<PAGE>
SCHEDULE 14A
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or (S) Section 240.
14a-12
COVALENT GROUP, 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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
---------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
COVALENT GROUP, INC.
ONE GLENHARDIE CORPORATE CENTER, SUITE 100
1275 DRUMMERS LANE
WAYNE, PA 19087
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 21, 1998
To the Stockholders of
Covalent Group, Inc.
The Annual Meeting of Stockholders (the "Meeting") of Covalent Group, Inc. (the
"Company") will be held at The Park Ridge at Valley Forge, 480 North Gulph Road,
King of Prussia, PA, 19406 on May 21, 1998 at 10:00 a.m. to consider proposals:
1. To elect four directors for the ensuing year;
2. To amend the 1996 Stock Incentive Plan to increase the number of Common
Stock shares reserved for issuance from 2,000,000 to 2,500,000;
3. To ratify the repricing of options under the Company's 1996 Stock
Incentive Plan;
4. To ratify the selection of Arthur Andersen LLP as the Company's
independent public accountants for the year ending December 31, 1998;
and
5. To transact any other business as may properly be brought before
the Meeting.
Any action may be taken on the foregoing matters at the Meeting on the date
specified above, or on any date or dates to which the Meeting may be adjourned.
The Board of Directors has fixed the close of business on April 3, 1998 as the
record date for determining the stockholders entitled to notice of and to vote
at the Meeting and at any adjournments or postponements thereof. Only
stockholders of record of the Company's Common Stock at the close of business on
that date will be entitled to notice of and to vote at the Meeting and at any
adjournments or postponements thereof.
Your attention is directed to the accompanying Proxy Statement for the text of
the resolutions to be proposed at the Meeting and further information regarding
each proposal to be made. A copy of the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1997 is enclosed herewith.
STOCKHOLDERS UNABLE TO ATTEND THE MEETING IN PERSON ARE ASKED TO VOTE, SIGN,
DATE AND RETURN PROMPTLY THE ENCLOSED PROXY IN THE ENCLOSED SELF-ADDRESSED
ENVELOPE, WHICH DOES NOT REQUIRE ANY POSTAGE IF MAILED IN THE UNITED STATES.
By order of the Board of Directors
/s/David Weitz
--------------
David Weitz, Secretary
April 21, 1998
Wayne, Pennsylvania
<PAGE>
COVALENT GROUP, INC.
ONE GLENHARDIE CORPORATE CENTER, SUITE 100
1275 DRUMMERS LANE
WAYNE, PA 19087
_____________________
PROXY STATEMENT
_____________________
Proxies, in the form enclosed with this Proxy Statement, are solicited by the
Board of Directors of Covalent Group, Inc. (the "Company") for the Annual
Meeting of Stockholders (the "Meeting") to be held on May 21, 1998 at 10:00 a.m.
at The Park Ridge at Valley Forge, 480 North Gulph Road, King of Prussia, PA,
19406 and any adjournments or postponements thereof.
Stockholders of record as of the close of business on April 3, 1998 (the "Record
Date") will be entitled to vote at the Meeting and any adjournment thereof. As
of the Record Date, 11,743,209 shares of Common Stock of the Company were
outstanding and entitled to one vote each. Execution of a proxy will not in any
way affect a stockholder's right to attend the Meeting and vote in person. Any
stockholder submitting a proxy has the right to revoke it at any time before it
is exercised by another instrument or transmission revoking it or by filing a
properly created proxy bearing a later date with the Secretary of the Company.
Shares represented by properly executed proxies for which no instructions are
received will be voted for all the nominees identified below under "Proposal No.
1 - Election of Directors," to increase in the number of shares reserved for the
Company's 1996 Stock Incentive Plan identified below under "Proposal No. 2 -
Amendment to 1996 Stock Incentive Plan," to ratify the repricing of options
granted and outstanding under the Company's 1996 Stock Incentive Plan as
described under "Proposal 3 - Repricing of Options Under 1996 Stock Incentive
Plan," and for the approval of accountants identified below under "Proposal No.
4 - Appointment of Accountants." The persons named as proxies are either
officers or directors of the Company.
