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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:
[_] Confidential, for Use of the
[X] Preliminary Proxy Statement Commission Only (as permitted by
Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or
[_] Section 240.14a-12
DRKOOP.COM, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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:
__________________________________________________________________________
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DRKOOP.COM, INC.
7000 N. Mopac, Suite 400
Austin, Texas 78731
January , 2001
Dear Stockholders:
You are cordially invited to attend a special meeting of stockholders of
drkoop, Inc. The Special Meeting will be held at the [Fairmont Miramar, 101
Wilshire Boulevard, Santa Monica, California on January 25, 2001, at 9:00 a.m.
Pacific time]. Enclosed are the official notice of this meeting, a proxy
statement and a form of proxy.
As described in the enclosed proxy statement, we have been notified by the
Nasdaq Stock Market that our common stock would be delisted from the Nasdaq
National Market if the share price of our common stock continues to trade
below $1.00 per share. We intend to apply to Nasdaq for a hearing if
necessary, and the de-listing will be stayed during the hearing period.
Accordingly, in an effort to increase our share price above $1.00, our board
of directors has approved an amendment to our Restated Certificate of
Incorporation to effect a reverse stock split of our issued and outstanding
shares of common stock. At the special meeting, you will be asked to consider
and vote on this amendment effecting the reverse stock split. If the reverse
stock split is approved, every ten (10) shares of issued and outstanding
common stock will be exchanged for one (1) new share of common stock.
You are urged to read the accompanying proxy statement, which provides you
with a description of the terms of the reverse stock split, including the
reasons why the reverse stock split is being recommended and the results of
its implementation.
Our Board of Directors has determined that the reverse stock split is in
the best interests of drkoop.com, Inc., and its stockholders and has
unanimously approved the amendment to our Restated Certificate of
Incorporation which would effect the reverse stock split. The board
unanimously recommends that you vote "FOR" the proposal to approve and adopt
the amendment and the reverse stock split.
It is very important that your shares be represented at the special
meeting. Whether or not you plan to attend the special meeting, please
complete, sign, date and return the enclosed proxy card in the postage-paid
envelope provided. Executed proxy cards with no instructions indicated thereon
will be voted for approval and adoption of the amendment.
Please do not send any of your stock certificates at this time. If the
amendment is approved and the reverse stock split is consummated, we will send
you a letter explaining the procedures for exchanging your shares for new
shares.
By Order of the Board of Directors,
Richard M. Rosenblatt
Chief Executive Officer
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DRKOOP.COM, INC.
7000 N. Mopac, Suite 400
Austin, Texas 78731
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 25, 2001
----------------
TO OUR STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that a special meeting of stockholders of
drkoop.com, Inc., will be held at the [Fairmont Miramar, 101 Wilshire
Boulevard, Santa Monica, California, on January 25, 2001, at 9:00 a.m. Pacific
time], for the following purposes:
. to approve and adopt an amendment to our Restated Certificate of
Incorporation to effect a ten for one stock combination (reverse stock
split) with respect to all of our outstanding common stock; and
. to transact any other business, if any, which is properly brought before
the meeting or any adjournment or postponement thereof.
Please refer to the attached proxy statement, which forms a part of this
notice and is incorporated herein by this reference, for further information
with respect to the business to be transacted at the annual meeting.
Stockholders of record at the close of business on January 2, 2001, are
entitled to notice of, and to vote at, the special meeting or any adjournment
or postponement thereof. The list of stockholders will be available for
examination for ten days prior to the annual meeting at the offices of
drkoop.com, Inc., 7000 N. Mopac, Suite 400, Austin, Texas 78731. All
stockholders are cordially invited to attend the special meeting.
By Order of the Board of Directors
Richard M. Rosenblatt
Chief Executive Officer
Austin, Texas
January , 2001
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DRKOOP.COM, INC.
----------------
PROXY STATEMENT
FOR
SPECIAL MEETING OF STOCKHOLDERS
January 25, 2001
----------------
INTRODUCTION
General
This proxy statement is furnished to our stockholders in connection with
the solicitation of proxies for use at our special meeting of stockholders to
be held at the [Fairmont Miramar, 101 Wilshire Boulevard, Santa Monica,
California, on January 25, 2001, at 9:00 a.m. Pacific time], for the following
purposes:
. to approve and adopt an amendment to our Restated Certificate of
Incorporation to effect a ten for one stock combination (reverse stock
split) with respect to all of our outstanding common stock; and
. to transact any other business, if any, which is properly brought before
the meeting or any adjournment or postponement thereof.
This proxy statement and accompanying proxy card will be first mailed to
stockholders on or about January , 2001.
This solicitation is made on behalf of our Board of Directors and we will
pay the costs of solicitation. Our directors, officers and employees may also
solicit proxies by telephone, telegraph, fax or personal interview. We will
reimburse banks, brokerage firms and other custodians, nominees and
fiduciaries for reasonable expenses incurred by them in sending proxy material
to our stockholders. We have retained American Stock Transfer & Trust Company
to assist in the solicitation of proxies with respect to shares of our common
stock held of record by brokers, nominees and institutions.
Our principal executive offices are located at 7000 N. Mopac, Suite 400,
Austin, Texas 78731, telephone (512) 583-5667.
