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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
AMENDMENT NO. 1
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the fiscal year ended December 31, 1997.
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934.
COMMISSION FILE NUMBER: 0-21145
COVALENT GROUP, INC.
(Name of small business issuer in its charter)
NEVADA 56-1668867
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
ONE GLENHARDIE CORPORATE CENTER, 1275 DRUMMERS LANE, SUITE 100, WAYNE,
PENNSYLVANIA 19087
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: 610-975-9533
Securities registered under Section 12(b) of the Exchange Act: NONE.
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, $.001 PAR VALUE
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No ____
---
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [_]
State issuer's revenues for its most recent fiscal year: $11,803,000
The aggregate market value of the common stock held by non-affiliates as of
March 16, 1998 was $14,534,000.
As of March 16, 1998 there were 11,743,209 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement to be filed with the Securities and
Exchange Commission relative to the Company's 1998 Annual Meeting of
Stockholders are incorporated by reference into Part III of this Report.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE): YES _____ NO X
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1
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Covalent Group, Inc. (the "Company") through its subsidiary Covalent
Research Alliance Corp. ("CRA"), is a total research management organization
which designs and manages clinical trials in the drug and device development
process and with associated cost containment and quality of care components.
CRA specializes in cost effectiveness and outcomes studies for major customer
groups such as pharmaceutical companies, managed care organizations, insurers
and employers. It offers a full array of integrated services including study
design, clinical trial monitoring and management, data management,
biostatistical analysis and regulatory affairs services. CRA is structured to
deliver customized high quality solutions to its Fortune 500 and other clients.
CRA utilizes its core expertise of clinical trials management to provide
high quality, medical outcomes and clinical research for its client base. In
addition, experience gained with more than 40 managed care organizations
facilitates designing and conducting clinical studies for pharmaceutical clients
in a managed care environment, thereby, improving the market potential for a
drug manufacturer's product. To aid its pharmaceutical and managed care
customers in clinical trials and outcomes research projects, CRA also has
developed a state-of-the-art interactive voice recognition system called Virtual
HouseCall, an automated system for collecting and reporting subjective patient
information. Through educational components, the Company intends to influence
patient behavior crucial to patient compliance with prescription drug regimens
and self-management of chronic diseases.
The Company was incorporated under the laws of the State of Nevada on
August 1, 1989 under the name of West End Ventures, Inc. ("West End"). West
End's only activity prior to the acquisition of its subsidiary, Future Medical
Technologies, Inc. ("FMT"), a New Jersey corporation incorporated on September
28, 1989 was the completion of its initial public offering on January
15, 1990. On January 26, 1990, West End acquired 100% of the outstanding
securities of FMT. FMT was located in Decatur, Georgia and designed,
manufactured and distributed disposable micro-biological analytical products and
ancillary equipment for the detection of yeast, mold or bacteria in liquids or
air for use in industrial and clinical laboratories. The principal product of
FMT was a disposable plastic device for analytical bacteria growth in liquid
samples and the diagnosis of urinary tract infections. FMT also developed a
Salmonella detection system with the intended purpose of increased speed and
test reliability as a pratical means for broad scale sampling and testing.
West End subsequently changed its name to Future Medical Technologies
International, Inc. ("FMTI"). On May 26, 1994, FMTI effected a one for five
reverse stock split. On February 22, 1995, the Company effected a five for seven
reverse stock split and completed the acquisition of 100% of the stock of CRA, a
Pennsylvania corporation, in exchange for 7,200,000 shares of post-split common
stock of FMTI.
On September 20, 1996, FMTI shareholders ratified the disposition of 100%
of the stock of FMT, as of July 31, 1996. At the same time, shareholders
approved the change of the parent organization's name from Future Medical
Technologies International, Inc. to Covalent Group, Inc.
CRO INDUSTRY OVERVIEW
The CRO industry provides independent product development services for the
pharmaceutical and biotechnology industries. Generally, CROs derive
substantially all of their revenue from the research and development
expenditures of pharmaceutical and biotechnology companies. According to the
Pharmaceutical Researchers and Manufacturers of America, global pharmaceutical
and
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biotechnology industries spent an estimated $35 billion in 1995 on research and
development, of which the Company estimates $20 billion was spent on types of
services offered by the CRO industry. Of this amount, approximately $3 billion
was outsourced to CROs.
The Company believes that the following trends will lead to further growth
opportunities for CROs as pharmaceutical and biotechnology companies continue to
increase outsourcing of product development needs: (I) price pressure by managed
care organizations and pharmacy managers on pharmaceutical companies is forcing
drug manufacturers to consolidate, down-size, and look to less expensive fixed
cost alternatives than internal development, principally outsourcing to variable
cost CROs; (ii) pharmaceutical companies are seeking faster product development
times in order to maximize a new drug's patent and marketing exclusivity; (iii)
increasingly complex and stringent regulatory requirements have increased the
volume of data required for regulatory filings and increased demands on data
collection and analysis during the development process; (iv) biotechnology
companies are developing an increasing number of new drugs that require
regulatory approval and should continue to find CROs to be a cost effective
alternative to building an internal drug development capability; and (v) the
need for sophisticated data management is increasing to expedite the drug
development process.
The Company's only subsidiary, CRA has positioned its clinical development
services to capitalize on these market trends. As an additional element of its
strategy, CRA believes that it differentiates itself from other CROs by
expertise in the design and execution of clinical studies which meet the
requirements of managed care and third party payors thereby enhancing the
marketability of clients' prescription drugs over their life cycle.
BUSINESS OF THE COMPANY
The Company provides a full range of CRO services specializing in clinical
studies that include various types of outcomes measurement. The Company
provides clinical trial management, data management, biostatistical analysis,
medical and regulatory services, health economics and outcomes research. The
principal categories of services offered are:
Clinical Trials
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CRA utilizes over 80 full time and independent contractor personnel with
experience in the pharmaceutical, biotech and managed care industries that it
believes can support the needs of the most rigorous clinical trials or medical
outcomes studies. CRA has assembled an extensive network of clinical
investigators, managed care organizations, and clinical research specialists,
which it uses to coordinate and conduct clinical research. Clinical
investigators in the network are contracted for a specific clinical study, on a
case by case basis, where their expertise with a specific disease will insure
the highest quality medical care, treatment and clinical evaluation. CRA's
clinical monitors are strategically located throughout the country to reduce the
cost of travel to clinical or managed care sites. CRA's clinical trial services
include project coordination, regulatory document processing, monitoring
services and quality control review.
Data Management
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CRA has automated the data management process associated with clinical
trials management through its use and customization of the industry standard
software from "BBN Software Products' Clintrial". Clintrial protocols are used
to assist in the collection, validations, and reporting of clinical
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results to its pharmaceutical company clients as part of their submission to the
Food and Drug Administration ("FDA") or other regulatory agencies. CRA's data
management professionals provide case report form review and tracking; data
entry; integrated clinical/statistical reports; and manuscripts for publication.
Biostatistics
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CRA also provides comprehensive clinical statistics support. CRA's
biostatisticians have extensive pharmaceutical/medical industry experience.
CRA's biostatistical services include clinical trials design; preparing
statistical analysis plans; representing clients at the FDA; and creating
statistical reports.
Medical and Regulatory Affairs Management
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CRA's medical and regulatory group provides liaison services between its
clients and regulatory agencies in the preparation, review and submission of
Investigational New Drug ("IND"), New Drug Application ("NDA"), 510k, and
Product License Application ("PLA") documents. CRA's medical services include
medical oversight of studies, review and interpretation of adverse experiences,
report writing and development of study protocols. Regulatory services include
strategy design, document preparation and client consultation.
Quality Assurance and Compliance
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CRA also provides field inspections that include investigator audits,
presubmission protocol compliance audits, Good Clinical Practice audits and
staff training.
Outcomes Research and Management
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CRA provides its clients retrospective database studies, therapeutic end-
point determinations, cost effectiveness studies, drug utilization reviews, drug
utilization effectiveness reviews, and health status survey development as well
as patient drug compliance programs, patient education programs and costs
containment studies.
Wellness Measures
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Wellness Measures is a division of CRA which provides a comprehensive set
of services (such as health fairs, holistic medicine alternatives, fitness,
nutrition and stress management programs) which improve the health of
individuals, insure proper utilization of health care services, reduce health
care costs, and improve morale and mental acuity. Wellness Measures' assessment
services allow its clients to make informed decisions that benefit their
companies, employees and their families.
Virtual HouseCall
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Virtual HouseCall ("VHC"), as developed by CRA, is an interactive voice
recognition system that CRA believes excels in the type of data collection and
analysis required by healthcare industry segments focused on disease management.
Disease management is a comprehensive, integrated approach to care and
reimbursement with the goal of promoting maximum healthcare provider efficiency
and effectiveness. Data collection becomes key to continuing assessment of
disease management programs.
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VHC is a telephone-based service that has been designed to reach large
numbers of patients in a personalized and supportive manner. VHC automates the
administration of subjective quality of life surveys and psychosocial
assessments, provides patient access to disease specific educational and
resource libraries, and facilitates the publication of personalized reports
through on-demand printing services and faxes to healthcare providers and
patients.
