SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[X] Preliminary proxy statement
[ ] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
ONHEALTH NETWORK COMPANY
(Name of Registrant as specified in its Charter)
ONHEALTH NETWORK COMPANY
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
|X| No fee required.
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:____________
(2) Aggregate number of securities to which transaction applies:_______________
(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined): __________________________________
(4) Proposed maximum aggregate value of transaction: __________________________
(5) Total fee paid: ___________________________________________________________
Fee paid previously with preliminary materials.
Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: ___________________________________________________
(2) Form, Schedule or Registration Statement No.: _____________________________
(3) Filing Party: _____________________________________________________________
(4) Date Filed: _______________________________________________________________
<PAGE>
ONHEALTH NETWORK COMPANY
________________________
NOTICE OF ANNUAL MEETING
TO BE HELD ON MAY 18, 1999
________________________
TO THE SHAREHOLDERS OF ONHEALTH NETWORK COMPANY:
The Annual Meeting of the Shareholders of OnHealth Network Company, a
Washington corporation (the "Company"), will be held on Tuesday May 18, 1999, at
10:00 a.m.(Pacific Time), at __________________________________________________,
for the following purposes:
1. To elect a Board of Directors to serve until the next annual
meeting of shareholders and until their successors are duly
elected and qualified.
2. To consider a proposal to amend the Company's articles of
incorporation to increase the number of authorized shares of
Common Stock from 29,000,000 to 100,000,000 shares.
3. To consider a proposal to ratify, confirm and approve an
amendment to the Company's 1997 Stock Option Plan to increase
the number of shares reserved for grant thereunder from
1,750,000 to 4,750,000.
4. To transact such other business as may properly come before
the meeting.
Shareholders of record at the close of business on March 19, 1999
are entitled to notice of and to vote at the Annual Meeting or any adjournment
thereof.
Your attention is directed to the Proxy Statement accompanying this
Notice for a more complete statement of matters to be considered at the Annual
Meeting. A copy of the Annual Report on Form 10-K for the year ended December
31, 1998 also accompanies this Notice.
YOUR VOTE IS IMPORTANT. YOU ARE REQUESTED TO CAREFULLY READ THE PROXY STATEMENT.
PLEASE SIGN, DATE AND RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE.
By Order of the Board of Directors,
/s/ Robert N. Goodman
Robert N. Goodman
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Seattle, Washington
Dated: April __, 1999
<PAGE>
ONHEALTH NETWORK COMPANY
________________________
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 18, 1999
________________________
INTRODUCTION
Your proxy is solicited by the Board of Directors of OnHealth Network
Company (the "Company") for use at the Annual Meeting of Shareholders to be held
on Tuesday May 18, 1999, at 10:00 a.m. (Pacific Time), at
_______________________, located at ________________________________, and at any
adjournment thereof (the "Annual Meeting"), for the purposes set forth in the
Notice of Annual Meeting.
The cost of soliciting proxies, including the cost of preparing,
assembling and mailing proxies and soliciting material, as well as the cost of
forwarding such material to the beneficial owners of stock, will be borne by the
Company. Directors, officers and regular employees of the Company may, without
compensation other than their regular compensation, solicit proxies personally
or by telephone.
Any shareholder giving a proxy may revoke it at any time prior to its
use at the Annual Meeting by giving written notice of such revocation to the
Secretary of the Company. The enclosed proxy, when properly signed and returned
to the Company, will be voted by the proxy holders at the Annual Meeting as
directed therein. Proxies which are signed by shareholders but which lack any
such specification will be voted in favor of the proposals set forth in the
Notice of Annual Meeting.
The mailing address of the offices of the Company is 808 Howell Street,
Suite 400, Seattle, Washington 98101. The Company expects that the Notice of
Annual Meeting, Proxy Statement, form of proxy, and Annual Report to
Shareholders will first be mailed to shareholders on or about April 28, 1999.
<PAGE>
OUTSTANDING SHARES AND VOTING RIGHTS
Shareholders entitled to notice of and to vote at the Annual Meeting
and any adjournment thereof are shareholders of record at the close of business
on March 19, 1999. Persons who are not shareholders of record on such date will
not be allowed to vote at the Annual Meeting. At the close of business on March
31, 1999, there were 15,857,854 shares of common stock, par value $.01 per share
("Common Stock") issued and outstanding. The Company has issued no other voting
securities. Each share of Common Stock is entitled to one vote on each matter to
be voted upon at the Annual Meeting. Holders of Common Stock are not entitled to
cumulate their votes for the election of directors.
SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
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
in the Summary Compensation Table; (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) *
Von 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: Von Wagoner Group (Von
Wagoner Capital Management, Inc. and Von 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
2
<PAGE>
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.
(10) Of the shares, 3,732,500 shares are owned by Von Wagoner Funds, Inc.
("Von Wagoner Funds"), and 411,000 shares are owned by clients of Von
Wagoner Capital Management, Inc. ("Von Wagoner Capital"). Von Wagoner
Funds has the sole power to vote 3,732,500 shares. Von 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 Von 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 Von Wagoner Funds and Von 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.
DETERMINATION OF NUMBER AND ELECTION OF DIRECTORS
(Proposal #1)
Five directors are to be elected at the Annual Meeting, to hold office
until the next annual meeting of shareholders and until their successors are
elected and qualified. It is intended that the accompanying proxy will be voted
in favor of the following persons to serve as directors unless the shareholder
indicates to the contrary on the proxy. Management expects that each of the
nominees will be available for election, but if any of them is not a candidate
at the time the election occurs, it is intended that such proxy will be voted
for the election of another nominee to be designated by the Board of Directors
to fill any such vacancy.
3
<PAGE>
The following persons have been nominated by the Company's Board of
Directors to be elected as directors at the Annual Meeting:
Name Age Title
- ------------------------------------- ----------------- -----------------------
Michael A. Brochu 45 Chairman of the Board
Robert N. Goodman 46 Director
Ann Kirschner 47 Director
Ram Shriram 41 Director
Rick Thompson 39 Director
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.
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.
ANN KIRSCHNER has been a Director of the Company since February 1998. Ms.
Kirschner has served as Vice President of NFL Interactive for NFL Enterprises,
Inc. since December 1994. Ms. Kirschner was responsible for the launch of the
NFL's official Web site, the official Super Bowl Web site and the Team NFL Web
site. 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
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.
COMPLIANCE WITH SECTION 16(A) OF EXCHANGE ACT
Based on the Company's review of copies of forms filed with the
Securities and Exchange Commission or written representations from certain
reporting persons, in compliance with Section 16(a) of the Securities Exchange
Act of 1934, the Company believes that during fiscal year 1998, all officers,
directors, and greater than ten-percent beneficial owners complied with the
applicable filing requirements.
4
<PAGE>
BOARD AND COMMITTEE MEETINGS
The Board of Directors held 3 meetings during 1998 and took action by
unanimous written consent one time during 1998. No director attended less than
75% of the meetings of the Board and any committee of which the director was a
member.
The Board of Directors has designated two standing committees, the
Audit Committee and the Compensation and Stock Option Committee. The Company
does not have a nominating committee.
The Audit Committee, consisting of Messrs. Brochu and Thompson, reviews
the scope of the work and fees of the Company's independent auditors and meets
with the Company's financial officers and independent auditors to review matters
concerning the Company's financial statements and internal controls. During a
portion of 1998, the Audit Committee was comprised of Ronald Eibensteiner and
Timothy Maudlin, former directors of the Company. Messrs. Brochu and Thompson
were appointed to the Audit Committee in January 1999. The Audit Committee held
two meetings during 1998.
The Compensation and Stock Option Committee (the "Compensation
Committee"), consisting of Messrs. Shriram, Goodman and Brochu, reviews and
determines the compensation, including base salary and bonus incentives for the
executive officers, and administers and awards stock option grants under the
Company's stock option plans. During a portion of 1998, the Compensation
Committee was comprised of Ronald Eibensteiner, Alan Frazier and Timothy
Maudlin, former directors of the Company. Messrs. Shriram and Goodman were
appointed to the Compensation Committee in January 1999. The Compensation
Committee held one meeting during 1998.
MANAGEMENT
EXECUTIVE OFFICERS AND KEY EMPLOYEES OF THE COMPANY
Set forth, below, are the names of the executive officers and key employees of
the Company as of April 7, 1999, their ages and employment for the past five
years. Mr. Goodman's biographical information is presented above.
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
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.
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.
5
<PAGE>
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
contractor 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.
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 $100,000 in salary and bonuses in 1998.