Shares Entitled to Vote and Required Vote
Our outstanding common stock and Series D 8% Convertible Preferred Stock,
which we refer to as "preferred stock," constitute the only classes of
securities entitled to notice of, or to vote at, the meeting. Stockholders of
record of the common stock and of the preferred stock at the close of business
on January 2, 2001, are entitled to notice of, and to vote at, the meeting. On
that date, there were 39,589,902 shares of our common stock and 2,750,000
shares of preferred stock issued and outstanding. Each share of common stock
entitles the holder to one vote on each matter which may come before a meeting
of the stockholders. Each share of preferred stock entitles the holder to
28.57 votes per share of preferred stock, equivalent to one vote per share of
common stock issuable upon conversion of the preferred stock on each matter
which may come before a meeting of the stockholders. The presence at the
meeting, in person or by proxy, of a majority of the shares of common stock
and preferred stock, as converted, issued and outstanding on January 2, 2001,
will constitute a quorum.
Voting Procedures
A proxy card is enclosed for your use. We ask that you sign, date and
return the proxy card in the accompanying envelope, which is postage prepaid
if you mail it in the United States.
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You have choices on each of the matters to be voted upon at the meeting. By
checking the appropriate box on your proxy card you may:
. approve the amendment to our Restated Certificate of Incorporation;
. disapprove the amendment to our Restated Certificate of Incorporation;
or
. abstain from voting for or against the amendment to our Restated
Certificate of Incorporation.
Unless there are different instructions on the proxy, all shares
represented by valid proxies (and not revoked before they are voted) will be
voted at the meeting FOR the amendment to the Restated Certificate of
Incorporation. With respect to any other business which may properly come
before the meeting and be submitted to a vote of stockholders, proxies will be
voted in accordance with the best judgment of the designated proxy holders.
Shares represented by proxies that reflect abstentions or "broker non-
votes" (i.e., shares held by a broker or nominee which are represented at the
meeting, but with respect to which the broker or nominee is not empowered to
vote on a particular proposal) will be counted as shares that are present and
entitled to vote for purposes of determining the presence of a quorum.
Approval of the amendment to the Restated Certificate of Incorporation
requires the affirmative vote of a majority of the outstanding shares of
common stock and preferred stock, as converted, entitled to vote at the
meeting.
Stockholders of record may vote by either completing and returning the
enclosed proxy card prior to the meeting, voting in person at the meeting, or
submitting a signed proxy card at the meeting.
YOUR VOTE IS IMPORTANT. ACCORDINGLY, PLEASE SIGN AND RETURN THE
ACCOMPANYING PROXY CARD WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN
PERSON.
You may revoke your proxy at any time before it is actually voted at the
meeting by:
. delivering written notice of revocation to our Corporate Secretary at
7000 N. Mopac, Suite 400, Austin, Texas 78731;
. submitting a later dated proxy; or
. attending the meeting and voting in person.
Your attendance at the meeting will not, by itself, constitute revocation
of your proxy. You may also be represented by another person present at the
meeting by executing a form of proxy designating that person to act on your
behalf. Shares may only be voted by or on behalf of the record holder of
shares as indicated in our stock transfer records. If you are a beneficial
stockholder but your shares are held of record by another person such as a
stock brokerage firm or bank, that person must vote the shares as the record
holder. Accordingly, a beneficial holder must provide voting instructions to
the appropriate record holder.
All votes cast at the meeting will be tabulated by the persons appointed by
us to act as inspectors of election for the meeting.
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PROPOSAL TO APPROVE THE AMENDMENT TO THE CERTIFICATE OF
INCORPORATION TO EFFECT A ONE-FOR-TEN REVERSE STOCK SPLIT OF THE
SHARES OF THE COMMON STOCK
General
The Board of Directors has unanimously adopted a resolution approving,
declaring advisable and recommending to the stockholders for their approval,
an amendment to Article IV of our Restated Certificate of Incorporation
authorizing a ten for one stock combination (reverse stock split) of the
shares of common stock issued and outstanding.
The form of the proposed amendment to effect the reverse stock split is
attached hereto as Annex A (which we refer to as the Certificate of
Amendment). The Certificate of Amendment will effect a one-for-ten reverse
stock split of the shares of common stock issued and outstanding, but will not
change the number of authorized shares of common stock or preferred stock, the
number of treasury shares held by us, or the par value of common stock or
preferred stock.
Background
Our common stock is quoted on the Nasdaq Market under the symbol "KOOP". In
order for our common stock to continue to be quoted on the Nasdaq Market, we
must satisfy various listing maintenance standards established by Nasdaq.
Among other things, as such requirements pertain to us, we are required to
have:
. net tangible assets (total assets, excluding goodwill, minus total
liabilities) of at least $2 million or a market capitalization of at
least $35 million or net income (in latest fiscal year or two of the
three last fiscal years) of at least $500,000;
. an aggregate market value of shares held by persons other than officers
and directors of at least $1,000,000;
. at least 300 persons who own at least 100 shares; and
. a minimum bid price of at least $1.00 per share.
Under Nasdaq's listing maintenance standards, if the closing bid price of
our common stock is under $1.00 per share for thirty consecutive trading days
and does not thereafter regain compliance for a minimum of ten consecutive
trading days during the ninety calendar days following notification by Nasdaq,
Nasdaq may delist our common stock from trading on the Nasdaq Market. If a
delisting were to occur, our common stock would trade on the OTC Bulletin
Board or in the "pink sheets" maintained by the National Quotation Bureau,
Inc. Such alternatives are generally considered to be less efficient markets.
We have received a letter from Nasdaq advising us that our common stock had
not met Nasdaq's minimum bid price closing requirement for thirty consecutive
trading days and that, if we were unable to demonstrate compliance with this
requirement for ten consecutive trading days during the ninety calendar days
ending February 22, 2001, our common stock would be de-listed at the close of
business on February 26, 2001. However, we may apply to Nasdaq for a hearing
and the de-listing will be stayed during the hearing period. We understand
that it is Nasdaq's position that an ability to demonstrate sustained
compliance is also required to achieve compliance with this requirement.