The presence, in person or by proxy, of stockholders entitled to cast at least a
majority of the votes that all stockholders are entitled to cast on a particular
matter to be acted upon at the Meeting, shall constitute a quorum for the
purposes of consideration and action on such matter. Abstentions and broker
non-votes are each included in the number of shares present at the Meeting for
purposes of establishing a quorum. The affirmative vote of a plurality of the
votes cast is required for the election of Directors. For all other proposals,
the affirmative vote of the holders of a majority of shares of Common Stock
voted, in person or by proxy, at the Meeting is required. If any other matter
should be presented at the Meeting upon which it is proper to take a vote,
shares represented by all proxies received will be voted with respect thereto in
accordance with the judgment of the persons named as proxies.
This Proxy Statement and the accompanying materials were first sent to the
stockholders on April 21, 1998.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of April 3, 1998 certain information with
regard to beneficial ownership of outstanding shares of the Company's Common
Stock by (i) each person known by the Company to beneficially own five percent
or more of the outstanding shares of the Company's Common Stock, (ii) each
director and Named Executive Officer individually, and (iii) all executive
officers and directors of the Company as a group:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF PERCENTAGE OF
BENEFICIAL OWNER (1) SHARES OUTSTANDING
- ------------------- ------ -----------
<S> <C> <C>
Bruce LaMont 6,030,800 51.36%
853 Appaloosa Drive
Collegeville, PA 19426
David Weitz 211,000 (2) 1.77%
704 Delaware Avenue
Lansdale, PA 19446
Kenneth M. Borow, M.D. 164,200 (3) 1.38%
407 Wyntre Lea Drive
Bryn Mawr, PA 19010
John J. Whittle 30,558 (4) *
960 James Street
Syracuse, NY 13201
William K. Robinson 20,000 (4) *
1501 Wilson Lane
West Chester, PA 19380
Ivan Rubin 15,000 *
29 East 64th Street
New York, NY 10021
All Executive Officers 6,486,558 (5) 53.33%
and Directors as
a Group (six persons)
</TABLE>
__________________
* Less than 1% of the outstanding Common Stock.
(1) Unless otherwise noted, the Company believes that all persons have sole
voting and investment power with respect to all shares of Common Stock
beneficially owned by them.
(2) Includes 210,000 shares of Common Stock underlying vested and currently
exercisable stock options.
(3) Includes 150,000 shares of Common Stock underlying vested and currently
exercisable stock options.
(4) Includes 20,000 shares of Common Stock underlying vested and currently
exercisable stock options.
(5) Includes 415,000 shares of Common Stock underlying vested and currently
exercisable stock options.
PROPOSAL NO. 1 - ELECTION OF DIRECTORS
Four directors are to be elected at the Meeting, each to serve until the next
annual meeting and until his or her successor shall have been elected and
qualified. Each of the nominees named below is presently a member of the Board
of Directors. In case any of the nominees should become unavailable for
election, for any reason not presently known or contemplated, the persons named
on the proxy card will have discretionary authority to vote pursuant to the
proxy for a substitute.
-2-
<PAGE>
<TABLE>
<CAPTION>
NAME AGE SINCE PRINCIPAL OCCUPATION
- ---- -- ----- --------------------
<S> <C> <C> <C>
Bruce LaMont 46 1995 President, Chief Executive Officer of the Company
John J. Whittle 62 1996 Chairman, President and Chief Executive Officer
of Farmers & Traders Life Insurance Company
William K. Robinson 58 1996 Chief Financial Officer of the Company
Ivan Rubin 58 1997 Consultant
</TABLE>
BRUCE LAMONT, President, Chief Executive Officer and Director of the Company. In
1993, Mr. LaMont founded Covalent Research Alliance Corp. He has over 15 years
experience in the pharmaceutical industry. From 1980 to 1993, Mr. LaMont worked
at Merck Research Laboratories, where he was the Medical Program Liaison of the
Marketing and Clinical Development of Merck Human Health Division, where he
designed, coordinated and managed clinical trials for NDA submission. He also
coordinated projects with marketing, promotion, advertising, legal,
manufacturing and regulatory departments to ensure proper achievement of study
objectives and implemented clinical development database providing a liaison
capacity between marketing and clinical research and development. Mr. LaMont
received an Executive MBA and a Masters in Pharmaceutics from Temple University
and also holds a B.S. in Biology from Villanova University. In addition, Mr.
