<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
COVALENT GROUP, INC.
- --------------------------------------------------------------------------------
(NAME OF THE ISSUER)
COMMON STOCK, $0.001 PAR VALUE PER SHARE
- --------------------------------------------------------------------------------
(TITLE OF CLASS OF SECURITIES)
222815 10 2
- --------------------------------------------------------------------------------
(CUSIP NUMBER)
BRUCE LAMONT
COVALENT GROUP, INC.
ONE GLENHARDIE CORP. CENTER
1275 DRUMMERS LANE, SUITE 100
WAYNE, PA 19087
(610) 975-9533
- --------------------------------------------------------------------------------
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON
AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS)
NOVEMBER 1, 1999
- --------------------------------------------------------------------------------
(DATE OF EVENT WHICH REQUIRES FILING OF THIS STATEMENT)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition which is the subject of this Schedule 13D, and is filing
this schedule because of Rule 13d-1(b)(3) or (4), check the following box [ ].
Note: Six copies of this statement, including all exhibits,
should be filed with the Commission. See Rule 13d-1(a) for other parties
to whom copies are to be sent.
The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect to the subject class of
securities, and for any subsequent amendment containing information which would
alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not
be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 ("Act") or otherwise subject to the liabilities of that section of
the Act but shall be subject to all other provisions of the Act (however, see
the Notes).
(Page 1 of 13 Pages)
(Continued on following pages)
1.
<PAGE> 2
CUSIP NO. 222815 10 2 SCHEDULE 13D Page 2 of 13 Pages
--------------------- -------- --------
(1) NAMES OF REPORTING PERSONS
S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
COVALENT PARTNERS, LLC
33-08-78998
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(2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [X]
(b) [ ]
---------------------------------------------------------------------
(3) SEC USE ONLY
---------------------------------------------------------------------
(4) SOURCE OF FUNDS
WC, 00
---------------------------------------------------------------------
(5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e) [ ]
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(6) CITIZENSHIP OR PLACE OF ORGANIZATION
DELAWARE
---------------------------------------------------------------------
(7) SOLE VOTING POWER
NUMBER OF -0-
SHARES --------------------------------------------------------
BENEFICIALLY (8) SHARED VOTING POWER
OWNED BY 204,000
REPORTING --------------------------------------------------------
PERSON WITH (9) SOLE DISPOSITIVE POWER
-0-
--------------------------------------------------------
(10) SHARED DISPOSITIVE POWER
1,204,000
--------------------------------------------------------
(11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
6,219,500 - SEE ITEM 5
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(12) CHECK BOX IF AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES [X]
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(13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
51.6% - SEE ITEM 5
---------------------------------------------------------------------
(14) TYPE OF REPORTING PERSON
CO
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* Calculated pursuant to Rule 13d-3 of the Securities Exchange Act of 1934, as
amended. Includes any rights to acquire beneficial ownership of securities of
the Issuer within 60 days of the date of the filing of this Schedule 13D.
** Based upon 12,059,693 shares of Common Stock issued and outstanding as
reported on the Issuer's Quarterly Report filed on Form 10-QSB for the
quarter ended September 30, 1999.
2.
<PAGE> 3
CUSIP NO. 222815 10 2 SCHEDULE 13D Page 3 of 13 Pages
--------------------- -------- --------
(1) NAMES OF REPORTING PERSONS
S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
RICHARD D. PROPPER
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(2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [X]
(b) [ ]
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(3) SEC USE ONLY
---------------------------------------------------------------------
(4) SOURCE OF FUNDS
PF
---------------------------------------------------------------------
(5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e) [X]
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(6) CITIZENSHIP OR PLACE OF ORGANIZATION
UNITED STATES
---------------------------------------------------------------------
(7) SOLE VOTING POWER
NUMBER OF 257,000
SHARES --------------------------------------------------------
BENEFICIALLY (8) SHARED VOTING POWER
OWNED BY 204,000
REPORTING --------------------------------------------------------
PERSON WITH (9) SOLE DISPOSITIVE POWER
257,000
--------------------------------------------------------
(10) SHARED DISPOSITIVE POWER
1,204,000
--------------------------------------------------------
(11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
6,476,500- SEE ITEM 5
---------------------------------------------------------------------
(12) CHECK BOX IF AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES [X]
---------------------------------------------------------------------
(13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
53.7% - SEE ITEM 5
---------------------------------------------------------------------
(14) TYPE OF REPORTING PERSON
IN
---------------------------------------------------------------------
* Calculated pursuant to Rule 13d-3 of the Securities Exchange Act of 1934, as
amended. Includes any rights to acquire beneficial ownership of securities of
the Issuer within 60 days of the date of the filing of this Schedule 13D.
** Based upon 12,059,693 shares of Common Stock issued and outstanding as
reported on the Issuer's Quarterly Report filed on Form 10-QSB for the
quarter ended September 30, 1999.
3.
<PAGE> 4
CUSIP NO. 222815 10 2 SCHEDULE 13D Page 4 of 13 Pages
--------------------- -------- --------
(1) NAMES OF REPORTING PERSONS
S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
MICHAEL D. CHERMAK
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(2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [X]
(b) [ ]
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(3) SEC USE ONLY
---------------------------------------------------------------------
(4) SOURCE OF FUNDS
PF
---------------------------------------------------------------------
(5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e) [ ]
---------------------------------------------------------------------
(6) CITIZENSHIP OR PLACE OF ORGANIZATION
UNITED STATES
---------------------------------------------------------------------
(7) SOLE VOTING POWER
NUMBER OF 36,000
SHARES --------------------------------------------------------
BENEFICIALLY (8) SHARED VOTING POWER
OWNED BY 204,000
REPORTING --------------------------------------------------------
PERSON WITH (9) SOLE DISPOSITIVE POWER
36,000
--------------------------------------------------------
(10) SHARED DISPOSITIVE POWER
1,204,000
--------------------------------------------------------
(11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
6,255,500 - SEE ITEM 5
---------------------------------------------------------------------
(12) CHECK BOX IF AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES [X]
---------------------------------------------------------------------
(13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
51.9% - SEE ITEM 5
---------------------------------------------------------------------
(14) TYPE OF REPORTING PERSON
IN
---------------------------------------------------------------------
* Calculated pursuant to Rule 13d-3 of the Securities Exchange Act of 1934, as
amended. Includes any rights to acquire beneficial ownership of securities of
the Issuer within 60 days of the date of the filing of this Schedule 13D.
** Based upon 12,059,693 shares of Common Stock issued and outstanding as
reported on the Issuer's Quarterly Report filed on Form 10-QSB for the
quarter ended September 30, 1999.
4.
<PAGE> 5
CUSIP NO. 222815 10 2 SCHEDULE 13D Page 5 of 13 Pages
--------------------- -------- --------
(1) NAMES OF REPORTING PERSONS
S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
SALMAN J. CHAUDHRY
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(2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [X]
(b) [ ]
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(3) SEC USE ONLY
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(4) SOURCE OF FUNDS
PF
---------------------------------------------------------------------
(5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e) [X]
---------------------------------------------------------------------
(6) CITIZENSHIP OR PLACE OF ORGANIZATION
PAKISTAN
---------------------------------------------------------------------
(7) SOLE VOTING POWER
NUMBER OF 16,700
SHARES --------------------------------------------------------
BENEFICIALLY (8) SHARED VOTING POWER
OWNED BY -0-
REPORTING --------------------------------------------------------
PERSON WITH (9) SOLE DISPOSITIVE POWER
16,700
--------------------------------------------------------
(10) SHARED DISPOSITIVE POWER
-0-
--------------------------------------------------------
(11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
16,700 - SEE ITEM 5
---------------------------------------------------------------------
(12) CHECK BOX IF AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES [X]
---------------------------------------------------------------------
(13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
Less than 1% - SEE ITEM 5
---------------------------------------------------------------------
(14) TYPE OF REPORTING PERSON
IN
---------------------------------------------------------------------
* Calculated pursuant to Rule 13d-3 of the Securities Exchange Act of 1934, as
amended. Includes any rights to acquire beneficial ownership of securities of
the Issuer within 60 days of the date of the filing of this Schedule 13D.
** Based upon 12,059,693 shares of Common Stock issued and outstanding as
reported on the Issuer's Quarterly Report filed on Form 10-QSB for the
quarter ended September 30, 1999.
5.
<PAGE> 6
ITEM 1. SECURITY AND THE ISSUER
(a) TITLE OF SECURITY:
Common Stock, $0.001 par value per share.
(b) NAME OF THE ISSUER:
Covalent Group, Inc., a Nevada corporation.
(c) THE ISSUER'S PRINCIPAL EXECUTIVE OFFICE:
One Glenhardie Corp. Center
1275 Drummers Lane, Suite 100
Wayne, PA 19087
ITEM 2. IDENTITY AND BACKGROUND
(a) This statement is being filed jointly (collectively,
the "Reporting Persons") on behalf of (i) Covalent Partners, LLC,
a Delaware limited liability company ("Covalent Partners"), (ii)
Richard D. Propper ("Propper"), (iii) Michael D. Chermak
("Chermak") and (iv) Salman J. Chaudhry ("Chaudhry").
Covalent Partners is principally in the business of
acquiring equity securities of the Issuer, including without
limitation, the right to vote and dispose of such securities.
(b)-(c) Set forth in Schedule I to this Schedule 13D is
information concerning the Reporting Persons as required to be
disclosed in response to this Item 2.
(d) To the best knowledge of the Reporting Persons, during
the last five years, there have been no criminal proceedings
against the Reporting Persons.
(e) On June 24, 1996, the SEC initiated an administrative
proceeding against Propper and others alleging that Propper
violated Sections 13(d), 13(g) and 16(a) of the Securities
Exchange Act of 1934, as amended ("Exchange Act"), and Rules
13d-1, 13d-2; 16a-2, 16a-3 and former Rule 16a-1 promulgated
thereunder, by untimely filing Schedules 13D and 13G, and Forms
3, 4 and 5 with respect to certain transactions relating to the
beneficial ownership of securities held by Montgomery Medical
Ventures, L.P., Montgomery Medical Ventures II, L.P., Montgomery
Medical Partners, L.P. and Montgomery Medical Partners II, L.P.
The Commission accepted an offer of settlement submitted by
Propper whereby Propper agreed to the Commission's order to cease
and desist from committing or causing any violation or future
violation of, Sections 13(d), 13(g) and 16(a) of the Exchange Act
and Rules 13d-1, 13d-2, 16a-2 and 16a-3 promulgated thereunder.
6.
<PAGE> 7
Other than described in the foregoing paragraph, during
the last five years, to the best knowledge of the Reporting
Persons none of the Reporting Persons has been a party to any
civil proceeding of a judicial or administrative body of
competent jurisdiction resulting in a judgment, decree or final
order enjoining future violations of, or prohibiting or mandating
activities subject to, federal or state securities laws or
finding any violation with respect to such laws.
(f) Propper and Chermak are citizens of the United States.
Chaudhry is a citizen of Pakistan.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
Pursuant to an Option Agreement, dated as of November 1,
1999, by and between Bruce LaMont ("LaMont") and Covalent
Partners (the "Option Agreement"), LaMont granted Covalent
Partners the option to purchase 6,015,500 shares of the
outstanding stock of the Issuer held by LaMont (the "Shares") at
a per share price of $2.00 (the "Option"). On November 1,
pursuant to the terms of the Option Agreement, Covalent Partners
elected to purchase 1,000,000 shares of the Issuer for an
aggregate purchase price of $2,000,000.
Covalent Partners obtained funds to make the purchase
described in the foregoing paragraph through loan agreements with
its members. Chermak, through personal funds, made a loan to
Covalent Partners in the amount of $1,000,000. Propper made a
loan to Covalent Partners in the amount of $1,000,000. Propper
obtained such funds through a loan agreement with California Bank
& Trust whereby interest accrues monthly at a prime rate plus .5%
and principal and interest is due and payable on April 15, 2000.
The foregoing summary of the source of the funds used by
Covalent Partners to purchase the shares of Common Stock of the
Issuer is qualified in its entirety by reference to a copy of (i)
the Promissory Note between Chermak and Covalent Partners
included as Exhibit 99.1 and incorporated herein in its entirety
by reference, (ii) the Promissory Note between Propper and
Covalent Partners included as Exhibit 99.2 and incorporated
herein in its entirety by reference and (iii) the loan agreement
between Propper and California Bank and Trust included as Exhibit
99.3 and incorporated herein in its entirety by reference.
Covalent Partners purchased 204,000 shares of the Issuer
in open market, transactions for an aggregate approximate amount
of $505,871. Covalent Partners obtained funds to make such
purchases through capital contributions from its non-controlling
members.
Propper purchased, through personal funds, 257,000 shares
of Common Stock of the Issuer in open market transactions for an
aggregate approximate amount of $477,154.
7.
<PAGE> 8
Chermak purchased, through personal funds, 36,000 shares
of Common Stock of the Issuer in open market transactions for an
aggregate approximate amount of $72,530.
Chaudhry purchased, through personal funds, 16,700 shares
of Common Stock of the Issuer in open market transactions for an
aggregate approximate amount of $32,838.
ITEM 4. PURPOSE OF THE TRANSACTION
Propper, Chermak and Chaudhry originally acquired shares
of the Issuer for general investment purposes.
Propper initiated discussions with LaMont regarding an
extraordinary transaction involving the acquisition of all of the
outstanding Common Stock of the Issuer held by LaMont. On
September 1, 1999, LaMont entered into a No-Shop Agreement with
Propper through his related investment firm, RP Associates, LLC.
A copy of the No-Shop Agreement is attached hereto as Exhibit
99.4. In connection with such discussions, Covalent Partners was
formed for the purpose of acquiring the shares of the Issuer in
order to change the management and Board of Directors of the
Issuer (the "Board").
Pursuant to the Option Agreement, and subject to the
conditions set forth therein, LaMont granted Covalent Partners
the Option. On November 1, 1999, pursuant to the terms of the
Option Agreement, Covalent Partners elected to purchase 1,000,000
shares of the Issuer held by LaMont for an aggregate purchase
price of $2,000,000. If Covalent Partners elects to exercise its
rights to purchase at least 250,000 additional Shares on or
before November 24, 1999, then Covalent Partners shall have the
option to purchase, on the terms and subject to the conditions
set forth in the Option Agreement, the remaining Shares on or
prior to January 15, 2000. If Covalent Partners exercises the
Option in full and acquires 6,015,500 shares of Common Stock of
the Issuer from LaMont, a substantial majority of the outstanding
shares of Common Stock of the Issuer would be exchanged for cash
at a per share price of $2.00. Covalent Partners, Propper,
Chermak, affiliates of one or both, or some combination thereof,
would hold a majority of the outstanding shares of Common Stock
of the Issuer upon exercise of the Option in full. In furtherance
of Covalent Partners' acquisition of the Common Stock of the
Issuer, Covalent Partners purchased 204,000 shares of Common
Stock of the Issuer in open market transactions. See Item 3.
Until January 15, 2000, LaMont is required to invite
Propper to all Board meetings of the Issuer. In the event that
Covalent Partners fails to exercise the option in full by January
15, 2000, LaMont is required to use his best efforts in his
capacity as a member of the Board and a stockholder of the Issuer
to appoint one additional member, as designated by Propper, to
the Board. In addition, upon Covalent Partners' exercise of the
8.
<PAGE> 9
Option in full on or before January 15, 2000, LaMont must
immediately resign as a Board member, Chief Executive Officer,
President and employee of the Issuer.