Our Board of Directors considered the potential harm to us of a delisting
from Nasdaq, and determined that a reverse stock split was the best way of
achieving compliance with Nasdaq's listing standards. On December 13, 2000,
our Board of Directors adopted resolutions, subject to approval by our
stockholders, to amend our Restated Certificate of Incorporation to: (i)
effect a one-for-ten reverse stock split of our outstanding shares of common
stock (with outstanding warrants and options to purchase stock being adjusted
accordingly) and (ii) provide cash payments to stockholders in lieu of, and in
exchange for, any fractional shares they would
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have had as a result of the reverse stock split, at the "market price". The
market price will be determined by calculating the average closing price of
our common stock on the Nasdaq Market for the twenty business days prior to
the day before we file the Certificate of Amendment effectuating the reverse
stock split. The reverse stock split will not change the number of our
authorized shares of common stock or the par value of common stock. These
resolutions were approved as a means of increasing the share price of our
common stock above $1.00.
Purpose and Material Effects of Proposed Reverse Stock Split
One of the key requirements for continued listing on the Nasdaq Market is
that our common stock must maintain a minimum bid price above $1.00 per share.
We believe that the reverse stock split will improve the price level of our
common stock so that we are able to maintain compliance with the Nasdaq
listing standards. We also believe that the higher share price which should
result from the reverse stock split will help generate interest in us among
investors. Furthermore, we believe that maintaining our Nasdaq Market listing
may provide us with a broader market for our common stock and facilitate the
use of our common stock in acquisitions and financing transactions in which we
may engage.
However, the effect of the reverse stock split upon the market price for
our common stock cannot be predicted, and the history of similar stock split
combinations for companies in like circumstances is varied. There can be no
assurance that the market price per new share of our common stock (which we
refer to as New Shares) after the reverse stock split will rise in proportion
to the reduction in the number of old shares of our common stock (which we
refer to as Old Shares) outstanding resulting from the reverse stock split.
There can be no assurance that the market price per New Share will either
exceed or remain in excess of the $1.00 minimum bid price as required by
Nasdaq, or otherwise meet the requirements of Nasdaq for continued inclusion
for trading on the Nasdaq Market. The market price of our common stock may
also be based on our performance and other factors, some of which may be
unrelated to the number of shares outstanding.
The reverse stock split will affect all of our stockholders uniformly and
will not affect any stockholder's percentage ownership interests in us or
proportionate voting power, except to the extent that the reverse stock split
results in any of our stockholders owning a fractional share. In lieu of
issuing fractional shares, we will issue any stockholder who otherwise would
have been entitled to receive a fractional share as a result of the reverse
stock split cash at the market price. The market price will be determined by
calculating the average closing price of our common stock on the Nasdaq Market
for the twenty business days prior to the day we file the Certificate of
Amendment effectuating the reverse stock split.
The reverse stock split would have the following effects upon the number of
shares of our common stock outstanding and the number of authorized and
unissued shares of our common stock. Each ten (10) of our Old Shares owned by
a stockholder would be exchanged for one (1) New Share. The reverse stock
split will be effected simultaneously for all common stock and the exchange
number will be the same for all common stock.
The principal effect of the reverse stock split will be that (i) the number
of shares of common stock issued and outstanding will be reduced from
39,589,802 shares to approximately 3,958,980 shares, (ii) all outstanding
options and warrants entitling the holders thereof to purchase shares of
common stock will enable such holders to purchase, upon exercise of their
options or warrants, one-tenth of the number of shares of common stock which
such holders would have been able to purchase upon exercise of their options
or warrants immediately preceding the reverse stock split at an exercise price
equal to ten times the exercise price specified before the reverse stock
split, resulting in the same aggregate price being required to be paid
therefor upon exercise thereof immediately preceding the reverse stock split,
and (iii) the number of shares reserved for issuance in our existing stock
option plans will be reduced to 1/10 of the number of shares currently
included in such plans.
The reverse stock split will not affect the par value of our common stock.
As a result, on the effective date of the reverse stock split, the stated
capital on our balance sheet attributable to the common stock will be reduced
to 1/10th of its present amount, and the additional paid-in capital account
shall be credited with the amount by
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which the stated capital is reduced. The per share net income or loss and net
book value of our common stock will be increased because there will be fewer
shares of our common stock outstanding.
The reverse stock split will not change the proportionate equity interests
of our stockholders, nor will the respective voting rights and other rights of
stockholders be altered, except for possible immaterial changes due to
fractional shares as described above. The common stock issued pursuant to the
reverse stock split will remain fully paid and non-assessable. We will
continue to be subject to the periodic reporting requirements of the
Securities Exchange Act of 1934.
Upon effectiveness of the reverse stock split, the number of authorized
shares of common stock that are not issued or outstanding (excluding shares
issuable upon exercise of options and warrants and upon conversion of our
preferred stock) would increase from approximately 460,410,098 to 496,041,020.
Although this increase could, under certain circumstances, have an anti-
takeover effect (for example, by permitting issuances which would dilute the
stock ownership of a person seeking to effect a change in the composition of
our Board of Directors or contemplating a tender offer or other transaction
for the combination of drkoop.com, Inc., with another company), the reverse
stock split proposal is not being proposed in response to any effort of which
we are aware to accumulate our shares of common stock or obtain control of us,
nor is it part of a plan by management to recommend a series of similar
amendments to our Board of Directors and stockholders. Other than the reverse
stock split proposal, our Board does not currently contemplate recommending
the adoption of any other amendments to our Restated Certificate of
Incorporation that could be construed to affect the ability of third parties
to take over or change control of drkoop.com, Inc.