LaMont has extensive research experience in Gastroenterology, Drug Metabolism,
Neurosurgery, Obstetrics and Gynecology. He has held research positions at both
the University of Pennsylvania and President, Chief Executive Officer and
Director of the Company. In 1993, Mr. LaMont founded the Medical College of
Pennsylvania.
JOHN J. WHITTLE, Director. Mr. Whittle is Chairman, President, and Chief
Executive Officer of Farmers & Traders Life Insurance Company located in
Syracuse, New York. Prior to joining Farmers & Traders in 1989, he held senior
management positions with Mutual of New York and served on the Boards of several
of their subsidiaries. Mr. Whittle received a Masters in Management from The
American College and also holds a B.S. in Insurance from Pennsylvania State
University. He is a Chartered Life Underwriter (CLU).
WILLIAM K. ROBINSON, Chief Financial Officer and Director, joined the Company in
1996. He has over 25 years of diverse healthcare management experience, both
domestic and international, in large corporate and emerging company operations.
From 1994 to June 1996 he was Vice President of Finance for Scott Specialty
Gases, Inc., a manufacturer of calibration and medical gases. He was President
and CEO of Tektagen, Inc., a biopharmaceutical testing laboratory from 1991 to
1994. Previously, he was employed by SmithKline Beckman for 17 years, where he
held the top financial positions in the U.S. Pharmaceuticals, Clinical
Laboratories and Animal Health Divisions.
IVAN RUBIN, Director. Mr. Rubin is President of Beta Associates, a health
information consulting firm. From 1994 to April 1996, Mr. Rubin was a principal
of Corporate Outsourcing Group, a health information consulting firm. From
September 1993 to April 1994, Mr. Rubin was an independent business consultant.
Prior thereto, Mr. Rubin held various positions at Merck & Co., the last being
Vice President, Business Planning, Development and Research. Mr. Rubin holds a
B.A. from the University of Buffalo and an M.B.A. from Hofstra University.
COMMITTEES OF THE BOARD
- -----------------------
The Company has a Compensation Committee and an Audit Committee.
-3-
<PAGE>
The Compensation Committee reviews and approves salaries for corporate officers
and reviews, approves and administers the Company's stock option plans and
grants thereunder. The Compensation Committee met once in 1997. The Compensation
Committee is presently composed of two non-employee directors, John J. Whittle
and Ivan Rubin.
The Audit Committee recommends outside accountants, reviews the results and
scope of the annual audit and the services provided by the Company's independent
auditors and the recommendations of the auditors with respect to the accounting
systems and controls. The Audit Committee met once in 1997. The Audit Committee
is presently composed of two non-employee directors, John J. Whittle and Ivan
Rubin. Representatives of the Company's independent auditing firm, Arthur
Andersen LLP, met with Mr. Whittle and Mr. Rubin on March 24, 1998 and reviewed
their examination of the Company's financial statements for the year ended
December 31, 1997.
The Board of Directors had five meetings during 1997. There was no director
who, during the last full fiscal year, attended in person or by phone fewer than
75% of board or committee meetings while such person was a director.
DIRECTORS' REMUNERATION
- -----------------------
Directors receive no cash compensation for service as directors. Non-employee
directors receive an initial option grant under the 1996 Stock Incentive Plan to
purchase 10,000 shares of Common Stock upon becoming a director and an annual
option grant on the date of the Company's annual meeting to purchase 10,000
shares of Common Stock. Both initial and annual options are exercisable after 12
months of continuous service as a director.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE ENTIRE SLATE
OF NOMINEES IN PROPOSAL NO. 1
EXECUTIVE OFFICERS
- ------------------
Executive officers serve at the discretion of the Board and serve until their
successors have been duly elected and qualified or until their earlier
resignation or removal. The current executive officers of the Company are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S) HELD WITH COMPANY
- ---- --- -----------------------------
<S> <C> <C>
Bruce LaMont 46 President, Chief Executive Officer, Director
Kenneth M. Borow, M.D. 49 President, Clinical Research and Chief Medical Officer
David Shapiro 43 President, Health Management Division
David Weitz 47 Secretary and Treasurer
William K. Robinson 58 Chief Financial Officer, Director
</TABLE>
KENNETH M. BOROW, M.D., President, Clinical Research and Chief Medical Officer
joined the Company in January 1997. For the previous four years, Dr. Borow was
Senior Director, Medical Research Associates Department, Merck Research
Laboratories where he directed clinical research operations for 163 different
protocols, and developed a Merck-based contract group consisting of field
monitors, data coordinators and statisticians. Previously, he was a Professor
of Medicine and Pediatrics at the University of Chicago, and originator of a
worldwide clinical research program in cardiac function which included
investigative sites in the United States, United Kingdom, Norway, Israel and
South Africa. Dr. Borow graduated from the Temple Medical School in 1974. Dr.