VHC is concentrating on five disease states that account for 70% of managed
care's patient expenditures. Virtually all managed care organizations and many
pharmaceutical companies are developing disease management programs in the areas
of asthma, diabetes, hypertension, depression and congestive heart failure. CRA
intends for VHC to play an important role in disease management programs. Its
content is modular and customizable, and the computer platform and telephony
systems are highly scaleable.
CRA has positioned VHC as a research and patient education service. This
allows for the greatest flexibility for CRA's customers. Surveys can be
administered once, while VHC-based patient tracking, assessment, education can
be provided as often as monthly. Per transaction costs are calculated by type
of service, length and frequency of interaction, and the number of contacted
patients.
COMPETITION
The Company competes primarily against internal research departments of
pharmaceutical companies and other CROs. The CRO industry is highly fragmented
with several hundred small, limited services providers, and seven larger firms
with revenues in excess of $50 million each, the largest of which are:
Quintiles Transnational Corp.; Covance, Inc.; and Pharmaceutical Product
Development Inc. These and some other competitors have substantially greater
capital and technical resources than the Company.
Competitive factors that may influence a client's decision in choosing a
CRO include previous experience, references from existing clients, experience
with a particular type of project or area of clinical development, the quality
and timeliness of contract research, ability to recruit investigators and the
ability to provide a full range of services required by the client. The Company
believes it competes favorably in these respects.
CONTRACTUAL ARRANGEMENTS
Compensation for services is contracted at a fixed price, but may include
some variable components, and can cover a period of several months to several
years. A portion of the contract fee is typically paid when a clinical trial is
initiated and the contract provides for milestone payments throughout the
duration of the trial. Contracts can usually be terminated at any time by the
client, but are usually subject to termination fees. Contracts may be
terminated for a number of reasons including insufficient patient enrollment,
unexpected results in the clinical trial or a client's decision to terminate
development of a particular drug.
BACKLOG
The Company's backlog consists of anticipated revenue from contracts that
have been signed but not yet completed. Once a project commences, revenue is
recognized over the life of the contract, which is consistent with industry
practice.
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As of December 31, 1997, the Company's backlog amounted to approximately
$10 million as compared to approximately $8 million at December 31, 1996. The
Company believes backlog at any given time is not necessarily a meaningful
indicator of future revenue. Clinical trials can be modified or terminated by
the client for any of the reasons mentioned above.
POTENTIAL LIABILITY
The Company attempts to manage its liability risk through contractual
indemnification provisions with clients and investigators hired by the Company
on behalf of its clients and through insurance. The contractual
indemnifications generally do not protect the Company against certain of its own
actions such as negligence. The contractual arrangements are subject to
negotiation with clients and the terms and scope of such arrangements vary from
client to client and from trial to trial. Although most of the Company's
clients are large well-capitalized companies, the financial performance of these
indemnitors is not secured. Therefore, the Company bears the risk that the
indemnifying party may not have the financial ability to fulfill its
indemnification obligations. The Company maintains professional liability
insurance which includes drug safety issues as well as data processing errors
and omissions. The Company could be materially and adversely affected if it
were required to pay damages or incur defense costs in connection with a claim
that is beyond the scope of an indemnity provision or beyond the level of
insurance coverage or where the indemnifying party does not fulfill its
indemnification obligations. However, the Company believes that its current
insurance coverage is adequate.
EMPLOYEES
At December 31, 1997, the Company employed 30 full time personnel and
contracts with approximately 50 independent contractors on an as-needed basis.
None of the employees are represented by a labor union and the Company believes
its relations with employees and independent contractors are good.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
CAUTIONARY STATEMENT
When used in this Report on Form 10-KSB and in other public statements,
both oral and written, by the Company and Company officers, the words
"estimate," "project," "intend," "believe," "anticipate" and similar expressions
are intended to identify forward-looking statements regarding events and
financial trends that may affect the Company's future operating results and
financial position. Such statements are subject to risks and uncertainties that
could cause the Company's actual results and financial position to differ
materially. Such factors include, among others: (i) the Company's success in
attracting new business; (ii) the size, duration and timing of clinical trials;
(iii)
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the termination, delay or cancellation of clinical trials; (iv) the intense
competition in the industry in which the Company competes; (v) the Company's
ability to obtain financing on satisfactory terms; (vi) the sensitivity of the
Company's business to general economic conditions; and (vii) other economic,
competitive, governmental and technological factors affecting the Company's
operations, markets, products, services and prices. The Company undertakes no
obligation to publicly release the result of any revision of these forward-
looking statements to reflect events or circumstances after the date they are
made or to reflect the occurrence of unanticipated events.
General
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CRA is a research management organization that designs, coordinates and
monitors clinical trials in drug development for some of the world's leading
pharmaceutical firms. In addition, using advanced technologies, the Company
works extensively in managed care, medical outcomes research and health
management programs that focus on compliance and provider/patient behavior
modification. Revenue is derived principally from the identification,
placement, monitoring and management of clinical development studies in the
traditional pharmaceutical, as well as managed care environment.
Clinical research service contracts generally have terms ranging from
several months to several years. A portion of the contract fee is generally
payable upon execution of the contract, with the balance payable in installments
over the life of the contract. Revenue and related cost of revenue are
recognized as specific contract terms are fulfilled under the percentage of
completion method.
Contracts generally may be terminated by clients with or without cause.
Clinical trials may be terminated or delayed for several reasons, including
unexpected results or adverse patient reactions to the drug, inadequate patient
enrollment or investigator recruitment, manufacturing problems resulting in
shortages of the drug or decisions by the client to de-emphasize or terminate a
particular trial or development efforts on a particular drug. Depending on the
size of the trial in question, a client's decision to terminate or delay a trial
in which the Company participates could have a materially adverse effect on the
Company's backlog, future revenue and profitability.
Year 2000 Compliance
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All research indicates that the Company's exposure to this problem will be
minimal. The Company's computers, local area network servers, software, and
digital phone system have all been purchased within the last three years, and an
inventory has been conducted in order to identify those systems and software
that may require a Year 2000 fix. The manufacturers of the Company's systems
have provided, or are on track to provide updates by the end of 1998.
The Company's central focus is on its commercial clinical trials data
management system. The manufacturer has indicated in writing that the system
has been "designed to operate before, during and after the year 2000 without
errors in representation occurring to any of the date data." The Company
expects a minor software upgrade to the system by July 1998 under its normal
licensing agreement with the manufacturer. The installation of the upgrade and
all recommended test suites will be implemented by the end of 1998.
The Company will complete its Year 2000 compliance program by the end of
1998 at minimal cost.
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Results of Operations
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Fiscal year ended December 31, 1997 compared to fiscal year ended December
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31, 1996.
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Revenues in 1997 were $11,803,000 and represent services performed for 17
different clients compared to $10,352,000 in 1996 representing services for 11
different clients. In 1997 no single client accounted for more than 21% of
total revenues as compared to 1996 when one pharmaceutical customer accounted
for 76% of the Company's revenues.
Cost of revenues includes compensation and other expenses directly related
to conducting clinical studies. These costs increased by $1,891,000 from
$6,331,000 to $8,222,000 for the years ended December 31, 1996 and 1997,
respectively. As a percentage of revenues, the cost of revenues increased from
61% for the year ended December 31, 1996 to 70% for the year ended December 31,
1997. The increase in relative percent is due to different cost structures of
the studies based on the work requested by the Company's clients in 1997. In
1997, the mix of work requested by the Company's clients happened to be lower
margin work as compared to 1996. The Company's fixed costs necessary to support
its volume of clinical trials also increased in 1997, primarily as a result of
increased personnel costs.
Selling, general and administrative expenses include all administrative
personnel and business development, and all other support expenses not directly
related to specific contracts. Selling, general and administrative expenses for
the year ended December 31, 1997 amounted to $2,563,000, as compared to
$2,254,000 for the same period last year. Expenses in both years amounted to
22% of revenues. The increase in the level of expenses of $309,000 is due to
the overall expansion of the business and costs associated with building the
necessary support infrastructure.
Research and development expenses for the year ended December 31, 1997
amounted to $1,052,000 or 9% of revenues, as compared to $883,000 or 9% of
revenues for the same period last year. These expenditures are directly related
to development of VHC, an interactive voice recognition system, whose platform
was essentially completed in 1997. Future development expenses are expected to
be limited to maintenance costs associated with the system.
Interest income increased $16,000 from $94,000 for the year ended December
31, 1996 to $110,000 for the year ended December 31, 1997.
The provision for income taxes amounted to $35,000 (before recording the
income tax benefit of $94,000 on the sale of FMT) for the year ended December
31, 1997 and is net of a federal tax credit applicable to qualified research
expenses and an adjustment to the income tax benefit of prior period net
operating loss. In 1997, the Company reached agreement with the purchaser to
treat the sale of FMT as an asset sale under Internal Revenue Code Section 338
(h) (10). Accordingly, the loss on the disposition of FMT is deductible for tax
purposes against future income. As a result, during the first quarter of 1997,
the Company recorded an additional deferred tax asset of $94,000. Management
anticipates the loss on disposal to be fully utilized. As a result, the net
income tax benefit recorded for the year ended December 31, 1997 was $59,000.