Our Restated Certificate of Incorporation provides for, upon the reverse
stock split of our common stock, the automatic adjustment of the ratio used to
calculate the number of shares of common stock into which our preferred stock
is convertible (which we refer to as the conversion ratio). Our Restated
Certificate of Incorporation further provides that the holder of each share of
outstanding preferred stock may cast a number of votes at a meeting of
stockholders equal to the number of shares of common stock into which the
preferred stock is convertible. Therefore, immediately upon the effectiveness
of the reverse stock split, the conversion ratio will automatically be
adjusted such that each share of preferred stock, which is currently
convertible into 28.57 shares of common stock, will thereafter be convertible
into 2.857 shares of common stock (subject to future adjustment upon the
occurrence of certain events), and each share of preferred stock, which
currently entitles the holder thereof to cast 28.57 votes, will thereafter
entitle the holder thereof to cast 2.857 votes in each matter in which the
preferred stock is entitled to vote (subject to future adjustment upon the
occurrence of certain events). After the reverse stock split, the preferred
stock will continue to have the same liquidation and dividend rights.
Certain Effects of the Reverse Stock Split
Stockholders should recognize that if the reverse stock split is
effectuated they will own a fewer number of shares than they presently own (a
number equal to the number of shares owned immediately prior to the filing of
the Certificate of Amendment divided by ten). While we expect that the reverse
stock split will result in an increase in the market price of our common
stock, there can be no assurance that the reverse stock split will increase
the market price of our common stock by a multiple equal to the exchange
number or result in the permanent increase in the market price (which is
dependent upon many factors, including our performance and prospects). Also,
should the market price of our common stock decline, the percentage decline as
an absolute number and as a percentage of our overall market capitalization
may be greater than would pertain in the absence of a reverse stock split.
Furthermore, the possibility exists that liquidity in the market price of our
common stock could be adversely affected by the reduced number of shares that
would be outstanding after the reverse stock split. In addition, the reverse
stock split will increase the number of our stockholders who own odd lots
(less than 100 shares). Stockholders who hold odd lots typically will
experience an increase in the cost of selling their shares, as well as
possible greater difficulty in effecting such sales. Consequently, there can
be no assurance that the reverse stock split will achieve the desired results
that have been outlined above.
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With the exception of the number of shares issued and outstanding, the
rights and preferences of the shares of common stock, as well as the par value
of the common stock prior and subsequent to the reverse stock split, will
remain the same. It is not anticipated that our financial condition, the
percentage ownership of management, the number of our stockholders, or any
aspect of our business would materially change as a result of the reverse
stock split.
Procedure for Effecting Reverse Stock Split and Exchange of Stock Certificates
If the reverse stock split is approved by our stockholders, we will
promptly file the Certificate of Amendment with the Secretary of State of the
State of Delaware. The reverse stock split will become effective on the date
of filing the Certificate of Amendment, which we will refer to as the
"effective date". Beginning on the effective date, each certificate
representing Old Shares will be deemed for all corporate purposes to evidence
ownership of New Shares.
As soon as practicable after the effective date, stockholders will be
notified that the reverse stock split has been effected. Our transfer agent
will act as exchange agent for purposes of implementing the exchange of stock
certificates. We refer to such person as the "exchange agent." Holders of Old
Shares will be asked to surrender to the exchange agent certificates
representing Old Shares in exchange for certificates representing New Shares
in accordance with the procedures to be set forth in a letter of transmittal
to be sent by the exchange agent. No new certificates will be issued to a
stockholder until such stockholder has surrendered such stockholder's
outstanding certificate(s) together with the properly completed and executed
letter of transmittal to the exchange agent. Stockholders should not destroy
any stock certificate and should not submit any certificates until requested
to do so.
Fractional Shares
We will not issue fractional certificates for New Shares in connection with
the reverse stock split. Stockholders who otherwise would be entitled to
receive fractional shares because they hold a number of Old Shares not evenly
divisible by ten, will, upon surrender to the exchange agent of such
certificates representing such fractional shares, receive cash at the market
price. The market price will be determined by calculating the average closing
price of our common stock on the Nasdaq Market for the twenty business days
prior to the day before we file the Certificate of Amendment effectuating the
reverse stock split.
No Dissenter's Rights
Under the Delaware General Corporation Law, our stockholders are not
entitled to dissenter's rights with respect to our proposed amendment to our
charter to effect the reverse stock split and we will not independently
provide our stockholders with any such right.
Federal Income Tax Consequences of the Reverse Stock Split
The following is a summary of certain material federal income tax
consequences of the reverse stock split and does not purport to be complete.
It does not discuss any state, local, foreign or minimum income or other tax
consequences. Also, it does not address the tax consequences to holders that
are subject to special tax rules, such as banks, insurance companies,
regulated investment companies, personal holding companies, foreign entities,
nonresident alien individuals, broker-dealers and tax-exempt entities. The
discussion is based on the provisions of the United States federal income tax
law as of the date hereof, which is subject to change retroactively as well as
prospectively. This summary also assumes that the Old Shares were, and the New
Shares will be, held as a "capital asset," as defined in the Internal Revenue
Code of 1986, as amended (generally, property held for investment). The tax
treatment of a stockholder may vary depending upon the particular facts and
circumstances of such stockholder. Each stockholder is urged to consult with
such stockholder's own tax advisor with respect to the consequences of the
reverse stock split.