Borow is a Harvard-trained Internist, Pediatrician, Adult Cardiologist and
Pediatric Cardiologist.
-4-
<PAGE>
DAVID SHAPIRO, MB CHB, MRCP, MFPM, President, Health Management Division joined
the Company in December 1997 and was appointed an officer in March 1998. In
this position Dr. Shapiro directs the Company's expanding activities in health
management and research services. For the previous three years he was President
of the Medical Research Center of Scripps Clinic in LaJolla, California, which
he founded. Previously, he was Vice President of Clinical Research at Gensia
from 1990 to 1995 and Director of Clinical Research at Merck and Co. from 1985
to 1990. He serves on several professional committees and is an elected Board
Member and Vice President of Promotional Development of the American Academy of
Pharmaceutical Physicians. Dr. Shapiro obtained his medical degree in Britain
from Dundee and Medical School University in 1978 and underwent postgraduate
training in internal medicine, primarily in the University Hospitals in Oxford.
DAVID WEITZ, Secretary and Treasurer. In January 1995, Mr. Weitz was appointed
Chief Information Officer of Covalent Research Alliance Corp. He is responsible
for planning, implementation, and use of Information Technologies. For the
previous 12 years he was employed by Merck Research Laboratories as Manager of
Technical Support and Training where he was responsible for planning,
implementing and operating a computer technical support program and computer
application training program for all divisional employees located at three
geographical locations.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
- -------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors to file initial reports of ownership and
reports of change of ownership with the Securities and Exchange Commission (the
"SEC"). Executive officers and directors are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms they file. Based
solely upon a review of copies of reports furnished to the Company during the
fiscal year ended December 31, 1997, the following persons filed the number of
late reports or failed to file reports representing the number of transactions
set forth after his name: Kenneth M. Borow, M.D. one transaction; William K.
Robinson two transactions; Ivan Rubin one report/one transaction; John J.
Whittle one transaction.
-5-
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the total compensation paid by the Company to the
Named Executive Officers for or with respect to their services during the year
ended December 31, 1997. The Named Executive Officers include the Company Chief
Executive Officer and three executive officers who were paid more than $100,000
in 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compebnsation
------------------- -------------
Securities
Underlying Other Annual
Name and Principal Position Year Salary Bonus Options Compensation
- --------------------------- ---- ------ ----- ------- ------------
<S> <C> <C> <C> <C> <C>
Bruce LaMont 1997 $250,000 $30,000 -- --
President and Chief Executive 1996 210,000 -- -- --
Officer 1995 240,000 -- -- --
Kenneth M. Borow, M.D. 1997 219,000 15,000 250,000 --
President, Clinical Research 1996 -- -- 250,000
and Chief Medical Officer/(1)/
David Weitz 1997 115,000 10,000 -- --
Secretary, Treasurer and Chief 1996 85,000 10,000 -- --
Information Officer 1995 85,000 10,000 -- --
William K. Robinson 1997 121,000 -- 60,000 --
Chief Financial Officer/(2)/ 1996 59,160 -- 20,000 --
</TABLE>
(1) Dr. Borow was not an employee of the Company prior to 1997.
(2) Mr. Robinson was not an employee of the Company prior to June 1996.
All executive officers of the Company are full-time employees of the Company.
There are no written employment agreements.
-6-
<PAGE>
The following table sets forth certain information concerning grants of stock
options made during the year ended December 31, 1997 to the Named Executive
Officers.