The foregoing summary of the Option Agreement is qualified
in its entirety by reference to the copy of the Option Agreement
included as Exhibit 99.5 to this Schedule 13D and incorporated
herein in its entirety by reference.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER
(a)-(b) Based on the Issuer's Quarterly Report on Form
10-QSB for the quarter ended September 30, 1999, there were
12,059,693 shares of Common Stock outstanding. The following
summarizes the shares of the Issuer beneficially owned by the
Reporting Persons:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF NUMBER OF SHARES OF
STOCK (BUT FOR STOCK BENEFICIALLY PERCENTAGE OF CLASS
INVESTOR RULE 13D-5(b)(1) OWNED BENEFICIALLY OWNED
- ---------------------- -------------------- ------------------- -------------------
<S> <C> <C> <C>
Covalent Partners, LLC 6,219,500 6,219,500 51.6%
Richard D. Propper 257,000 6,476,500 53.7%
Michael D. Chermak 36,000 6,255,500 51.9%
Salman J. Chaudhry 16,700 16,700 Less than 1%
</TABLE>
Beneficial ownership of 6,219,500 shares of Common Stock
of the Issuer otherwise beneficially owned by Covalent Partners
is attributed to Propper and Chermak by virtue of Rule
13d-5(b)(1) of the Exchange Act. Pursuant to Rule 13d-4 of the
Exchange Act, Covalent Partners disclaims beneficial ownership of
257,000 shares of Common Stock of the Issuer beneficially owned
by Propper, 36,000 shares beneficially owned by Chermak and
16,700 shares beneficially owned by Chaudhry; Propper disclaims
beneficial ownership of 36,000 shares of Common Stock of the
Issuer beneficially owned by Chermak and 16,700 shares held by
Chaudhry; Chermak disclaims beneficial ownership of 257,000
shares of Common Stock of the Issuer beneficially owned by
Propper and 16,700 shares beneficially owned by Chaudhry;
Chaudhry disclaims beneficial ownership of 6,219,500 shares of
Common Stock of the Issuer beneficially owned by Covalent
Partners, 6,476,500 shares beneficially owned by Propper and
6,255,500 shares beneficially owned by Chermak.
Propper has sole voting and dispositive power with respect
to 257,000 shares of Common Stock of the Issuer. Chermak has sole
voting and dispositive power with respect to 36,000 shares of
Common Stock of the Issuer. Chaudhry has sole voting and
dispositive power with respect to 16,700 shares of Common Stock
of the Issuer. Covalent Partners shares voting power with its
managing members with respect to 204,000 shares of Common Stock
of the Issuer and shares dispositive power with its managing
members with respect to 1,204,000 shares of Common Stock of the
Issuer.
9.
<PAGE> 10
Pursuant to Section 6(b) of the Option Agreement, until
the earlier of (i) January 31, 2000 or (ii) the date Covalent
Partners exercises the Option in full, Covalent Partners agreed
to grant voting rights to LaMont with respect to all of the
shares of Common Stock of the Issuer purchased by Covalent
Partners, including 1,000,000 shares purchased by Covalent
Partners pursuant to the Option Agreement. The grant of such
voting rights terminates immediately prior to a lawful sale of
the shares purchased by Covalent Partners in the public market.
In addition, if Covalent Partners fails to exercise the option in
full by January 15, 2000, LaMont has the right to buy back from
Covalent Partners, on or before January 31, 1999, any and all the
Shares acquired by Covalent Partners' exercise of the Option at a
price of $2.00 per share.
Set forth in Schedule II to this Schedule 13D is the name
of and certain information regarding the individual with whom
Covalent Partners shares the power to vote or to direct the vote
or to dispose or direct the disposition of Common Stock of
Issuer.
During the past five years, to the Reporting Persons'
knowledge, no person named in Schedule II to this Schedule 13D,
has been convicted in a criminal proceeding.
During the past five years, to the Reporting Persons'
knowledge, no person named in Schedule II to this Schedule 13D
was a party to a civil proceeding of a judicial or administrative
body of competent jurisdiction as a result of which such person
was or is subject to a judgment, decree or final order enjoining
future violations of or prohibiting or mandating activity subject
to federal or state securities laws or finding any violation with
respect to such laws.
To Covalent Partners' knowledge, all persons named in
Schedule II to this Schedule 13D are citizens of the United
States.
(c) Set forth in Schedule III to this Schedule 13D are the
transactions, other than the Option Agreement as described in
this Schedule, involving the Common Stock of the Issuer, entered
into by the Reporting Persons since September 10, 1999. All such
transactions were made for cash in open market transactions.
(d) Not applicable.
(e) Not applicable.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH
RESPECT TO SECURITIES OF THE ISSUER
In connection with the Option Agreement, Kenneth M. Borow
("Borow") and Covalent Partners entered into a Letter Agreement
dated November 1, 1999 (the "Letter Agreement"). Pursuant to the
Letter Agreement, Borow has agreed to remain employed as the
President, Chief Operating Officer and Chief Medical
10.
<PAGE> 11
Office of the Issuer until the earlier of Covalent Partners'
exercise of the Option in full and January 15, 2000. In addition,
upon Covalent Partners' exercise of the Option in full and
subject to the approval of the Issuer's Board, Borow will enter
into an employment agreement with the Issuer in the form attached
hereto as Exhibit 99.6. In consideration of the above, Covalent
Partners is required to grant an option to acquire from Covalent
Partners 460,000 shares of the Issuer's Common Stock at a price
of $2.00 per share to Borow upon Covalent Partners' exercise of
the Option in full.
The foregoing summary of the Letter Agreement is qualified
in its entirety by reference to a copy of the Letter Agreement
included as Exhibit 99.7 to this Schedule 13D and incorporated
herein in its entirety by reference.
Other than as described in the foregoing paragraphs and in
Item 4 above, to Covalent Partners' knowledge, there are no
contracts, arrangements, understandings or relationships (legal
or otherwise) among the persons named in Item 2 and between such
persons and any person with respect to any securities, finder's
fees, joint ventures, loan or option arrangements, puts or calls,
guarantees of profits, division of profits or loss, or the giving
or withholding of proxies.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS
99.1 Promissory Note dated October 29, 1999 by and between
Michael D. Chermak and Covalent Partners, LLC.
99.2 Promissory Note dated October 29, 1999 by and between
Richard D. Propper and Covalent Partners, LLC.
99.3 Business Loan Agreement dated October 26, 1999 by and
between Richard D. Propper and California Bank & Trust.
99.4 No-Shop Agreement dated September 1, 1999 by and between
Bruce LaMont and RP Associates, LLC.
99.5 Option Agreement dated November 1, 1999 by and between
Bruce LaMont and Covalent Partners, LLC.
99.6 Form of Employment Agreement to be entered into by and
between Kenneth M. Borow and the Issuer.
99.7 Letter Agreement dated November 1, 1999 by and between
Kenneth M. Borow and Covalent Partners, LLC.
11.
<PAGE> 12
SIGNATURES
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
November 10, 1999
COVALENT PARTNERS, LLC,
a Delaware limited liability company
By: /s/ Richard D. Propper
-----------------------------------------
Dr. Richard D. Propper
Managing Member
/s/ Richard D. Propper
--------------------------------------------
RICHARD D. PROPPER
/s/ Michael D. Chermak
--------------------------------------------
MICHAEL D. CHERMAK
/s/ Salman Chaudhry
--------------------------------------------
SALMAN J. CHAUDHRY
12.
<PAGE> 13
SCHEDULE I
REPORTING PERSONS,
CONTROLLING MEMBERS AND MANAGERS OF
COVALENT PARTNERS, LLC
<TABLE>
<CAPTION>
NAME AND BUSINESS ADDRESS PRINCIPAL OCCUPATION OR EMPLOYMENT
- ------------------------- ----------------------------------
<S> <C>
Covalent Partners, LLC N/A
4350 La Jolla Village Drive, Suite 970
San Diego, CA 92121
Dr. Richard D. Propper Member and Manager of Covalent Partners, LLC
2890 Moon Ridge Drive
La Jolla, CA 92037
Michael D. Chermak Member and Manager of Covalent Partners, LLC
14 Sandpiper Strand
Coronado, CA 92118
Salman Chaudhry Financial Consultant
8503A Villa La Jolla Drive
San Diego, CA 92037
</TABLE>
<PAGE> 14
SCHEDULE II
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION OR EMPLOYMENT
- ---- ----------------------------------
<S> <C>
Bruce LaMont Chairman of the Board, President and Chief Executive
Covalent Group, Inc. Officer of Covalent Group, Inc.
One Glenhardie Corp. Center
1275 Drummers Lane, Suite 100
Wayne, PA 19087
</TABLE>
<PAGE> 15
SCHEDULE III
<TABLE>
<CAPTION>
AMOUNT OF PRICE PER
DATE OF THE COMMON STOCK SHARE
INVESTOR TRANSACTION OF ISSUER ($) TYPE OF TRADE BROKER
-------- ----------- --------- --------- ------------- -------
<S> <C> <C> <C> <C> <C>
Propper 09/10/99 6,000 1.875 Purchase BLC*
09/13/99 4,500 1.75 Purchase BLC
09/14/99 5,000 1.75 Purchase BLC
09/16/99 5,000 1.75 Purchase BLC
09/16/99 5,000 1.75 Purchase BOA**
09/17/99 16,500 1.8523 Purchase BLC
09/17/99 10,000 1.9906 Purchase BOA
09/21/99 3,500 2.1027 Purchase BLC
09/22/99 3,000 2.00 Purchase BLC
09/22/99 5,000 2.03125 Purchase BLC
09/22/99 3,000 2.125 Purchase BOA
09/23/99 5,000 2.00 Purchase BLC
09/27/99 2,000 1.875 Purchase BOA
09/27/99 3,000 1.9896 Purchase BLC
10/05/99 14,000 1.9464 Purchase BOA
10/06/99 5,000 2.0625 Purchase BLC
10/07/99 3,000 2.125 Purchase BOA
10/14/99 10,000 1.9031 Purchase BLC
10/14/99 5,000 2.00 Purchase BOA
10/20/99 5,000 2.25 Purchase BLC
Chaudhry 09/23/99 3,700 2.00 Purchase ML***
09/24/99 4,000 1.9375 Purchase ML
09/27/99 5,000 1.9375 Purchase ML
10/08/99 4,000 2.00 Purchase ML
Covalent Partners 10/27/99 20,000 2.025 Purchase BLC
10/28/99 49,300 2.419 Purchase BLC
10/29/99 45,000 2.5313 Purchase BLC
11/01/99 41,000 2.6509 Purchase BLC
11/02/99 2,000 2.5625 Purchase BLC
11/03/99 16,000 2.4883 Purchase BLC
11/04/99 11,500 2.5924 Purchase BLC
11/05/99 15,200 2.5341 Purchase BLC
</TABLE>
<PAGE> 16
<TABLE>
<CAPTION>
AMOUNT OF PRICE PER
DATE OF THE COMMON STOCK SHARE
INVESTOR TRANSACTION OF ISSUER ($) TYPE OF TRADE BROKER
-------- ----------- --------- --------- ------------- -------
<S> <C> <C> <C> <C> <C>
11/09/99 4,000 2.5625 Purchase BLC
</TABLE>
* Balis, Lewittes & Coleman Inc. ("BLC")
** Bank of America ("BOA")
*** Merrill Lynch ("ML")
<PAGE> 17
JOINT FILING AGREEMENT
In accordance with Rule 13d-(1)(k) under the Securities Exchange Act of
1934, as amended, each of the persons named below agrees to the joint filing of
a Statement on Schedule 13D (including amendments thereto) with respect to the
acquisition of Common Stock, par value $0.001, of Covalent Group, Inc., a
Delaware corporation, and further agrees that this Joint Filing Agreement be
included as an exhibit to such filings provided that, as contemplated by Section
13d-1(k)(ii), no person shall be responsible for the completeness or accuracy of
the information concerning the other persons making the fling, unless such
person knows or has reason to believe that such information is inaccurate. This
Joint Filing may be executed in any number of counterparts, all of which
together shall constitute one and the same instrument.
November 10, 1999
COVALENT PARTNERS, LLC,
a Delaware limited liability company
By: /s/ Dr. Richard D. Propper
----------------------------------------
Dr. Richard D. Propper
Managing Member
/s/ Richard D. Propper
-------------------------------------------
RICHARD D. PROPPER
/s/ Michael D. Chermak
-------------------------------------------
MICHAEL D. CHERMAK
/s/ Salman J. Chaudhry
-------------------------------------------
SALMAN J. CHAUDHRY
<PAGE> 18
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF DOCUMENT
- ------- -----------------------
<S> <C>
99.1 Promissory Note dated October 29, 1999 by and between Michael D.
Chermak and Covalent Partners, LLC.
99.2 Promissory Note dated October 29, 1999 by and between Richard D.
Propper and Covalent Partners, LLC.
99.3 Business Loan Agreement dated October 26, 1999 by and between
Richard D. Propper and California Bank & Trust.
99.4 No-Shop Agreement dated September 1, 1999 by and between Bruce
LaMont and RP Associates, LLC.
99.5 Option Agreement dated November 1, 1999 by and between Bruce
LaMont and Covalent Partners, LLC.
99.6 Form of Employment Agreement to be entered into by and between
Kenneth M. Borow and the Issuer.
99.7 Letter Agreement dated November 1, 1999 by and between Kenneth M.
Borow and Covalent Partners, LLC.
</TABLE>
<PAGE> 1
EXHIBIT 99.1
PROMISSORY NOTE
$1,000,000 October 29, 1999
---------
FOR VALUE RECEIVED, the undersigned hereby unconditionally promises to
pay to the order of Michael D. Chermak, an individual ("Chermak"), at 14
Sandpiper Strand, Coronado, CA 92118, or at such other place as the holder
hereof may designate in writing, in lawful money of the United States of America
and in immediately available funds, the principal sum of One Million Dollars
($1,000,000) together with interest accrued from the date hereof on the unpaid
principal at the rate of 8.75% per annum, or the maximum rate permissible by law
(which under the laws of the State of California shall be deemed to be the laws
relating to permissible rates of interest on commercial loans), whichever is
less, as follows:
PRINCIPAL AND INTEREST REPAYMENT. The outstanding principal
amount hereunder plus all accrued unpaid interest shall be due and
payable in full on April 15, 2000.
provided, however, that in the event that Chermak's association with the
undersigned is terminated for any reason prior to payment in full of this Note,
this Note shall be accelerated and all remaining unpaid principal and interest
shall become due and payable immediately after such termination.
If the undersigned fails to pay any of the principal and accrued
interest when due, Chermak, at his sole option, shall have the right to
accelerate this Note, in which event the entire principal balance and all
accrued interest shall become immediately due and payable, and immediately
collectible by Chermak pursuant to applicable law.
This Note may be prepaid at any time without penalty. All money paid
toward the satisfaction of this Note shall be applied first to the payment of
interest as required hereunder and then to the retirement of the principal.
The full amount of this Note is secured by a pledge of shares of Common
Stock of Covalent Group, Inc. held by the undersigned pursuant to the Option
Agreement dated November 1, 1999 by and between the undersigned and Bruce
LaMont.
The undersigned hereby represents and agrees that the amounts due under
this Note are not consumer debt, and are not incurred primarily for personal,
family or household purposes, but are for business and commercial purposes only.
The undersigned hereby waives presentment, protest and notice of
protest, demand for payment, notice of dishonor and all other notices or demands
in connection with the delivery,
1.
<PAGE> 2
acceptance, performance, default or endorsement of this Note.
The holder hereof shall be entitled to recover, and the undersigned
agrees to pay when incurred, all costs and expenses of collection of this Note,
including without limitation, reasonable attorneys' fees.
This Note shall be governed by, and construed, enforced and interpreted
in accordance with, the laws of the State of California, excluding conflict of
laws principles that would cause the application of laws of any other
jurisdiction.
COVALENT PARTNERS, LLC
By: /s/ Richard D. Propper
---------------------------------
Name: Richard D. Propper
------------------------------
Title: Managing Member
------------------------------
Acknowledged and Agreed:
/s/ Michael D. Chermak
- ------------------------
Michael D. Chermak
2.
