As filed with the Securities and Exchange Commission on March 17, 2000
Registration No. 333-____________
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
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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
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(206) 583-0100
(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
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(206) 583-0100
(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: As soon as
possible after the registration statement is declared effective.
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: |_|
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. |_|
CALCULATION OF REGISTRATION FEE
<TABLE>
Title of Each Class of Amount to be Proposed Maximum Offering Proposed Maximum Amount of
Securities Registered Registered Price Per Share(1) Aggregate Offering Price Registration Fee
- ------------------------------ ---------------- ------------------------- -------------------------- -----------------
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value 650,000 shares $6.375 $4,143,750 $1,093.95
<FN>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c).
</FN>
</TABLE>
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.
<PAGE>
Subject to Completion dated March 17, 2000
PROSPECTUS
650,000 Shares
OnHealth Network Company
Common Stock, $.01 par value per share
OnHealth Network Company is offering 650,000 shares of common stock.
Our common stock is listed on the Nasdaq National Market under the
ticker symbol "ONHN". On March 16, 2000, the closing price of one share of
OnHealth common stock on the Nasdaq National Market was $6.00.
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.
- -------------------------------------------------------- ----------- -----------
Per Share Total
- -------------------------------------------------------- ----------- -----------
Offering Price, before offering expenses, to OnHealth $ $
- -------------------------------------------------------- ----------- -----------
The date of this prospectus is March __, 2000
The information in this prospectus is not complete and may be changed. These
securities may not be sold until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
This prospectus is part of a registration statement that we have filed with the
SEC. The registration statement contains exhibits and other information not
included in the prospectus. We have not authorized anyone to give information or
to make any representation other than as contained in this prospectus in
connection with the offering described herein.
<PAGE>
An exhibit index appears on page 1 of PART II
TABLE OF CONTENTS
THE COMPANY....................................................................3
RECENT DEVELOPMENTS............................................................4
RISK FACTORS...................................................................5
USE OF PROCEEDS...............................................................17
DESCRIPTION OF OUR SECURITIES.................................................18
WHERE YOU CAN FIND MORE INFORMATION...........................................19
LEGAL MATTERS.................................................................21
EXPERTS.......................................................................21
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Prospectus Summary
Our Business
We are a leading independent source of original, informative, timely
and trusted consumer-oriented health and wellness information, products and
services on the Web. Our website, onhealth.com, is a consumer-focused online
health destination dedicated to the management of personal and family health and
well-being. We employ ten full-time staff editors and writers and we use over
100 health and medical writers and contributors, enabling us to update our
website daily with original health-related features. By providing users with a
broad range of original in-depth reporting, substantive resources and
references, community discussions, direct access to experts, interactive tools
and exclusive search capabilities, onhealth.com combines the strength of
credible journalism with the power of online interactivity.
We launched our website in July 1998. According to the figures reported
by PC Data, we had 4.7 million unique users to our website in January 2000. This
ranks our website, according to PC Data as the most visited consumer health
website.
We were originally incorporated in August 1990 in the State of
Minnesota under the name Interactive Television, Inc. We changed our name to
Interactive Ventures, Inc. in March 1991, IVI Publishing, Inc. in August 1993,
and in connection with our move to the State of 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
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RECENT DEVELOPMENTS
On February 15, 2000, we entered into an Agreement and Plan of Merger
with Healtheon\WebMD Corporation pursuant to which we will be merged with a
subsidiary of Healtheon\WebMD Corporation and become a wholly owned subsidiary
of Healtheon\WebMD Corporation. Pursuant to this agreement, which is subject to
certain conditions, including certain regulatory approvals and the approval of
our shareholders, each share of our common stock will be exchanged for .189435
shares, subject to adjustment, of Healtheon\WebMD Corporation. common stock.
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RISK FACTORS
INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED IN THIS PROSPECTUS
INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CONSIDER THE FOLLOWING DISCUSSION OF
RISKS AS WELL AS OTHER INFORMATION IN THIS PROSPECTUS BEFORE PURCHASING ANY OF
THE COMMON STOCK.
Risks Related to Our Business
If we are unable to complete the pending merger with Healtheon\WebMD
Corporation, our business could be harmed.