Fiscal year ended December 31, 1996 compared to fiscal year ended December
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31, 1995.
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Revenues in 1996 were $10,352,000 compared to $1,492,000 for 1995. The
increase in revenues of $8,860,000 is directly related to the increase in the
number and size of clinical development studies. In 1996, the Company worked on
seven different clinical studies, each with revenue value that will exceed
$1,000,000 when completed, as compared to only one trial with a revenue value
in excess of $1,000,000 in 1995.
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Cost of revenues includes compensation and other expenses directly relating
to conducting clinical studies. These costs increased by $5,876,000 from
$455,000 to $6,331,000 for the years ended December 31, 1995 and 1996,
respectively. As a percentage of revenues, the cost of revenues increased from
30% for the year ended December 31, 1995 to 61% for the year ended December 31,
1996. The increase in the relative percent of costs to revenues is due to the
growth in the number, size and complexity of clinical studies.
Selling, general and administrative expenses include all administrative
personnel and business development, and all other expenses not directly
chargeable to a specific contract. Selling, general and administrative expenses
for the year ended December 31, 1996 increased 32% to $2,253,000 as compared to
$1,713,000 for 1995. As a percentage of revenue, selling, general and
administrative expenses decreased from 115% to 22% for the years ended December
31, 1995 and 1996, respectively. The increase in the level of expenses from
1995 to 1996 is due to the general expansion of the business and costs
associated with building the necessary support infrastructure. The decrease in
selling, general and administrative expenses as a percentage of revenues
reflects the growth of clinical trial services from 1995 to 1996.
Research and development expense for the year ended December 31, 1996
amounted to $882,000 as compared to $180,000 for the prior period and relate to
costs associated with developing VHC, an interactive voice recognition system.
Interest income increased $80,000 from $13,000 for the year ended December
31, 1995 to $93,000 for the year ended December 31, 1996 due to an increase in
cash which was not needed for current operations.
As a result of the Company's net operating loss carry forward which
amounted to $310,000 for federal income tax purposes at December 31, 1996, the
Company did not provide for a federal tax liability for 1996. Accordingly, a
provision for federal income tax is not reflected in the Company's Consolidated
Statements of Operations. In 1996, the Company did account for a net deferred
tax asset and recognized a net current and deferred income tax benefit of
$34,000.
Net loss from discontinued operations for the year ended December 31, 1996
amounted to $104,000 (net of income tax benefit of $53,000) and relates to seven
months of operations of FMT. Following an assessment of the status of FMT's
products and the additional investment required to fully develop its business,
the Board of Directors concluded, subject to stockholder approval which was
subsequently received, that it was in the best interest of the Company to sell
FMT to a buyer willing to fund the additional required investment in research
and development and operating expenses to further develop FMT's products.
On July 26, 1996, an agreement was reached, and subsequently ratified by
the Company's shareholders on September 20, 1996, to sell all of the stock of
FMT for a $250,000 promissory note plus a licensing fee ranging from 5% to 2.5%
payable to the Company on any revenue of certain FMT products over the next five
years. In addition, the former officers of FMT agreed to donate back to the
Company 475,000 stock options of the Company with an exercise price of $2.875
per share which were scheduled to expire on March 22, 2000. The Company has not
received any license fees under the licensing agreement.
The financial impact of this transaction resulted in a one time
nonrecurring loss of $328,000 which was charged to earnings in the third quarter
ended September 30, 1996.
In 1997 the Company did not receive the scheduled payments due on the note
from the purchaser of FMT, ABS Group, Inc. ("ABS"). On December 31, 1997, the
Company agreed to exchange the note which had a remaining principal balance of
$225,000 and related accrued interest of $13,000 for 300,000 shares of common
stock of ABS, which are subject to certain restrictions. ABS is a public
company, however, the trading volume of its common stock is limited. The common
stock received has been recorded at an amount equal to the carrying value of the
note, including accrued interest, which management believes approximates fair
value.
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Liquidity and Capital Resources
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The Company's contracts usually require a portion of the contract amount to be
paid at the time the contract is initiated. Additional payments are generally
made upon completion of negotiated performance requirements throughout the life
of the contract. Cash receipts do not necessarily correspond to costs incurred
and revenue recognized (revenue recognition is based on the percentage of
completion accounting method). The Company typically receives a low volume of
large-dollar receipts. As a result, the number of days outstanding in accounts
receivable will fluctuate due to the timing and size of cash receipts. Accounts
receivable decreased $992,000 to $2,135,000 at December 31, 1997 primarily due
to the timing of progress payments for clinical trials. This was offset by costs
and estimated earnings in excess of related billings on uncompleted contracts
which increased $1,402,000 to $1,408,000 at December 31, 1997. This increase was
attributable to four clinical trials, for which revenues have been recognized in
excess of progress payments made to date on those contracts. Accounts payable
increased $1,115,000 to $1,803,000 at December 31, 1997 primarily due to an
increase in payments due to investigator sites. These contractual payments are
based on completing certain milestones during the clinical trial. Investigator
fees are therefore accrued based on the work completed and paid at a later date.
The Company's cash and cash equivalents balance at December 31, 1997 was
$1,795,000 as compared to $922,000 at December 31, 1996. The increase in cash
was primarily due to operating results for the year including the above
mentioned increase in accounts receivable and the increase in accounts payable.
The Company purchased $335,000 of equipment in 1997 as compared to $325,000
in 1996. Purchases in 1997 were primarily for computers and office equipment.
The Company does not anticipate the need for significant capital expenditures in
1998.
The Company has a line of credit with a commercial bank providing a maximum
credit facility of $1 million which bears interest at a rate not to exceed 1%
point above the bank's prime rate. Borrowings outstanding under the credit line
are secured by substantially all of the assets of the Company. No borrowings
were outstanding under the credit line at December 31, 1997.
The Company's principal cash needs on both a short and long-term basis are
for the funding of its operations, and capital expenditure requirements. The
Company expects to continue expanding its operations through internal growth,
expansion of its existing services, and the development of new service products
for clinical research and the healthcare industry. The Company expects such
activities to be funded from existing cash and cash equivalents and cash flow
from operations.
Management believes that the Company's operations and financial results are
not materially affected by inflation.
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ITEM 13. EXHIBITS
(a) Exhibits
3.1 Certificate of Incorporation of West End Ventures, Inc., a Nevada
corporation (predecessor to the Company) and all amendments
thereto.
3.3 Bylaws of Covalent Group, Inc. (1)
10.1 1996 Stock Option Plan. (2)
10.2 1995 Stock Option Plan. (1)
10.3 Lease between Dean Witter Realty Income Partnership II and
Covalent Group, Inc. dated November 14, 1996. (1)
10.4 Credit Agreement with Corestates Bank dated April 25, 1997.
10.5 Stock Purchase Warrant Agreement between Berkshire International
Finance, Inc. and the Company dated June 20, 1996 (incorporated
by reference to Exhibit 4.1 to the Company's Amendment No. 1 to
Form S-3 filed July 15, 1998 (File No. 333-51079)).
10.6 Stock Purchase Warrant Agreement between S&F Consulting, Inc. and
the Company dated June 20, 1996 (incorporated by reference to
Exhibit 4.2 to the Company's Amendment No. 1 to Form S-3 filed
July 15 1998 (File No. 333-51079)).
10.7 Stock Purchase Warrant Agreement between S&F Consulting, Inc. and
the Company dated May 8, 1996 (incorporated by reference to
Exhibit 4.3 to the Company's Amendment No. 1 to Form S-3 filed
July 15, 1998 (File No. 333-51079)).
21 Subsidiaries of the Registrant. (1)
23.1 Consent of Arthur Andersen LLP. (1)
23.2 Consent of Baratz & Associates, P.A. (1)
27 Financial Data Schedule (in electronic format only). (1)
(b) Form 8-K
On December 31, 1997 the Company reported on Form 8-K stockholder
ratification to appoint the firm of Arthur Andersen LLP as its
independent auditors beginning January 1, 1998 to make an examination
of the accounts of the Company for the year ended December 31, 1997.
The Company had no disagreements with its previous independent
auditors, Baratz & Associates, P.A. on any matter of accounting
principles or practices, financial statement disclosure or auditing
scope or procedure.
_________________________
(1) Filed as an exhibit to the Company's Report on Form 10-KSB (No. 0-21145)
filed with the Securities & Exchange Commission on March 30, 1998 and
incorporated herein by reference.
(2) Incorporated by reference from Proxy Statement for 1996 Annual Meeting.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this amendment to its report on Form 10-KSB to be signed on its behalf by
the undersigned, thereunto duly authorized.
COVALENT GROUP, INC.
Dated: July 15,1998
---------------------
By: /s/ Bruce LaMont
----------------------------------
Bruce LaMont, President, Chief
Executive Officer and Director
12
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
WEST END VENTURES, INC.
The undersigned, being a person of full age, do hereby makes and
acknowledge this Certificate of Incorporation for the purpose of forming a
corporation under the General Corporation Law of the State of Nevada.
ARTICLE I
The name of the corporation shall be West End Ventures, Inc.