<PAGE> 1
EXHIBIT 99.2
PROMISSORY NOTE
$1,000,000 October 29, 1999
---------
FOR VALUE RECEIVED, the undersigned hereby unconditionally promises to
pay to the order of Richard D. Propper, an individual ("Propper"), at 2890 Moon
Ridge Drive, La Jolla, CA 92037, or at such other place as the holder hereof may
designate in writing, in lawful money of the United States of America and in
immediately available funds, the principal sum of One Million Dollars
($1,000,000) together with interest accrued from the date hereof on the unpaid
principal at the rate of 8.75% per annum, or the maximum rate permissible by law
(which under the laws of the State of California shall be deemed to be the laws
relating to permissible rates of interest on commercial loans), whichever is
less, as follows:
PRINCIPAL AND INTEREST REPAYMENT. The outstanding principal
amount hereunder plus all accrued unpaid interest shall be due and
payable in full on April 15, 2000.
provided, however, that in the event that Propper's association with the
undersigned is terminated for any reason prior to payment in full of this Note,
this Note shall be accelerated and all remaining unpaid principal and interest
shall become due and payable immediately after such termination.
If the undersigned fails to pay any of the principal and accrued
interest when due, Propper, at his sole option, shall have the right to
accelerate this Note, in which event the entire principal balance and all
accrued interest shall become immediately due and payable, and immediately
collectible by Propper pursuant to applicable law.
This Note may be prepaid at any time without penalty. All money paid
toward the satisfaction of this Note shall be applied first to the payment of
interest as required hereunder and then to the retirement of the principal.
The full amount of this Note is secured by a pledge of shares of Common
Stock of Covalent Group, Inc. held by the undersigned pursuant to the Option
Agreement dated November 1, 1999 by and between the undersigned and Bruce
LaMont.
The undersigned hereby represents and agrees that the amounts due under
this Note are not consumer debt, and are not incurred primarily for personal,
family or household purposes, but are for business and commercial purposes only.
The undersigned hereby waives presentment, protest and notice of
protest, demand for payment, notice of dishonor and all other notices or demands
in connection with the delivery,
1.
<PAGE> 2
acceptance, performance, default or endorsement of this Note.
The holder hereof shall be entitled to recover, and the undersigned
agrees to pay when incurred, all costs and expenses of collection of this Note,
including without limitation, reasonable attorneys' fees.
This Note shall be governed by, and construed, enforced and interpreted
in accordance with, the laws of the State of California, excluding conflict of
laws principles that would cause the application of laws of any other
jurisdiction.
COVALENT PARTNERS, LLC
By: /s/ Michael D. Chermak
---------------------------------
Name: Michael D. Chermak
-------------------------------
Title: Managing Member
------------------------------
Acknowledged and Agreed:
/s/ Richard D. Propper
- --------------------------------
Richard D. Propper
2.
<PAGE> 1
EXHIBIT 99.3
BUSINESS LOAN AGREEMENT
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$1,000,000 10-26-1999 04-15-2000 9153000102 915300102 46512
- ---------------------------------------------------------------------------------------------------------
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan for Item.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BORROWER: Richard D. Propper LENDER: California Bank & Trust
2890 Moon Ridge Place Northern California Private Client Services
La Jolla, CA 92037 300 California Street
San Francisco, CA 94104
=========================================================================================================
</TABLE>
THIS BUSINESS LOAN AGREEMENT between Richard D. Propper ("Borrower") and
California Bank & Trust ("Lender") is made and executed on the following terms
and conditions. Borrower has received prior commercial loans from Lender or has
applied to Lender for a commercial loan or loans and other financial
accommodations, including those which may be described on any exhibit or
schedule attached to this Agreement. All such loans and financial
accommodations, together with all future loans and financial accommodations from
Lender to Borrower, are referred to in this Agreement individually as the "Loan"
and collectively as the "Loans." Borrower understands and agrees that: (a) in
granting, renewing, or extending any Loan, Lender is relying upon Borrower's
representations, warranties, and agreements, as set forth in this Agreement; (b)
the granting, renewing, or extending of any Loan by Lender at all times shall be
subject to Lender's sole judgment and discretion; and (c) all such Loans shall
be and shall remain subject to the following terms and conditions of this
Agreement.
TERM. This Agreement shall be effective as of October 26, 1999, and shall
continue thereafter until all indebtedness of Borrower to Lender have been
performed in full and the parties terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the United States of
America.
AGREEMENT. The word "agreement" means this Business Loan Agreement, as
this Business Loan Agreement may be amended or modified from time to
time, together with all exhibits and schedules attached to this Business
Loan Agreement from time to time.
BORROWER. The word "Borrower" shall mean Richard D. Propper. The word
"Borrower" also includes, as applicable, all subsidiaries and affiliates
of Borrower as provided below in the paragraph titled "Subsidiaries and
Affiliates."
CERCLA. The word "CERCLA" means the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended.
CASH FLOW. The words "Cash Flow" mean net income after taxes, and
exclusive of extraordinary gains and income, plus depreciation and
amortization.
COLLATERAL. The word "Collateral" means and includes without limitation
all property and assets granted as collateral security for a Loan,
whether real or personal property, whether granted directly or
indirectly, whether granted nor or in the future, and whether granted in
the form of a security interest, mortgage, deed of trust, assignment,
pledge, chattel mortgage, chattel trust, factor's lien, equipment trust,
conditional sale,
1.
<PAGE> 2
trust receipt, lien, charge, lien or title retention contract, lease or
consignment intended as a security device, or any other security or lien
interest whatsoever, whether created by law, contract, or otherwise.
DEBT. The word "Debt" means all of Borrower's liabilities excluding
Subordinated Debt.
ERISA. The word "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended.
EVENT OF DEFAULT. The words "Event of Default" mean and includes without
limitation any Events of Default set forth below in the section titled
"EVENTS OF DEFAULT."
GRANTOR. The word "Grantor" means and includes without limitation each
and all of the persons or entities grating a Security Interest in any
Collateral for the indebtedness, including without limitation all
Borrowers grating such a Security Interest.
GUARANTOR. The word "Guarantor" means and includes without limitation
each and all of the guarantors, sureties, and accommodation parties in
connection with any indebtedness.
INDEBTEDNESS. The word "Indebtedness" means and includes without
limitation all Loans, together will all other obligations, debts and
liabilities of Borrower to Lender, or any one or more of them, as well
as all claims by Lender against Borrower, or any one or more of them;
whether now or hereafter existing, voluntary or involuntary, due or not
due, absolute or contingent, liquidated or unliquidated; whether
Borrower may be liable individually or jointly with others, whether
Borrower may be obligated as a guarantor, surety, or otherwise; whether
recovery upon such Indebtedness may be or hereafter may become barred by
any statute of limitations; and whether such Indebtedness may be or
hereafter may become otherwise unenforceable.
LENDER. The word "Lender" means California Bank & Trust, its successors
and assigns.
LIQUID ASSETS. The words "Liquid Assets" means Borrower's cash on hand
plus Borrower's readily marketable securities.
LOAN. The word "Loan" or "Loans" means and includes without limitation
and any all commercial loans and financial accommodations from Lender to
Borrower, whether now or hereafter existing, and however evidenced,
including without limitation those loans and financial accommodations
described herein or described on any exhibit or schedule attached to
this Agreement from time to time.
NOTE. The word "Note" means and includes without limitation Borrower's
promissory note or notes, if any, evidencing Borrower's Loan obligations
in favor of Lender, as well as any substitute, replacement or
refinancing note or notes therefor.
PERMITTED LIENS. The words "Permitted Liens" mean: (a) liens and
security interests securing Indebtedness owed by Borrower to Lender; (b)
liens for taxes, assessments, or similar charges either not yet due or
being contested in good faith; (c) liens of materialmen, mechanics,
warehousemen, or carriers, or other like liens arising in the ordinary
course of business and securing obligations which are not yet
delinquent; (d) purchase money liens or purchase money security
interests upon or in any property acquired or held by Borrower in the
ordinary course of business to secure indebtedness outstanding on the
date of this Agreement or permitted to be incurred under the paragraph
of this Agreement titled "Indebtedness and Liens"; (e) liens and
security interests which, as of the date of this Agreement, have been
disclosed to and approved by the Lender in writing; and (f) those liens
and security interests which in the aggregate
2.
<PAGE> 3
constitute an immaterial and insignificant monetary amount with respect
to the net value of Borrower's assets.
RELATED DOCUMENTS. The words "Related Documents" mean and include
without limitation all promissory notes, credit agreements, loan
agreements, environmental agreements, guaranties, security agreements,
mortgages, deeds of trust, and all other instruments, agreements and
documents, whether now or hereafter existing, executed in connection
with the Indebtedness.
SECURITY AGREEMENT. The words "Security Agreement" mean and include
without limitation any agreements, promises, covenants, arrangements,
understandings or other agreements, whether created bylaw, contract, or
otherwise, evidencing, governing, representing, or creating a Security
Interest.
SECURITY INTEREST. The words "Security Interest" mean and include
without limitation any type of collateral security, whether in the form
of a lien, charge, mortgage, deed of trust, assignment, pledge, chattel
mortgage, chattel trust, factor's lien, equipment trust, conditional
sale, trust receipt, lien or title retention contract, lese or
consignment intended as a security device, or any other security or lien
interest whatsoever, whether created by law, contract or otherwise.
SARA. The word "SARA" means the Superfund Amendments and Reauthorization
Act of 1986 as now or hereafter amended.
SUBORDINATED DEBT. The words "Subordinated Debt" means Indebtedness and
liabilities of Borrower which have been subordinated by written
agreement to Indebtedness owed by Borrower to Lender inform and
substance acceptable to Lender.
TANGIBLE NET WORTH. The words "Tangible Net Worth" means Borrower's
total assets excluding all intangible assets (i.e., goodwill,
trademarks, patents, copyrights, organizational expenses, and similar
intangible items, but including leaseholds and leasehold improvements)
less total Debt.
WORKING CAPITAL. The words "Working Capital" mean Borrower's current
assets, excluding prepaid expenses, less Borrower's current liabilities.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the Initial
Loan Advance and each subsequent Loan Advance under this Agreement shall be
subject to the fulfillment to Lender's satisfaction of all the conditions set
forth in this Agreement and in the Related Documents.
LOAN DOCUMENTS. Borrower shall provide to Lender in form satisfactory to
Lender the following documents for the Loan: (a) the Note, (b) Security
Agreements granting to Lender security interests in the Collateral, (c)
Financing Statement perfecting Lender's Security Interests; (d) evidence
of insurance as required below; and (e) any other documents required
under this Agreement or by Lender or its counsel.
PAYMENT OF FEES AND EXPENSES. Borrower shall have paid to Lender all
fees, charges, and other expenses which are then due and payable as
specified in this Agreement or any Related Document.
REPRESENTATIONS AND WARRANTIES. The representations and warranties set
forth in this Agreement, in the Related Documents, and in any document
or certificate delivered to Lender under this Agreement are true and
correct.
NO EVENT OF DEFAULT. There shall not exist at the time of any advance a
condition which would constitute
3.
<PAGE> 4
an Event of Default under this Agreement.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any Indebtedness exists:
ORGANIZATION. Borrower is an individual borrowing for commercial
purposes.
AUTHORIZATION. The execution, delivery, and performance of this
Agreement and all Related Documents by Borrower, to the extent to be
executed, delivered or performed by Borrower, have been duly authorized
by all necessary action by Borrower; do not require the consent or
approval of any other person, regulatory authority or governmental body;
and do not conflict with, result in a violation of, or constitute a
default under (a) any provision of any agreement or other instrument
binding upon Borrower or (b) any law, governmental regulation, court
decree, or order applicable to Borrower.
FINANCIAL INFORMATION. Each financial statement of Borrower supplied to
Lender truly and completely disclosed Borrower's financial condition as
of the date of the statement, and there has been no material adverse
change in Borrower's financial condition subsequent to the date of the
most recent financial statement supplied to Lender. Borrower has no
material contingent obligations except as disclosed in such financial
statements.
LEGAL EFFECT. This Agreement constitutes, and any instrument or
agreement required hereunder to be given by Borrower when delivered will
constitute, legal, valid and binding obligations of Borrower enforceable
against Borrower in accordance with their respective terms.
PROPERTIES. Except as contemplated by this Agreement or as previously
disclosed in Borrower's financial statements or in writing to Lender and
as accepted by Lender, and except for property tax liens for taxes not
presently due and payable, Borrower owns and has good title to all of
Borrower's properties free and clear of all Security Interests and has
not executed any security documents or financing statements relating to
such properties. All of Borrower's properties are titled in Borrower's
legal name, and Borrower has not used, or filed a financing statement
under, any other name for at least the last five (5) years.
HAZARDOUS SUBSTANCES. The terms "hazardous waste," "hazardous
substance," "disposal," "release," and "threatened release, as used in
this Agreement, shall have the same meanings as set forth in the
"CERCLA," "SARA," the Hazardous Materials Transportation Act, 49 U.S.C.
Section 1081, et seq., the Resource Conservation and Recovery Act, 42
U.S.C. Section 6901, et seq., Chapters 6.5 through 7.7 of Division 20 of
the California Health and Safety Code, Section 25100, et seq., or other
applicable state or Federal laws, rules, or regulations adopted pursuant
to any of the foregoing. Except as disclosed to and acknowledged by
Lender in writing, Borrower represents and warrants that: (a) During the
period of Borrower's ownership of the properties, there has been no use,
generation, manufacture, storage, treatment, disposal, release or
threatened release of any hazardous waste or substance by any person on,
under, about or from any of the properties. (b) Borrower has no
knowledge of, or reason to believe that there has been (1) any use
generation, manufacture, storage, treatment, disposal, release, or
threatened release of any hazardous waste or substance on, under, about
or from the properties by any prior owners or occupants of any of the
properties, or (ii) any actual or threatened litigation or claims of any
kind by any person relating to such matters. (c) Neither Borrower nor
any tenant, contractor, agent or other authorized user of any of the
properties shall use, generate, manufacture, store, treat, dispose of,
or release any hazardous waste or substance on, under about or from any
of the properties; and any such activity shall be conducted in
compliance with all applicable federal, state, and local laws,
regulations, and ordinances, including without
4.
<PAGE> 5
limitation those laws, regulations and ordinances described above.
Borrower authorizes Lender and its agents to enter upon the properties
to make such inspections and tests as Lender may deem appropriate to
determine compliance of the properties with this section of the
Agreement. Any inspections or tests made by Lender shall be at
Borrower's expense and for Lender's purposes only and shall not be
construed to create any responsibility or liability on the part of
Lender to Borrower or to any other person. The representations and
warranties contained herein are based on Borrower's due diligence in
investigating the properties for hazardous waste and hazardous
substances. Borrower hereby (a) releases and waives any future claims
against Lender for indemnity or contribution in the event Borrower
becomes liable for cleanup or other costs under any such laws and (b)
agrees to indemnify and hold harmless Lender against any and all claims,
losses, liabilities, damages, penalties, and expenses which Lender may
directly or indirectly sustain or suffer resulting from a breach of this
section of the Agreement or as a consequence of any use, generation,
manufacture, storage, disposal, release or threatened release of a
hazardous waste or substance on the properties. The provisions of this
section of the Agreement, including the obligation to indemnify, shall
survive the payment of the indebtedness and the termination on
expiration of this Agreement and shall not be affected by Lender's
acquisition of any interest in any of the properties whether by
foreclosure or otherwise.
LITIGATION AND CLAIMS. No litigation, claim, investigation,
administrative proceeding or similar action (including those for unpaid
taxes) against Borrower is pending or threatened, and no other event has
occurred which may materially adversely affect Borrower's financial
condition or properties, other than litigation, claims, or other events,
if any, that have been disclosed to and acknowledged by Lender in
writing.
TAXES. To the best of Borrower's knowledge, all tax returns and reports
of Borrower that are or were required to be filed, have been filed, and
all taxes, assessments and other governmental charges have been paid in
full, except those presently being or to be contested by Borrower in
good faith in the ordinary course of business and for which adequate
reserves have been provided.