The merger agreement with Healtheon\WebMD Corporation provides that during
the period from signing until closing we are able to operate our business, with
certain exceptions, in the ordinary course of business. If the proposed merger
is terminated, however, for whatever reason, our business would be disrupted.
During the interim period between signing and closing, for example, our
advertisers may not want to renew their agreements with us and instead wait
until after the closing to deal with Healtheon\WebMD Corporation. As a result,
if the merger were to be abandoned for whatever reason, our business could be
affected by decreasing our operating results.
We have a history of losses and negative cash flow and anticipate continued
losses.
Since our inception, we have incurred significant losses and negative
cash flow, and as of December 31, 1999, had an accumulated deficit of
approximately $136.8 million We have not achieved profitability and expect to
continue to incur operating losses for the foreseeable future as we fund
operating and capital expenditures in areas such as expansion of our network,
advertising, brand promotion, content development, sales and marketing, and
operating infrastructure. Our business model assumes that consumers will be
attracted to and use healthcare information and related content available on our
Internet-based consumer healthcare network which will, in turn, allow us the
opportunity to sell advertising designed to reach those consumers. Our business
model also assumes that those consumers will access important healthcare needs
through electronic commerce using our website and that local healthcare
organizations will affiliate with us. This business model is not yet proven, and
we cannot assure you that we will ever achieve or sustain profitability or that
our operating losses will not increase in the future.
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 website was not actually launched until July
1998. As a result, our company is essentially a new venture. Therefore, we do
not have a significant operating history upon which you can evaluate us and our
prospects, and you should not rely upon our past performance to predict our
future performance. In transitioning to our new business model, we are
substantially changing our business operations, sales and implementation
practices, customer service and support operations and management focus. We are
also facing new risks and challenges, including a lack of meaningful historical
financial data upon which to plan future budgets, competition from a wider range
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of sources, the need to develop strategic relationships and other risks
described below. We cannot guarantee that we will be able to successfully
transition to our new business model.
Our ability to generate profits, if any, will depend on our ability to:
o attract consumers to our website
o attract advertisers to our website
o generate e-commerce revenue from our website
o control costs
We anticipate continued significant operating losses at least through
the year 2000, as our website is improved and marketed and the OnHealth network
is enhanced. We cannot assure you that we will ever attain profitability.
Our business model relies to a large extent on advertising revenue from our
website. We cannot provide any assurance that we will generate significant
advertising revenue.
Our future is highly dependent on increased use of the Internet as an
advertising medium. We expect to derive a substantial amount of our revenue from
advertising and sponsorships. The Internet advertising market is new, extremely
competitive and rapidly evolving, and we cannot yet predict its effectiveness as
compared to traditional media advertising. As a result, demand and market
acceptance for Internet advertising solutions are uncertain. Most of our current
or potential advertising customers have little or no experience advertising over
the Internet and have allocated only a limited portion of their advertising
budgets to Internet advertising. The adoption of Internet advertising,
particularly by those entities that have historically relied upon traditional
media for advertising, requires the acceptance of a new way of conducting
business, exchanging information and advertising products and services. Such
customers may find Internet advertising to be less effective for promoting their
products and services relative to traditional advertising media. We cannot
assure you that the market for Internet advertising will continue to emerge or
become sustainable. If the market for Internet advertising fails to develop or
develops more slowly than we expect, then our ability to generate advertising
revenue would be materially adversely affected. To date, advertisers have not,
by their actions, shown that they believe in the Internet as a legitimate
advertising medium.
Advertising rates quoted by different vendors vary widely, making it
difficult for us to project future levels of advertising revenue. Internet
advertising rates are based in part on third-party estimates of an individual's
use of an Internet website. 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 the
Internet advertising industry is in its infancy, universally accepted standards
measuring the effectiveness of a particular Internet advertisement have not been
established or widely embraced. Our advertising revenue could be adversely
affected if we are unable to adapt to new forms of Internet advertising.
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Moreover, filter software programs are available that limit or prevent
advertising from being delivered to an Internet user's computer. Widespread
adoption of this software could adversely affect the commercial viability of
Internet advertising and, therefore, our business.