ARTICLE II
The purposes for which the corporation is organized are:
(a) to engage in acquisitions of suitable enterprises; and
(b) to engage in any other lawful enterprise, service or activity for which
corporations may be organized under the General Corporation Law of the
State of Nevada, in addition to or in lieu of the purposes hereinabove
set forth in paragraph (a) of this article.
ARTICLE III
Duration of the corporation shall be perpetual.
ARTICLE IV
The corporation shall have authority to issue 25,000,000 shares of capital
stock at a par value of $0.001 per share.
ARTICLE V
The minimum amount of consideration to be received by the corporation for
its shares before it shall commence business is $1000.00 in cash or property of
equivalent value.
ARTICLE VI
The address of the initial registered office of the corporation is:
<PAGE>
Laughlin Associates
Capital Plaza, Suite 100
1000 E. William Street
Carson City, Nevada 89701
The name of the initial registered agent of the corporation at such address
is Laughlin Associates, Inc.
ARTICLE VII
The number of directors constituting the initial board of directors shall
be one (1) and the name and address of the person who is to serve as director
until the first meeting of shareholders, or until her successor is elected and
qualified is:
Deborah A. Salerno
200 E. 90th Street, Suite 26-H
New York, New York 10128
ARTICLE VIII
The name and address of the incorporator is:
Charles W. Barkley
Barkley & Barkley
914 Cameron Brown Building
Charlotte, Mecklenburg County, North Carolina 28204
ARTICLE IX
The Shareholders shall not have pre-emptive rights in any issues of capital
stock and shall not have cumulative voting rights.
IN WITNESS WHEREOF, the undersigned, being all of the incorporators
hereinabove named, does hereby make this Certificate for the purpose of forming
a corporation pursuant to the General Corporation Laws of the State of Nevada
and does hereby certify that the facts hereinabove set forth are true and
correct and have accordingly set hereunto my hand and seal this 24 day of July,
1989.
/s/ Charles W. Barkley
--------------------------------------------
Incorporator
<PAGE>
STATE OF NORTH CAROLINA:
:
COUNTY OF MECKLENBURG:
I, ___________________________________________________________________, a
Notary Public in and for Mecklenburg County and State aforesaid, do hereby
certify that Charles W. Barkley personally appeared before me this day and
acknowledged the due execution of the foregoing Articles of Incorporation.
WITNESS my hand and notarial seal, this 24 day of July, 1989.
--
/s/
---------------------------------------
Notary Public
My Commission Expires:
[NOTARIAL SEAL]
<PAGE>
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
West End Ventures, Inc., a corporation organized under the Laws of the
State of Nevada, by its President and Secretary does hereby certify:
1. That the board of directors of said corporation at a meeting duly
convened and held on the 1st day of March, 1990, passed a resolution declaring
that the following change and amendment in the articles of incorporation is
advisable.
RESOLVED, that article FIRST of said articles of incorporation be
amended to read as follows:
"FIRST: The name of the corporation is Future Medical Technologies
International, Inc."
2. That the number of shares of the corporation outstanding and
entitled to vote on an amendment to the articles of incorporation is two-thirds;
that the said change and amendment has been consented to and authorized by the
written consent of stockholders holding at least a majority of each class of
stock outstanding and entitled to vote thereon.
<PAGE>
IN WITNESS WHEREOF, the said West End Ventures, Inc. has caused this
certificate to be signed by its President and its Secretary and its corporate
seal to be hereto affixed this 15th day of April, 1990.
West End Ventures, Inc.
By: /s/ Joseph B. Hippensteel
------------------------------------------
Joseph B. Hippensteel
President
By: /s/ Deanne K. VanLeeuwen
------------------------------------------
Deanne K. VanLeeuwen
Secretary
(SEAL)
STATE OF NEW JERSEY :
: SS.
COUNTY OF CAMDEN :
On April 15, 1990 personally appeared before me a Notary Public, JOSEPH B.
HIPPENSTEEL and DEANNE K. VAN LEEUWEN, who acknowledged that they executed the
above instrument.
/s/
------------------------------------
Notary Public
(SEAL)
<PAGE>
CERTIFICATE OF AMENDMENT
OF
FUTURE MEDICAL TECHNOLOGIES INTERNATIONAL, INC.
Bruce LaMont and David Weitz certify as follows:
1. That they are the President and Secretary, respectively, of
FUTURE MEDICAL TECHNOLOGIES INTERNATIONAL, INC., a Nevada Corporation.
2. That by unanimous consent of the Board of Directors September 20,
1996, the following resolution was adopted.
RESOLVED, that the to the Articles of Incorporation dated September
28, 1989 and filed with the Secretary of State on September 28, 1989
and the Amendment to the Articles of Incorporation dated April 15,
1990 and filed with the Secretary of State on May 8, 1990 be, and
hereby are amended as follows:
That the name of the corporation is Covalent Group, Inc."
3. That paragraph FIRST of said Articles of Incorporation is hereby
amended to read as follows:
That the name of the corporation is Covalent Group, Inc.
4. That the members of said corporation have adopted said amendment
by written consent on or about the 20th day of September, 1996. That the
wording of the amended Articles, as set forth in the members' resolution, is the
same as that set forth in the Director's resolution in paragraph Two (2) above.
That the number of shares voted affirmative for the adoption of said resolution
is 7,948,824, and that the total number of shares entitled to vote on or consent
to said amendment is 11,542,403.
DATED this 20th day of September, 1996.
SIGNED: /s/ BRUCE LAMONT
-----------------------------------------------
BRUCE LAMONT, President
SIGNED: /s/ DAVID WEITZ
-----------------------------------------------
DAVID WEITZ, Secretary
<PAGE>
STATE OF NEW JERSEY :
: SS.
COUNTY OF CAMDEN :
ON THIS 20th day of September, 1996, personally appeared before me, a
Notary Public, Bruce LaMont and David Weitz, who acknowledged that they are the
President and Secretary respectively of Future Medical Technologies
International, Inc., and that they executed the foregoing Certificate of
Amendment.
/s/
------------------------------------------
NOTARY PUBLIC
<PAGE>
EXHIBIT 10.4
MASTER DEMAND NOTE
$ 1,000,000.00 April 25, 1997
FOR VALUE RECEIVED, each of the undersigned, jointly and severally if more than
one (hereinafter collectively referred to as "Borrower"), pursuant to pay to the
order of CoreStates Bank, N.A.*, a national banking association (the "Bank"), at
any of its banking offices in Pennsylvania, the principal amount of One Million
- -------------------------------00/100 DOLLARS in lawful money of the United
States, or, if less, the outstanding principal balance on all loans and advances
made by Bank evidenced by this Note ("Loans"), plus interest. Said principal
and interest shall be payable ON DEMAND
Interest shall accrue at a rate per annum which is at all times equal to 1% in
excess of Bank's Prime Rate, such rate to change each time the Prime Rate
changes, effective on and as of the date of the change.
INTEREST - Interest shall be calculated on the basis of a 360 day year and shall
also be payable on demand and when the entire principal balance of this Note is
paid to Bank. The term "Prime Rate" is defined as the rate of interest for
loans established by Bank from time to time as its prime rate. Interest shall
accrue on each disbursement hereunder from the date such disbursement is made by
Bank, provided, however, that to the extent this Note represents a replacement,
substitution, renewal or refinancing of existing indebtedness, interest shall
accrue from the date hereof. Interest shall accrue on the unpaid balance hereof
at the rate provided for in this Note until the entire unpaid balance has been
paid in full, notwithstanding the entry of any judgment against Borrower.
BANK'S LOAN RECORDS - The actual amount due and owing from time to time under
this Note shall be evidenced by Bank's books and records of receipts and
disbursements hereunder. Bank shall set up and establish an account on the
books of Bank in which will be recorded Loans evidenced hereby, payments on such
Loans and other appropriate debits and credits as provided herein, including any
Loans which represent reborrowings of amounts previously repaid. Bank shall
also record, in accordance with other items properly chargeable to Borrower
hereunder, and other appropriate debits and credits. Such books and records of
Bank shall be presumed to be complete and accurate and shall be deemed correct,
except to the extent shown by Borrower to be manifestly erroneous;
NOTE NOT A COMMITMENT TO LEND - Borrower acknowledges and agrees that no
provision hereof, and no course of dealing by Bank in connection herewith, shall
be deemed to create or shall imply the existence of any commitment or obligation
on the part of Bank to make Loans. Except as otherwise provided in a currently
effective written agreement by Bank to make Loans, each Loan shall be made
solely at Bank's discretion.
PREPAYMENT - Borrower may at its option prepay all or any portion of the
principal balance of any Loans at any time without premium or penalty.
COLLATERAL - As security for all indebtedness to Bank now or hereafter incurred
by Borrower, under this Note or otherwise, Borrower grants Bank a lien upon and
security interest in any securities, instruments or other personal property of
Borrower now or hereafter in Bank's possession and in any deposit balances now
or hereafter held by Bank for Borrower's account and in all proceeds of any such
personal property or deposit balances. Such liens and security interest shall
be independent of Bank's right of setoff. This Note and the indebtedness
evidenced hereby shall be additionally secured by any lien or security interest
evidenced by a writing (whether now existing or hereafter executed) which
contains a provision to the effect that such lien or security interest is
intended to secure (a) this Note or indebtedness evidenced hereby or (b) any
category of liabilities, obligations or the indebtedness of Borrower to Bank
which includes this Note or the indebtedness evidenced hereby, and all property
subject to any such lien or security interest shall be collateral for this Note.