LIEN PRIORITY. Unless otherwise previously disclosed to Lender in
writing, Borrower has not entered into or granted any Security
Agreements, or permitted the filing or attachment of any Security
Interests on or affecting any of the Collateral directly or indirectly
securing repayment of Borrower's Loan and Note, that would be prior or
that may in any way be superior to Lender's Security Interests and
rights in and to such Collateral.
BINDING EFFECT. This Agreement, the Note, all Security Agreements
directly or indirectly securing repayment of Borrower's Loan and Note
and all of the Related Documents are binding upon Borrower as well as
upon Borrower's successors, representatives and assigns, and are legally
enforceable in accordance with their respective terms.
COMMERCIAL PURPOSES. Borrower intends to use the Loan proceeds solely
for business or commercial related purposes.
EMPLOYEE BENEFIT PLANS. Each employee benefit plan as to which Borrower
may have any liability complies in all material respects with all
applicable requirements of law and regulations and (1) no Reportable
Event nor Prohibited Transaction (as defined in ERISA) has occurred with
respect to any such plan, (ii) Borrower has not withdrawn from any such
plan or initiated steps to do so, (iii) no steps have been taken to
terminate any such plan, and (iv) there are no unfunded liabilities
other than those previously disclosed to Lender in writing.
LOCATION OF BORROWER'S OFFICES AND RECORDS. Borrower's place of
business, or Borrower's Chief
5.
<PAGE> 6
executive office, if Borrower has more than one place of business, is
located at 2890 Moonridge Place, La Jolla, CA 92037. Unless Borrower has
designated otherwise in writing this location is also the office or
offices where Borrower keeps its records concerning the Collateral.
INFORMATION. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection
with this Agreement or any transaction contemplated hereby is, and all
information hereafter furnished by or on behalf of Borrower to Lender
will be, true and accurate in every material respect on the date as of
which such information is dated or certified; and none of such
information is or will be incomplete by omitting to state any material
fact necessary to make such information not misleading.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Borrower understands and
agrees that Lender, without independent investigation, is relying upon
the above representations and warranties in extending Loan Advances to
Borrower. Borrower further agrees that the foregoing representations and
warranties shall be continuing in nature and shall remain in full force
and effect until such time as Borrower's Indebtedness shall be paid in
full, or until this Agreement shall be terminated in the manner provided
above, whichever is the last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
LITIGATION. Promptly inform Lender in writing of (a) all material
adverse changes in Borrower's financial condition, and (b) all existing
and all threatened litigation, claims, investigations, administrative
proceedings or similar actions affecting Borrower or any Guarantor which
could materially affect the financial condition of Borrower or the
financial condition of any Guarantor.
FINANCIAL RECORDS. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent basis
and permit Lender to examine and audit Borrower's books and records at
all reasonable times.
ADDITIONAL INFORMATION. Furnish such additional information and
statements, lists of assets and liabilities, agings of receivables and
payables, inventory schedules, budgets, forecasts, tax returns, and
other reports with respect to Borrower's financial condition and
business operations as Lender may request from time to time.
FINANCIAL COVENANTS AND RATIOS. Comply with the following covenants and
ratios: Except as provided above, all computations made to determine
compliance with the requirements contained in this paragraph shall be
made in accordance with generally accepted accounting principles,
applied on a consistent basis, and certified by Borrower as being true
and correct.
INSURANCE. Maintain fire and other risk insurance, public liability
insurance, and such other insurance as Lender may require with respect
to Borrower's properties and operations, in form, amounts, coverages and
with insurance companies reasonably acceptable to Lender. Borrower, upon
request of Lender, will deliver to Lender from time to time the policies
or certificates of insurance in form satisfactory to Lender, including
stipulations that coverages will not be cancelled or diminished without
at least ten (10) days' prior written notice to Lender. Each insurance
policy also shall include an endorsement providing that coverage in
favor of Lender will not be impaired in any way by any act, omission or
default of Borrower or any other person. In connection with all policies
covering assets in which Lender holds or is offered a security interest
for the Loans, Borrower will provide Lender with such loss payable or
other endorsements
6.
<PAGE> 7
as Lender may require.
INSURANCE REPORTS. Furnish to Lender, upon request of Lender, reports on
each existing insurance policy showing such information as Lender may
reasonably request, including without limitation the following: (a) the
name of the insurer; (b) the risks insured; (c) the amount of the
policy; (d) the properties insured; (e) the then current property values
on the basis of which insurance has been obtained, and the manner of
determining those values; and (f) the expiration date of the policy. In
addition, upon request of Lender (however not more often than annually),
Borrower will have an independent appraiser satisfactory to Lender
determine, as applicable, the actual cash value or replacement cost of
any Collateral. The cost of such appraisal shall be paid by Borrower.
OTHER AGREEMENTS. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and any
other party and notify Lender immediately in writing of any default in
connection with any other such agreements.
LOAN PROCEEDS. Use all Loan proceeds solely for Borrower's business operations,
unless specifically consented to the contrary by Lender in writing.
TAXES, CHARGES AND LIENS. Pay and discharge when due all of its
indebtedness and obligations, including without limitation all
assessments, taxes, governmental charges, levies and liens, of every
kind and nature, imposed upon Borrower or its properties, income, or
profits, prior to the date on which penalties would attach, and all
lawful claims that, if unpaid, might become a lien or charge upon any of
Borrower's properties, income or profits. Provided however, Borrower
will not be required to pay and discharge any such assessment, tax,
charge, levy, lien or claim so long as (a) the legality of the same
shall be contested in good faith by appropriate proceedings, and (b)
Borrower shall have established on its books adequate reserves with
respect to such contested assessment, tax, charge, levy, lien, or claim
in accordance with generally accepted accounting practices. Borrower,
upon demand of Lender, will furnish to Lender evidence of payment of the
assessments, taxes, charges, levies, liens and claims and will authorize
the appropriate governmental official to deliver to Lender at any time a
written statement of any assessments, taxes, charges, levies, liens and
claims against Borrower's properties, income, or profits.
PERFORMANCE. Perform and comply with all terms, conditions, and
provisions set forth in this Agreement and the Related Documents in a
timely manner, and promptly notify Lender if Borrower learns of the
occurrence of any event which constitutes an Event of Default under this
Agreement or under any of the Related Documents.
OPERATIONS. Maintain executive and management personnel with
substantially the same qualifications and experience as the present
executive and management personnel; provide written notice to Lender of
any change in executive and management, personnel; conduct its business
affairs in a reasonable and prudent manner and in compliance with all
applicable federal, state and municipal laws, ordinances, rules and
regulations respecting its properties, charters, businesses and
operations, including without limitation, compliance with the Americans
With Disabilities Act and with all minimum funding standards and other
requirements of ERISA and other laws applicable to Borrower's employee
benefit plans.
INSPECTION. Permit employees or agents or Lender at any reasonable time
to inspect any and all Collateral for the Loan or Loans and Borrower's
other properties and to examine or audit Borrower's books, accounts, and
records and to make copies and memoranda of Borrower's books, accounts,
and records. If Borrower now or at any time hereafter maintains any
records (including without limitation computer generated records and
computer software programs for the generation of such records) in the
possession of
7.
<PAGE> 8
a third party, Borrower, upon request of Lender, shall notify such party
to permit Lender free access to such records at all reasonable times and
to provide Lender with copies of any records it may request, all at
Borrower's expense.
COMPLIANCE CERTIFICATE. Unless waived in writing by Lender, provide
Lender at least annually and at the time of each disbursement of Loan
proceeds with a certificate executed by Borrower's chief financial
officer, or other officer or person acceptable to Lender, certifying
that the representations and warranties set forth in this Agreement are
true and correct as of the date of the certificate and further
certifying that, as of the date of the certificate, no Event of Default
exists under this Agreement.
ENVIRONMENTAL COMPLIANCE AND REPORTS. Borrower shall comply in all
respects with all environmental protection federal, state and local
laws, statutes, regulations and ordinances; not cause or permit to
exist, as a result of an intentional or unintentional action or omission
on its part or on the part of any third party, on property owned and/or
occupied by Borrower, any environmental activity where damage may result
to the environment, unless such environmental activity is pursuant to
and in compliance with the conditions of a permit issued by the
appropriate federal, state or local governmental authorities; shall
furnish to Lender promptly and in any event within thirty (30) days
after receipt thereof a copy of any notice, summons, lien, citation,
directive, letter or other communication from governmental agency or
instrumentality concerning any intentional or unintentional action or
omission on Borrower's part in connection with any environmental
activity whether or not there is damage to the environmental and/or
other natural resources.
ADDITIONAL ASSURANCE. Make, execute and deliver to Lender such
promissory notes, mortgages, deeds of trust, security agreements,
financing statements, instruments, documents and other agreements as
Lender or its attorneys may reasonably request to evidence and secure
the Loans and to perfect all Security interests.
RECOVERY OF ADDITIONAL COSTS. If the imposition of or any change in any law,
rule, regulation or guideline, or the interpretation or application of any
thereof by any court or administrative or governmental authority (including any
request or policy not having the force of law) shall impose, modify or make
applicable any taxes (except U.S. federal, state or local income or franchise
taxes imposed on Lender), reserve requirements, capital adequacy requirements or
other obligations which would (a) increase the cost to Lender for extending or
maintaining in the credit facilities to which this Agreement relates, (b) reduce
the amounts payable to Lender under this Agreement or the Related Documents, or
(c) reduce the rate of return on Lender's capital as a consequence of Lender's
obligations with respect to the credit facilities to which this Agreement
relates, then Borrower agrees to pay Lender such additional amounts as will
compensate Lender therefor, within five (5) days after Lender's written demand
for such payment, which demand shall be accompanied by an explanation of such
imposition or charge and a calculation in reasonable detail of the additional
amounts payable by Borrower, which explanation and calculations shall be
conclusive in the absence of manifest error.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:
INDEBTEDNESS AND LIENS. (a) Except for trade debt incurred in the normal
course of business and indebtedness to Lender contemplated by this
Agreement, create, incur or assume indebtedness for borrowed money,
including capital leases, (b) except as allowed as a Permitted Lien,
sell, transfer, mortgage, assign, pledge, lease, grant a security
interest in, or encumber any of Borrower's assets, or (c) sell with
recourse any of Borrower's accounts, except to Lender.
CONTINUITY OF OPERATIONS. (a) Engage in any business activities
substantially different than those in which Borrower is presently
engaged, or (b) cease operations, liquidate, merge, transfer, acquire or
consolidate
8.
<PAGE> 9
with any other entity, change ownership, dissolve or transfer or sell
Collateral out of the ordinary course of business.
LOANS, ACQUISITIONS AND GUARANTIES. (a) Loan, invest in or advance money
or assets, (b) purchase, create or acquire any interest in any other
enterprise or entity, or (c) incur any obligation as surety or guarantor
other than in the ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds if:
(a) Borrower or any Guarantor is in default under the terms of this Agreement or
any of the Related Documents or any other agreement that Borrower or any
Guarantor has with Lender; (b) Borrower or any Guarantor dies, becomes
incompetent or insolvent, files a petition in bankruptcy or similar proceedings,
or is adjudged a bankrupt; (c) there occurs a material adverse change in
Borrower's financial condition, in the financial condition of any Guarantor, or
in the value of any Collateral securing any Loan; or (d) any Guarantor seeks,
claims or otherwise attempts to limit, modify or revoke such Guarantor's
guaranty of the Loan or any other loan with Lender.
PRIMARY BANKING RELATIONSHIP. At all times that Lender has any outstanding
commitments for a loan or loans to Borrower, Borrower shall maintain its primary
banking accounts with Lender.
BORROWER FEDERAL INCOME TAX RETURN. Borrower covenants and agrees with Lender
that, while this Agreement is in effect, Borrower will furnish Lender with a
signed copy of Borrower's filed Federal Income Tax Return, as soon as available,
but in no event later than December fifteenth (15th), on an annual basis.
YEAR 2000 PROVISION. "YEAR 2000 compliant" means, with regard to any entity,
that all material software utilized by such entity is able to fully function
without causing any error to such entity's date-sensitive data. "Providers"
means the key suppliers, vendors, and customers of Borrower whose business
failure would, with reasonable probability, result in a material adverse change
in the financial condition or prospects of Borrower.
Borrower has or will soon have (i) undertaken a detailed assessment of all areas
within its business and operations that could be adversely affected by the
failure of Borrower to be Year 2000 compliant, (ii) developed and implemented a
detailed plan for becoming Year 2000 complaint on a timely basis, and (iii) made
written inquiry of each of its Providers as to whether the Providers will be
Year 2000 compliant in all material respects. Borrower reasonably anticipated
that it and the Providers will be Year 2000 compliant on a timely basis.
Borrower will promptly advise Lender in writing upon the occurrence of any of
the following: (i) Borrower determines or Borrower is advised by its
accountants, financial advisers, consultants, or auditors or any Provider that
it or any Provider will not be Year 2000 compliant on a timely basis or (ii)
Borrower or any Provider experiences data or data processing problems due to
failure to be Year 2000 compliant.
RIGHT OF SETOFF. Borrower grants to Lender, a contractual security interest in,
and hereby assigns, conveys, delivers, pledges and transfers to without
limitation all accounts held jointly with someone else and all accounts Borrower
may open in the future, excluding however all IRA and Keogh accounts, and all
trust accounts for which the grant of a security interest would be prohibited by
law. Borrower authorizes Lender, to the extent permitted by applicable law, to
charge or setoff all sums owing on the indebtedness against any and all such
accounts.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Borrower to make any payment when
due on the Loans.
9.
<PAGE> 10
OTHER DEFAULTS. Failure of Borrower or any Grantor to comply with or to
perform when due any other term, obligation, covenant or condition
contained in this Agreement or in any of the Related Documents, or
failure of Borrower to comply with or to perform any other term,
obligation, covenant or condition contained in any other agreement
between Lender and Borrower.
DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any Grantor
default under any loan, extension of credit, security agreement,
purchase or sales agreement, or any other agreement, in favor of any
other creditor or person that may materially affect any of Borrower's
property or Borrower's or any Grantor's ability to repay the Loans or
perform their respective obligations under this Agreement or any of the
Related Documents.
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Borrower or any Grantor under
this Agreement or the Related Documents is false or misleading in any
material respect at the time made or furnished, or becomes false or
misleading at any time thereafter.
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related
Documents ceases to be in full force and effect (including failure of
any Security Agreement to create a valid and perfected Security
interest) at any time and for any reason.
DEATH OR INSOLVENCY. The death of Borrower or the dissolution or
termination of Borrower's existence as a going business, the insolvency
of Borrower, the appointment of a receiver for any part of Borrower's
property, any assignment for the benefit of creditors, any type of
creditor workout, or the commencement of any proceeding under any
bankruptcy or insolvency laws by or against Borrower.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Borrower, any
creditor of any Grantor against any collateral securing the
indebtedness, or by any governmental agency. This includes a
garnishment, attachment, or levy on or of any of Borrower's deposit
accounts with Lender. However, this Event of Default shall not apply if
there is a good faith dispute by Borrower or Grantor, as the case may
be, as to the validity or reasonableness of the calm which is the basis
of the creditor or forfeiture proceeding, and if Borrower or Grantor
gives Lender written notice of the creditor or forfeiture proceeding and
furnishes reserves or a surety bond for the creditor or forfeiture
proceeding satisfactory to Lender.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with
respect to any Guarantor of any of the Indebtedness. Lender, at its
option, may, but shall not be required to, permit the Guarantor's estate
to assume unconditionally the obligations arising under the guaranty in
a manner satisfactory to Lender, and, in doing so, cure the Event of
Default.
ADVERSE CHANGE. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of
the Indebtedness is impaired.