In order to compete for advertising dollars with the growing number of Internet
websites, we must establish, maintain and strengthen our brand.
In order to expand our audience of users and increase our online
traffic, we must establish, maintain and strengthen our brand. For us to be
successful in establishing our brand, we believe healthcare consumers must
perceive us as a trusted source of healthcare information, and advertisers and
merchants must perceive us as an effective marketing and sales channel for their
products and services. As discussed in this prospectus, we are increasing
substantially our marketing budget in our efforts to establish brand recognition
and brand loyalty. Our business could be materially adversely affected if our
marketing efforts are not productive or if we cannot strengthen our brand.
We must continue to upgrade our website and add to existing distribution
relationships.
In order to remain competitive with other Internet companies, including
the numerous other Internet health-related websites, we must continue to enhance
and improve the responsiveness, functionality and features of our website and
develop other products and services. In addition, we plan to enter into
relationships with additional distributors who will enable us to drive more
traffic to our website. Such undertakings are expensive and we cannot assure you
that we will be successful at upgrading our website or increasing the strength
of our distribution relationships.
Since our advertising contracts are for short terms and often guarantee a
minimum number of impressions, we cannot be sure that we will continue to
attract Internet advertisers.
The majority of our advertising contracts have been for terms averaging
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 website. 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
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.
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We depend on third-party relationships, many of which are short-term or
terminable, to generate traffic on our website.
In order to expand our network, we have entered into a number of
strategic relationships which involve the payment of funds for prominent or
exclusive carriage of our healthcare information and services. These
transactions are premised on the assumption that the traffic we obtain from
these arrangements will permit us to earn revenue in excess of the payments made
to partners. This assumption is not yet proven, and if we are unsuccessful in
generating sufficient resources to offset these expenditures, we will likely be
unable to operate our business. We have entered into distribution relationships
with several companies, and we intend to enter into additional relationships in
the future. Most of these distribution relationships are short term in nature
and may not be renewed or may be canceled by our distribution partner. Although
we view our distribution relationships as a key factor in our overall business
strategy, our distribution partners may not view their relationships with us as
significant to their business, and they may later decide to end their commitment
to us or even decide to compete directly with us in the future. We cannot
guarantee that any distribution partner will perform its obligations as agreed
or contemplated or that we would be able to specifically enforce any
distribution agreement. Our arrangements with our distribution partners
generally do not establish minimum performance requirements, but instead rely on
the voluntary efforts of our distribution partners. Therefore, we cannot
guarantee that these relationships will be successful.
Most of our arrangements with third-party Internet websites:
o do not require future minimum commitments to use our services
o are not exclusive
o are short-term or may be terminated at the convenience of the other
party
In addition, we do not have agreements with many website operators that
provide links to onhealth.com, and those operators with which we do 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 revenue 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, results of
operation and financial condition.
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Since our website 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.
While we produce much of the editorial content found on our website,
some of our content is licensed from third parties. Accordingly, we rely on the
expertise, technical capability, name recognition and willingness to syndicate
content for branding and distribution of others. As health-related content grows
on the Internet, there will be increasing competition for the best health
information suppliers. This may result in certain content becoming unavailable
or in significantly higher content prices. Such an outcome could make our
website less attractive or useful for a user and could have a material adverse
effect on our business and financial performance.
Our business is changing rapidly, which could cause our quarterly operating
results to vary and our stock price to fluctuate.
Our revenue and operating results may vary significantly from quarter
to quarter due to a number of factors, not all of which are in our control. If
we have a shortfall in revenue in relation to our expenses, or if our expenses
precede increased revenue, then our results of operations would be materially
adversely affected. This would likely affect the market price of our common
stock in a manner which may be unrelated to our long-term operating performance.