<TABLE>
<CAPTION>
Long Term Compensation
--------------------------------
Awards Payouts
---------------------- --------
Restricted
Fiscal Annual Stock
Year Compensation Awards All Other
Name and Principal Fiscal --------------------------------- ---------- Compensation
Position Year Salary ($) 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(2) - - - 450,000 - 35,000
Executive Officer
Rebecca Farwell 1998 123,559 - - - 115,000 - 50,000
General Manager (1)
- --------------
<FN>
(1) Ms. Farwell joined the Company on February 2, 1998. All Other
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>
6
<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>
Percent of
Total Options Potential Realizable Value at
Number of Shares Granted to Exercise or Assumed Annual Rates of Stock
Underlying Employees Base Price Expiration Price Appreciation for Option
NAME Options Granted In Fiscal Year Per Share(1) Date Term(2)
- ------------------- ---------------- -------------- ------------ ---------- ------------------------------
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.
(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 July 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 July
16, 2002.
</FN>
</TABLE>
7
<PAGE>
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
8
<PAGE>
provide that the options shall continue to vest according to their respective
vesting schedules until June 30, 1999 and 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
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
9
<PAGE>
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 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
RELATED TRANSACTIONS
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.
10
<PAGE>
[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>
APPROVAL OF AN AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION
(PROPOSAL #2)
On April 5, 1999, the Company's Board of Directors approved an
amendment to the Company's Articles of Incorporation that, subject to the
approval of the shareholders, would authorize the Company to increase the number
of shares of the Company's Common Stock authorized for issuance from 29,000,000
shares as currently authorized to 100,000,000 shares.
The amendment will increase the number of authorized and unissued
shares of Common Stock which may be used by the Company for any proper corporate
purpose. Such purpose might include, without limitation, issuance of shares in
public or private offerings, issuance of securities convertible into shares of
Common Stock for cash as a means of obtaining additional capital for use in the
Company's business and operations, or issuance of shares of Common Stock as part
or all of the consideration required to be paid by the Company in the
acquisition of other businesses or properties. With this increase, the Board of
Directors believes that the Company will have sufficient shares of Common Stock
available for corporate purposes or opportunities as are likely to arise in the
reasonably foreseeable future. There are at present no firm plans, arrangements
or understandings relating to the issuance of any of the currently authorized
and unissued shares of Common Stock or the additional shares of the Common Stock
proposed to be authorized.
As of April ___, 1999, based on the number of shares of Common Stock
currently outstanding and the number of shares eligible for issuance under the
Company's stock option plans, there are currently ________________ shares of
Common Stock either outstanding or reserved and _____________ authorized but
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unissued and unreserved shares of Common Stock available for other corporate
purposes or opportunities.
If the amendment is approved, the newly authorized shares of Common
Stock would have all of the rights and privileges as the shares of Common Stock
presently authorized. Once shares of Common Stock are authorized, the Board of
Directors can issue shares of Common Stock without shareholder approval, except
as may be required by law or regulations or by the rules of any stock exchange
on which the Company's securities may then be listed.
The issuance of the additional shares of Common Stock, may, under
certain circumstances, make attempts to acquire control of the Company more
difficult. For example, an issuance of additional shares of Common Stock may
make it more difficult to obtain shareholder approval of actions such as removal
of directors or amendments to the Bylaws. In addition, although the Board of
Directors has no current plans to do so, shares of Common Stock could be issued
in other transactions that could make a change in control of the Company more
difficult. The Company is not aware of any effort to obtain control of the
Company by a tender offer, proxy contest, or otherwise, and the Company has no
present intention to use the additional shares of authorized Common Stock for
antitakeover purposes.
Although the Board of Directors would issue additional shares of Common
Stock based on its judgment as to the best interests of the Company and its
shareholders, the issuance of additional shares of Common Stock would have the
effect of diluting the voting power per share and could have the effect of
diluting the book value per share of the outstanding shares of Common Stock.
If the amendment to the Articles of Incorporation is authorized,
Article IV of the Company's Articles of Incorporation will be amended, in
pertinent part, to read as follows:
ARTICLE IV
CAPITAL SHARES
4.1 AUTHORIZED SHARES. The authorized capital stock of the Company
consists of 100,000,000 shares of common stock $.01 par value per share ("Common
Stock") and 1,000,000 shares of Preferred Stock.