<TABLE>
<CAPTION>
OPTIONS GRANTED IN THE LAST FISCAL YEAR
Number of % of Total
Securities Options
Underlying Granted to Exercise
Options Employees in Price Expiration
Name Granted (1) Fiscal Year ($/share) Date
- ---- ---------- ----------- --------- ----
<S> <C> <C> <C> <C>
Bruce LaMont -- -- -- --
Kenneth M. Borow, M.D. 250,000 33 4.125 09/03/02
David Weitz -- -- -- --
William K. Robinson 10,000 1 4.000 05/05/02
50,000 7 4.156 12/14/02
</TABLE>
(1) The 1996 Stock Incentive Plan is administered by the Board of Directors
through the Compensation Committee. The exercise price per share of options
granted equals the fair market value per share of the Company's Common Stock
on the date of the grant, and the options are exercisable over a period of
five years from the date of grant. All options expire ninety days after
termination of employment unless employment is terminated because of death
or disability, in which case the options terminate in one year.
The table below sets forth certain information regarding the number and value of
unexercised options held by Named Executive Officers of the Company as of
December 31, 1997. Mr. LaMont does not hold any options. No options were
exercised by the Named Executive Officers during the year ended December 31,
1997.
AGGREGATED FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised In-the-Money
Unexercised Options at Options at
December 31, 1997 December 31, 1997 (1)
----------------- --------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Kenneth M. Borow, M.D. 150,000 350,000 $ 43,750 $81,250
David Weitz 210,000 -- 886,200 --
William K. Robinson 20,000 60,000 -- 7,200
</TABLE>
(1) Based on the closing price of the Common Stock on the Nasdaq SmallCap Market
on that date, $4.25, net of the exercise price.
PROPOSAL NO. 2 - AMENDMENT TO 1996 STOCK INCENTIVE PLAN
On March 24, 1998, the Board of Directors unanimously approved an amendment to
the Company's 1996 Stock Incentive Plan (the "Plan") to increase the number of
Common Stock shares reserved for issuance thereunder from 2,000,000 shares to
2,500,000. The following is a description of the Plan.
At the Annual Meeting of Stockholders held on September 20, 1996, stockholders
approved the adoption of the Plan. The Plan provides for the granting of
incentive and non-qualified stock options, at an option price of not less than
100% of the fair market value of the Company's Common Stock at the time of
grant. Stock options will expire not later than five years after the date they
are granted. In addition, the Board of Directors may award Common Stock under
the Plan as stock bonuses, restricted stock, stock appreciation rights and cash
bonus rights. Further, any non-employee Director shall be automatically granted
an option to purchase 10,000 shares of the Company's Common Stock at an exercise
price equal to the market value at date of grant for each year that such person
serves as a Director. Such options shall vest 100% after one year of continuous
service for non-employee Directors. Options granted to employees shall vest 25%
-7-
<PAGE>
for each 12 months of continuous service until fully vested, unless such
vesting schedule is modified or superseded by the Board of Directors.
The Plan is administered by the Board of Directors through the Compensation
Committee which is composed of non-employee Directors. The Compensation
Committee has discretion to select the employees to whom stock options or awards
will be granted and to determine the type, size and terms and conditions of each
option grant or award, and has the authority to interpret, construe and
administer the provisions of the Plan.
Currently, 2,000,000 shares of Common Stock are reserved for issuance in
accordance with the terms of the Plan. As of the Record Date, approximately
92,500 shares of the Company's Common Stock remain available for the granting of
new options. The Board of Directors believes it is important and in the best
interests of the Company to amend the Plan to increase the number of shares
reserved for issuance thereunder by 500,000 to 2,500,000 in order to provide for
additional grants to be made to retain key personnel and to have available
shares in order to attract further key personnel.
Prior to the date of this proxy, option grants have been made under the Plan to
the following persons and groups (with the underlying share amounts immediately
following each person or group): Bruce LaMont, President, Chief Executive
Officer (0); Kenneth M. Borow, M.D., President, Clinical Research and Chief
Medical Officer (500,000); David Weitz, Secretary and Treasurer (0); William K.
Robinson, Chief Financial Officer (80,000); Thomas Conant (100,000); all current
directors who are not executive officers as a group (50,000); all current
executive officers as a group (880,000); all other employees as a group
(184,500).