Important factors which could cause our results to
fluctuate materially include:
o our ability to attract and retain users
o our ability to attract and retain advertisers and sponsors
o our ability to attract and retain customers and maintain customer
satisfaction for our existing and future e-commerce offerings
o new Internet websites, services or products introduced by us or our
competitors
o the level of Internet and other online services usage
o our ability to upgrade and develop our systems and infrastructure and
attract new personnel in a timely and effective manner o our ability
to successfully integrate operations and technologies from any
acquisitions, joint ventures or other business combinations or
investments
o technical difficulties or system downtime affecting the operation of
our website
In addition, as our market develops, seasonal and cyclical patterns may
emerge. These patterns may affect our revenue. We cannot yet predict to what
extent our operations will prove to be seasonal. Due to the factors noted above
and the other risks discussed in this section, you should not rely on
quarter-to-quarter comparisons of our results of operations as indicators of
future performance. It is possible that in some future periods our operating
results may be below the expectations of public market analysts and investors.
In this event, the price of our common stock may underperform or decrease.
Our success depends in large part on the continuing efforts of two individuals.
In addition, our success depends on our ability to continue to attract, retain
and motivate highly skilled employees.
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Our development and operation is substantially dependent on the
services of our President and Chief Executive Officer, Robert N. Goodman, and on
our Executive Vice President and General Manager, Rebecca Farwell. If we lost
the services of either Mr. Goodman or Ms. Farwell, our business would be
severely affected. Our ability to execute our growth plan and be successful also
depends on our continuing ability to attract, retain and motivate other highly
skilled employees. As we continue to grow, we will need to hire additional
personnel in all operational areas. Competition for personnel throughout the
Internet industry is intense. We may be unable to retain our key employees or
attract, assimilate or retain other highly qualified employees in the future. We
have from time to time in the past experienced, and we expect to continue to
experience in the future, difficulty in hiring and retaining highly skilled
employees with appropriate qualifications. If we do not succeed in attracting
new personnel or retaining and motivating our current personnel, our business
will be adversely affected.
To successfully compete in the Internet health field, we must continue to
improve the product we offer and increase the number of people using our
website.
To do so, we will have to significantly increase our operating expenses
to:
o develop new distribution channels
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
o establish brand identity and strategic alliances
Any future acquisitions we make of companies or technologies may result
in disruptions to our business and/or the distraction of our management, due to
difficulties in assimilating acquired personnel and operations.
We may acquire or make investments in complementary businesses,
technologies, services or products if appropriate opportunities arise. From time
to time we engage in discussions and negotiations with companies regarding our
acquiring or investing in such companies' businesses, products, services or
technologies, and we regularly engage in such discussions and negotiations in
the ordinary course of our business. Some of those discussions also contemplate
the other party making an investment in our company. We cannot assure you that
we will be able to identify future suitable acquisition or investment
candidates, or if we do identify suitable candidates, that we will be able to
make such acquisitions or investments on commercially acceptable terms or at
all. If we acquire or invest in another company, we could have difficulty in
assimilating that company's personnel, operations, technology and software. In
addition, the key personnel of the acquired company may decide not to work for
us. If we make other types of acquisitions, we could have difficulty in
integrating the acquired products, services or technologies into our operations.
These difficulties could disrupt our ongoing business, distract our management
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and employees, increase our expenses and adversely affect our results of
operations. Furthermore, we may incur indebtedness or issue equity securities to
pay for any future acquisitions. The issuance of equity securities would be
dilutive to our existing shareholders.
Much of our website relies on owned or licensed intellectual property and we
cannot be sure that such rights are protected from the use of others, including
potential competitors.
We regard much of our website and its technology as proprietary and try
to protect it by relying on trademarks, copyrights, trade secret laws and
confidentiality agreements with 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 protection may not be available in every country in which 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. Such misappropriation 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.
We may have liability for products sold over, or information retrieved from, our
website.
Because any of the materials on our website may be downloaded or
viewed, and such materials could be sent to others, we could be sued for:
o defamation
o negligence
o copyright or trademark infringement
o medical malpractice or personal injury
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 website or
o through content and materials that may be posted by our users on
discussion boards that we offer.
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Such claims might include, that by directly or indirectly providing
links to websites operated by third parties, we are liable for copyright or
trademark infringement or other wrongful actions by such third parties through
such websites. It is also possible that, if any third-party information provided
on our website contains errors, third parties could make claims against us for
losses they incur relying on such information. Insurance may not be adequate to
cover any such potential liabilities. Even if such claims do not result in
liability, we could incur significant costs in investigating and defending
against such claims.