VOTE REQUIRED. The affirmative vote of a majority of the shares of
Common Stock outstanding and entitled to vote at the meeting is required to
approve the proposed amendment to the Articles of Incorporation. THE BOARD OF
DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL.
APPROVAL OF AMENDMENT TO 1997 STOCK OPTION PLAN
(PROPOSAL #3)
In June 1998, the shareholders approved the Company's 1997 Stock Option
Plan (the "1997 Plan"). The Company is presently authorized to issue 1,750,000
shares of Common Stock upon the exercise of options granted under the 1997 Plan.
The shareholders will be requested at the Annual Meeting to approve an amendment
to the 1997 Plan which increases by 3,000,000 shares the number of shares that
maybe issued under the 1997 Plan (to 4,750,000). The purpose of the 1997 Plan is
to promote Company success by aligning employee financial interests with
long-term shareholder value. Since all 1,750,000 of the options originally
approved under the 1997 Plan have been granted, the Compensation and Stock
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Option Committee of the Board of Directors believes that an increase in the
number of shares available for issuance is necessary in order to achieve the
purpose of the 1997 Plan.
If approved, Section 6 of the 1997 Plan would be amended to provide for
the reservation of four million seven hundred fifty thousand (4,750,000) shares
of Option Stock ("Option Stock" is defined in the 1997 Plan). A copy of the 1997
Plan as proposed to be amended maybe obtained upon written request to the
Company's Investor Relations Department at the address listed on the last page
of this Proxy Statement.
SUMMARY OF 1997 STOCK OPTION PLAN
A general description of some of the basic features of the 1997 Plan is
presented below, but such description is qualified in its entirety by reference
to the full text of the 1997 Plan, a copy of which may be obtained without
charge upon written request to Michael Conway, the Company's Chief Financial
Officer and Secretary.
TERM. Incentive stock options may be granted pursuant to the 1997 Plan
during a period of ten (10) years from the date the 1997 Plan was adopted by the
Board of Directors (until December 11, 2007), and nonqualified stock options may
be granted until the 1997 Plan is discontinued or terminated by the Board of
Directors.
ELIGIBILITY. All employees of the Company or any subsidiary are
eligible to receive incentive stock options pursuant to the 1997 Plan. All
employees, officers and directors of and consultants and advisors to the Company
or any subsidiary are eligible to receive nonqualified stock options.
OPTIONS. When an option is granted under the 1997 Plan, the Board of
Directors acting as the Administrator of the 1997 Plan, at its discretion,
specifies the option price and the number of shares of Common Stock which may be
purchased upon exercise of the option. The exercise price of an incentive stock
option set by the Administrator may not be less than 100% of the fair market
value of the Company's Common Stock, as that term is defined in the 1997 Plan.
Unless otherwise determined by the Administrator, the exercise price of a
nonqualified stock option will be 100% of the fair market value on the date of
grant; provided, however, that the exercise price may not be less than 85% of
the fair market value on the date of grant under any circumstances. The closing
price of the Company's Common Stock as reported on the Nasdaq SmallCap Market
was $_______ on April ___, 1999. The period during which an option may be
exercised and whether the option will be exercisable immediately, in stages, or
otherwise is set by the Administrator. Generally, an incentive stock option may
not be exercisable more than ten (10) years from the date of grant. Optionees
may pay for shares upon exercise of options with cash, certified check or Common
Stock of the Company valued at the stock's then "fair market value" as defined
in the 1997 Plan. Each option granted under the 1997 Plan is generally
nontransferable during the lifetime of the optionee; however, the Administrator
may, in its sole discretion, permit the transfer of a nonqualified stock option
to immediate family members or to certain family trusts or family partnerships.
Generally, under the form of option agreement which the Administrator
is currently using for options granted under the 1997 Plan, if the optionee's
affiliation with the Company terminates before expiration of the option for
reasons other than death or disability, the optionee has a right to exercise the
option for three months after termination of such affiliation or until the
option's original expiration date, whichever is earlier. If the termination is
because of death or disability, the option typically is exercisable until its
original stated expiration or until the 12-month anniversary of the optionee's
death or disability, whichever is earlier. The Administrator may impose
additional or alternative conditions and restrictions on the incentive or
nonqualified stock options granted under the 1997 Plan; however, each incentive
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option must contain such limitations and restrictions upon its exercise as are
necessary to ensure that the option will be an incentive stock option as defined
under the Internal Revenue Code.
