According to the docket posted, on November 15, 2001, the Court entered the Order and Final Judgment approving the settlement and dismissing the complaint with prejudice. The plaintiffs’ counsel was awarded fees in the amount of 33 1/3% of the gross settlement fund and $100,000 in reimbursement of expenses. The case is closed.
As reported by the Company’s FORM 10-Q for the quarterly period ended September 30, 2001, the Company and certain of its prior officers and directors and one of its current directors are defendants in a consolidated class action lawsuit (the "Consolidated Action") in the United States District Court for the Western District of Texas captioned In re drkoop.com, Inc. Securities Litigation. The Consolidated Action, which is maintained on behalf of purchasers of the Company's securities, alleges violations of the federal securities laws. On October 16, 2000, pursuant to statutory procedural requirements, the Court selected lead plaintiffs for the plaintiff class and approved lead plaintiffs' selection of lead plaintiffs' counsel. On or about January 11, 2001, the lead plaintiffs filed a Consolidated Amended Complaint. In June of 2001, the Consolidated Action was settled in principle, and a Memorandum of Understanding has been executed by counsel for plaintiffs and defendants to evidence the agreement in principle. The settlement contemplates a $4.25 million cash payment by the Company's insurance carriers and the issuance of 4,000,000 7-year warrants to the plaintiffs with an exercise price of $2.50 per share. The settlement is subject to court approval.
The original complaint alleges that defendants violated the federal securities laws by issuing and selling Drkoop.com common stock pursuant to the June 8, 1999 IPO without disclosing to investors that some of the underwriters in the offering, including the lead underwriters, had solicited and received excessive and undisclosed commissions from certain investors. The complaint alleges that, in exchange for the excessive commissions, members of the underwriting group Bear, Stearns & Co. Inc. and Hambrecht & Quist LLC allocated Drkoop.com shares to customers at the IPO price of $9.00 per share. To receive the allocations (i.e., the ability to purchase shares) at $9.00, the underwriters' brokerage customers had to agree to purchase additional shares in the aftermarket at progressively higher prices. The requirement that customers make additional purchases at progressively higher prices as the price of Drkoop.com stock rocketed upward (a practice known on Wall Street as ``laddering'') was intended to (and did) drive Drkoop.com's share price up to artificially high levels. This artificial price inflation, the complaint alleges, enabled both the underwriters and their customers to reap enormous profits by buying stock at the $9.00 IPO price and then selling it later for a profit at inflated aftermarket prices, which rose as high as $20.25 on June 9, 1999, its first day of trading, and which subsequently, on July 6, 1999, rose to a peak price of $45.75.