In addition, patients who file lawsuits against doctors often name as
defendants all persons or companies with any relationship to the doctors. As a
result, patients may file lawsuits against us based on advice rendered by
physicians through our website. In addition, a court or government agency may
take the position that our delivery of health information, or information
delivered by a third-party website that a consumer accesses through our website,
exposes us to malpractice or other personal injury liability for wrongful
delivery of healthcare services or erroneous health information. We cannot
assure you that the amount of insurance we maintain with insurance carriers will
be sufficient to cover all of the losses we might incur from these claims and
legal actions. In addition, insurance for some risks is difficult, impossible or
too costly to obtain, and as a result, we may not be able to purchase insurance
for some types of risks.
We have recently experienced and are currently experiencing rapid growth in our
business. If we are unable to manage this growth our business could be harmed.
We have experienced and are currently experiencing a period of
significant growth. This growth has placed, and the future growth we anticipate
in our operations will continue to place, a significant strain on our resources.
As part of this growth, we will have to implement new operational and financial
systems and procedures and controls, expand, train and manage our employee base,
and maintain close coordination among our technical, accounting, finance,
marketing, sales and editorial staffs. If we are unable to manage our growth
effectively, our business, results of operations and financial condition could
be adversely affected.
Our network could be penetrated. This could result in a disruption in our
website.
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.
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If today's economic conditions deteriorate, our future results of operations
would be adversely affected.
Time spent on the Internet by individuals, purchases of new computers
and purchases of membership subscriptions to Internet websites 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. 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, and investors should not buy our common
stock expecting to receive 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.
Our business may face additional risks and uncertainties not presently known to
us which could cause our business to suffer.
In addition to the risks specifically identified in this Risk Factors
section or elsewhere in this prospectus, we may face additional risks and
uncertainties not presently known to us or that we currently deem immaterial
which ultimately impair our business, results of operations and financial
condition.
Risks Related to Our Industry
Consumers and the healthcare industry must accept the Internet as a source of
healthcare content and services for our business model to be successful.
To be successful, we must attract to our network a significant number
of consumers as well as other participants in the healthcare industry. To date,
consumers have generally looked to healthcare professionals as their principal
source for health and wellness information. Our business model assumes that
consumers will use healthcare information available on our network, that
consumers will access important healthcare needs through electronic commerce
using our website, and that local healthcare organizations will affiliate with
us. This business model is not yet proven, and if we are unable to successfully
implement our business model, our business will be materially adversely
affected.
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The Internet industry is highly competitive and changing rapidly, and we may not
have the resources to compete adequately.
The number of Internet websites offering users healthcare content,
products and services is vast and increasing at a rapid rate. These companies
compete with us for users, advertisers, e-commerce transactions and other
sources of online revenue. In addition, traditional media and healthcare
providers compete for consumers' attention both through traditional means as
well as through new Internet initiatives. We believe that competition for
healthcare consumers will continue to increase as the Internet develops as a
communication and commercial medium.
There are a number of competitors delivering online health content who
will also seek advertising revenue, and it is likely that more competitors will
emerge in the near future. Such competitors include, among others:
Healtheon/WebMD, the company that we have agreed to merge with, Mayo Health
O@sis, drkoop.com, Mediconsult, Medscape and InteliHealth. Many of these
competitors have more cash available to spend, longer operating histories and
stronger 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 rely 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.
We believe that the principal competitive factors in attracting
advertisers to our website include:
o the amount of traffic on our website;
o brand recognition;
o customer service;
o the demographics of our user base;
o our ability to offer targeted audiences; and
o the overall cost effectiveness of the advertising medium we offer.
Our business is dependent on the continuous, reliable and secure operation of
our website and related tools and functions we provide.
All companies that rely on the Internet are dependent upon the
continuous, liable 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
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browsers and Internet and online services necessary for access to our website.
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.
We retain confidential customer information in our database. Therefore,
it is critical that our facilities and infrastructure remain secure and are
perceived by consumers to be secure. Despite the implementation of security
measures, our infrastructure may be vulnerable to physical break-ins, computer
viruses, programming errors or similar disruptive problems. A material security
breach could damage our reputation or result in liability to us.