CHANGE OF CONTROL. In the event that (i) the Company is acquired
through the sale of substantially all of its assets or through a merger or other
transaction (a "Transaction"), (ii) after the effective date of the 1997 Plan a
person or entity becomes the holder of 35% or more the Company's outstanding
Common Stock, or (iii) individuals who constituted the Board on the effective
date of the 1997 Plan ceased for any reason thereafter to constitute at least a
majority of the Board of Directors (with exceptions for individuals who are
nominated by the current Board of Directors), all outstanding options will
become immediately exercisable in full and will remain exercisable during the
remaining terms of such outstanding options, whether or not the participants to
whom the options have been granted remain employees of the Company or a
subsidiary. The acceleration of the exercisability of outstanding options may be
limited, however, if the acquiring party seeks to account for a Transaction on a
"pooling of interests" basis which would be precluded if such options are
accelerated. The Board may also take certain additional actions, such as
terminating the 1997 Plan, providing cash or stock valued at the amount equal to
the excess of the fair market value of the stock over the exercise price, or
allowing exercise of the options for stock of the succeeding company.
AUTOMATIC GRANTS TO NON-EMPLOYEE DIRECTORS. The 1997 Plan provides for
automatic option grants 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.
FEDERAL INCOME TAX CONSEQUENCES OF THE 1997 PLAN. Under present law, an
optionee will not realize any taxable income on the date a nonqualified stock
option is granted to the optionee pursuant to the 1997 Plan. Upon exercise of
the nonqualified stock option, however, the optionee will realize, in the year
of exercise, ordinary income to the extent of the difference between the option
price and the fair market value of the Company's Common Stock on the date of
exercise. Upon the sale of the shares, any resulting gain or loss will be
treated as capital gain or loss. The Company will be entitled to a tax deduction
in its fiscal year in which nonqualified stock options are exercised, equal to
the amount of compensation required to be included as ordinary income by those
optionees exercising such options.
Incentive stock options granted pursuant to the 1997 Plan are intended
to qualify for favorable tax treatment to the optionee under Code Section 422.
Under Code Section 422, an employee realizes no taxable income when the
incentive stock option is granted. If the employee has been an employee of the
Company or any subsidiary at all times from the date of grant until three months
before the date of exercise, the employee will realize no taxable income when
the option is exercised. If the employee does not dispose of shares acquired
upon exercise for a period of two years from the granting of the incentive stock
option and one year after receipt of the shares, the employee may sell the
shares and report any gain as capital gain. The Company will not be entitled to
a tax deduction in connection with either the grant or exercise of an incentive
stock option. If the employee should dispose of the shares prior to the
expiration of the two-year or one-year periods described above, the employee
will be deemed to have received compensation taxable as ordinary income in the
year of the early sale in an amount equal to the lesser of (i) the difference
between the fair market value of the Company's Common Stock on the date of
exercise and the option price of the shares, or (ii) the difference between the
sale price of the shares and the option price of shares. In the event of such an
early sale, the Company will be entitled to a tax deduction equal to the amount
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recognized by the employee as ordinary income. The foregoing discussion ignores
the impact of the alternative minimum tax, which may particularly be applicable
to the year in which an incentive stock option is exercised.
PLAN BENEFITS. Except for the automatic grants to Non-Employee
Directors, future grants of stock options are subject to the discretion of the
Administrator. Therefore, the future benefits under the 1997 Plan cannot be
determined at this time.
As of April ____, 1999, 1,750,000 options have been granted pursuant to
the 1997 Plan.
VOTE REQUIRED. The affirmative vote of holders of a majority of the
shares of common stock represented at the meeting is required to approve the
amendment to the 1997 Plan. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
PROPOSAL.
VOTING TABULATION
VOTE REQUIRED. Under the Washington Business Corporation Act, Proposals
1 and 3 (the election of the Company's directors and an amendment to 1997 Plan)
each requires a plurality of the votes represented in person or by proxy at the
meeting. With regard to Proposal 2 (the proposed amendment to the Articles of
Incorporation to increase the authorized common stock), the affirmative vote of
holders of a majority of the shares of common stock entitled to vote at the
meeting is required. Votes cast by proxy or in person at the meeting will be
tabulated by the Company's transfer agent, American Stock Transfer & Trust
Company.