CONFESSION OF JUDGMENT - Borrower irrevocably authorizes and empowers any
attorney or any clerk of any court of record to appear for and confess judgment
against Borrower for such sums as are due and owing on this Note, with or
without declaration, with costs of suit, without stay of execution and with an
amount not to exceed the greater of fifteen percent (15%) of the principal
amount of such judgment or $5,000 added for collection fees. If a copy of this
Note, verified by affidavit by or on behalf of Bank, shall have been filed in
such action, it shall not be necessary to file the original of this Note. The
authority granted hereby shall not be exhausted by the initial exercise thereof
and may be exercised by Bank from time to time. There shall be excluded from
the lien of any judgment obtained solely pursuant to this paragraph all improved
real estate in any area identified under regulations promulgated under the Flood
Disaster Protection Act of 1973, as having special flood hazards if the
community in which such area is located in participating in the National Flood
Insurance Program. Any such exclusion shall not affect any lien upon property
not so excluded.
DEMAND NOTE - This Note is and shall be construed as a "demand instrument" under
the Uniform Commercial Code. Bank may demand payment of the indebtedness
outstanding under this Note or any portion thereof at any time.
BANK REMEDIES - In the event that any payment hereunder is not made when due or
demanded, bank may, immediately or any time thereafter, exercise any or all of
its rights hereunder or under any agreement or otherwise under applicable law
against Borrower, against any person liable, either absolutely or contingently,
or payment of any indebtedness evidenced hereby, and in any collateral, and such
rights may be exercised in any order and shall not be prejudiced by any delay in
Bank's exercise thereof. At any time after such non-payment, Bank may, at its
option and upon five days written notice to Borrower, begin accruing interest on
this Note at a rate not to exceed five percent (5%) per annum in excess of the
rate of interest provided for above on the unpaid principal balance hereof;
provided, however, that no such interest shall accrue hereunder in excess of the
maximum rate permitted by law. All such additional interest shall be payable
upon demand.
NOTICE TO BORROWER - Any notice required to be given by Bank under the
provisions of this Note shall be effective as to each Borrower when addressed to
Borrower and deposited in the mail, postage prepaid, for delivery by first class
mail at Borrower's mailing address as it appears on Bank's records.
DISBURSEMENTS AND PAYMENTS - The proceeds of any Loan may be credited by Bank to
the deposit account of Borrower or disbursed in any other manner requested by
Borrower and approved by Bank. All payments due under this Note are to be made
in immediately available funds. If Bank accepts payment in any other form, such
payment shall not be deemed to have been made until the funds comprising such
payment have actually been received by or made available to Bank. If Borrower
is not an individual, Borrower authorizes Bank (but Bank shall have no
obligation) to charge any deposit account in borrower's name at Bank for any and
all payments of principal, interest, or any other amounts due under this Note.
<PAGE>
PAYMENT OF COSTS - In addition to the principal and interest another sums
payable hereunder, Borrower agrees to pay Bank on demand, all costs and expenses
(including reasonable attorneys' fees and disbursements) which may be incurred
by Bank in the collection of this Note or the enforcement of Bank's right and
remedies hereunder.
REPRESENTATIONS BY BORROWER - In order to induce Bank to make loans, Borrower
represents and warrants as follows: if Borrower is a corporation or a general or
limited partnership, Borrower represents and warrants that it is validly
existing and in good standing in the jurisdiction under whose laws it was
organized. If Borrower is a corporation, Borrower represents and warrants that
the execution, delivery and performance of this Note are within Borrower's
corporate powers, have been duly authorized by all necessary action by
Borrower's Board of Directors, and are not in contravention of the terms of
Borrower's charter, by-laws, or any resolution of its Board of Directors. If
Borrower is a general or limited partnership, Borrower represents and warrants
that the execution, delivery and performance of this Note have been duly
authorized and are not in conflict with any provision of Borrower's partnership
agreement or certificate of limited partnership. Borrower further represents
and warrants that this Note has been validly executed and is enforceable in
accordance with its terms, the execution, delivery and performance of Borrower
of this Note are not in contravention of law and do not conflict with any
indenture, agreement undertaking to which Borrower is a party or is otherwise
bound, and that no consent or approval of any governmental authority or any
third party is required in connection with the execution, delivery and
performance of this Note. If this Note is secured by "margin stock" as defined
in Regulation U of the Board of Governors of the Federal Reserve System,
borrower warrants that no Loan or portion thereof shall be used to purchase or
carry margin stock, and that each Loan shall be used for the purpose or purposes
indicated on the most recent Form FR U-1 executed by Borrower in connection with
Loans made by Bank.
WAIVERS, ETC. - Borrower and each additional obligor on this Note waive
presentment, dishonor, notice of dishonor, protest and notice of protest.
Neither the failure nor any delay on the part of Bank to exercise any right,
remedy, power or privilege hereunder shall operate as a waiver or modification
thereof. No consent, waiver or modification of the terms of this Note shall be
effective unless set forth in a writing signed by Bank. All rights and remedies
of Bank are cumulative and concurrent and no single or partial exercise of any
power or privilege shall preclude any other or further exercise of any right, or
privilege.
MISCELLANEOUS - This Note is the unconditional obligation of Borrower, and
Borrower agrees that Bank shall not be required to exercise any of its rights or
remedies against any collateral in which it holds a lien or security interest,
or against which it has right or setoff, or against any particular obligor. All
representations, warranties an agreements herein are made jointly and severally
by each Borrower. If any provisions of this Note shall be held invalid or
unenforceable, such invalidity or unenforceability shall not affect any other
provision hereof. To the extent that this Note represents a replacement,
substitution, renewal or refinancing of a pre-existing note or other evidence of
indebtedness, the indebtedness represented by such pre-existing note or other
instrument shall not be deemed to have been extinguished hereby. This Note has
been delivered in and shall be governed by and construed in accordance with the
laws of the Commonwealth of Pennsylvania without regard to the law of conflicts.
In the event any due date specified or otherwise provided for in this Notre
shall fall on a day which Bank is not open for business, such due ate shall be
postponed until the next banking day, and interest and any fees or similar
charges shall continue to accrue during such period of postponement. This Note
shall be binding upon each borrower and each additional Obligor and upon their
personal representatives, heirs, successors and assigns, and shall benefit Bank
and its successors and assigns.
CONSENT TO JURISDICTION AND VENUE -- IN ANY LEGAL PROCEEDING INVOLVING, DIRECTLY
OR INDIRECTLY,ANY MATTER ARISING OUT OF OR RELATED TO THIS NOTE OR THE
RELATIONSHIP EVIDENCED HEREBY, EACH UNDERSIGNED PARTY HEREBY IRREVOCABLY SUBMITS
TO THE NONEXCLUSIVE JURISDICTION OF ANY STAT OR FEDERAL COURT LOCATED IN ANY
COUNTY IN THE COMMONWEALTH OF PENNSYLVANIA WHERE BANK MAINTAINS AN OFFICE AND
AGREES NOT TO RAISE ANY OBJECTION TO SUCH JURISDICTION OR TO THE LEAVING OR
MAINTAINING OF THE VENUE OF ANY SUCH PROCEEDING IN SUCH COUNTY. EACH
UNDERSIGNED PARTY AGREES THAT SERVICE OR PROCESS IN ANY SUCH PROCEEDING MAY BE
DULY EFFECTED UPON IT BY MAILING A COPY THEREOF, BY REGISTERED MAIL, POSTAGE
PREPAID, TO EACH UNDERSIGNED PARTY.
WAIVER OF JURY TRIAL -- EACH UNDERSIGNED PARTY HEREBY WAIVES, AND BANK BY ITS
ACCEPTANCE HEREOF THEREBY WAIVES, TRIAL BY JURY IN ANY LEGAL PROCEEDING
INVOLVING DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT
OR OTHERWISE) IN ANY WAY ARISING OUT OF OR RELATED TO THIS NOTE OR THE
RELATIONSHIP EVIDENCED HEREBY, THIS PROVISION IS A MATERIAL INDUCEMENT FOR BANK
TO ENTER INTO, ACCEPT OR RELY UPON THIS NOTE.
IN WITNESS WHEREOF, Borrower, intending this to be a sealed instrument and
intending to be legally bound hereby, has executed and delivered this Note as of
the day and year first above written.
Name of Corporation
or Partnership Covalent Group, Inc.