RIGHT TO CURE. If any default, other than a Default on Indebtedness, is
curable and if Borrower or Grantor, as the case may be, has not been
given a notice of a similar default with the preceding twelve (12)
months, it may be cured (and no Event of Default will have occurred) if
Borrower or Grantor, as the case may be, after receiving written notice
from Lender demanding cure of such default: (a) cures the default with
fifteen (15) days; or (b) if the cure requires more than fifteen (15)
days, immediately initiates steps which Lender deems in Lender's sole
discretion to be sufficient to cure the default and thereafter continues
and completes all reasonable and necessary steps sufficient to produce
compliance as soon as reasonably
10.
<PAGE> 11
practical.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where
otherwise provided in this Agreement or the Related Documents, all commitments
and obligation of Lender under this Agreement or the Related Documents or any
other agreement immediately will terminate (including any obligation to make
Loan Advances or disbursements), and, at Lender's option, all Indebtedness
immediately will become due and payable, all without notice of any kind to
Borrower, except that in the case of an Event of Default of the type described
in the "Insolvency" subsection above, such acceleration shall be automatic and
not optional. In addition, Lender shall have all the rights and remedies
provided in the Related Documents or available at law, in equity, or otherwise.
Except as may be prohibited by applicable law, all of Lender's rights and
remedies shall be cumulative and may be exercised singularly or concurrently.
Election by Lender to pursue any remedy shall not exclude pursuit of any other
remedy, and an election to make expenditures or to take action to perform an
obligation of Borrower or of any Grantor shall not affect Lender's right to
declare a default and to exercise its rights and remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to
the matters set forth in this Agreement. No alteration of or amendment
to this Agreement shall be effective unless given in writing and signed
by the party or parties sought to be charged or bound by the alteration
or amendment.
APPLICABLE LAW. This Agreement has been delivered to Lender and accepted
by Lender in the State of California. If there is a lawsuit, Borrower
agrees upon Lender's request to submit to the jurisdiction of the courts
of Los Angeles County, the State of California. Lender and Borrower
hereby waive the right to any jury trial in any action, proceeding, or
counterclaim brought by either Lender or Borrower against the other.
This Agreement shall be governed by and construed in accordance with the
laws of the State of California.
CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the
provisions of this Agreement.
CONSENT TO LOAN PARTICIPATION. Borrower agrees and consents to Lender's
sale or transfer, whether now or later, of one or more participation
interests in the Loans to one or more purchasers, whether related or
unrelated to Lender. Lender may provide, without any limitation
whatsoever, to any one or more purchasers, or potential purchasers, any
information or knowledge Lender may have about Borrower or about any
other matter relating to the Loan, and Borrower hereby waives any rights
to privacy it may have with respect to such matters. Borrower
additionally waives any and all notices of sale of participation
interests, as well as all notices of any repurchase of such
participation interests. Borrower also agrees that the purchasers of any
such participation interests will be considered as the absolute owners
of such interest in the Loans and will have all the rights granted under
the participation agreement or agreements governing the sale of such
participation interests. Borrower further waives all rights of offset or
counterclaim that it may have now or later against Lender or against any
purchaser of such a participation interest and unconditionally agrees
that either Lender or such purchaser may enforce Borrower's obligation
under the Loans irrespective of the failure or insolvency of any holder
of any interest in the Loans. Borrower further agrees that the purchaser
of any such participation interests may enforce its interests
irrespective of any personal claims or defenses that Borrower may have
against Lender.
COSTS AND EXPENSES. Borrower agrees to pay upon demand all of Lender's
expenses, including without limitation attorneys' fees, incurred in
connection with the preparation, execution, enforcement, modification
11.
<PAGE> 12
and collection of this Agreement or in connection with the Loans made
pursuant to this Agreement. Lender may pay someone else to help collect
the Loans and to enforce this Agreement, and Borrower will pay that
amount. This includes, subject to any limits under applicable law,
Lender's attorneys' fees and Lender's legal expenses, whether or not
there is a lawsuit, including attorneys' fees for bankruptcy proceedings
(including efforts to modify or vacate any automatic stay or
injunction), appeals, and any anticipated post-judgment collection
services. Borrower also will pay any court costs, in addition to all
other sums provided by law.
NOTICES. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile (unless otherwise
required by law), and shall be effective when actually delivered or when
deposited with a nationally recognized overnight courier or deposited in
the United States mail, first class, postage prepaid, addressed to the
party to whom the notice is to be given at the address shown above. Any
party may change its address for notices under this Agreement by giving
formal written notice to the other parties, specifying that the purpose
of the notice is to change the party's address. To the extent permitted
by applicable law, if there is more than one Borrower, notice to any
Borrower will constitute notice to all Borrowers. For notice purposes,
Borrower will keep Lender informed at all times of Borrower's current
address(es).
SEVERABILITY. If a court of competent jurisdiction finds any provision
of this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending
provision cannot be so modified, it shall be stricken and all other
provisions of this Agreement in all other respects shall remain valid
and enforceable.
SUBSIDIARIES AND AFFILIATES OF BORROWER. To the extent the context of
any provisions of this Agreement makes it appropriate, including without
limitation any representation, warranty or covenant, the word "Borrower"
as used herein shall include all subsidiaries and affiliates of
Borrower. Notwithstanding the foregoing however, under no circumstances
shall this Agreement be construed to require Lender to make any Loan or
other financial accommodation to any subsidiary or affiliate of
Borrower.
SUCCESSORS AND ASSIGNS. All covenants and agreements contained by or on
behalf of Borrower shall bind its successors and assigns and shall inure
to the benefit of Lender, it successors and assigns. Borrower shall not,
however, have the right to assign its rights under this Agreement or any
interest therein, without the prior written consent of Lender.
SURVIVAL. All warranties, representations, and covenants made by
Borrower in this Agreement or in any certificate or other instrument
delivered by Borrower to Lender under this Agreement shall be considered
to have been relied upon by Lender and will survive the making of the
Loan and delivery to Lender of the Related Documents, regardless of any
investigation made by Lender or on Lender's behalf.
TIME IS OF THE ESSENCE. Time is of the essence in the performance of
this Agreement.
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender.
No delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender
of a provision of this Agreement shall not prejudice or constitute a
waiver of Lender's right otherwise to demand strict compliance with that
provision or any other provision of this Agreement. No prior waiver by
Lender, nor any course of dealing between Lender and Borrower, or
between Lender and any Grantor, shall constitute a
12.
<PAGE> 13
waiver of any of Lender's rights or of any obligations of Borrower or of
any Grantor as to any future transactions. Whenever the consent of
Lender is required under this Agreement, the granting of such consent by
Lender in any instance shall not constitute continuing consent in
subsequent instances where such consent is required, and in all cases
such consent may be granted or withheld in the sole discretion of
Lender.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN
AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF
OCTOBER 26, 1999.
BORROWER:
/s/ Richard D. Propper
- ------------------------------------
Richard D. Propper
LENDER:
CALIFORNIA BANK & TRUST
By:/s/ Christina V. Ono
- ------------------------------------
Authorized Officer
13.
<PAGE> 14
PROMISSORY NOTE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$1,000,000.00 10-26-1999 04-15-2000 9153000102 9153000102 45512
- --------------------------------------------------------------------------------------------------------------
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BORROWER: Richard D. Propper LENDER: California Bank & Trust
2890 Moon ridge Place Northern California Private Client Services
La Jolla, CA 92037 300 California Street
San Francisco, CA 94104
==============================================================================================================
</TABLE>
<TABLE>
<S> <C> <C> <C>
PRINCIPAL AMOUNT: $1,000,000.00 INITIAL RATE: 8.750% DATE OF NOTE: OCTOBER 26, 1999
</TABLE>
PROMISE TO PAY. Richard D. Propper ("Borrower") promises to pay to California
Bank & Trust ("Lender"), or order, in lawful money of the United States of
America, the principal amount of One Million & 00/100 Dollars ($1,000,000.00) or
so much as may be outstanding, together with interest on the unpaid outstanding
principal balance of each advance. Interest shall be calculated from the date of
each advance until repayment of each advance.
PAYMENT. Borrower will pay this loan on demand, or if no demand is made, in one
payment of all outstanding principal plus all accrued unpaid interest on April
15, 2000. In addition, Borrower will pay regular monthly payments of accrued
unpaid interest beginning November 15, 1999, and all subsequent interest
payments are due on the same day of each month after that. The annual interest
rate for this Note is computed on a 365/360 basis; that is, by applying the
ratio of the annual interest rate over a year of 360 days, multiplied by the
outstanding principal balance, multiplied by the actual number of days the
principal balance is outstanding. Borrower will pay Lender at Lender's address
shown above or at such other place as Lender may designate in writing. Unless
otherwise agreed or required by applicable law, payments will be applied first
to accrued unpaid interest, then to principal, and any remaining amount to any
unpaid collection costs and late charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to time based on changes in an index which is the California Bank & Trust
Prime Rate (the "Index"). The Index is not necessarily the lowest rate charged
by Lender on its loans and is set by Lender in its sole discretion. If the Index
becomes unavailable during the term of this loan, Lender may designate a
substitute Index after notifying Borrower. Lender will tell Borrower the current
Index rate upon Borrower's request. Borrower understands that Lender may make
loans based on other rates as well. The interest rate change will not occur more
often than each day or on the date specified at the time the Prime Rate is set.
The Index currently is 8.250%. The interest rate to be applied to the unpaid
principal balance of this Note will be at a rate of 0.500 percentage points over
the Index, resulting in an initial rate of 8.750%. NOTICE: Under no
circumstances will the interest rate on this Note be more than the maximum rate
allowed by applicable law.
PREPAYMENT; MINIMUM INTEREST CHARGE. In any event, even upon full prepayment of
this Note, Borrower understands that Lender is entitled to a minimum interest
charge of $200.00. Other than Borrower's obligation to pay any minimum interest
charge, Borrower may pay without penalty all or a portion of the amount owed
earlier than it is due. Early payments will not, unless agreed to by Lender in
writing, relieve Borrower of Borrower's obligation to continue to make payments
of accrued unpaid interest. Rather, they will reduce the principal balance due.
14.
<PAGE> 15
LATE CHARGE. If a payment is 15 days or more late, Borrower will be charged
6.000% of the regularly scheduled payment of $5.00, whichever is greater.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due, (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender, (c) Borrower defaults under any loan, extension of credit,
security agreement, purchase or sales agreement, or any other agreement, in
favor of any other creditor or person that may materially affect any of
Borrower's property or Borrower's ability to repay this Note or perform
Borrower's obligations under this Note or any of the Related Documents, (d) Any
representation or statement made or furnished to Lender by Borrower or on
Borrower's behalf is false or misleading in any material respect either now or
at the time made or furnished, (e) Borrower dies or becomes insolvent, a
receiver is appointed for any part of Borrower's property, Borrower makes an
assignment for the benefit of creditors, or any proceeding is commenced either
by Borrower or against Borrower under any bankruptcy or insolvency laws, (f) Any
creditor tries to take any of Borrower's property on or in which Lender has a
lien or security interest. This includes a garnishment of any of Borrower's
accounts with Lender, (g) Any of the events described in this default section
occurs with respect to any guarantor of this Note, (h) A material adverse change
occurs in Borrower's financial condition, or Lender believes the prospect of
payment or performance of the indebtedness is impaired.
If any default, other than a default in payment, is curable and if Borrower has
not been given a notice of a breach of the same provision of this Note within
the preceding twelve (12) months, it may be cured (and no event of default will
have occurred) if Borrower, after receiving written notice from Lender demanding
cure of such default: (a) cures the default within fifteen (15) days; or (b) if
the cure requires more than fifteen (15) days, immediately initiates steps which
Lender deems in Lender's sole discretion to be sufficient to cure the default
and thereafter continues and completes all reasonable and necessary steps
sufficient to produce compliance as soon as reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon Borrower's failure to pay
all amounts declared due pursuant to this section, including failure to pay upon
final maturity, Lender, at its option, may also, if permitted under applicable
law, increase the variable interest rate on this Note to 5.500 percentage points
over the Index. Lender may hire or pay someone else to help collect this Note if
Borrower does not pay. Borrower also will pay Lender that amount. This includes,
subject to any limits under applicable law, Lender's attorneys' fees and
Lender's legal expenses whether or not there is a lawsuit, including attorneys'
fees and legal expenses for bankruptcy proceedings (including efforts to modify
or vacate any automatic stay or injunction), appeals, and any anticipated
post-judgment collection services. Borrower also will pay any court costs, in
addition to all other sums provided by law. This Note has been delivered to
Lender and accepted by Lender in the State of California. If there is a lawsuit,
Borrower agrees upon Lender's request to submit to the jurisdiction of the
courts of Los Angeles County, the State of California. Lender and Borrower
hereby waive the right to any jury trial in any action, proceeding, or
counterclaim brought by either Lender or Borrower against the other. This Note
shall be governed by and construed in accordance with the laws of the State of
California.
RIGHT OF SETOFF. Borrower grants to Lender a contractual security interest in,
and hereby assigns, conveys, delivers, pledges, and transfers to Lender all
Borrower's right, title and interest in and to, Borrower's accounts with Lender
(whether checking, savings, or some other account), including without limitation
all accounts held jointly with someone else and all accounts Borrower may open
in the future, excluding however all IRA and Keogh accounts, and all trust
accounts for which the grant of a security interest would be prohibited by law.
Borrower authorizes Lender, to the extent permitted by applicable law, to charge
or setoff all sums owing on this Note against any and all such accounts.
15.
<PAGE> 16
LINE OF CREDIT. This Note evidences a straight line of credit. Once the total
amount of principal has been advanced, Borrower is not entitled to further loan
advances. Advances under this Note may be requested orally by Borrower or as
provided in this paragraph. Lender may, but need not, require that all oral
requests be confirmed in writing. All communications, instructions, or
directions by telephone or otherwise to Lender are to be directed to Lender's
office shown above. The following party or parties are authorized as provided in
this paragraph to request advances under the line of credit until Lender
receives from Borrower at Lender's address shown above written notice of
revocation of their authority: Richard D. Propper. Under no circumstances shall
Lender be required to make any advance in an amount less than $1,000.00.
Borrower agrees to be liable for all sums either: (a) advanced in accordance
with the instructions of an authorized person or (b) credited to any of
Borrower's accounts with Lender. The unpaid principal balance owing on this Note
at any time may be evidenced by endorsements on this Note or by Lender's
internal records, including daily computer print-outs. Lender will have no
obligation to advance funds under this Note if: (a) Borrower or any guarantor is
in default under the terms of this Note or any agreement that Borrower or any
guarantor has with Lender, including any agreement made in connection with the
signing of this Note; (b) Borrower or any guarantor ceases doing business or is
insolvent; (c) any guarantor seeks, claims or otherwise attempts to limit,
modify or revoke such guarantor's guarantee of this Note or any other loan with
Lender; or (d) Borrower has applied funds provided pursuant to this Note for
purposes other than those authorized by Lender.
GENERAL PROVISIONS. This Note is payable on demand. The inclusion of specific
default provisions or rights of Lender shall not preclude Lender's right to
declare payment of this Note on its demand. Lender may delay or forgo enforcing
any of its rights or remedies under this Note without losing them. Borrower and
any other person who signs, guarantees or endorses this Note, to the extent
allowed by law, waive any applicable statute of limitations, presentment, demand
for payment, protest and notice of dishonor. Upon any change in the terms of
this Note, and unless otherwise expressly stated in writing, no party who signs
this Note, whether as maker, guarantor, accommodation maker or endorser, shall
be released from liability. All such parties agree that Lender may renew or
extend (repeatedly and for any length of time) this loan, or release any party
or guarantor or collateral; or impair, fail to realize upon or perfect Lender's
security interest in the collateral; and take any other action deemed necessary
by Lender without the consent of or notice to anyone. All such parties also
agree that Lender may modify this loan without the consent of or notice to
anyone other than the party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS, BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
/s/ Richard D. Propper
- --------------------------------
Richard D. Propper
16.