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" PROPOSAL NO. 2
PROPOSAL NO. 3 - REPRICING OF OPTIONS UNDER 1996 STOCK INCENTIVE PLAN
On April 8, 1998, the Board of Directors approved a repricing plan to allow
current employees and directors holding outstanding stock options underlying the
Plan to elect to replace them with options having an exercise price equal to the
fair market value per share of the Common Stock on the day of the Meeting. The
repricing plan was unanimously approved by the disinterested directors (Messrs.
Robinson, Rubin and Whittle abstaining due to their holding options subject to
repricing) and is subject to receipt of stockholder approval at the Meeting. The
repricing plan provides that the new options will have vesting terms and all
other terms identical to the outstanding options that they are intended to
replace.
The repricing plan was implemented to realign the value of the previously
granted options, upon exercisability, with the market value of the Company's
Common Stock at the time of repricing. The expectation is that the opportunity
to earn compensation based on appreciation of the Company's Common Stock from
the repriced level will motivate employees to achieve superior results over the
long term, encourage key employees to remain with the Company and compensate
employees for work and economic sacrifices made.
On April 13, 1998, the closing price of the Company's Common Stock was
$2-1/32 per share. The table below lists the Named Executive Officers
with shares underlying options subject to repricing, the exercise price of such
options and the length of the original option term remaining at the date of
repricing:
<TABLE>
<CAPTION>
Shares of Common Length of Original Option
Underlying Repriced Exercise Price at Term Remaining at Date of
Options Time of Repricing Repricing
------------------- ----------------- --------------------------
<S> <C> <C> <C>
Name
- ----
Kenneth M. Borow, M.D. 250,000 3.875 3.3
250,000 4.175 4.4
William K. Robinson 20,000 5.375 3.2
10,000 4.000 4.1
50,000 4.156 4.7
</TABLE>
-8-
<PAGE>
The table below lists all current executive officers as a group, all current
directors who are not executive officers as a group and all employees, including
all current officers who are not executive officers, as a group with shares
underlying options subject to repricing, the weighted average exercise price of
such options and the average length of the original option term remaining at the
date of repricing:
<TABLE>
<CAPTION>
Average
Shares of Common Stock Weighted Average Length of Original Option
Underlying Repriced Exercise Price at Term Remaining at Date of
Options Time of Repricing Repricing
------- ----------------- ---------
<S> <C> <C> <C>
Group
- -----
All Executive Officers 880,000 4.104 4.1
All Non-employee Directors 50,000 4.950 4.0
All Employees 184,500 4.735 3.4
</TABLE>
The Plan requires that any amendments to outstanding option agreements be agreed
upon by the holders of the outstanding options affected. Accordingly, no
repricing will take place to the extent that an option holder refuses to cancel
his outstanding options under the Plan in exchange for a repriced option.
FEDERAL INCOME TAX MATTERS
- --------------------------
Incentive Stock Options
Incentive Stock Options granted under the Plan are intended to qualify for the
favorable federal income tax treatment currently afforded "Incentive Stock
Options" as defined under Section 422 of the Internal Revenue Code (the "Code").
Under the Code, generally no federal income tax is imposed at the time an
Incentive Stock Option is granted or exercised. While ordinarily no income is
required to be recognized at the time an Incentive Stock Option is exercised it
should be noted that, for purposes of the alternative minimum tax, an Incentive
Stock Option is treated as a Non-Qualified Stock Option. Accordingly, the excess
of the fair market value of the shares of stock subject to the Incentive Stock
Option, determined at the time of exercise, over the exercise price constitutes
ordinary income for purposes of the alternative minimum tax. If an optionee
disposes of stock acquired pursuant to the exercise of an Incentive Stock Option
within the same taxable year as the exercise of such option, then the amount of
ordinary income recognized for alternative minimum tax purposes is the lesser of
(i) the excess of the fair market value of the shares over the exercise price at
the time the option is exercised, and (ii) the excess of the amount realized on
the sale of such stock by the optionee over the exercise price. Accordingly, the
exercise of an Incentive Stock Option by an optionee may cause the optionee to
incur some alternative minimum tax. For purposes of the alternative minimum tax,
the basis of stock acquired through the exercise of any Incentive Stock Option
is equal to the fair market value taken into account in determining the amount
of ordinary income recognized for alternative minimum tax purposes.