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Other than the cash payments for fractional shares discussed below, no gain
or loss should be recognized by a stockholder upon such stockholder's exchange
of Old Shares for New Shares pursuant to the reverse stock split. The
aggregate tax basis of the New Shares received in the reverse stock split
(including any fraction of a New Share deemed to have been received) will be
the same as the stockholder's aggregate tax basis in the Old Shares exchanged
therefor. Stockholders who receive cash upon redemption of their fractional
share interests in the New Shares as a result of the reverse stock split will
generally recognize gain or loss based on their adjusted basis in the
fractional share interests redeemed. The federal income tax liabilities
generated by the receipt of cash in lieu of a fractional interest should not
be material in amount in view of the low value of the fractional interest. The
stockholder's holding period for the New Shares will include the period during
which the stockholder held the Old Shares surrendered in the reverse stock
split.
Our beliefs regarding the tax consequence of the reverse stock split are
not binding upon the Internal Revenue Service or the courts, and there can be
no assurance that the Internal Revenue Service or the courts will accept the
positions expressed above.
The state and local tax consequences of the reverse stock split may vary
significantly as to each stockholder, depending upon the state in which he
resides.
Vote Required and Recommendation
THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF ALL OUTSTANDING SHARES
OF COMMON STOCK AND PREFERRED STOCK (ON AN AS CONVERTED BASIS) ENTITLED TO
VOTE ON THIS PROPOSAL WILL BE REQUIRED FOR APPROVAL OF THE AMENDMENT.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE PROPOSAL TO
AMEND THE RESTATED CERTIFICATE OF INCORPORATION IN ORDER TO EFFECT THE ONE-
FOR-TEN REVERSE STOCK SPLIT OF SHARES OF COMMON STOCK ISSUED AND OUTSTANDING.
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OTHER INFORMATION
Change of Control
In August of 2000, we entered into a series of financing transactions which
permitted us to raise a significant amount of new capital from the issuance of
preferred stock and warrants. An element of these transactions included a
change in control of our company, including the appointment of new directors
constituting a majority of our Board of Directors and a new executive
management team. The following summaries of our preferred stock and of
agreements that we have entered into are summaries and are qualified in their
entirety by references to the agreements and Certificate of Designation of our
preferred stock which we filed as exhibits to our Current Report on Form 8-K
filed with the Securities and Exchange Commission on September 1, 2000 and our
quarterly report on Form 10-Q for the period ended September 30, 2000.
Investors are urged to review the full text of those documents which define
the rights of the new investors.
General
The August financing consisted of a private placement of $27.5 million of
our preferred stock and warrants to accredited investors. The private
placement was consummated in two tranches. The first tranche of $20.0 million
of preferred stock was issued on August 22, 2000 and the second tranche of
$7.5 million of preferred stock was issued on August 25, 2000. The offering
was made solely to accredited investors by way of a private placement exempt
from registration under the Securities Act of 1933, as amended. Commonwealth
Associates, L.P., acted as placement agent in the private placement. The
2,750,000 shares of preferred stock issued in the private placement are
initially convertible into 78,571,428 shares of our common stock reflecting a
conversion price of $0.35 per share (in both cases prior to giving effect to
the proposed reverse stock split). This conversion price is subject to
adjustments for dilutive issuances and other events, including the proposed
reverse stock split. If the reverse stock split is effected, our outstanding
preferred stock would be convertible into 7,857,143 shares of our common stock
reflecting an adjusted conversion price of $3.50 per share.
In connection with the private placement, we hired a new management team,
which is headed by Richard M. Rosenblatt, our new Chief Executive Officer. Our
new management team, Prime Ventures, LLC (a venture capital firm specializing
in investments in Internet and technology companies that is also managed by
members of our new management team) and certain members and associates of
Prime Ventures, LLC (which we refer to as the Prime Investors) purchased
approximately $6.0 million of the preferred stock in this private placement.
In connection with the private placement and the hiring of the new
management team, we also issued:
. options to purchase 13,371,000 shares for $0.35 per share to members of
our new management team and certain other new employees,
. warrants to purchase 2,721,431 shares for $0.35 per share to the Prime
Investors (which we refer to as the Prime Investor Warrants), and
. warrants to purchase 3,629,000 shares for a purchase price of $0.35 per
share to Prime Ventures, LLC (which we refer to as the Prime Warrants).
The placement agent received warrants and other compensation for placing
the securities. Please see "Compensation to Placement Agent; Repayment of
Bridge Loan and Other Transaction Expenses."
As we previously reported, in connection with this private placement we
obtained a waiver from the Nasdaq Stock Market, Inc., to its requirement that
stockholder approval be obtained in advance of any private placement of equity
securities if the transaction would result in a change of control of the
issuer or in the issuance of shares of common stock representing more than
19.9% of our outstanding stock being issued at less than market prices. In
compliance with the requirements of Nasdaq, on July 14, 2000, and August 21,
2000, we mailed to our stockholders notices of the granting of this waiver.
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Preferred Stock
The preferred stock, which was issued for an initial issuance price of
$10.00 per share, has a liquidation preference of $15.00 per share, plus
accrued and unpaid dividends, which is payable upon:
. the liquidation or dissolution of the company,
. the merger of the company where the stockholders immediately prior to
such merger no longer retain more than 50% of the voting control, or
. the sale of all or substantially all of the assets of the company.
In the event of a merger or sale, we may elect to pay the liquidation
amount in shares of our common stock in lieu of cash. The liquidation
preference of the preferred stock is payable to holders of record of the
preferred stock before and in preference to any distribution to the holders of
our common stock or any other security that is junior to the preferred stock.
The holders of preferred stock are entitled to vote their shares of
preferred stock on an as-converted basis with the holders of common stock as a
single class on all matters submitted to a vote of the holders, except as
otherwise required by applicable law. This means that each share of preferred
stock will be entitled to a number of votes equal to the number of shares of
common stock into which it is convertible on the applicable record date.
