<PAGE>
 
                                                                    EXHIBIT 10.3

                               ESCROW AGREEMENT


          THIS ESCROW AGREEMENT, dated as of October 30, 1998 (this
"Agreement"), by and between ONHEALTH NETWORK COMPANY, a Washington corporation
(the "Company"), ADVANTAGE FUND II LTD., a British Virgin Islands corporation
(the "Buyer"), and BRIAN W. PUSCH, not in his individual capacity but as Escrow
Agent (the "Escrow Agent").

                             W I T N E S S E T H:
                             --------------------

          WHEREAS, the Company and the Buyer have executed and delivered, one to
the other, a Subscription Agreement, dated as of October 30, 1998 (the
"Subscription Agreement"), pursuant to which, among other things, the Company
has agreed to sell to the Buyer, and the Buyer has agreed to purchase from the
Company, upon the terms and subject to the conditions of the Subscription
Agreement, shares (the "Purchased Shares") of Common Stock, $.01 par value, of
the Company (the "Common Stock"), and the Company has further agreed, under
certain circumstances, from time to time to issue additional shares ("Reset
Shares") of Common Stock to the Buyer; and

          WHEREAS, pursuant to the Subscription Agreement, the Company has
agreed with the Buyer, among other things, to execute and deliver this
Agreement, and to initially deposit all Purchased Shares and Reset Shares issued
by the Company for the account of the Buyer with the Escrow Agent for the
purposes set forth in Section 4 and Section 8 of the Subscription Agreement;

          NOW THEREFORE, in consideration of the premises and the mutual
covenants contained in this Agreement and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows (capitalized terms used herein without definition have
the meanings given them in the Subscription Agreement):

          1.   DEPOSIT OF SHARES.  Upon each closing of the sale of the Initial
Shares and the Optional Shares, if any, to the Buyer or its assignee in
accordance with the Subscription Agreement, the Company shall deposit with the
Escrow Agent for the account of the Buyer or its assignee one or more
certificates representing such Initial Shares and Optional Shares.  Upon each
issuance, if any, of Reset Shares pursuant to Section 4 of the Subscription
Agreement, the Company shall deposit with the Escrow Agent for the account of
the Buyer or its assignee one or more certificates representing such Reset
Shares.  All shares of Common Stock held by the Escrow Agent from time to time,
including any additional shares of Common Stock distributed or received by the
Escrow Agent as a stock dividend, stock split or other distribution on the
shares of Common Stock held by the Escrow Agent, are referred to herein as the
"Escrow Shares."  The Escrow Shares shall, if sent electronically, be registered
in street name and, if delivered in certificated form, be registered in the name
of the Escrow Agent or shall be accompanied by duly executed stock powers in
blank with any necessary signature guarantees.  The Escrow Agent shall be
entitled, in its discretion, to 

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retain possession of certificates for the Escrow Shares or to deposit the Escrow
Shares in a segregated brokerage account maintained in the name of the Escrow
Agent with PaineWebber Incorporated or another brokerage firm which is a member
of the National Association of Securities Dealers, Inc.

          2.   BENEFICIAL OWNERSHIP OF ESCROW SHARES.  As provided in Section 8
of the Subscription Agreement, except for Escrow Shares which are due to the
Company as specified in a Reset Notice (as defined below) pursuant to Section 4
of the Subscription Agreement which have not been released to the Company
("Company Escrow Shares"), the Buyer shall be the sole beneficial owner of and
shall have the sole right to vote the Escrow Shares, and the escrow provisions
of this Agreement and the Subscription Agreement shall not in any way limit or
affect the ownership or the right to dispose of such Escrow Shares by the Buyer
and shall not in any manner create any lien, pledge, charge, equity,
encumbrance, claim or right of the Company of any nature whatsoever in or with
respect to such Escrow Shares.  In the event of any dispute or uncertainty
regarding the existence or amount of any Company Escrow Shares, all Escrow
Shares in question shall be deemed beneficially owned by the Buyer until
designated as Company Escrow Shares by delivery by the Buyer or a court of
competent jurisdiction of a Reset Notice or other written confirmation thereof
to the Escrow Agent and the Company.