______________________________________________________________________________
BY: /s/ WILLIAM K. ROBINSON BY:
- ------------------------------------- -------------------------------------
(Signature of Authorized Signer) (Signature of Authorized Signer)
WILLIAM K. ROBINSON, CFO & DIRECTOR
- ------------------------------------------------------------------------------
(Print or Type Name an (Print or Type Name and
Title of Signer Above) Title of Signer Above)
<PAGE>
INDIVIDUALS SIGN BELOW
________________________________________ ____________________________(Seal)
(Signature of Witness) (Signature of Individual Borrower)
________________________________________ ________________________________
(Print or Type Name of Above Witness) (Print or Type Name or Borrower
Signing Above)
________________________________________ ____________________________(Seal)
(Signature of Witness) (Signature of Individual Borrower)
________________________________________ ________________________________
(Print or Type Name of Above Witness) (Print or Type Name of Borrower
Signing Above)
<PAGE>
CERTIFIED COPY OF BORROWER'S RESOLUTIONS
AND CERTIFICATE OF INCUMBENCY
TO: CORESTATES BANK, N.A.
I, the undersigned Secretary of Covalent Group, Inc., a Pennsylvania
corporation (the "Corporation"), hereby certify that (check one) [X] at a
meeting of the Board of Directors of the Corporation, duly called and held in
accordance with its charter and by-laws on February 25, 1997, at which a quorum
was present and voting throughout. [_] by unanimous written consent of the Board
of Directors of the Corporation, dated _____________________, 19__, the
following Resolutions were adopted in accordance with its charter, by-laws, and
applicable law and that said Resolutions have not been altered, amended or
rescinded and are now in full force and effect:
"RESOLVED:
1. That the President, Vice President, Treasurer, Secretary and
_____________________ of this Corporation, or any one of them, are hereby
authorized in the name and on behalf of this Corporation from time to time (1)
to borrow money and to obtain credit from CoreStates Bank, N.A., a national
banking association (the "Bank"), and to sell to or discount with said Bank any
evidences of indebtedness and choses in action owned by this Corporation on such
terms as may be required by said Bank: (2) to authorize and cause the issuance
of letters of credit and the purchase or sale of exchange for future delivery by
said Bank for the account of this Corporation, on such terms as may be required
by said Bank: (3) to give said Bank one or more mortgage or other lien on any
real property of this Corporation or one or more liens on or security interests
in any personal property of this Corporation originally and in addition and in
substitution to secure the payment and performance of this Corporation's
obligations and liabilities of any nature to said Bank; and (4) in connection
with the foregoing, to execute and deliver any instruments and/or agreements
required by said Bank, including those authorizing confession of judgment and
including those contained a provision authorizing said Bank to charge payments
due on loans, advances, fees and other charges to a deposit account maintained
by the Corporation with said Bank and such other terms and provisions as such
officer(s) shall deem appropriate.
2. Any action heretofore taken by any officer of this Corporation with respect
to any of the matters stated above is hereby ratified and confirmed.
3. That the Secretary is hereby directed to file with said Bank a certified
copy of these Resolutions and a list of the persons, together with specimens of
their signature, who are the present holders of the said offices, and that said
Bank shall be entitled as against this Corporation to presume conclusively that
the persons so certified as holding such offices continue respectively to hold
the same until otherwise notified in writing by the Secretary.
4. That these Resolutions, insofar as said Bank is concerned , shall continue
in full force and effect until receipt by said Bank of written notice from the
Secretary of the changes, if any, therein."
I hereby further certify that the above Resolutions do not conflict with
the provisions of the Corporation's charter or its by-laws, and that the present
holders of the offices referred to in the foregoing Resolutions and their
specimen signatures are set forth below.
WILLIAM K. ROBINSON CFO & DIRECTOR /s/ WILLIAM K. ROBINSON
- ------------------------ ------------------------ ------------------------
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the Corporate
Seal this 25th day of April, 1997.
(Affix Corporate Seal) /s/ DAVID WEITZ
----------------------------------------
SECRETARY
Note: The President or Vice-President must sign the following confirmation, if
applicable:
I, _________________________________ of the above named Corporation, do hereby
(NAME) (TITLE)
certify that the Secretary of said Corporation is duly authorized to borrow and
otherwise act as stated in the above Resolution No. 1 without other signature or
countersignature, that is the present Secretary of the Corporation, and that the
signature of said Secretary above is his or her true signature.
IN WITNESS WHEREOF, I have hereunto set my hand this________day of_______,
19___.
__________________________________
(Signature and Title)
<PAGE>
<TABLE>
<CAPTION>
EXPLANATION AND WAIVER OF RIGHTS
REGARDING CONFESSION OF JUDGMENT
1. On the date hereof, Covalent Group, Inc., a corporation (the "Obligor")
is signing and delivering to CoreStates Bank, N.A. (the "Bank") a
<S> <C>
[_] Promissory note in the principal sum of One Million--00/100 Dollars ($1,000,000);
[_] Guaranty of Obligations of_______________________________________________;
[X] Other Security Agreement
-------------------------------------------------------------------;
</TABLE>
(as the same may be renewed, modified, amended, extended, restated or replaced,
whether one or more, the "Obligation"). The Obligor has been advised by the
Bank (and by the Obligor's legal counsel, if applicable) that the Obligation
contains a clause that provides that the Bank may confess judgment against the
Obligor. The Obligor has read the Obligation and clearly and specifically
understands that by signing the Obligation which contains such confession of
judgment clause:
(a) The Obligor is authorizing the Bank to enter a judgment against
the Obligor and in favor of the Bank, which will give the Bank a lien upon any
real estate which the Obligor may own in any county where the judgment is
entered;
(b) The Obligor is giving up an important right to any notice or
opportunity for a hearing before the entry of this judgment on the records of
the Court;
(c) The Obligor is agreeing that the Bank may enter this judgment and
understands that the Obligor will be unable to contest the validity of the
judgment, should the Bank enter it, unless the Obligor successfully challenges
entry of the judgment through a petition to open or strike the judgment, which
will require the Obligor to retain counsel at the Obligor's expense;
(d) The Obligor may be giving up an important right to any notice or
opportunity for a hearing before the Bank may request and use the power of the
state governmental to deprive the Obligor of its property pursuant to the
judgment by seizing or having the Sheriff or other official seize the Obligor's
bank accounts, inventory, equipment, furnishings, or any other personal property
that the Obligor may own, to satisfy the Obligation;
(e) The Obligor may be immediately deprived of the use of any property
that is seized by the bank pursuant to the judgment without notice or a hearing,
and the procedural rules of Pennsylvania's court system do not guarantee that
the Obligor will receive a prompt hearing after the Obligor's property is
seized; and
(f) If the Obligation is the Bank's printed form of Master Demand
Note, Commercial Promissory Note or Security Agreement, or a Master Note
Agreement prepared by the Bank, the Obligor is agreeing that the Bank may enter
judgment whether or not there is a default under the Obligation.
2. The Obligor knows and understands that it is the confession of
judgement clause in the Obligation which give the Bank the right described in
subparagraphs (a) through (f) of paragraph 1 above.
3. Fully and completely understanding the rights which are being given up
if the Obligor signs the Obligation containing the confession of judgment, the
Obligor nevertheless freely, knowingly and voluntarily waives said rights and
chooses to sign the Obligation.
4. The Obligor acknowledges that the proceeds of the Obligation are to be
used for business purposes.
5. If the Obligor is an individual, the Obligor certifies that his/her
annual income exceeds $10,000.00.
Dated this 25th day of April, 1997.
<PAGE>
THE OBLIGOR HAS READ THIS EXPLANATION AND WAIVER PRIOR TO SIGNING THE OBLIGATION
AND FULLY UNDERSTANDS ITS CONTENTS.
Covalent Group, Inc.
---------------------------------------------------
[Name of Corporation/Partnership]
By: /s/ WILLIAM K. ROBINSON By:__________________________
- -----------------------------------
WILLIAM K. ROBINSON, CFO & DIRECTOR
- ----------------------------------- _____________________________
(Print Name and Title) (Print Name and Title)
INDIVIDUALS OR PROPRIETORS SIGN BELOW
- ------------------------------- ---------------------------------------
(Witness Signature) (Signature of Individual Obligor)
- ------------------------------- ---------------------------------------
(Witness Signature) (Signature of Individual Obligor)
<PAGE>
SECURITY AGREEMENT
(ACCOUNTS)
THIS AGREEMENT is made this 25th day of April, 1997, between CoreStates Bank,
N.A.*, a national banking association (the "Bank"), and Covalent Group, Inc.
(the "Debtor").
1. DEFINITIONS. As used herein and in any separate agreement between the Bank
and the Debtor in connection with this Agreement:
(a) "Account" means any right to payment for goods sold or leased or for
services rendered which is not evidenced by an Instrument or Chattel
Paper, whether or not it has been earned by performance including all
rights to payment under a charter or other contract involving the use or
hire of a vessel and all rights incident to such charter or contract.