If the shares of stock acquired upon the exercise of an Incentive Stock Option
are not disposed of (i) within two years after the date of the grant of the
Incentive Stock Option, or (ii) within one year after the exercise of the
Incentive Stock Option, then, generally, any gain realized upon the sale or
other disposition of such shares will be treated as long-term capital gain.
These holding periods are not applicable to Incentive Stock Options exercised
after the death of an optionee by his estate or a person who acquired the right
to exercise such Incentive Stock Option by reason of the death of the optionee.
The optionee's tax basis, in shares of stock acquired upon the exercise of an
Incentive Stock Option, in the event that the entire exercise price is paid in
cash, is equal to the exercise price paid. In a case where the optionee pays all
or a portion of the exercise price in the form of shares of stock of the Company
already owned by him or her, in general, (i) the optionee will not recognize any
gain (or loss) with respect to the already-owned shares, but the amount of the
gain, if any, which is not so recognized will be excluded from the optionee's
bases in the new shares received, and (ii) the new shares received will have a
holding period that includes the holding period of the already-owned shares. In
the event the already-owned shares used to acquire new shares were acquired
pursuant to the exercise of an Incentive Stock Option, the optionee will be
treated as having made a Disqualifying Disposition (as defined below) of the
already-owned shares if the holding period requirements have not been satisfied.
-9-
<PAGE>
In the event an optionee sells or otherwise disposes of shares of stock acquired
upon the exercise of an Incentive Stock Option before the expiration of two
years after the grant of the Incentive Stock Option or before the expiration of
one year after the exercise of the Incentive Stock Option (a "Disqualifying
Disposition"), the lesser of (i) the excess of the fair market value of the
shares of stock at the time the Incentive Stock Option was exercised over the
exercise price of such shares, and (ii) the excess of the amount realized upon
such Disqualifying Disposition over the exercise price, is treated as ordinary
income at the time of the sale or other disposition. Any gain upon a
Disqualifying Disposition which is not treated as ordinary income will be
treated as long-term capital gain if the shares of stock have been held for a
period of more than one year prior to such disposition. The Company generally is
entitled to a tax deduction equal to the amount of ordinary income, if any,
recognized by the optionee upon a Disqualifying Disposition.
Non-Qualified Stock Options
Non-qualified Stock Options granted under the Plan will not qualify for the
favorable federal income tax treatment accorded Incentive Stock Options.
Generally, an optionee should not recognize any income for federal income tax
purposes at the time of the grant of a Non-qualified Stock Option under the
Plan. Upon the exercise of a Non-qualified Stock Option, the excess of the fair
market value of the shares of stock acquired pursuant to such exercise,
determined at the time of the exercise, over the exercise price, constitutes
ordinary income to the optionee. The Company generally is entitled to a
corresponding income tax deduction for the taxable year in which the optionee is
required to recognize such ordinary income.
The proposed repricing of options granted under the Plan is not a taxable event
and neither the Company nor the optionees will incur a tax in connection with
such repricing.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" PROPOSAL NO. 3
PROPOSAL NO. 4 - APPOINTMENT OF ACCOUNTANTS
On December 31, 1997, the Company replaced Baratz & Associates, P.A. ("Baratz"),
its independent public accountants, with Arthur Andersen LLP ("Andersen").
Baratz previously audited the Company's financial statements for the years ended
December 31, 1996 and 1995.
The report of Baratz on the Company's consolidated financial statements for the
years ended December 31, 1996 and 1995 did not contain an adverse opinion or a
disclaimer of opinion and was not qualified or modified as to uncertainty, audit
scope or accounting principles. During the last two years there were no
disagreements with Baratz on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure. The decision of
the Company to replace Baratz with Andersen as the Company's independent public
accountants was unanimously approved by the Board of Directors and approved by
the Company's stockholders at its annual meeting on September 16, 1997. Subject
to stockholder ratification, the Board of Directors intends to appoint Andersen
as its independent auditors for the year ending December 31, 1998. One or more
members of Arthur Andersen LLP are expected to be present at the Meeting, and
will have the opportunity to make a statement if they desire to do so and will
be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" PROPOSAL NO. 4
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<PAGE>
STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
- ---------------------------------------------
Any stockholder proposal intended to be presented at the Company's 1999 annual
meeting of stockholders must be received by the Company at its office in Wayne,
Pennsylvania on or before December 21, 1998 in order to be considered for
inclusion in the Company's proxy statement and form of proxy relating to such
meeting.