          3.   RELEASE OF ESCROW SHARES TO THE BUYER.  (a) At any time after the
earlier of (i) the SEC Effective Date or (ii) Reset Date No. 1 which is not
during a Reset Period, the Buyer shall have the sole and exclusive right to
direct the Escrow Agent to release to or upon the order of the Buyer any or all
Escrow Shares which are not Company Escrow Shares by delivering a Release
Notice, in the form attached hereto as EXHIBIT A (each, a "Release Notice"), to
the Escrow Agent.  No Escrow Shares may be released by the Escrow Agent during a
Reset Period unless the Escrow Agent is jointly instructed to do so by the
Company and the Buyer.  The Escrow Agent shall determine the expiration date of
any Reset Period, which determination shall be binding on the Company and the
Buyer.

          (b)  Within three Trading Days following receipt of a Release Notice
or as promptly as practicable thereafter, the Escrow Agent shall release to the
Buyer the number of Escrow Shares specified in such Release Notice in accordance
with the Buyer's instructions stated therein until such time as the Escrow Agent
no longer holds any Escrow Shares.  A Release Notice given by the Buyer shall be
deemed for all purposes to be in proper form unless the Escrow Agent notifies
the Buyer in writing within five Business Days after such Release Notice has
been given (which notice shall specify all defects in such Release Notice) and
any Release Notice containing any such defect shall nonetheless be effective on
the date given if the Buyer promptly undertakes to correct all defects.  The
certificates for any Common Shares so released from escrow prior to the SEC
Effective Date may, if so requested by the Company, bear the restrictive legend
specified in Section 7(b) of the Subscription Agreement.  Any remaining Escrow
Shares which are not Company Escrow Shares following the last Reset Date to
occur under the Subscription Agreement shall be promptly delivered to or upon
the order of the Buyer.  Once properly released from escrow in accordance with
this 

                                      -2-
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Agreement, Escrow Shares may not be re-deposited into escrow.

          4.   RELEASE OF COMPANY ESCROW SHARES TO THE COMPANY.  On or after
each Reset Date, the Escrow Agent shall receive a Reset Notice, in the form
attached hereto as EXHIBIT B (each, a "Reset Notice"), from the Buyer or, when
permitted by Section 4(c) of the Subscription Agreement, from the Company.  If a
Reset Notice states that Reset Shares are due to the Company, within six Trading
Days after such Reset Notice is given to the Escrow Agent or as promptly as
practicable thereafter, the Escrow Agent shall release the applicable whole
number of Company Escrow Shares to the Company in accordance with the Company's
written instructions.  In the event of any error or dispute concerning the
number of Reset Shares due to the Buyer or to the Company set forth in a Reset
Notice, the Company and the Buyer will comply with the provisions of Section
4(d) of the Subscription Agreement and the Escrow Agent shall receive the
notices provided therein.  The Escrow Agent is authorized and directed to rely
on any determination of the Auditors made pursuant to such Section 4(d).

          5.   METHOD OF RELEASE.  In the discretion of the Escrow Agent, the
Escrow Agent may release Escrow Shares to the Buyer or to the Company, as and
when required by this Agreement, by means of (i) delivering physical
certificates representing such Escrow Shares or (ii) electronic transfer of such
Escrow Shares by DWAC or a similar system to an account designated in writing to
the Escrow Agent by the Buyer or the Company, as the case may be.