Since we operate an Internet-based network, our business is subject to
government regulation relating to the Internet which could impair our
operations.
Because of the increasing use of the Internet as a communication and
commercial medium, the government has adopted and may adopt additional laws and
regulations with respect to the Internet covering such areas as:
o user privacy
o pricing
o content
o taxation
o copyright protection
o the distribution of health care products or advice over the Internet
Since we operate a healthcare network over the Internet, our business
is subject to government regulation specifically relating to medical devices,
the practice of medicine and pharmacology, healthcare regulation, insurance and
other matters unique to the healthcare area. Laws and regulations have been or
may be adopted with respect to the provision of healthcare-related products and
services online, covering areas such as:
o the regulation of medical devices
o the practice of medicine and pharmacology and the sale of controlled
products such as pharmaceuticals online
o the regulation of government and third-party cost reimbursement
o the regulation of insurance sales
FDA REGULATION OF MEDICAL DEVICES. Some computer applications and
software are considered medical devices and are subject to regulation by the
United States Food and Drug Administration. We do not believe that our current
applications or services will be regulated by the FDA; however, our applications
and services may become subject to FDA regulation. Additionally, we may expand
our application and service offerings into areas that subject us to FDA
regulation. We have no experience in complying with FDA regulations. We believe
that complying with FDA regulations would be time consuming, burdensome and
expensive and could delay or prevent our introduction of new applications or
services.
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REGULATION OF THE PRACTICE OF MEDICINE AND PHARMACOLOGY. The practice
of medicine and pharmacology requires licensing under applicable state law. We
have endeavored to structure our website and affiliate relationships to avoid
violation of state licensing requirements, but a state regulatory authority may
at some point allege that some portion of our business violates these statutes.
Any such allegation could result in a material adverse effect on our business.
Further, any liability based on a determination that we engaged in the practice
of medicine without a license may be excluded from coverage under the terms of
our current general liability insurance policy.
FEDERAL AND STATE HEALTHCARE REGULATION. We earn a service fee when
users on our website purchase prescription pharmacy products from certain of our
e-commerce partners. Federal and state anti-kickback laws prohibit granting or
receiving referral fees in connection with sales of pharmacy products that are
reimbursable under federal Medicare and Medicaid programs and other
reimbursement programs. Although there is uncertainty regarding the
applicability of these regulations to our e-commerce revenue strategy, we
believe that the service fees we receive from our e-commerce partners are for
the primary purpose of marketing and do not constitute payments that would
violate federal or state "anti-kickback" laws. However, if our program were
deemed to be inconsistent with federal or state law, we could face criminal or
civil penalties. Further, we would be required either not to accept any
transactions which are subject to reimbursement under federal or state
healthcare programs or to restructure our compensation to comply with any
applicable anti-kickback laws or regulations. In addition, similar laws in
several states apply not only to government reimbursement but also to
reimbursement by private insurers. If our activities were deemed to violate any
of these laws or regulations, it could cause a material adverse affect on our
business, results of operations and financial condition.
Internet capacity constraints may impair the ability of consumers to access our
website, which could hinder our ability to generate advertising revenue.
Our success will depend upon the ability of the communications industry
to provide Internet access and carry Internet traffic. The Internet may not
prove to be a viable commercial medium because of:
o inadequate development of the necessary infrastructure such as a
reliable network backbone
o timely development of complementary products such as high speed modems
o delays in the development or adoption of new standards and protocols
required to handle increased levels of Internet activity
o increased government regulation
If the Internet continues to experience significant growth in the
number of users and the level of use, then the Internet infrastructure may not
be able to continue to support the demands placed on it.
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Market prices of emerging Internet companies have been highly volatile, and the
market for our stock may exhibit volatility as well.
The stock market has experienced significant price and trading volume
fluctuations, and the market prices of technology companies, particularly
Internet-related companies, have been extremely volatile. Exceptional share
price and trading volume changes have accompanied recent public offerings by
Internet companies in the first days and weeks after the securities were
released for public trading. Investors may not be able to resell their shares at
or above the initial public offering price. In the past, following periods of
volatility in the market price of a public company's securities, securities
class action litigation has often been instituted against that company. Such
litigation could result in substantial costs and a diversion of management's
attention and resources.