Each share of preferred stock is convertible at any time, at the option of
the holder, into a number of shares of common stock determined by dividing the
face value of the preferred stock (i.e., $10.00 per share) by the conversion
price, initially $0.35 per share. If the proposed reverse stock split is
effected, the conversion price will increase to $3.50 per share (subject to
future adjustments). The preferred stock will automatically convert into
shares of common stock at the then applicable conversion price upon either a
public offering or private placement of our common stock raising gross
proceeds in excess of $25.0 million, in each case at a price per share in
excess of $1.50 (or, $15.00 per share if the reverse stock split is effected),
as adjusted for stock splits, recapitalizations and other similar events. In
addition, the preferred stock will also automatically convert into shares of
common stock at the then applicable conversion price if the closing bid price
for our common stock has traded at twice the conversion price for a period of
20 consecutive trading days, so long as our common stock is trading on a
national securities exchange or the Nasdaq Small Cap or National Market and
the shares issuable upon conversion of the preferred stock are registered for
resale under the Securities Act of 1933. The initial $0.35 conversion price of
the preferred stock is subject to adjustment for stock splits,
recapitalizations and other similar structural events (including the proposed
reverse stock split) or in the event we issue securities at a price per share
less than the then current market price of our common stock or the conversion
price, subject to certain exceptions. In addition, if our average closing bid
price for our common stock for the 20 trading days preceding August 21, 2002,
is less than the then applicable conversion price, the conversion price will
automatically be reset to such lower price. We recently amended our Restated
Certificate of Incorporation to increase the authorized number of shares of
common stock to 500,000,000.
Warrants
In connection with the private placement, we issued warrants to purchase an
aggregate of 6,142,857 shares of common stock (which we refer to as the Agency
Warrants) to Commonwealth and the Prime Investor Warrants to purchase an
aggregate of 2,721,431 shares of common stock to Prime. We also issued to
Prime the Prime Warrants to purchase an aggregate of 3,629,000 shares of
common stock . The Agency Warrants, the Prime Investor Warrants and the Prime
Warrants have an exercise price of $0.35 per share, subject to adjustments
under certain circumstances (including if the proposed reverse stock split is
effected), and each of the warrants has a five-year term. The Agency Warrants
and the Prime Investor Warrants are exercisable in full immediately. The Prime
Warrants are exercisable immediately for up to 25% of the shares of common
stock underlying the Prime Warrants and for up to an additional 25% of the
shares of common stock underlying the Prime Warrants on the first, second and
third anniversaries of the completion of the private placement.
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<PAGE>
Finally, in connection with the consummation of the private placement, we
restructured certain warrants we had previously issued to Commonwealth and an
affiliate in connection with a bridge loan and line of credit extended to us
by Commonwealth and its affiliate. These warrants (which we refer to as the
Bridge Warrants) are now exercisable to purchase 14,785,714 shares of common
stock for an exercise price of $0.35 per share, subject to adjustment under
certain circumstances (including if the proposed reverse stock split is
effected). They have a seven year term and became exercisable November 1,
2000.
Compensation to Placement Agent; Repayment of Bridge Loan; Other Transaction
Expenses
In connection with the private placement, we agreed to (i) pay Commonwealth
a cash fee equal to 7% of the gross proceeds resulting from the sale of the
preferred stock ($1,925,000 in total); (ii) issue to Commonwealth the Agency
Warrant to purchase 6,142,857 shares of common stock at an exercise price of
$0.35 per share, subject to adjustment (including if the proposed reverse
stock split is effected); (iii) reimburse Commonwealth for expenses incurred
by it in connection with the private placement in an amount equal to $350,000;
and (iv) pay Commonwealth an advisory fee of $600,000. Under the above
arrangements, we paid an aggregate of $2,875,000 from the proceeds of the
private placement to Commonwealth and its affiliates, excluding the amounts
described below that we used to repay the outstanding balance under loans
previously extended to us by Commonwealth and an affiliate.
Prior to the consummation of the private placement, Commonwealth and an
affiliate provided us with a $1.5 million bridge loan and a $3.0 million
standby line of credit, of which we had drawn $400,000. In connection with
these loans, we issued warrants to Commonwealth and its affiliate. As
described above, the terms of these warrants were restructured in connection
with the private placement and the Bridge Warrants are now exercisable to
purchase 14,785,714 shares of common stock for at an exercise price of $0.35
per share subject to adjustment under certain circumstances (including if the
proposed reverse stock split is effected). We used proceeds from the private
placement to repay in full all amounts owed under the bridge loan and our
$400,000 balance outstanding under our $3.0 million line of credit, plus
interest to the date of repayment.
In connection with the private placement, we also agreed to pay the legal
fees and expenses incurred by our new management team and Prime Ventures, LLC,
in connection with the private placement, up to a maximum of $75,000.
In connection with the private placement, we also engaged Commonwealth as a
non-exclusive financial advisor in connection with merger and acquisition
transactions and have agreed to pay to Commonwealth between 0.5% and 1.0% of
the total consideration paid or received by us in any such transaction
identified by Commonwealth.
Registration Rights
In connection with the private placement, we entered into an Amended and
Restated Registration Rights Agreement with Commonwealth, the investors that
acquired our securities in connection with the private placement, and certain
other parties who obtained securities in the transactions described above.
Under this agreement, we are obligated to register for resale the common stock
underlying the preferred stock, the Bridge Warrants, the Agency Warrants, the
Prime Investor Warrants and the Prime Warrants. We have filed a registration
statement to register these securities for resale, and we are required to
cause this registration statement to be declared effective no later than nine
months following the completion of the private placement. In addition, we have
agreed to grant the holders of these securities unlimited "piggyback"
registration rights. The rights are subject to rights granted previously to
other investors in respect of privately placed securities issued by us,
including a number of creditors who accepted common stock as partial payment
for amounts otherwise payable to them.