          6.   DUTIES OF ESCROW AGENT.  The Escrow Agent shall be obligated only
for the performance of such duties as are specifically set forth herein and may
rely and shall be protected in relying or refraining from acting on any
instrument reasonably believed by the Escrow Agent to be genuine and to have
been signed or presented by the proper party or parties.  In no event shall the
Escrow Agent have any responsibility or liability for the accuracy of the
information set forth in any Release Notice or Reset Notice or for the
determination of any calculation to be made for purposes of Section 4 of the
Subscription Agreement or otherwise.  The Escrow Agent shall not be personally
liable for any act the Escrow Agent may do or omit to do hereunder as Escrow
Agent while acting in good faith, and any act done or omitted by the Escrow
Agent pursuant to the advice of the Escrow Agent's attorneys-at-law shall be
conclusive evidence of such good faith.  In no event shall the Escrow Agent
incur any liability or be held responsible, if any certificate for or electronic
transmission of Escrow Shares, once released from escrow hereunder, shall become
lost, delayed, stolen, destroyed, mutilated or misplaced while in transit to any
person, provided the Escrow Agent shall have dispatched the same by a means
customarily used by the Escrow Agent.

          7.   DISREGARD OF WARNINGS; JUDICIAL ORDERS.  The Escrow Agent is
hereby expressly authorized to disregard any and all warnings given by any of
the parties hereto or by any other person, firm or corporation, excepting only
orders or process of courts of law and is hereby expressly authorized to comply
with and obey orders, judgments or decrees of any court.  In case the Escrow
Agent obeys or complies with any such order, judgment or decree, the Escrow
Agent shall not be liable to any of the parties hereto or to any other person,
firm or corporation by reason of such decree being subsequently reversed,
modified, annulled, set aside, vacated or found to have been 

                                      -3-
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entered without jurisdiction.

          8.   NO LIABILITY FOR GENUINENESS.  The Escrow Agent shall not be
liable in any respect on account of the identity, authorities or rights of the
parties executing or delivering or purporting to execute or deliver the
Subscription Agreement, a Release Notice, a Reset Notice or any other notice,
document or instrument deposited or called for hereunder.

          9.   STATUTE OF LIMITATIONS.  The Escrow Agent shall not be liable for
the outlawing of any rights under the Statute of Limitations with respect to
this Agreement or any document or instrument deposited with or held by the
Escrow Agent pursuant to this Agreement.

          10.  RETENTION AND ADVICE OF LEGAL COUNSEL.  The Escrow Agent shall be
entitled to employ such legal counsel and other experts as the Escrow Agent may
deem necessary properly to advise the Escrow Agent in connection with the Escrow
Agent's obligations hereunder, may rely upon the advice of such counsel, and may
pay such counsel reasonable compensation therefor, subject to reimbursement
thereof as and to the extent provided in Section 14.  The Escrow Agent has acted
as legal counsel for the Buyer and the Escrow Agent may continue to act as legal
counsel for the Buyer notwithstanding its duties as Escrow Agent hereunder.

          11.  RESIGNATION.  The Escrow Agent's responsibilities as Escrow Agent
hereunder shall terminate if the Escrow Agent shall resign by written notice to
the Company and the Buyer.  In the event of any such resignation, the Buyer
shall appoint a successor Escrow Agent.  The Escrow Agent shall transfer any
Escrow Shares to any successor Escrow Agent promptly after receipt by the Escrow
Agent of notice from the Buyer of the appointment of such successor.

          12.  FURTHER ASSURANCES.  If the Escrow Agent reasonably requires
other or further instruments in connection with this Agreement or obligations in
respect hereto, the parties hereto shall join in furnishing such instruments.

          13.  DISPUTES.  It is understood and agreed that should any dispute
arise with respect to the release and/or right of possession of the Escrow
Shares held by the Escrow Agent hereunder, the Escrow Agent is authorized and
directed, in its sole discretion (a) to retain in the Escrow Agent's possession
without liability to anyone all or any part of the Escrow Shares until such
disputes shall have been settled either by mutual written agreement of the
parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but the Escrow Agent shall be under no duty whatsoever to
institute or defend any such proceedings or (b) at any time, to deposit any or
all of the Escrow Shares with any court of competent jurisdiction in the State
of New York, in which event the Escrow Agent shall give notice thereof to the
Company and the Buyer and shall thereupon be relieved and discharged from all
further obligations hereunder.