<PAGE> 17
DISBURSEMENT REQUEST AND AUTHORIZATION
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$1,000,000.00 10-26-1999 04-15-2000 9153000102 1 9153000102 46512
- ---------------------------------------------------------------------------------------------------
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Borrower: Richard D. Propper Lender: California Bank & Trust
2890 Moonridge Place Northern California Private Client Services
La Jolla, CA 92037 300 California Street
San Francisco, CA 94104
</TABLE>
LOAN TYPE. This is a Variable Rate (0.500% over California Bank & Trust Prime
Rate, making an initial rate of 8.750%), Non-Revolving Line of Credit Loan to an
individual for $1,000,000.00 due on April 15, 2000.
PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for:
[ ] Personal, Family, or Household Purposes or Personal Investment.
[X] Business (Including Real Estate Investment).
SPECIFIC PURPOSE. The specific purpose of this loan is: Non Revolving Line of
Credit for Investments.
DISBURSEMENT INSTRUCTIONS. Borrower understands that no loan proceeds will be
disbursed until all of Lender's conditions for making the loan have been
satisfied. Please disburse the loan proceeds of $1,000,000.00 as follows:
<TABLE>
<S> <C> <C>
Undisbursed Funds: $1,000,000.00
Note Principal: $1,000,000.00
</TABLE>
AUTOMATIC PAYMENTS. Borrower hereby authorizes Lender automatically to deduct
from Borrower's account numbers 0161860376 the amount of any loan payment. If
the funds in the account are insufficient to cover any payment, Lender shall not
be obligated to advance funds to cover the payment. At any time and for any
reason, Borrower or Lender may voluntarily terminate Automatic Payments.
FINANCIAL CONDITION. BY SIGNING THIS AUTHORIZATION, BORROWER REPRESENTS AND
WARRANTS TO LENDER THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT AND
THAT THERE HAS BEEN NO MATERIAL ADVERSE CHANGE IN BORROWER'S FINANCIAL CONDITION
AS DISCLOSED IN BORROWER'S MOST RECENT FINANCIAL STATEMENT TO LENDER. THIS
AUTHORIZATION IS DATED OCTOBER 26, 1999.
BORROWER:
/s/ Richard D. Propper
- --------------------------------
Richard D. Propper
17.
<PAGE> 1
EXHIBIT 99.4
Bruce LaMont
The Covalent Group, Inc.
One Glenhardie Corp. Center
1275 Drummers Lane, Suite 100
September 1, 1999
RE: POSSIBLE TRANSACTION INVOLVING BRUCE LAMONT
AND R.P. ASSOCIATES
Mr. LaMont:
Bruce LaMont (the "Stockholder"), the majority stockholder of the
Covalent Group, Inc., a Nevada corporation (the "Company"), and RP Associates T
9 ("RP Associates") are currently engaged in discussions regarding a possible
strategic transaction involving Stockholder and RP Associates (a "Possible
Transaction"). In order to induce RP Associates to enter into negotiations with
the Stockholder regarding a Possible Transaction (and in recognition of the time
and effort that RP Associates may expend and the expenses that RP Associates may
incur in pursuing these negotiations and in investigating the Stockholder's
business), the Stockholder, intending to be legally bound, agrees as follows:
1. The Stockholder acknowledges and agrees that, until the
"No-Shop Termination Date" (defined as the earlier of October 15, 1999 or the
date on which RP Associates advises the Stockholder in writing that RP
Associates is terminating all negotiations regarding a Possible Transaction),
the Stockholder will not:
(a) solicit the initiation or submission of any expression of
interest, proposal or offer from any person or entity (other than RP
Associates) relating to a Strategic Transaction (as defined in
paragraph 6 below);
(b) participate in any negotiations or enter into any
agreement with, or provide any non-public information to, any person or
entity (other than RP Associates) relating to or in connection with a
Strategic Transaction; or
(c) accept any proposal or offer from any person or entity
(other than RP Associates) relating to a Strategic Transaction.
The Stockholder shall immediately discontinue any ongoing discussions or
negotiations (other than any ongoing discussions with RP Associates) relating to
a possible Strategic Transaction, and shall promptly provide RP Associates with
an oral and a written description of any expression of interest, inquiry,
proposal or offer relating to a possible Strategic Transaction that is received
by the Stockholder or by any of the Stockholder's Representatives from any
person or entity (other than RP Associates) on or prior to the No-Shop
Termination Date.
<PAGE> 2
R.P. Associates
Page 2
Stockholder and RP Associates are aware that, as of the date hereof, Stockholder
is CEO and a member of the Board of Directors of the Company (the "Board") and
in Stockholder's capacity as such, is in active and continuing negotiations with
undisclosed third parties relating to a possible Acquisition Transaction (as
defined in paragraph 6 below). Notwithstanding any other provision contained in
this Section 1, Stockholder shall be entitled, in his capacity as CEO and a
member of the Board, to initiate and conduct such negotiations; provided,
however, that in the event that prior to the No-Shop Termination Date (i)
Stockholder enters into a letter of intent, term sheet, definitive agreement or
other similar agreement or document or otherwise becomes obligated or bound to
enter into any of the foregoing contemplating or otherwise relating to any
Strategic Transaction with any third party, or (ii) the Company enters into any
letter of intent, term sheet, definitive agreement or other similar agreement or
document or otherwise becomes obligated or bound to any Acquisition Transaction
with any third party, then upon the earlier to occur of any event set forth in
clauses (i) and (ii) of this subparagraph (the "Trigger Event") then Stockholder
shall within ten (10) business days of the occurrence of the Trigger Event pay
to RP Associates an amount in cash equal to $2,000,000 plus RP Associates'
reasonable out of pocket fees and expenses incurred or to be incurred in
connection with the Strategic Transaction.
2. The Stockholder acknowledges and agrees that neither this
letter agreement nor any action taken in connection with this letter agreement
will give rise to any obligation on the part of RP Associates or Stockholder (a)
to continue any discussions or negotiations with the Stockholder or (b) to
pursue or enter into any transaction or relationship of any nature with the
Stockholder.
3. Except as required by law, rule or regulation, neither the
Stockholder nor RP Associates shall make or permit any disclosure to any person
or entity regarding (a) the existence or terms of this letter agreement, (b) the
existence of discussions or negotiations between the Stockholder and RP
Associates or (c) the existence or terms of any proposal regarding a Possible
Transaction.
4. The parties acknowledge and agree that, in addition to all
other remedies available (at law or otherwise) to them, each party shall be
entitled to equitable relief (including injunction and specific performance) as
a remedy for any breach or threatened breach of any provision of this letter
agreement. The parties further acknowledge and agree that they shall not be
required to obtain, furnish or post any bond or similar instrument in connection
with or as a condition to obtaining any remedy referred to in this paragraph 4,
and the Stockholder waives any right it may have to require a party to obtain,
furnish or post any such bond or similar instrument. If a party initiates an
action, suit or proceeding arising out of or relating to this letter agreement
and does not prevail on the merits in such action, suit or proceeding, then such
initiating party shall promptly pay the reasonable out of pocket fees and
expenses incurred by the non-initiating party in connection with such action,
suit or proceeding.
5. This letter agreement shall be governed by and construed in
accordance with the laws of the State of Nevada (without giving effect to
principles of conflicts of laws). The parties: (a) irrevocably and
unconditionally consent and submit to the jurisdiction of the state and federal
courts located in the State of California for purposes of any action, suit or
proceeding
<PAGE> 3
R.P. Associates
Page 3
arising out of or relating to this letter agreement; (b) agree that service of
any process, summons, notice or document by U.S. mail addressed to the
Stockholder or RP Associates at the address set forth at the beginning of this
letter agreement shall be deemed to constitute effective service thereof for
purposes of any action, suit or proceeding arising out of or relating to this
letter agreement; (c) irrevocably and unconditionally waives any objection to
the laying of venue of any action, suit or proceeding arising out of or relating
to this letter agreement in any state or federal court located in the State of
California; and (d) irrevocably and unconditionally waive the right to plead or
claim, and irrevocably and unconditionally agree not to plead or claim, that any
action, suit or proceeding arising out of or relating to this letter agreement
that is brought in any state or federal court located in the State of California
has been brought in an inconvenient forum.
6. For purposes of this letter agreement:
(a) "Strategic Transaction" shall mean any transaction, other than
an Acquisition Transaction, involving the sale, pledge, grant of an option to
purchase, disposition or acquisition of (A) any capital stock or other equity
security of the Company or any direct or indirect subsidiary of the Company
owned by the Stockholder, (B) any option, call, warrant or right (whether or not
immediately exercisable) to acquire any capital stock or other equity security
of the Company or any direct or indirect subsidiary of the Company owned by the
Stockholder, or (C) any security, instrument or obligation that is or may become
convertible into or exchangeable for any capital stock or other equity security
of the Company or any direct or indirect subsidiary of the Company owned by the
Stockholder.
(b) "Acquisition Transaction" shall mean a transaction between the
Company and any third party other than RP Associates involving:
(i) the sale, license, disposition or acquisition of all or a
material portion of the business or assets of the Company or any direct or
indirect subsidiary or division of the Company;
(ii) the issuance, grant, disposition or acquisition of (A) in
excess of 25% of the outstanding capital stock or other equity security of the
Company or any direct or indirect subsidiary of the Company, (B) any option,
call, warrant or right (whether or not immediately exercisable) to acquire in
excess of 25% of the outstanding capital stock or other equity security of the
Company or any direct or indirect subsidiary of the Company, or (C) any
security, instrument or obligation that is or may become convertible into or
exchangeable for in excess of 25% of the outstanding capital stock or other
equity security of the Company or any direct or indirect subsidiary of the
Company; or
(iii) any merger, consolidation, business combination, share
exchange, reorganization or similar transaction involving the Company or any
direct or indirect subsidiary of the Company.
Very truly yours,
RP ASSOCIATES
By: /s/ Richard D. Propper
ACKNOWLEDGED AND AGREED:
BRUCE LAMONT
By: /s/ Bruce LaMont
<PAGE> 1
EXHIBIT 99.5
OPTION AGREEMENT
THIS OPTION AGREEMENT (the "Agreement"), dated as of November 1, 1999,
is entered into by and between BRUCE LAMONT (the "Stockholder") and COVALENT
PARTNERS, LLC, a Delaware limited liability corporation ("Optionee").
RECITALS:
A. The Stockholder is a stockholder of Covalent Group, Inc., a Nevada
corporation (the "Company"), and owns 6,015,500 shares of the outstanding stock
of the Company, par value $0.001 (the "Company Stock").
B. The Stockholder wishes to provide the Optionee an option to purchase
the Company Stock (the "Option") and the Optionee desires to acquire the Option.
C. The Stockholder and Optionee desire to enter into this Agreement to
set forth the terms and conditions of the Option.
D. As a condition to the willingness of the Optionee to enter into this
Agreement, Optionee has required that Stockholder agree, and in order to induce
Optionee to enter into the Agreement and for other valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Stockholder has agreed
to invite, in his capacity as a member of the Company's Board of Directors (the
"Board") and a stockholder of the Company, Dr. Richard D. Propper to attend, as
an invited guest and observer, all Board meetings until January 15, 2000.
AGREEMENT:
NOW THEREFORE, in consideration of the foregoing recitals and the
mutual covenants and promises contained herein, the parties hereto agree as
follows:
1. GRANT OF OPTION. Optionee shall have the Option to purchase,
on the terms and subject to the conditions set forth in this Agreement, all or
any part of the Company Stock from the Stockholder at the price of Two Dollars
($2.00) per share (the "Exercise Price") which may be paid by the Optionee to
the Stockholder in cash or by a check. Concurrent with the execution hereof, the
Option shall become exercisable as to all or any portion of the Company Stock.
2. TERM OF OPTION. To the extent the Option has not previously
been exercised, the Option and all of Optionee's rights under this Agreement
shall expire on November 1, 1999 (the "Initial Expiration Date"); provided,
however, that if the Optionee elects to purchase at least 1,000,000 shares of
the Company Stock on or prior to the Initial Expiration Date and 250,000 shares
of the Company Stock on or before November 24, 1999, on the terms and subject to
the conditions set forth in this Agreement, then to the extent the Option has
not previously been exercised, the Option and all of Optionee's rights under
this Agreement with respect to the
1.
<PAGE> 2
remaining shares of Company Stock shall expire on January 15, 2000 (the "Final
Expiration Date").
3. METHOD OF EXERCISE OF THE OPTION. To exercise the Option or
any portion thereof, Optionee shall deliver to the Stockholder all of the
following: (i) a written notice stating that Optionee elects to exercise the
Option or any portion thereof, setting forth the number of shares of the Company
Stock with respect to which the option is being exercised and (ii) cash or a
check payable to the order of the Stockholder for the full purchase price of the
Company Stock to be purchased upon exercise of the Option. If the Company Stock
remains subject to any security interest, the Stockholder shall forward any such
notice of exercise and payment to the holder of such security interest as
required by the term of any such agreement and as necessary to provide for the
delivery of the shares of Company Stock to Optionee.
4. ESCROW AND STOCK POWER. If the Optionee elects to purchase at
least 1,000,000 shares of the Company Stock on or prior to the Initial
Expiration Date, Stockholder shall deliver (i) all remaining Company Stock to
William N. Levy, as escrow agent in this transaction (the "Escrow Agent"), to
hold in escrow for delivery pursuant to the terms of this Agreement and (ii) a
form of stock assignment separate from certificate executed in blank (with date
and number of shares left blank) in the form attached hereto as EXHIBIT A and
Joint Escrow Instructions duly executed by the Escrow Agent, Stockholder and
Optionee in the form attached hereto as EXHIBIT B and incorporated herein by
this reference.
5. ADJUSTMENTS AND OTHER RIGHTS. If, after the date hereof, the
number of outstanding shares of stock of the Company shall be increased,
decreased or changed into, or exchanged for, a different number or kind of
shares or securities of the Company through reorganization, merger,
recapitalization, reclassification, stock split-up, stock dividend, stock
consolidation or otherwise, an appropriate and proportionate adjustment shall be
made in the number and kind of the Company Stock, as the case may be, covered by
the Option. A corresponding adjustment changing the Exercise Price per share of
the Company Stock, as the case may be, allocated to the unexercised portion of
the Option shall likewise be made. Any such adjustment, however, shall be made
without change in the total price applicable to the unexercised portion of the
Option with respect to the Company Stock, as the case may be.
If the Company proposes to dissolve or to liquidate or proposes to
merge or consolidate with or into any other corporation, or to sell
substantially all of its assets, whether for cash or stock or any other property
or consideration, the Option shall be adjusted so as to apply to the securities
to which a holder of the number of shares of the Company Stock, as the case may
be, subject to the unexercised portion of the Option would have been entitled by
reason of such merger, consolidation or sale if such portion had been exercised
prior to such merger, consolidation or sale.
6. VOTING, BUYBACK AND LIMITATION OF OPTIONEE'S RIGHTS.
(a) Neither Optionee nor any other person entitled to exercise the
Option shall have any of the rights or privileges of a stockholder of the
Company in respect of any of the Company Stock, as the case may be, issuable
upon exercise of the Option unless and until a certificate representing such
shares shall have been issued in the name of Optionee or such
2.
<PAGE> 3
person. No adjustment will be made for dividends or other rights for which the
record date is prior to the date such stock certificate or certificates are
issued, except for adjustments required or permitted pursuant to Section 4
hereof.
(b) Until the earlier of (i) January 31, 2000 or (ii) the date
Optionee exercises the entire Option, Optionee hereby grants to Stockholder
voting rights on all Company Stock acquired by the Optionee's exercise of any
part of the Option. The grant of voting rights shall terminate immediately prior
to a lawful sale of the Company Stock by the Optionee in the public market
(NASDAQ).
(c) Optionee hereby agrees that after January 15, 2000 Stockholder
has the right to buy back any and all the Company Stock acquired by Optionee's
exercise of the Option at a price of $2.00 per share (the "Buyback Right") if
the Optionee elects to purchase less than the entire Option by the Final
Expiration Date. The Buyback Right shall expire on January 31, 2000. To exercise
the Buyback Right, the stockholder shall deliver to the Optionee, on or prior to
January 31, 2000, a written notice stating that the Stockholder elects to
exercise the Buyback Right. The Buyback Right shall be paid in six equal monthly
payments by check or cash commencing on the date Stockholder gives Optionee
written notice of Stockholders' election to exercise the Buyback Right.
