138.26 $170.01 $208.18 $293.21
Nasdaq Comp & Data Proc. Index $100.00 $121.44 $184.92 $228.24 $280.39 $501.76
<FN>
*Prior to June 16, 1998, the Company's name was IVI Publishing, Inc.
</FN>
</TABLE>
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number of shares of the Company's
Common Stock beneficially owned by (i) each director and nominee for election to
the Board of Directors of the Company; (ii) each of the named executive
officers; (iii) all directors and executive officers as a group; and (iv) to the
best of the Company's knowledge, all beneficial owners of more than 5% of the
outstanding shares of the Company's Common Stock as of March 31, 1999. Unless
otherwise indicated, the shareholders listed in the table have sole voting and
investment power with respect to the shares indicated.
Common Shares
Name (And Address of 5% Beneficially Percent of
Holder) or Identity of Group(1) Owned(2) Class(2)
- ------------------------------------ ----------------- -------------
Robert N. Goodman 181,250 (3) 1.13%
Rebecca Farwell 31,250 (4) *
Michael D. Conway 62,500 (5) *
Michael A. Brochu 158,750 (6) *
Ann Kirschner 21,250 (7) *
Ram Shriram 21,250 (8) *
Rick Thompson 21,250 (9) *
Van Wagoner Capital Management, Inc. 4,143,500 (10) 26.13%
Perkins Capital Management 1,288,850 (11) 8.13%
Nevis Capital Management, Inc. 903,000 (12) 5.69%
All Directors and Executive
Officers as a Group (7 persons) 497,500 (13) 3.04%
- ---------------------------
* Less than 1% of the outstanding shares of Common Stock.
(1) The addresses of the more than 5% holders are: Van Wagoner Group (Van
Wagoner Capital Management, Inc. and Van Wagoner Funds, Inc.) - 345
California Street, Suite 2450, San Francisco. CA 94104; Perkins Capital
Management, Inc. - 730 East Lake Street, Wayzata, MN 55391; Nevis
Capital Management, Inc. - 1119 St. Paul Street, Baltimore, MD 21202.
(2) Under the rules of the Securities and Exchange Commission, shares not
actually outstanding are nevertheless deemed to be beneficially owned
by a person if such person has the right to acquire the shares within
60 days. Pursuant to such SEC rules, shares deemed beneficially owned
by virtue of a person's right to acquire them are also treated as
outstanding when calculating the percent of class owned by such person
and when determining the percentage owned by a group.
(3) Includes 181,250 shares which may be purchased by Mr. Goodman upon
exercise of currently exercisable options.
(4) Includes 31,250 shares which may be purchased by Ms. Farwell upon
exercise of currently exercisable options.
(5) Includes 62,500 shares which may be purchased by Mr. Conway upon
exercise of currently exercisable options.
(6) Includes 158,750 shares which may be purchased by Mr. Brochu upon
exercise of currently exercisable options.
(7) Includes 21,250 shares which may be purchased by Ms. Kirschner upon
exercise of currently exercisable options.
(8) Includes 21,250 shares which may be purchased by Mr. Shriram upon
exercise of currently exercisable options.
(9) Includes 21,250 shares which may be purchased by Mr. Thompson upon
exercise of currently exercisable options.
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(10) Of the shares, 3,732,500 shares are owned by Van Wagoner Funds, Inc.
("Van Wagoner Funds"), and 411,000 shares are owned by clients of Van
Wagoner Capital Management, Inc. ("Van Wagoner Capital"). Van Wagoner
Funds has the sole power to vote 3,732,500 shares. Van Wagoner Capital
has no power to vote on 411,000 shares and has sole investment power
for all of the shares, including the shares held by Van Wagoner Funds.
The Company has relied on information contained in a Schedule 13G
Amendment filed with the Securities and Exchange Commission on March 9,
1999 by Van Wagoner Funds and Van Wagoner Capital as a group.
(11) Of the shares owned by clients of Perkins Capital Management, Inc.
("Perkins Capital"), Perkins Capital has the sole power to vote 806,200
shares and no power to vote 482,650 shares. Perkins Capital has the
sole investment power for all of the shares. The Company has relied on
information contained in a Schedule 13G Amendment filed with the
Securities and Exchange Commission on February 4, 1999 by Perkins
Capital.
(12) The Company has relied on information contained in a Schedule 13G dated
February 2, 1999 filed with the Securities and Exchange Commission by
Nevis Capital Management, Inc., a registered investment advisor.
(13) Includes 497,500 shares which may be purchased upon exercise of
currently exercisable options.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Amendment to Annual
Report on Form 10-K to be signed on its behalf by the undersigned, thereunto
duly authorized, this 29th day of April, 1999.
ONHEALTH NETWORK COMPANY
By: \S\ MICHAEL D. CONWAY
-----------------------------
Michael D. Conway
Chief Financial Officer
Principal Accounting Officer
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