10
<PAGE>
Capitalization Following Private Placement
As of January , 2001, we had outstanding 39,589,902 shares of common
stock and, on an as converted basis, the preferred stock represents
approximately 66% of our outstanding common stock. In addition to the
78,571,428 shares of common stock issuable upon conversion of the preferred
stock, our presently outstanding common stock excludes:
. the 6,142,857 shares of common stock issuable upon exercise of the
Agency Warrants issued to Commonwealth in connection with the private
placement;
. the 2,721,431 shares of common stock issuable upon exercise of the Prime
Investor Warrants issued to certain investors in connection with the
private placement;
. the 3,629,000 shares of common stock issuable upon exercise of the Prime
Warrants issued to Prime in connection with the private placement;
. the 13,371,000 shares of common stock issuable upon exercise of the
options granted to our new management team and certain other new
employees;
. the 14,785,714 shares of common stock issuable (for an exercise price of
$0.35 per share) upon exercise of the Bridge Warrants;
. the 19,369,095 shares of common stock issuable upon the exercise of the
options outstanding pursuant to stock-based employee compensation plans
or to consultants, of which 4,089,248 have exercise prices of $2.00 per
share and above and 15,279,847 have exercise prices below $2.00 per
share (including options that are subject to future vesting
requirements);
. the 33,482 shares of common stock issuable upon the exercise of warrants
held by a stockholder of the company with an exercise price of $4.78 per
share; and
. the approximately 2,500,000 shares of common stock issuable upon
exercise of warrants held by a former business partner of which an
estimated 1,780,000 have an exercise price of $8.60 per share and
820,000 have an exercise price of $1.25 per share.
Changes to the Board of Directors
Our new Chief Executive Officer, Richard M. Rosenblatt, became a director
following the initial closing of the private placement, joining C. Everett
Koop and Donald W. Hackett who remained on our board of directors. Dr. Nancy
L. Snyderman and John F. Zacarro had previously resigned as directors.
Under an agreement that we entered into with Commonwealth in connection
with the private placement, we agreed that for so long as 400,000 shares of
preferred stock remain outstanding, we will use our reasonable efforts to
cause to be elected to our board two designees of Commonwealth and two
designees of the holders of preferred stock. On September 11, 2000, Edwin M.
Cooperman and Joseph P. Wynne became directors as Commonwealth's designees and
Marshall S. Geller and Scott J. Hyten became directors as designees of the
preferred stock investors. In addition, the new board nominated and elected
George A. Vandeman as an additional director. This shift in board composition
took place at least ten days after the Schedule 14f-1 was filed with the SEC
and mailed to stockholders. At our December 13, 1999, annual meeting of
stockholders, our stockholders voted to add Edward Cespedes, our President, to
our Board of Directors as well.
Management
Upon consummation of the initial closing of the private placement, Donald
W. Hackett resigned as our Chief Executive Officer and Susan M. Georgen-Saad
resigned as our acting Chief Financial Officer. We expect to continue to pay
Mr. Hackett's annual salary for up to one year from the date of his
resignation. Our new management team includes Richard M. Rosenblatt as Chief
Executive Officer, Edward A. Cespedes as President and Stephen Plutsky as
Chief Financial Officer. Each of Messrs. Rosenblatt, Cespedes and Plutsky has
entered
11
<PAGE>
into employment agreements with the company. The agreements provide that these
individuals will dedicate the portion of their business time and attention as
is determined by the Board of Directors to be necessary to satisfy their
respective obligations under their employment agreements, which shall in any
event not be less than a majority of their business time. Mr. Rosenblatt will
be paid an annualized base salary of $100,000 for the first six months of
employment and an annualized base salary of $175,000 thereafter. Mr. Cespedes
and Mr. Plutsky will each be paid an annualized base salary of $150,000.
In connection with their entering into employment agreements with us, Mr.
Rosenblatt was granted options to purchase 7,837,000 shares of common stock,
Mr. Cespedes was granted options to purchase 2,600,000 shares of common stock
and Mr. Plutsky was granted options to purchase 1,417,000 shares of common
stock, in each case with an exercise price of $0.35 per share. Of these
options, 25% vested on the date of grant and the balance will vest in annual
installments over three years. Vesting is accelerated in the event of a change
of control of the company and in the event of a termination without cause or
for good reason under the applicable employment agreements.
In addition to the options granted to Messrs. Rosenblatt, Cespedes and
Plutsky, we issued an additional 1,517,000 options to certain new employees
who joined the company along with the new management team. These options
generally contain similar vesting provisions.
Dr. Koop and Messrs. Rosenblatt, Hackett, Cespedes, Plutsky and Scalpati
have also entered into lock-up agreements with Commonwealth pursuant to which
they have agreed that for a period of twelve months from August 28, 2000, none
of them may transfer any securities of the Company held by them or acquired
during the lock-up period. Commonwealth, in turn, may not transfer any of its
warrants or the underlying shares unless each of Messrs. Rosenblatt, Cespedes
and Plutsky and certain other individuals have been released from their lock-
up provisions. The Prime Investor Warrants are subject to similar lock-up
provisions.
Incorporation of Documents by Reference
The SEC allows us to incorporate by reference the information we file with
the SEC, which means that we can disclose important information to you by
referring you to documents we have previously filed with the SEC. The
information incorporated by reference is considered a part of this proxy
statement, and any later information that we file with the SEC will
automatically update and supersede this information from the date of filing of
these documents. We will provide, without charge, to each person to whom a
proxy statement is delivered, upon written or oral request of such person and
by first class mail or other equally prompt means within one business day of
receipt of such request, a copy of any and all of the information that has
been incorporated by reference in the proxy statement (not including exhibits
to the information that is incorporated by reference unless such exhibits are
specifically incorporated by reference into the information that the proxy
statement incorporates). Any such requests should be directed to our Corporate
Secretary at drkoop.com, Inc., 7000 N. Mopac, Suite 400, Austin, Texas 78731,
telephone number (512) 583-5667.