          14.  FEES AND EXPENSES; INDEMNITY.  (a) The Company agrees to pay to
the Escrow Agent an annual fee in the amount of $5,000 for the Escrow Agent's
services under this 

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Agreement, which fee shall be payable in advance for two years, and if any
Escrow Shares are held in escrow on August 1, 2000, on such date the Company
agrees to pay such annual fee in advance for the third year of this Agreement.
If all remaining Escrow Shares are released prior to the end of such three-year
period, 30 days following such final release the Escrow Agent will refund a pro
rata portion of such pre-paid fees, less any amounts due to the Escrow Agent for
its expenses pursuant to this Section 14(a) or for any amounts due pursuant to
Section 14(b). In the event the Escrow Agent resigns, the Escrow Agent shall
refund a pro rata portion of such fee to the Company, less any amounts due to
the Escrow Agent pursuant to the following sentence of this Section 14(a) or
Section 14(b). In addition, the Company agrees to reimburse the Escrow Agent for
all of its reasonable out-of-pocket expenses incurred in connection with the
performance of its services under this Agreement. The Buyer agrees to pay to the
Escrow Agent any fees and expenses of the Escrow Agent which are not paid when
due by the Company.

          (b) In addition to the amounts payable pursuant to Section 14(a), the
Company and the Buyer jointly and severally agree to pay or reimburse the Escrow
Agent for, and to indemnify and hold harmless the Escrow Agent from, any and all
claims, liabilities, costs or expenses in any way arising from or relating to
the duties or performance of the Escrow Agent hereunder other than any such
claim, liability, cost or expense to the extent the same shall have been
determined by final, unappealable judgment of a court of competent jurisdiction
to have resulted from the gross negligence or willful misconduct of the Escrow
Agent.

          15.  NOTICES.  Any notice required or permitted hereunder shall be
given in writing (unless otherwise specified herein) and shall be deemed
effectively given upon personal delivery (which shall include telephone line
facsimile transmission or courier service), addressed to each person thereunto
entitled at the following addresses, or at such other address as such person may
designate by ten days advance written notice to each of the other parties
hereto.

          the Company:           OnHealth Network Company
                                 808 Howell Street
                                 Suite 400
                                 Seattle, Washington 98101

                                 Facsimile No.: (206) 652-9075

          the Buyer:     c/o CITCO
                         Kaya Flamboyan 9
                         Curacao, Netherlands Antilles

                         Facsimile No.: 011-599-9732-2008

                         with a copy to:

                         Genesee International, Inc.

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                         10500 N.E. 8th Street
                         Suite 1920
                         Bellevue, Washington 98004-4332

                         Facsimile No.: (425) 462-4645

          the Escrow Agent:  Law Offices of Brian W Pusch
                         Penthouse Suite
                         29 West 57th Street
                                   New York, New York 10019

                                   Facsimile No.:  (212) 980-7055

          16.  AMENDMENT, MODIFICATION, ETC.  No amendment, modification,
waiver, discharge or termination of any provision of this Agreement nor consent
to any departure by the parties therefrom shall in any event be effective unless
the same shall be in writing and signed by the party to be charged with
enforcement, and then shall be effective only in the specific instance and for
the purpose for which given.  No course of dealing between the parties hereto
shall operate as an amendment of, or a waiver of any right under, this
Agreement.

          17.  SUBSCRIPTION AGREEMENT.  By signing this Agreement, the Escrow
Agent does not become a party to and has no liability with respect to the
Subscription Agreement and the agreements and transactions contemplated thereby.

          18.  ASSIGNMENT.  In connection with any assignment by the Buyer of
any of its rights under the Subscription Agreement or the Registration Rights
Agreement, the Buyer shall have the right to assign all or a portion of its
rights and obligations under this Agreement to any such assignee by giving
notice thereof to the Escrow Agent and the Company.  Each such notice shall be
executed by the assignee.  Such notice may be contained in a notice of
assignment given under the Subscription Agreement or the Registration Rights
Agreement.  From and after the giving of such notice by the Buyer, such assignee
shall be deemed a party to this Agreement, and all applicable references herein
to the "Buyer" shall include such assignee.