7. BOARD GUEST AND BOARD APPOINTMENT. Until the Final Expiration
Date, the Stockholder, in his capacity as a member of the Board and as a
stockholder of the Company, shall invite Dr. Richard D. Propper, as an invited
guest and observer, to all Board meetings held prior to January 15, 2000. In the
event that Stockholder fails to exercise the "Buyback Right" pursuant to Section
6 above, the Stockholder shall use his efforts in his capacity as a member of
the Board and as a stockholder of the Company to appoint one (1) additional
member, as designated by Optionee, to the Board (the "Optionee Representative").
At each election of directors in which the holders of Common Stock are entitled
to elect directors of the Company, the Stockholder shall vote all of his Company
Stock so as to elect the Optionee Representative to the Board.
8. RESIGNATION AS CHIEF EXECUTIVE OFFICER, PRESIDENT AND BOARD
MEMBER. Upon the Optionee's exercise of the entire Option on or before the Final
Expiration Date, the Stockholder shall immediately resign on such date of
Optionee's exercise of the entire Option as the Chief Executive Officer,
President and employee of the Company and/or its affiliates and as a member of
the Company's Board.
9. NO-SHOP.
(a) The Stockholder acknowledges and agrees that, until the Final
Expiration Date, the Stockholder will not:
(i) solicit the initiation or submission of any expression of
interest, proposal or offer from any person or entity (other than the Optionee)
relating to a Strategic Transaction (as defined below);
3.
<PAGE> 4
(ii) participate in any negotiations or enter into any agreement
with, or provide any non-public information to, any person or entity (other than
the Optionee) relating to or in connection with a Strategic Transaction; or
(iii) accept any proposal or offer from any person or entity
(other than the Optionee) relating to a Strategic Transaction.
(b) "Strategic Transaction" shall mean any transaction, other than
an Acquisition Transaction, involving the sale, pledge, grant of an option to
purchase, disposition or acquisition of (A) any capital stock or other equity
security of the Company or any direct or indirect subsidiary of the Company
owned by the Stockholder, (B) any option, call, warrant or right (whether or not
immediately exercisable) to acquire any capital stock or other equity security
of the Company or any direct or indirect subsidiary of the Company owned by the
Stockholder, or (C) any security, instrument or obligation that is or may become
convertible into or exchangeable for any capital stock or other equity security
of the Company or any direct or indirect subsidiary of the Company owned by the
Stockholder. "Acquisition Transaction" shall mean a transaction between the
Company and any third party other than the Optionee involving (A) the sale,
license, disposition or acquisition of all or a material portion of the business
or assets of the Company or any direct or indirect subsidiary or division of the
Company; (B) the issuance, grant, disposition or acquisition of (i) in excess of
25% of the outstanding capital stock or other equity security of the Company or
any direct or indirect subsidiary of the Company, (ii) any option, call, warrant
or right (whether or not immediately exercisable) to acquire in excess of 25% of
the outstanding capital stock or other equity security of the Company or any
direct or indirect subsidiary of the Company, or (iii) any security, instrument
or obligation that is or may become convertible into or exchangeable for in
excess of 25% of the outstanding capital stock or other equity security of the
Company or any direct or indirect subsidiary of the Company; or (C) any merger,
consolidation, business combination, share exchange, reorganization or similar
transaction involving the Company or any direct or indirect subsidiary of the
Company.
(c) The Stockholder shall immediately discontinue any ongoing
discussions or negotiations (other than any ongoing discussions with the
Optionee) relating to a possible Strategic Transaction, and shall promptly
provide the Optionee with an oral and a written description of any expression of
interest, inquiry, proposal or offer relating to a possible Strategic
Transaction that is received by the Stockholder or by any representative of the
Stockholder from any person or entity (other than the Optionee) from the date of
this Agreement until the Final Expiration Date.
10. PAYMENT OF TAXES, FEES, AND OTHER EXPENSES. The Stockholder agrees
to pay any and all original issue taxes and stock transfer taxes that may be
imposed on the issuance of the Company Stock acquired pursuant to exercise of
the Option, together with any and all other fees and expenses necessarily
incurred by the Stockholder in connection therewith.
11. NOTICES. All notices, requests, demands and other communications
under this Agreement must be in writing and shall be deemed to have been duly
given on the date of service if served personally on the party to whom notice is
to be given, or on the date indicated on the return receipt as the date of
receipt or refusal if mailed to the party to whom notice is to be given
4.
<PAGE> 5
by first class mail, registered or certified, postage prepaid, return receipt
requested, and properly addressed as follows:
To the Stockholder: Bruce LaMont
The Covalent Group, Inc.
One Glenhardie Corp. Center
1275 Drummers Lane, Suite 100
Wayne, PA 19087
To the Optionee: Covalent Partners, LLC
2890 Moon Ridge Drive
La Jolla, CA 92037
Attn: Dr. Richard D. Propper
With a copy to: Cooley Godward LLP
4365 Executive Drive, Suite 1100
San Diego, CA 92121
Attn: Larry W. Nishnick, Esq.
Any party may change its address for the purpose of this Section 9 by
giving the other party written notice of the new address in the manner set forth
above.
12. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
and understanding of the parties with respect to the transactions contemplated
hereby, and supersedes all prior agreements, arrangements and understandings
relating to the subject matter hereof, written or otherwise.
13. AMENDMENT. This Agreement may be amended, modified, superseded or
canceled, and any of the terms, covenants or conditions hereof may be amended,
only by a written instrument executed by the Stockholder and by an authorized
representative of the Optionee which expressly states the intention of the
parties to modify the terms of this Agreement.
14. WAIVER. A waiver of any of the provisions of this Agreement shall
not be deemed, nor shall constitute, a waiver of any other provision, whether or
not similar, nor shall any waiver constitute a continuing waiver. A waiver shall
not be binding unless executed in writing by the party making the waiver.
15. SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be valid and effective under
applicable law. If any provision of this Agreement shall be unlawful, void or
for any reason unenforceable, it shall be deemed separable from, and shall in no
way affect the validity or enforceability of, the remaining provisions of this
Agreement, and the rights and obligations of the parties shall be enforced to
the fullest extent possible.
5.
<PAGE> 6
16. ATTORNEYS' FEES. In any judicial action or proceeding or any
arbitration proceeding between the parties to enforce any of the provisions of
this Agreement, to seek damages on account of the breach hereof, to seek
injunctive relief to prevent the breach hereof, to seek a judicial determination
of the rights or obligations of any party hereto, or in any judicial action or
proceeding or any arbitration proceeding between the parties in which this
Agreement is raised as a defense, regardless of whether the action or proceeding
is prosecuted to judgment, and in addition to any other remedy, the unsuccessful
party shall pay the successful party all costs and expenses, including
reasonable attorneys' fees, incurred by the successful party.
17. GOVERNING LAW. This letter agreement shall be governed by and
construed in accordance with the laws of the State of California. The parties:
(a) irrevocably and unconditionally consent and submit to the jurisdiction of
the state and federal courts located in the State of California for purposes of
any action, suit or proceeding arising out of or relating to this letter
agreement; (b) agree that service of any process, summons, notice or document by
U.S. mail addressed to the Stockholder or the Optionee at the address set forth
in Section 7 shall be deemed to constitute effective service thereof for
purposes of any action, suit or proceeding arising out of or relating to this
letter agreement; (c) irrevocably and unconditionally waives any objection to
the laying of venue of any action, suit or proceeding arising out of or relating
to this letter agreement in any state or federal court located in San Diego
County in the State of California; and (d) irrevocably and unconditionally waive
the right to plead or claim, and irrevocably and unconditionally agree not to
plead or claim, that any action, suit or proceeding arising out of or relating
to this letter agreement that is brought in any state or federal court located
in San Diego County in the State of California has been brought in an
inconvenient forum.
18. EFFECT OF HEADINGS. The subject headings of this Agreement are
included for convenience only, and shall not affect the construction or
interpretation of any of its provisions.
19. COUNTERPARTS. This Agreement may be executed simultaneously in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
6.
<PAGE> 7
IN WITNESS WHEREOF, the Stockholder and Optionee have caused this
Agreement to be executed as of the date and year first above written.
"STOCKHOLDER" BRUCE LAMONT
/s/ Bruce LaMont
--------------------------------------
Bruce LaMont
"OPTIONEE" COVALENT PARTNERS, LLC
/s/ Dr. Richard D. Propper
--------------------------------------
By: Dr. Richard D. Propper
Title: Manager
7.
<PAGE> 8
EXHIBIT A
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Option Agreement dated
sells, assigns and transfers unto COVALENT PARTNERS LLC _____________ shares of
common stock of Covalent Group, Inc., a Nevada corporation (the "Company"),
standing in the undersigned's name on the books of said corporation represented
by Certificate No.(s) ______ herewith, and does hereby irrevocably constitute
and appoint the Secretary of the Assignor's attorney to transfer the said stock
on the books of the said corporation with full power of substitution in the
premises.
Dated: November 1, 1999
Signature: /s/ Bruce LaMont
-------------------------------
BRUCE LAMONT
8.
<PAGE> 9
EXHIBIT B
JOINT ESCROW INSTRUCTIONS
William N. Levy
Levy & Levy, P.A.
Suite 309, Plaza 1000
Main Street
Voorhees, New Jersey 08043-4634
Dear Sir or Madam:
As Escrow Agent for both Bruce LaMont (the "Seller"), the majority stockholder
of Covalent Group, Inc., a Nevada corporation (the "Company"), and the
undersigned purchaser of stock of the Company ("Purchaser"), you are hereby
authorized and directed to hold the documents delivered to you pursuant to the
terms of that certain Option Agreement ("Agreement"), dated November 1, 1999, to
which a copy of these Joint Escrow Instructions is attached as Exhibit B, in
accordance with the following instructions:
1. In the event the Purchaser or an assignee shall elect to exercise
the Option set forth in the Agreement, the Purchaser or its assignee will give
to Seller and you a written notice specifying the number of shares of stock to
be purchased, the purchase price, and the time for a closing hereunder at the
offices of Cooley Godward LLP, 4365 Executive Drive, Suite 1100, San Diego,
California 92121. Seller and Purchaser hereby irrevocably authorize and direct
you to close the transaction contemplated by such notice in accordance with the
terms of said notice.
2. At the closing you are directed (a) to date any stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Purchaser against the
simultaneous delivery to you of the purchase price (which may include suitable
acknowledgment of cancellation of indebtedness) of the number of shares of stock
being purchased pursuant to the exercise of the Option.
3. Purchaser irrevocably authorizes the Seller to deposit with you any
certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as specified in the Agreement. Seller
does hereby irrevocably constitute and appoint you as his attorney-in-fact and
agent for the term of this escrow to execute with respect to such securities and
other property all documents of assignment and/or transfer and all stock
certificates necessary or appropriate to make all securities negotiable and
complete any transaction herein contemplated.
4. This escrow shall terminate upon expiration or exercise in full of
the Option, whichever occurs first.
9.
<PAGE> 10
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Purchaser,
you shall deliver all of same to Purchaser and shall be discharged of all
further obligations hereunder.
6. Except as otherwise provided in these Joint Escrow Instructions,
your duties hereunder may be altered, amended, modified or revoked only by a
writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as
are specifically set forth herein and may rely and shall be protected in relying
or refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties or
their assignees. You shall not be personally liable for any act you may do or
omit to do hereunder as Escrow Agent or as attorney-in-fact for Seller while
acting in good faith and any act done or omitted by you pursuant to the advice
of your own attorneys shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all
warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law, and are hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case you obey or comply with any such order, judgment or decree of any
court, you shall not be liable to any of the parties hereto or to any other
person, firm or corporation by reason of such compliance, notwithstanding any
such order, judgment or decree being subsequently reversed, modified, annulled,
set aside, vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authority or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under any
statute of limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel (including
without limitation the firm of Cooley Godward LLP) and other experts as you may
deem necessary to properly advise you in connection with your obligations
hereunder, may rely upon the advice of such counsel, and may pay such counsel
reasonable compensation therefor.
12. Your responsibilities as Escrow Agent hereunder shall terminate if
you shall cease to be Secretary of the Seller's attorney or if you shall resign
by written notice to each party. In the event of any such termination, the
Purchaser may appoint any officer or assistant officer of the Purchaser as
successor Escrow Agent and Seller hereby confirms the appointment of such
successor or successors as his attorney-in-fact and agent to the full extent of
your appointment.
13. If you reasonably require other or further instruments in
connection with these Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.
10.
<PAGE> 11
14. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities, you may (but are not obligated to) retain in your possession without
liability to anyone all or any part of said securities until such dispute shall
have been settled either by mutual written agreement of the parties concerned or
by a final order, decree or judgment of a court of competent jurisdiction after
the time for appeal has expired and no appeal has been perfected, but you shall
be under no duty whatsoever to institute or defend any such proceedings.
15. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in any United States Post Box, by registered or certified mail with
postage and fees prepaid, addressed to each of the other parties hereunto
entitled at the following addresses, or at such other addresses as a party may
designate by five (5) days' written notice to each of the other parties hereto:
PURCHASER: COVALENT PARTNERS, LLC
i/c/o medibuy.com, Inc.
7777 Alvarado Road, Suite 401
La Mesa, CA 91941
Attn: Dr. Richard D. Propper
SELLER: BRUCE LAMONT
The Covalent Group, Inc.
One Glenhardie Corp. Center
1275 Drummers Lane, Suite 100
Wayne, PA 19087
ESCROW AGENT: WILLIAM N. LEVY
Levy & Levy, P.A.
Suite 309, Plaza 1000
Main Street
Voorhees, New Jersey 08043-4634
11.
<PAGE> 12
16. By signing these Joint Escrow Instructions you become a party
hereto only for the purpose of said Joint Escrow Instructions; you do not become
a party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assigns. It is
understood and agreed that references to "you" or "your" herein refer to the
original Escrow Agent and to any and all successor Escrow Agents. It is
understood and agreed that the Purchaser may at any time or from time to time
assign its rights under the Agreement and these Joint Escrow Instructions in
whole or in part.
Very truly yours,
PURCHASER
Signature: /s/ Dr. Richard D. Propper
--------------------------------
Printed Name: Dr. Richard D. Propper
-----------------------------
Title: Manager, Covalent Partners, LLC
------------------------------------
SELLER:
Signature: /s/ Bruce LaMont
--------------------------------
Bruce LaMont
ESCROW AGENT:
/s/ William N. Levy
- ------------------------------------
William N. Levy
12.
<PAGE> 1
EXHIBIT 99.6
FORM OF EMPLOYMENT AGREEMENT
BY AND BETWEEN
COVALENT GROUP, INC.
AND
KENNETH M. BOROW, M.D.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
1. Employment..........................................................................1
2. Loyal And Conscientious Performance; Noncompetition.................................2
3. Compensation Of THE Executive.......................................................3
4. Termination.........................................................................4
5. Confidential And Proprietary Information; Nonsolicitation...........................7
6. Assignment And Binding Effect.......................................................7
7. Notices.............................................................................8
8. Choice Of Law.......................................................................8
9. Integration.........................................................................8
10. Amendment...........................................................................8
11. Waiver..............................................................................8
12. Severability........................................................................9
13. Interpretation; Construction........................................................9
14. Representations And Warranties......................................................9
15. Counterparts........................................................................9
16. Arbitration.........................................................................9
17. Injunctive Relief..................................................................10
18. Trade Secrets Of Others............................................................10
19. Advertising waiver.................................................................10
</TABLE>
i.
<PAGE> 3
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into on
___________ __, 1999, by and between COVALENT GROUP, INC., a Nevada corporation
(the "Company"), and KENNETH M. BOROW, M.D. (the "Executive"). The Company and
the Executive are hereinafter collectively referred to as the "Parties", and
individually referred to as a "Party".