EXPENSES OF SOLICITATION
- ------------------------
The cost of preparing, assembling, mailing and soliciting the proxies will be
borne by the Company. In addition to the use of the mails, proxies may be
solicited by regular employees of the Company, either personally or by
telephone, telegram or facsimile. The Company does not expect to pay any
compensation for the solicitation of proxies, but may reimburse brokers and
other persons holding shares in their names or in the names of nominees for
expenses in sending proxy materials to beneficial owners and obtaining proxies
from such owners.
OTHER MATTERS
- -------------
The Board of Directors does not intend to bring any matters before the Meeting
other than as stated in this Proxy Statement, and is not aware that any other
matters will be presented for action at the Meeting. If any other matters come
before the Meeting, the persons named in the enclosed form of proxy will vote
the proxy with respect thereto in accordance with their best judgment, pursuant
to the discretionary authority granted by the proxy.
All properly executed proxies delivered pursuant to this solicitation and not
revoked will be voted at the Meeting in accordance with the directions given.
In voting by proxy in regard to the election of four Directors to serve until
the 1999 Annual Meeting of Stockholders, stockholders may vote in favor of all
nominees or withhold their votes as to all nominees or withhold their votes as
to specific nominees. With respect to other items to be voted upon,
stockholders may vote in favor of the item or against the item or may abstain
from voting. Stockholders should specify their choices on the enclosed proxy.
If no specific instructions are given with respect to the matters to be acted
upon, and the proxy is returned properly executed then the shares represented by
the proxy will be voted FOR the election of all directors FOR all other
proposals contained herein.
PLEASE DATE AND SIGN THE ENCLOSED PROXY WHICH IS BEING SOLICITED BY THE BOARD OF
DIRECTORS AND RETURN IT IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF IT
IS MAILED IN THE UNITED STATES.
COVALENT GROUP, INC.
By: /s/ David Weitz
---------------------
David Weitz
Secretary
-11-
<PAGE>
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF STOCKHOLDERS
COVALENT GROUP, INC.
MAY 21, 1998
<PAGE>
<TABLE>
<S> <C>
PLEASE DETACH AND MAIL IN THE ENVELOPE PROVIDED
- -----------------------------------------------------------------------------------------------------------------------------------
[X] Please mark your
votes as in this
example.
WITHHOLD
AUTHORITY
to vote
for all
nominees
FOR listed below FOR AGAINST ABSTAIN
1. ELECTION Nominees: Bruce LaMont 2. Proposal to amend the 1996 Stock
OF [_] [_] William K. Robinson Incentive Plan to increase the
DIRECTORS: John J. White number of Common Stock shares [_] [_] [_]
FOR all nominees listed except Ivan Rubin for issuance from 2,000,000 to
as marked to the contrary below 2,5000,000.
3. Proposal to ratify the
repricing of options under
the 1996 Stock Incentive Plan [_] [_] [_]
4. Proposal to ratify the
selection of Arthur Anderson
LLP to serve as the company's [_] [_] [_]
independent accountants
beginning in 1998.
In their discretion upon such other business as may
properly come before the Annual Meeting or any
postponement or adjournment thereof.
YOUR PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS. YOUR PROXY WILL BE VOTED AS DIRECTED. IN THE
ABSENCE OF DIRECTION, YOUR PROXY WILL BE VOTED FOR THE
FOUR NOMINEES FOR ELECTION, FOR PROPOSAL 2, AND FOR
PROPOSAL 4.
STOCKHOLDERS ARE URGED TO DATE, MARK, SIGN AND RETURN THE
PROXY PROMPTLY IN THE ENVELOPE PROVIDED, WHICH REQUIRES
NO POSTAGE IF MAILED WITHIN THE UNITED STATES.
SIGNATURE__________________________________________________________________________________________________ DATE_________________
(Signature of Stockholder) (Signature of Stockholder)
Note: Please sign exactly as your name appears on stock certificate (as indicated hereon)
</TABLE>