Note Regarding 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 online health information
network depends on our ability to continue to: (i) obtain high quality
editorial content, (ii) implement effective traffic building programs, as
well as other general market conditions and (iii) respond to competitive
conditions within the market, (including, but not limited to, the
introduction and further development of competitive websites).
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 online health network
depends on customer interest, the ability to obtain successful revenue
sources from advertisers, as well as other general market and competitive
conditions within the online health network market.
USE OF PROCEEDS
We estimate that the net proceeds to us from the sale of the 650,000
shares of common stock in this offering will be approximately $3,800,000,
assuming an offering price of $5.9125 per share and after deducting offering and
other expenses payable by us.
We expect to use the net proceeds of this offering to retire certain
indebtedness we assumed in the recent acquisition of Health Decisions
International, LLC.
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DESCRIPTION OF OUR SECURITIES
Common Stock
Our Articles of Incorporation authorize us to issue 100,000,000 shares
of common stock and 1,000,000 shares of preferred stock. As of February 15,
2000, there were 23,925,011 shares of common stock outstanding and no shares of
preferred 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 which
remain after the satisfaction of any claims of creditors or of the holder of any
securities senior to the common stock. Holders of common stock have no
preemptive, subscription, redemption or conversion rights. All the outstanding
shares of common stock are fully paid and nonassessable.
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Warrants
As of February 15, 2000, we had outstanding warrants to purchase
140,878 shares of common stock with various parties with varying exercise prices
and termination dates. Certain of these warrant holders have piggy-back
registration rights.
Provisions Affecting Acquisitions and Business Combinations
The Washington Business Corporations Act contains certain provisions
that may have the effect of delaying or discouraging another person or company
from a hostile takeover of us. Chapter 23B.19 of the Washington Business
Corporations Act prohibits a target corporation, with certain exceptions, from
engaging in certain significant business transactions, such as a merger or sale
of assets, with a person or group of persons which beneficially acquires 10% or
more of the corporation's voting securities, known as an acquiring entity, for a
period of five years after such acquisition, unless the transaction is approved
by a majority of the members of the target corporation's board of directors
prior to the date of the transaction. An acquiring entity is further prohibited
from engaging in significant business transactions with the target corporation
unless the per share consideration paid to holders of outstanding shares of
common stock and other classes of stock of the target corporation meet certain
minimum criteria. These provisions may have the effect of delaying, deterring or
preventing a change in control of a company.
Director and Officer Indemnification
The Washington Business Corporations Act provides that a Washington
corporation may include provisions in its articles of incorporation relieving
each of its directors of monetary liability arising out of his or her conduct as
a director for breach of his or her fiduciary duty, except liability for: (i)
acts or omissions of a director finally adjudged to be intentional misconduct or
a knowing violation of law, (ii) conduct in violation of Section 23B.08.310 of
the Washington Business Act, which section relates to unlawful distributions, or
(iii) any transaction with respect to which it is finally adjudged that a
director personally received benefit in money, property or services to which the
director was not legally entitled. Our Articles of Incorporation include these
provisions. Our Articles of Incorporation and Bylaws provide that we are
obligated, to the fullest extent permitted by law, to indemnify and advance
expenses to each of our currently acting and former directors and officers, and
may so indemnify and advance expenses to each of our current and former
employees and agents. We believe that the foregoing provisions are necessary to
attract and retain qualified persons as directors and officers.
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 website at http://www.sec.gov.