We incorporate by reference the documents listed below, and any additional
documents filed by us with the SEC under Section 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934 until the stockholders' meeting:
. Exhibits numbered 10.87, 10.88, and 10.89 to drkoop.com, Inc.'s
quarterly report on Form 10-Q for the quarter ended September 30, 2000;
. drkoop.com, Inc.'s current report on Form 8-K (and the exhibits
thereto), filed September 1, 2000; and
. drkoop.com, Inc.'s Schedule 14F-1, filed September 1, 2000.
12
<PAGE>
ANNEX A
AMENDMENT TO RESTATED CERTIFICATE OF INCORPORATION OF
DRKOOP.COM, INC., EFFECTING A REVERSE STOCK SPLIT
drkoop.com, Inc., a corporation duly organized and validly existing under
the General Corporation Law of the State of Delaware (the "Corporation") does
hereby certify as follows:
1. The name of the Corporation is drkoop.com, Inc.
2. The Restated Certificate of Incorporation of the Corporation is hereby
amended by changing Article IV thereof so that a new third paragraph shall be
added as follows:
"(c) Simultaneously with the effective date of the filing of this
amendment to the Corporation's Restated Certificate of Incorporation (the
"Effective Date"), each ten shares of common stock, par value $.001
("Common Stock"), of the Corporation issued and outstanding or held as
treasury shares immediately prior to the Effective Date (the "Old Shares")
shall automatically be reclassified and continued ("the Reverse Stock
Split"), without any action on the part of the holder thereof, as one share
of Common Stock. The Corporation shall not issue fractional shares in
connection with the Reverse Stock Split. Holders of Old Shares who would
otherwise be entitled to receive a fraction of a share on account of the
Reverse Stock Split shall receive, upon surrender of the stock certificates
formerly representing the Old Shares, in lieu of such fractional share, an
amount in cash (the "Cash-in-Lieu Amount") equal to the product of (i) the
fractional share which a holder would otherwise be entitled to, multiplied
by (ii) the average of the last sale price per share of the Old Common
Stock on the 20 trading days immediately prior to the Effective Date, or if
no such sale takes place on such days, the average of the closing bid and
asked prices thereof for such days, in each case as officially reported on
the Nasdaq National Market. No interest shall be payable on the Cash-in-
Lieu Amount."
3. The foregoing amendment of the Corporation's Restated Certificate of
Incorporation was duly adopted in accordance with the provisions of Section
242 of the General Corporation Law of the State of Delaware. On December 13,
2000, the Board of Directors of the Corporation duly adopted resolutions
setting forth the Amendment, declaring its advisability and calling for
submission of the Amendment to the stockholders of the Corporation for vote at
a special meeting of stockholders held on January 25, 2001.
IN WITNESS THEREOF, the Corporation has caused this certificate to be
signed by its President this day of , 200 .
DRKOOP.COM, INC.
By: ________________________________
Edward Cespedes
President
A-1
<PAGE>
[OUTSIDE BACK COVER]
[LOGO OF drkoop.com APPEARS HERE]
<PAGE>
DRKOOP.COM, INC.
BOARD OF DIRECTORS PROXY FOR THE SPECIAL MEETING OF STOCKHOLDERS
AT 9:00 A.M., JANUARY 25, 2001
FAIRMONT MIRAMAR
101 WILSHIRE BOULEVARD
SANTA MONICA, CALIFORNIA 90401
The undersigned stockholder of drkoop.com, Inc. hereby revokes any proxy or
proxies previously granted and appoints Richard M. Rosenblatt, Edward A.
Cespedes and Stephen Plutsky, or any of them, as proxies, each with full powers
of substitution and resubstitution, to vote the shares of the undersigned at the
above-stated Annual Meeting and at any adjournment or postponement thereof:
________________________________________________________________________________
FOLD AND DETACH HERE
<PAGE>
Please mark
your votes as
indicated in
this example /X/
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
-------- ----------- ----------
<S> <C> <C> <C>
1. To approve an amendment to the Restated Certificate of / / / / / /
Incorporation to effect a ten for one reverse stock split
</TABLE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND WILL BE VOTED IN
ACCORDANCE WITH THE SPECIFICATIONS MADE HEREON. IF A CHOICE IS NOT INDICATED
THIS PROXY WILL BE VOTED "FOR" THE AMENDMENT TO THE RESTATED CERTIFICATE OF
INCORPORATION. THE PROXIES ARE AUTHORIZED TO USE THEIR DISCRETION WITH RESPECT
TO ANY OTHER BUSINESS THAT MAY PROPERLY COME BEFORE THE MEETING. THIS PROXY IS
REVOCABLE AT ANY TIME BEFORE IT IS EXERCISED.
RECEIPT HEREWITH OF THE COMPANY'S NOTICE OF SPECIAL MEETING AND PROXY STATEMENT,
DATED _____________, 200__, IS HEREBY ACKNOWLEDGED.
PLEASE SIGN, DATE AND MAIL TODAY.
(Signature of Stockholder(s)) Dated ________________________, 200__
(Joint owners must EACH sign. Please sign EXACTLY as your name(s) appear(s) on
this card. When signing as attorney, trustee, executor, administrator, guardian
or corporate officer, please give your FULL title.)
________________________________________________________________________________
FOLD AND DETACH HERE