(b) "Qualified Account" means any Account meeting all the following
specifications: (i) it is lawfully owned by the Debtor and subject to no
lien, security interest or prior assignment, and the Debtor has the right
of assignment thereof and the power to grant a security interest therein;
(ii) it is a valid and enforceable Account, representing the undisputed
indebtedness of an Account Debtor to the Debtor; (iii) it is not subject
to any defense, set-off, counter-claim, credit, allowance or adjustment;
(iv) no substantial part of any goods the sale of which ha given rise to
the Account has been returned, rejected, lost or damaged; (v) if it arises
from the sale of goods by the Debtor, such sale was an absolute sale and
not on consignment or on approval or on a sale or return basis nor subject
to any other purchase or return agreement, and such goods have been
shipped to the Account Debtor; (vi) if it arises from the performance of
services, such services have actually been performed; (vii) it arose in
the ordinary course of the Debtor's business; (viii) no notice of the
Bankruptcy, receivership, reorganization, insolvency, or financial
embarrassment of the Account Debtor has been received; (ix) the Account
debtor is not a subsidiary or affiliate of the Debtor, does not control
the Debtor, and is not under the control of or under common control with
the Debtor; and (x) the Account meets such other specifications and
requirements which may from time to time be established by the Bank.
(c) "Account Debtor" means the Person who is obligated on an Account or
General Intangible.
(d) "Chattel Paper" means a writing or writings which evidence both a monetary
obligation and a security interest in or a lease or specific goods.
(e) "Collateral" means (i) all of the Debtor's Accounts now existing or
hereafter arising; (ii) all of Debtor's General Intangibles, Chattel Paper
and Instruments now existing or hereafter acquired or arising; (iii) all
guarantees of the Debtor's existing and future Accounts and General
Intangibles and all other security held by the Debtor for the payment or
satisfaction thereof; (iv) the goods or the services the sale or lease or
performance of which gave rise to any Account or General Intangible of the
Debtor including any returned goods; (v) any balance or share belonging to
the Debtor of any deposit, agency or other account with any bank and any
other amounts which may be owing from time to time by any bank to the
Debtor; (vi) all property of any nature whatsoever of the Debtor now or
hereafter in the possession of or assigned or hypothecated to the Bank for
any purpose; and (vii) all Proceeds of all of the foregoing, including all
Proceeds of other Proceeds.
(f) "Debtor" means the Person who executes this Agreement as such. The Debtor
may be either a borrower from the Bank or a guarantor of the indebtedness
of another to the Bank, and in either case is the Person obligated to pay
the Liabilities secured hereby.
(g) "Document of Title" means a bill of leading, dock warrant, dock receipt,
warehouse receipt or order for the delivery of goods, and also any other
document which in the regular course of business or financing is treated
as adequately evidencing that the Person in possession of it is entitled
to receive, hold and dispose of the document and the goods it covers.
(h) "General Intangibles" means all personal property of every kind and
description of Debtor other than goods, Accounts, Chattel Paper, Documents
of Title, Instruments and money, and includes without limitation choses in
action, books, records, customer lists, tax, insurance and other kinds of
refunds, patents, trademarks, copyrights, trade names, plans, licenses and
other rights in personal property.
<PAGE>
(i) "Instrument" means a negotiable instrument or a security or any other
writing which evidences a right to the payment of money and is not itself
a security agreement or lease and is of a type which is in ordinary course
of business transferred by delivery with any necessary indorsement or
assignment.
(j) "Inventory" means tangible personal property held by the Debtor for sale
or lease or to be furnished under contracts of service, tangible personal
property which the Debtor has so leased or furnished, and raw materials,
work in process and materials used, produced or consumed in the Debtor's
business, and shall include tangible personal property returned to the
Debtor by the purchaser following a sale thereof by the Debtor and
tangible personal property represented by Documents of Title. All
equipment, accessories and parts at any time attached or added to items of
Inventory or used in connection therewith shall be deemed to be part of
the Inventory.
(k) "Liabilities" means all existing and hereafter incurred or arising
indebtedness, obligations and liabilities of the Debtor to the Bank,
whether absolute or contingent, direct or indirect and out of whatever
transactions arising, and includes without limitation, all matured and
unmatured indebtedness, obligations and liabilities of the Debtor under or
in connection with existing and future loans and advances evidenced by
promissory notes or otherwise, letters of credit, acceptances, all other
extensions of credit, repurchase agreements, security agreements,
mortgages, overdrafts, foreign exchange contracts and all other contracts
for payment or performance, indemnities, and all indebtedness, obligations
and liabilities under any guaranty or surety agreement, or as co-maker or
co-obligor with any person for any of the foregoing, including without
limitation all interest, expenses, costs (including collection costs) and
fees (including reasonable attorney's fees and prepayment fees) incurred,
arising or accruing (whether prior or subsequent to the filing of any
bankruptcy petition by or against any Debtor) under or in connection with
any of the foregoing, and further including all such indebtedness,
obligations and liabilities of the Debtor (i) to others which the Bank may
have obtained by
18. NAME OF DEBTOR. The Debtor represents and warrants that the name of the
Debtor shown on this Agreement is the correct, full legal name of the Debtor
and that the Debtor has not at any time changed its name, identity or
corporate structure, been the surviving corporation in a merger, acquired
any other business, or engaged in business under an assumed name or trade
name except as set forth below.
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties hereto
under seal and intending to be legally bound on the day and year first above
written.
CORESTATES BANK, N.A.
Corporate Group Inc.
- -------------------------------------------- By /s/ IRENE HANNAN
----------------------------
(Name of Corporate or Partnership Debtor) (Signature)
By /s/ William K. Robinson IRENE HANNAN, CO.
------------------------------------------ ------------------------------
(Authorized Signature) (Print Name and Title)
William K. Robinson, CFO & Director
- -------------------------------------------- Address 55 VALLEY STREAM PARKWAY
(Print Name and Title) -------------------------
(Number, Street)
MALVERN, PA 19355
------------------------------
(City)
____________________________________________(Seal)
(Signature of Individual Debtor)
____________________________________________
(Print Name of Individual Debtor)
____________________________________________
(Print Trade Style or Fictitious Name, if any)
<PAGE>
EQUIPMENT
SECURITY AGREEMENT
Made on 4/25/97 between
-----------------------
[Date]
<TABLE>
<S> <C>
COVALENT GROUP, INC 1 Glenhardie Corporate Center, 1275 Drummers Lane, Wayne, PA 19087
- -------------------------------------------------------------------------------------------------
(NAMES OF ALL DEBTORS) (CITY) (STATE) (ZIP CODE)
</TABLE>
(herein called "Debtor"), and CoreStates Bank, N.A.*, a national banking
association (the "Bank"), 55 Valley Stream Parkway, Malevern PA 19355
------------------------------------------------------
(STREET AND NO.)
_______________________, Pennsylvania (herein called "Bank"), said address
(CITY) (ZIP CODE)
being Bank's address at which information concerning Bank's security interest
hereunder may be obtained.
SECURITY INTEREST: In consideration of a loan or loans made or to be made
by Bank, Debtor hereby grants to Bank a security interest in the following
described property and all replacements and proceeds thereof, now owned or
hereafter acquired, and all accessories, parts, equipment, attachments affixed
to or used in connection therewith.
DESCRIPTION OF PROPERTY MAKE OR SERIAL MODEL NUMBER
(State whether new or used) MANUFACTURER NUMBER OR YEAR
All equipment and fixtures now owned or hereafter acquired by
the Debtor and all replacements or substitutions thereof and
all accessories, parts and equipment now and hereafter affixed
thereto or used in connection therewith, together with proceeds
thereof.
all said property being hereinafter collectively called the "Collateral."
Said security interest secures the payment of all existing and future
liabilities whether absolute or contingent, of the Debtor to the Bank of any
nature whatsoever and out of whatever transaction arising.
APPLICATION OF LOAN: If the Collateral is being purchased with a loan
being made by Bank of even date herewith, Debtor will apply the proceeds of said
loan delivered to him in full or partial payment of such purchase price and for
no other purposes, and Debtor hereby authorizes Bank to disburse the proceeds of
said loan directly to the Seller of the Collateral.
DEBTOR WARRANTS AND AGREES THAT:
(i) The Collateral is used, or to be used, primarily in Debtor's
business.
(ii) The Collateral is located or will be located at:
[X] the address stated after the name of the Debtor above
[_] _____________________________________________________
(DESCRIBE REAL ESTATE IF ITEM (iii) - IF APPLICABLE)
(iii)[_] The Collateral is affixed or is to be affixed to the
real estate described in item (ii) above.
(iv) The chief place of business of the Debtor is:
[X] the address stated after the name of the Debtor above
[_] ____________________________________________________
<PAGE>
ADDITIONAL TERMS
A. DEBTOR FURTHER REPRESENTS, WARRANTS AND AGREES:
1. The Debtor has or will acquire absolute title to the Collateral free and
clear of all liens, encumbrances and security interest except the
security interest hereby given to the Bank and other rights, if any, of
the Bank, and the Debtor will defend the Collateral against the claims
and demands of all persons.
2. The Debtor will not (a) permit any liens or security interests (other
than the Bank's security interest) to attach to any of the Collateral;
(b) permit any of the Collateral to be levied upon under any legal
process; or (c) permit the Collateral to become a fixture unless this
fact has been disclosed on the face hereof.
3. Without the prior written consent of the Bank, the Debtor will not sell,
exchange, lease or otherwise dispose of the Collateral or any of the
Debtor's rights therein or under this Agreement.
4. The Debtor will maintain the Collateral in good condition and repair,
and will pay the cost or repairs to or maintenance of the same and will
not permit anything to be done that may impair the value of any of the
Collateral or the security intended to be afforded by this Agreement.