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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 documents 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:
1. Annual Report on Form 10-K, as amended, for the fiscal year ended
December 31, 1998
2. Quarterly Report on Form 10-Q for the three months ended
March 31, 1999
3. Quarterly Report on Form 10-Q for the six months ended
June 30, 1999
4. Quarterly Report on Form 10-Q for the nine months ended
September 30, 1999
5. Proxy Statement for the annual meeting of shareholders held
June 15, 1999
6. Current Report on Form 8-K, dated September 15, 1999, as amended
7. Current Report on Form 8-K, dated October 26, 1999
8. Current Report on Form 8-K, dated December 14, 1999, as amended
9. Current Report on Form 8-K, dated February 22, 2000
10. Current Report on Form 8-K dated March 15, 2000
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
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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 consolidated financial statements and schedule of OnHealth Network
Company appearing in OnHealth Network Company's Current Report on Form 8-K dated
March 15, 2000 have been audited by Ernst & Young LLP, independent auditors, as
set forth in their reports thereon included therein and incorporated herein by
reference in reliance upon such reports given on the authority of such firm as
experts in accounting and auditing.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The expenses relating to the registration of the common stock will be
borne by the registrant. Such expenses are estimated to be as follows:
Registration Fee
Securities and Exchange Commission $ 1,093.95
Accountants' Fees $ 1,500.00
Legal Fees $ 5,000.00
Printers Fees and Expenses $ 1,000.00
Miscellaneous $ 500.00
--------------
Total $ 9,093.95
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
provisions permitting advances for expenses incurred) arising under the 1933
Act.
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.
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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 the Form S-3 of the Registrant filed
June 20, 1999 (333-81321)
** Incorporated by reference to the Form S-3 of the Registrant filed
December 31, 1998 (333-69989).
*** Contained within Exhibit 5
Item 17. Undertakings.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (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 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;
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(3) 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;
(4) 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 Section 15(d) of the Securities Exchange Act of 1934 (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;
(5) 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;
(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; and
(7) that, 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.
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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 Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Seattle, State of Washington, on the 17th day of
March, 2000.
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 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> <C>
\s\ROBERT N. GOODMAN President, Chief Executive Officer, March 16, 2000
- ------------------------------------------- Director (Principal Executive
Robert N. Goodman Officer)
\s\RONALD M. STEVENS Vice President and Chief Financial March 16, 2000
- ------------------------------------------- Officer (Principal Financial and
Ronald M. Stevens Accounting Officer)
\s\MICHAEL A. BROCHU Chairman of the Board of Directors March 16, 2000
- -------------------------------------------
Michael A. Brochu
\s\ANN KIRSCHNER Director March 16, 2000
- --------------------------------------------
Ann Kirschner
\s\RAM SHRIRAM Director March 16, 2000
- --------------------------------------------
Ram Shriram
\s\RICK THOMPSON Director March 16, 2000
- --------------------------------------------
Rick Thompson
</TABLE>
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EXHIBIT 5
{LETTERHEAD OF PRESTON GATES & ELLIS LLP}
March 17, 2000
OnHealth Network Company
808 Howell Street, Suite 400
Seattle, Washington 98101
Re: OnHealth Network Company
Form S-3 Registration Statement
Dear Sir or Madam:
We have acted as counsel for OnHealth Network Company, a Washington
corporation (the "Company"), in connection with certain transactions involving
the offering of shares of the Company's common stock (the "Shares").
In connection with the preparation and filing of a registration
statement on Form S-3 (the "Registration Statement") under the Securities Act of
1933, we have reviewed the Company's articles of incorporation and bylaws and
the record of its corporate proceedings and have made such other investigations
as we deemed necessary in order to express the opinions set forth below. Based
on the foregoing, it is our opinion that the Shares, when issued, will be duly
and validly issued, fully paid and nonassessable.
We hereby consent to all references to us in the Registration Statement
and all amendments thereto. We further consent to the use of this opinion as an
exhibit to the Registration Statement. We express no opinion as to any matters
not expressly set forth herein.
PRESTON GATES & ELLIS LLP
By /S/ C. KENT CARLSON
-------------------
C. Kent Carlson
<PAGE>
EXHIBIT 23.1
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the caption "Experts" in
the Registration Statement (Form S-3) and related Prospectus of OnHealth Network
Company for the registration of 650,000 shares of its common stock and to the
incorporation by reference therein of our reports dated February 18, 2000, with
respect to the consolidated financial statements and schedule of OnHealth
Network Company included in its Current Report on Form 8-K dated March 15, 2000
filed with the Securities and Exchange Commission.
\s\ ERNST & YOUNG LLP
Seattle, Washington
March 15, 2000