EFFECT OF AN ABSTENTION AND BROKER NON-VOTES. A shareholder who
abstains from voting on any or all proposals will be included in the number of
shareholders present at the meeting for the purpose of determining the presence
of a quorum. Abstentions will not be counted either in favor of or against the
election of the nominees or other proposals. Under the rules of the National
Association of Securities Dealers, brokers holding stock for the accounts of
their clients who have not been given specific voting instructions as to a
matter by their clients may vote their clients' proxies in their own discretion.
INDEPENDENT PUBLIC ACCOUNTANT
Ernst & Young LLP has served as independent auditors for the Company
since 1992. Representatives of Ernst & Young LLP are expected to be present at
the Annual Meeting and will be given an opportunity to make a statement if so
desired and to respond to appropriate questions.
2000 SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the annual
meeting in 2000 must be submitted to the Company in appropriate written form on
or before February 19, 2000 to be included in the Company's proxy statement and
related proxy for the 2000 meeting.
OTHER BUSINESS
Management is not aware of any matters to be presented for action at
the Annual Meeting, except matters discussed in the Proxy Statement. If any
other matters properly come before the meeting, it is intended that the shares
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represented by proxies will be voted in accordance with the judgment of the
persons voting the proxies.
ANNUAL REPORT TO SHAREHOLDERS;
A copy of the Company's Annual Report on Form 10-K, for the fiscal year
ended December 31, 1998 accompanies this Notice of Annual Meeting and Proxy
Statement.
FORM 10-K
THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH PERSON WHOSE PROXY IS
BEING SOLICITED, UPON WRITTEN REQUEST OF ANY SUCH PERSON, A COPY OF THE
COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31,
1998, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING THE
FINANCIAL STATEMENTS. THE COMPANY WILL FURNISH TO ANY SUCH PERSON ANY EXHIBIT
DESCRIBED IN THE LIST ACCOMPANYING THE FORM 10-K UPON THE ADVANCE PAYMENT OF
REASONABLE FEES RELATED TO THE COMPANY'S FURNISHING SUCH EXHIBIT(S).
REQUESTS FOR COPIES OF SUCH REPORT AND/OR EXHIBIT(S) SHOULD BE DIRECTED TO:
Investor Relations
OnHealth Network Company
808 Howell Street, Suite 400
Seattle, WA 98101
(206) 583-0100
By Order of the Board of Directors
Robert N. Goodman
President and Chief Executive Officer
April __, 1999
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ONHEALTH NETWORK COMPANY
_________________
PROXY
FOR ANNUAL MEETING TO BE HELD MAY 18, 1999
_________________
The undersigned hereby appoints Robert N. Goodman and Michael A. Brochu, and
each of them, with full power of substitution, his or her Proxies to represent
and vote, as designated below, all shares of voting stock of OnHealth Network
Company registered in the name of the undersigned at the 1999 Annual Meeting of
Shareholders of the Company to be held ____________________________ at 10:00
a.m., on Tuesday, May 18, 1999, and at any adjournment thereof. The undersigned
hereby revokes all proxies previously granted with respect to such Annual
Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" EACH PROPOSAL.
1. Elect Directors. Nominees: Robert N. Goodman Michael A. Brochu
Ann Kirschner Ram Shriram Rick Thompson
[ ] FOR all nominees listed above [ ] WITHHOLD AUTHORITY to vote
(except those whose names have for all nominees listed above.
been written on the line below)
_______________________________________________
2. Proposal to amend the Company's articles of incorporation to increase
the number of authorized shares of Common Stock from 29,000,000 to
100,000,000 shares.
[ ] FOR [ ] AGAINST
3. Proposal to ratify, confirm and approve an amendment to the Company's
1997 Stock Option Plan to increase the number of shares reserved for
grant thereunder from 1,750,000 to 4,750,000.
[ ] FOR [ ] AGAINST
4. Other Matters. In their discretion, the Proxies are authorized to vote
upon such other business as may properly come before the Annual
Meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION
IS GIVEN, WILL BE VOTED FOR EACH PROPOSAL SPECIFICALLY IDENTIFIED ABOVE.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
Date: ______________________________, 1999 ___________________________________
___________________________________
PLEASE DATE AND SIGN ABOVE exactly
as name appears at the left,
indicating, where proper, official
position or representative
capacity. For stock held in joint
tenancy, each joint owner should
sign.