5. The Debtor will insure the Collateral against such casualties as the
Bank shall require in such forms and amounts and with such companies as
shall be satisfactory to the Bank. All insurance policies shall include
a Lender's loss payable clause in favor of the Bank, and such policies
evidencing the same shall be furnished to the Bank. The Debtor hereby
assigns to the Bank any return or unearned premiums which may be due
upon cancellation of any such policies for any reason whatsoever and
directs the insurers to pay the Bank any amounts so due. The Bank is
hereby appointed the Debtor's attorney-in-fact to endorse any draft or
check which may be payable to the Debtor in order to collect such return
or unearned premiums or the proceeds of such insurance. Any balance of
insurance proceeds remaining after payment in full of all amounts
secured hereunder shall be paid to the Debtor.
6. The Debtor will not permit any of the Collateral to be removed from the
location specified herein, except for temporary periods in the normal
and customary use thereof, without the prior written consent of the
Bank, and will permit the Bank to inspect the Collateral at any time. 7.
The Debtor will pay all costs of filing any financing, continuation or
termination statements with respect to the security interest created by
the Agreement. The Bank is hereby appointed the Debtor's attorney-in-
fact to do, at the Bank's option and at the Debtor's expense, all acts
and things which the Bank may deem necessary to perfect and continue
perfected the security interest created by this Agreement and to protect
the Collateral.
8. If the Collateral includes a motor vehicle or any other type of property
for which a certificate of title is issuable, the Debtor will join with
the Bank in doing whatever may be necessary to have a statement of the
security interest created by this Agreement noted on said certificate
and will deposit said certificate with the Bank.
9. If the Collateral is used or brought for use primarily for personal,
family, or household purposes, or for farm purposes, the Debtor will
immediately advise the Bank in writing of any change in the Debtor's
residence; or if the Collateral is bought for business purposes, the
Debtor will immediately advise the Bank in writing of any change in any
of the Debtor's places of business, or the opening of any new place of
business.
10.Until default the Debtor may retain possession of the Collateral and use
it in any lawful manner not inconsistent with the agreements herein, or
with the terms and conditions of any policy of insurance thereon.
11.If any of the Collateral is at any time to be located on premises not
owned by the Debtor or owned by the Debtor subject to a mortgage or
other lien, the Debtor shall obtain and deliver to the Bank, an
agreement in form satisfactory to the Bank, waiving the landlord's or
mortgagee's or lienholder's rights to enforce any claim against the
Debtor for moneys due under the lease, mortgage or other lien by levy of
distraint or similar proceedings and assuring the Bank's ability to have
access to the Collateral in order to exercise its rights hereunder to
take possession thereof.
B. ENVIRONMENTAL MATTERS:
1. As used in this Agreement, the following terms shall have the following
meanings: (a) "Environmental Law" means any and all applicable federal,
state and local environmental laws, rules and regulations whether now
existing or hereafter enacted together with all amendments,
modifications and supplements thereof; (b) "Hazardous Materials" means
any contaminants, hazardous substances, regulated substances, or
hazardous wastes which may be the subject of liability pursuant to any
Environmental Law.
2. The Debtor represents and warrants that property owned or leased by the
Debtor or any subsidiary of the Debtor is in violation of any
Environmental Laws, no Hazardous Materials are present on said property
and neither the Debtor nor any subsidiary of the Debtor has been
identified in any litigation, administrative proceedings or
investigation as a responsible party for any liability under any
Environmental Laws.
3. The Debtor shall not use, generate, treat, store, dispose of or
otherwise introduce, or permit any subsidiary to use, generate, treat,
store dispose of or otherwise introduce, any Hazardous Materials into or
on any property owned or leased by the Debtor, and will not, permit any
subsidiary to cause, suffer, allow or permit anyone else to do so,
except in an environmentally safe manner through methods which have been
approved by and meet all of the standards of the federal Environmental
Protection Agency and any other federal, state or local agency with
authority to enforce Environmental Laws. The Debtor hereby agrees to
indemnify, reimburse, defend and hold harmless the Bank and it
directors, officers, agents and employees ("Indemnified Parties") for,
from and against all demands, liabilities, damages, costs, claims,
suits, actions, legal or administrative proceedings, interest, losses,
expenses and reasonable attorney's fees (including any such fees and
expenses incurred in enforcing this indemnity) asserted against, imposed
on or incurred by any of the Indemnified Parties, directly or indirectly
pursuant to or in connection with the application of any Environmental
Law to acts or omissions occurring at any time on or in connection with
any property owned or leased by the Debtor or any subsidiary of the
Debtor or any business conducted thereon.
<PAGE>
C. DEFAULTS:
Upon default by the Debtor in the performance of any covenant herein, or in
the discharge of any other liability or obligation to the Bank, or if any
warranty should prove untrue, the Bank shall have all of the rights and remedies
of a secured party under the Uniform Commercial Code or other applicable law and
all rights provided herein, in the obligations mentioned above, or in any other
applicable security or loan agreement, all of which rights and remedies shall,
to the full extent permitted by law, be cumulative. The Bank may require the
Debtor to assemble the Collateral and make it available to the Bank at a place
to be designated by the Bank which is reasonably convenient to the Bank and the
Debtor. Any notice of sale, disposition or other intended action by the Bank,
sent to the Debtor at the address specified above, or such other address of the
Debtor as may from time to time be shown on the Bank's records, at least five
days prior to such action, shall constitute reasonable notice to the Debtor.
D. MISCELLANEOUS
1. The rights and privileges of the Bank under this Agreement shall inure
to the benefit of its successors and assigns. All representations,
warranties and agreements of the Debtor contained in this Agreement are
joint and several if the Debtor is more than one, and shall bind the
Debtor's personal representatives, heirs, successors and assigns. The
construction and interpretation of this Agreement and all related
agreements shall be governed by the laws of the Commonwealth of
Pennsylvania. No modification hereof shall be binding or enforceable
unless in writing and signed by the party against whom enforcement is
sought. If any provision of this Agreement shall for any reason be held
to be invalid or unenforceable, such invalidity or unenforceability
shall not affect any other provision hereof, but this Agreement shall be
construed as if such invalid or unenforceable provision had never been
contained herein. This Agreement supplements the Debtor's obligations
under any promissory notes or separate agreements with the Bank.
2. The waiver of any default hereunder shall not be a waiver of any
subsequent default.
3. The Debtor will pay as part of the debt hereby secured all amounts
including reasonable attorneys' fees, filing fees and searches, with
interest thereon, incurred by the Bank in preserving its rights
hereunder or in taking possession of, disposing of or preserving the
Collateral after any default hereinabove described, including amounts
required to satisfy liens and maintain insurance on the Collateral or to
keep the Collateral in good condition and repair.
4. CONSENT TO JURISDICTION AND VENUE - IN ANY LEGAL PROCEEDING INVOLVING,
DIRECTLY OR INDIRECTLY, ANY MATTER ARISING OUT OF OR RELATED TO THIS
AGREEMENT OR THE RELATIONSHIP ESTABLISHED HEREUNDER, EACH UNDERSIGNED
PARTY HEREBY IRREVOCABLY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF ANY
STATE OR FEDERAL COURT LOCATED IN ANY COUNTY IN THE COMMONWEALTH OF
PENNSYLVANIA WHERE THE BANK MAINTAINS AN OFFICE AND AGREES NOT TO RAISE
ANY OBJECTION TO SUCH JURISDICTION OR TO THE LAYING OR MAINTAINING OF
THE VENUE OF ANY SUCH PROCEEDING IN SUCH COUNTY. EACH UNDERSIGNED PARTY
AGREES THAT SERVICE OF PROCESS IN ANY SUCH PROCEEDING MAY BE DULY
EFFECTED UPON IT BY MAILING A COPY THEREOF, BY REGISTERED MAIL, POSTAGE
PREPAID, TO EACH UNDERSIGNED PARTY.
5. WAIVER OF JURY TRIAL - EACH UNDERSIGNED PARTY HEREBY WAIVES, AND THE
BANK BY ITS ACCEPTANCE HEREOF THEREBY WAIVES, TRIAL BY JURY IN ANY LEGAL
PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER
SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF OR
RELATED TO THIS AGREEMENT OR THE RELATIONSHIP ESTABLISHED
<PAGE>
HEREUNDER. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE BANK TO
ENTER INTO, ACCEPT OR RELY UPON THIS AGREEMENT.
CORESTATES BANK, N.A.
COVALENT GROUP, INC By /s/ IRENE HANNAN
- ------------------------------------------- ----------------------------
(Name of Corporate or Partnership Debtor) (Signature)
By /s/ WILLIAM K. ROBINSON IRENE HANNAN, CO
----------------------------------------- ----------------------------
(Authorized Signature) (Print Name and Title)
William K. Robinson, CFO & Director
- ------------------------------------------------
(Print Name and Title)
- ------------------------------------------------(Seal)
(Signature of Individual Debtor)
- ------------------------------------------------
(Print Name of Individual Debtor)
- ------------------------------------------------
(Print Trade Style or Fictitious Name, if any)