          19.  GOVERNING LAW.  This instrument shall be binding upon and inure
to the benefit of the parties hereto, and their respective successors and
permitted assigns and shall be governed by the laws of the State of Washington,
without giving effect to principles of conflicts of law.

          IN WITNESS WHEREOF, the Company and the Buyer have caused this
Agreement to be duly executed and delivered by their respective officers or
other representatives thereunto duly authorized and the Escrow Agent has duly
executed this Agreement, in each case as of the date first set forth above.

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                                                  ONHEALTH NETWORK COMPANY
                                                                                
                                                                                

                                                  By /s/ Michael D. Conway
                                                     ---------------------
                                                     Name: Michael D. Conway
                                                     Title: Vice President
                                                                                

                                                  ADVANTAGE FUND II LTD.
                                                                                
                                                                                

                                                  By /s/ W. R. Weber
                                                     ----------------
                                                         W.R.Weber
                                                         President
                                                                                
                                                                                

                                                     /s/ Brian W. Pusch
                                                  ------------------------------
                                                         Brian W. Pusch, as
                                                         Escrow Agent

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                                                                       EXHIBIT A
                                                                       ---------

                                RELEASE NOTICE

TO:  Brian W. Pusch,
      as Escrow Agent
     Law Offices of Brian W Pusch
     29 West 57th Street
     Penthouse Suite
     New York, New York 10019

     Facsimile No.:  (212) 980-7055

          (1) Pursuant to the terms of the Escrow Agreement, dated as of October
30, 1998 (the "Escrow Agreement"), by and between OnHealth Network Company, a
Washington corporation (the "Company"), Advantage Fund II Ltd., a British Virgin
Islands corporation, and Brian W. Pusch, as Escrow Agent (the "Escrow Agent"),
the undersigned hereby elects to release ____________________ Escrow Shares.
Capitalized terms used herein and not otherwise defined herein have the
respective meanings provided in the Escrow Agreement or, if not defined in the
Escrow Agreement, in the Subscription Agreement.

          (2) Please release ______________________ Escrow Shares to the person
and address or to the account specified immediately below or, if additional
space is necessary, on an attachment hereto:

              Delivery Instructions
              for Common Stock:


 


 



                                 PRINT NAME:


Date _________________________   By: ______________________________
                                     Title:

                                      A-8
<PAGE>
 
                                                            EXHIBIT B
                                                            ---------

                                 RESET NOTICE
 
TO:  OnHealth Network Company                Brian W. Pusch,
     808 Howell Street                        as Escrow Agent
     Suite 400                               Law Offices of Brian W Pusch
     Seattle, Washington  98101              29 West 57th Street
                                             Penthouse Suite
     Attention:  Chief Financial Officer     New York, New York  10019
      
     Facsimile No.:  (206) 652-9075          Facsimile No.:  (212) 980-7055


          This Reset Notice is given pursuant to the terms of (i) the
Subscription Agreement, dated as of October 30, 1998 (the "Subscription
Agreement"), by and between OnHealth Network Company, a Washington corporation
(the "Company"), and Advantage Fund II Ltd., a British Virgin Islands
corporation (the "Buyer"), and (ii) the Escrow Agreement, dated as of October
30, 1998 (the "Escrow Agreement"), by and between the Company, the Buyer and
Brian W. Pusch, as Escrow Agent (the "Escrow Agent").  Capitalized terms used
herein and not otherwise defined herein have the respective meanings provided in
the Subscription Agreement.  The undersigned Buyer hereby notifies the Company
and the Escrow Agent as follows:

          (1)  Reset Date No. ____

          (2)  Reset Date:  _______________________

          (3)  Computation of number of Reset Shares pursuant to Section 4(a) or
               4(b) of the Subscription Agreement:

 

 

 

          (4)  Number of Reset Shares due to the Buyer:  ______________

          (5)  Number of Reset Shares due to the Company:  ___________.  The
               Buyer hereby instructs the Escrow Agent to release such Reset
               Shares to the Company.


                                 NAME OF BUYER:

                                      B-1
<PAGE>
 
Date:



                                 By:
                                    Title:

                                      B-1