RECITALS
WHEREAS, the Executive currently maintains the title and position of
President, Chief Operating Officer and Chief Medical Officer with the Company,
which he shall continue to hold until the Effective Date of this Agreement.
WHEREAS, Bruce LaMont, the majority stockholder of the Company and the
Covalent Group, LLC are currently engaged in negotiations for the sale and
purchase of all of the equity securities of the Company held by Mr. LaMont (the
"Transaction"). If the Transaction is consummated this Agreement shall become
automatically effective on the closing of the Transaction (the "Effective Date")
pursuant to the terms and conditions set forth herein.
WHEREAS, upon the Effective Date of this Agreement, the Executive
agrees, as part of this Agreement and in consideration thereof, to execute a
release and waiver of claims (substantially in the form of which is attached
hereto as Exhibit A) in exchange for the promises and covenants set forth in
this Agreement.
AGREEMENT
In consideration of the foregoing Recitals and the mutual promises and
covenants herein contained, and for other good and valuable consideration, the
Parties, intending to be legally bound, agree as follows:
1. EMPLOYMENT.
1.1 TERM. The Company hereby employs the Executive, and the
Executive hereby accepts employment by the Company, upon the terms and
conditions set forth in this Agreement. Subject to extension in accordance with
Section 1.2 herein, the term of this Agreement shall commence on the Effective
Date and shall continue for three (3) years thereafter unless terminated earlier
in accordance with Section 4 herein or extended in accordance with SECTION 1.2
herein (the "Term").
1.2 RENEWAL. The term of this Agreement shall be automatically
extended by one (1) year on the last day of the Term (and each anniversary
thereof) unless written notice has been provided by either Party pursuant to
Section 7 herein no less than sixty (60) days prior to the date of such
automatic renewal (a "Non-Renewal Notice"). Notwithstanding anything herein to
1.
<PAGE> 4
the contrary, either Party may terminate the Executive's employment under this
Agreement at any time, with or without Cause, subject to the terms and
conditions of Section 4 below.
1.3 TITLE. From the date hereof through the Effective Date,
Executive shall continue to service as the President, Chief Operating Officer
and Chief Medical Officer of the Company. From and after the Effective Date, the
Executive shall have the title of Chief Executive Officer of the Company and
shall serve in such other capacity or capacities as the Board of Directors of
the Company may from time to time prescribe. The Executive shall report to the
Board of Directors of the Company.
1.4 BOARD OF DIRECTORS. The Company agrees to nominate Executive for
a position as a director and voting member of the Board of Directors at the next
regularly scheduled Board of Directors meeting following the Effective Date of
the Agreement.
1.5 DUTIES. The Executive shall do and perform all services, acts or
things necessary or advisable to manage and conduct the business of the Company
and which are normally associated with the position of Chief Executive Officer,
consistent with the bylaws of the Company and as required by the Company's Board
of Directors.
1.6 POLICIES AND PRACTICES. The employment relationship between the
Parties shall be governed by the policies and practices established by the
Company and its Board of Directors, except that when the terms of this Agreement
differ from or are in conflict with the Company's policies or practices, this
Agreement shall control.
1.7 LOCATION. Unless the Parties otherwise agree in writing, during
the Term of this Agreement, Executive shall perform the services Executive is
required to perform pursuant to this Agreement at the Company's offices, located
in Wayne, Pennsylvania; provided, however, that the Company may from time to
time require the Executive to travel temporarily to other locations in
connection with the Company's business.
1.8 LIFE INSURANCE POLICY. Executive understands and agrees that the
Company anticipates securing a life insurance policy on Executive up to an
amount of three million dollars ($3,000,000). Executive agrees to cooperate with
the Company in obtaining such life insurance, including submitting to a physical
examination if required to do so by the insurance carrier.
2. LOYAL AND CONSCIENTIOUS PERFORMANCE; NONCOMPETITION.
2.1 LOYALTY. During the Executive's employment by the Company, the
Executive shall devote Executive's full business energies, interest, abilities
and productive time to the proper and efficient performance of Executive's
duties under this Agreement, provided, however, that the Company agrees that
Executive may continue his work as a medical consultant and expert witness, to
the extent that such work does not interfere with Executive's duties under this
Agreement.
2.
<PAGE> 5
2.2 COVENANT NOT TO COMPETE. Except with the prior written consent
of the Company's Board of Directors, the Executive will not, during the Term of
this Agreement, and any period during which the Executive is receiving
compensation or any other consideration from the Company pursuant to Section
4.4.3 herein, engage in pharmaceutical research development that competes with
the Company, either directly or indirectly, in any manner or capacity, as
adviser, principal, agent, affiliate, promoter, partner, officer, director,
employee, stockholder, owner, co-owner, consultant, or member of any association
or otherwise, in any phase of the business of pharmaceutical research
development.
2.3 AGREEMENT NOT TO PARTICIPATE IN COMPANY'S COMPETITORS. During
the Executive's employment by the Company, Executive agrees not to acquire,
assume or participate in, directly or indirectly, any position, investment or
interest known by Executive to be adverse or antagonistic to the Company, its
business or prospects, financial or otherwise or in any company, person or
entity that is, directly or indirectly, engaged in pharmaceutical research
development. Ownership by the Executive, as a passive investment, of less than
two percent (2%) of the outstanding shares of capital stock of any corporation
with one or more classes of its capital stock listed on a national securities
exchange or publicly traded on the Nasdaq Stock Market or in the
over-the-counter market shall not constitute a breach of this Section 2.
3. COMPENSATION OF THE EXECUTIVE.
3.1 BASE SALARY. The Company shall pay the Executive a base salary
of Two Hundred Fifty Thousand Dollars ($250,000) per year (the "Base Salary"),
payable in regular periodic payments in accordance with Company policy. Such
salary shall be prorated for any partial year of employment on the basis of a
365-day fiscal year.
3.2 CHANGES TO COMPENSATION. The Executive's compensation may be
changed from time to time by mutual agreement of the Executive and the Company.
3.3 EMPLOYMENT TAXES. All of the Executive's compensation shall be
subject to customary withholding taxes and any other employment taxes as are
commonly required to be collected or withheld by the Company.
3.4 BENEFITS. The Executive shall, in accordance with Company policy
and the terms of the applicable plan documents, be eligible to participate in
benefits under any executive benefit plan or arrangement which may be in effect
from time to time and made available to the Company's executive or key
management employees.
3.5 BONUS. Executive's performance shall be reviewed by the Board of
Directors on a periodic basis and the Board of Directors may, in its sole
discretion, provide a bonus to Executive as shall be appropriate or desirable
based on Executive's performance, the performance of the Company and the
milestones determined by the Board of Directors in its sole discretion.
3.6 OPTIONS. On the Effective Date, or as soon as practicable
thereafter, Executive shall be granted option to acquire 500,000 shares of the
Company's Common Stock
3.
<PAGE> 6
(the "Options") vesting monthly over a three year term, exercisable at the then
current fair market value thereof, and under such other terms of the Company's
stock option plan.
4. TERMINATION.
4.1 TERMINATION BY THE COMPANY. The Executive's employment with the
Company may be terminated under the following conditions:
4.1.1 DEATH OR DISABILITY. The Executive's employment with the
Company shall terminate effective upon the date of the Executive's death or
"Complete Disability" (as defined in Section 4.5.1).
4.1.2 FOR CAUSE. The Company may terminate the Executive's
employment under this Agreement for "Cause" (as defined in Section 4.5.2) by
delivery of written notice to the Executive specifying the Cause or Causes
relied upon for such termination. Any notice of termination given pursuant to
this Section 4.1.2 shall effect termination as of the date specified in such
notice or, in the event no such date is specified, on the last day of the month
in which such notice is delivered or deemed delivered as provided in Section 7
below.
4.1.3 WITHOUT CAUSE. The Company may terminate the Executive's
employment under this Agreement at any time and for any reason by delivery of
written notice of such termination to the Executive. Any notice of termination
given pursuant to this Section 4.1.3 shall effect termination as of the date
specified in such notice or, in the event no such date is specified, on the last
day of the month in which such notice is delivered or deemed delivered as
provided in Section 7 below.
4.1.4 NON-RENEWAL NOTICE. The Company may terminate this
Agreement by providing the Executive with a Non-Renewal Notice sixty (60) days
prior to the date of automatic renewal, as provided in Section 1.1 herein.
4.2 TERMINATION BY EXECUTIVE. The Executive may terminate the
Executive's employment with the Company at any time and for any reason by
delivery of a written notice of such termination to the Company's Board of
Directors. Any notice of termination given pursuant to this Section 4.2 shall
effect termination as of the date specified in such notice or, in the event no
such date is specified, on the last day of the month in which such notice is
delivered or deemed delivered as provided in Section 8 below.
4.3 TERMINATION BY MUTUAL AGREEMENT OF THE PARTIES. The Executive's
employment pursuant to this Agreement may be terminated at any time upon a
mutual agreement in writing of the Parties. Any such termination of employment
shall have the consequences specified in such agreement.
4.4 COMPENSATION UPON TERMINATION.
4.4.1 DEATH OR COMPLETE DISABILITY. If the Executive's
employment shall be terminated by death or Complete Disability as provided in
Section 4.4.1, the Company shall pay the Executive's accrued Base Salary and
accrued and unused vacation benefits earned
4.
<PAGE> 7
through the date of termination at the rate in effect at the time of termination
to Executive and/or Executive's heirs, and the Company shall thereafter have no
further obligations to the Executive and/or Executive's heirs under this
Agreement.
4.4.2 CAUSE, NON-RENEWAL OR TERMINATION BY EXECUTIVE. If the
Executive's employment shall be terminated by the Company for Cause, if Company
provides Executive with a Non-Renewal Notice prior to the date of automatic
renewal as provided in Section 1.1, or if the Executive terminates employment
hereunder, the Company shall pay the Executive's accrued Base Salary and accrued
and unused vacation benefits earned through the date of termination at the rate
in effect at the time of the notice of termination to Executive, and the Company
shall thereafter have no further obligations to the Executive under this
Agreement.
4.4.3 WITHOUT CAUSE. If the Company shall terminate the
Executive's employment without Cause during the Term, then upon the Executive's
furnishing to the Company an executed waiver and release of claims (a form of
which is attached hereto as Exhibit A), the Executive shall be entitled to the
following:
(i) The Executive's Base Salary and accrued and unused
vacation earned through the date of termination, subject to standard deductions
and withholdings; and
(ii) Continuation of the Executive's annual Base Salary in
effect at the time of termination for the greater of three years after the
Effective Date or one (1) year after the termination date, subject to standard
deductions and withholdings; and
(iii) Reimbursement of the Executive's health insurance
benefits for the greater of three years after the Effective Date or one (1) year
after the termination date, to the extent permitted by law and by the Company's
then current group health insurance policies; and
(iv) The immediate acceleration of the portion of
Executive's Options which would have vested during the greater of three years
after the Effective Date or one (1) year after the termination date (the
"Severance Options"), such that on the date of termination the Severance Options
are immediately exercisable.
4.4.4 COVENANT NOT TO COMPETE. Notwithstanding any provisions in
this Agreement to the contrary, including any provisions contained in this
Section 4.4, the Company's obligations, and the Executive's rights, pursuant to
Section 4.4.3 shall cease and be rendered a nullity immediately should the
Executive violate the provision of Section 2.2 herein, or should the Executive
violate the terms and conditions of the Executive's Proprietary Information and
Inventions Agreement.
4.4.5 TERMINATION OF OBLIGATIONS. In the event of the
termination of the Executive's employment hereunder and pursuant to this Section
4, the Company shall have no obligation to pay Executive any Base Salary, bonus
or other compensation or benefits, except as provided in this Section 4.4 or for
benefits due to the Executive (and/or the Executive's dependents under the terms
of the Company's benefit plans). The Company may offset any
5.
<PAGE> 8
amounts Executive owes it or its subsidiaries against any amount it owes
Executive pursuant to this Section 4.4.
4.5 DEFINITIONS. For purposes of this Agreement, the following terms
shall have the following meanings:
4.5.1 COMPLETE DISABILITY. "Complete Disability" shall mean the
inability of the Executive to perform the Executive's duties under this
Agreement because the Executive has become permanently disabled within the
meaning of any policy of disability income insurance covering employees of the
Company then in force. In the event the Company has no policy of disability
income insurance covering employees of the Company in force when the Executive
becomes disabled, the term "Complete Disability" shall mean the inability of the
Executive to perform the Executive's duties under this Agreement by reason of
any incapacity, physical or mental, which the Board of Directors, based upon
medical advice or an opinion provided by a licensed physician acceptable to the
Board of Directors, determines to have incapacitated the Executive from
satisfactorily performing all of the Executive's usual services for the Company
for a period of at least one hundred twenty (120) days during any twelve (12)
month period (whether or not consecutive). Based upon such medical advice or
opinion, the determination of the Board of Directors shall be final and binding
and the date such determination is made shall be the date of such Complete
Disability for purposes of this Agreement.
4.5.2 FOR CAUSE. The term "Cause" shall mean the following:
(i) The Executive's willful or reckless, and repeated
failure to satisfactorily perform the Executive's job duties under this
Agreement after notice from the Company and thirty (30) days opportunity to
cure;
(ii) Failure by the Executive to comply with all material
applicable laws in performing the Executive's job duties or in directing the
conduct of the Company's business, where such failure has a material adverse
affect on the Company;
(iii) Commission by the Executive of any felony or
intentionally fraudulent act against the Company, or its affiliates, employees,
agents or customers which demonstrates the Executive's untrustworthiness or lack
of integrity;
(iv) The Executive's engaging or in any manner participating
in any activity which is directly competitive with or intentionally injurious to
the Company or any of its affiliates or which violates any material provisions
of Section 6 hereof, without authorization from the Company; or
(v) The Executive's commission of any fraud against the
Company or any of its affiliates or use or intentional appropriation for his
personal use or benefit of any funds or properties of the Company not authorized
by the Board to be so used or appropriated.
4.6 SURVIVAL OF CERTAIN. Sections. Sections 2.2, 4.4.3, 4.4.4, 5, 6,
7, 9, 17, 18 and 19 of this Agreement will survive the termination of this
Agreement.
6.
<PAGE> 9
5. CONFIDENTIAL AND PROPRIETARY INFORMATION; NONSOLICITATION.
5.1 The Executive agrees to execute and abide by the Proprietary
Information and Inventions Agreement attached hereto as Exhibit B.
5.2 The Executive recognizes that Executive's employment with the
Company will involve contact with information of substantial value to the
Company, which is not generally known in the trade, and which gives the Company
an advantage over its competitors who do not know or use it, including but not
limited to, techniques, designs, drawings, processes, inventions know how,
strategies, marketing, and/or advertising plans or arrangements, developments,
equipment, prototypes, sales, supplier, service provider, vendor, distributor
and customer information, and business and financial information relating to the
business, products, services, practices and techniques of the Company,
(hereinafter referred to as "Confidential and Proprietary Information"). The
Executive will at all times regard and preserve as confidential such
Confidential and Proprietary Information obtained by the Executive from whatever
source and will not, either during Executive's employment with the Company or
thereafter, publish or disclose any part of such Confidential and Proprietary
Information in any manner at any time, or use the same except on behalf of the
Company, without the prior written consent of the Company.
5.3 The Executive agrees that in order to protect the Company's
Confidential and Proprietary Information from unauthorized use that, except with
the prior written consent of the Company's Board of Directors, the Executive
will not, during the Term, and any period during which the Executive is
receiving compensation or any other consideration from the Company, pursuant to
Section 4.4.3 herein, either directly or through others, solicit or attempt to
solicit any employee, consultant or independent contractor of the Company to
terminate his or her relationship with the Company in order to become an
employee, consultant or independent contractor to or for any other person or
business entity; or the business of any customer, supplier, service provider,
vendor or distributor of the Company which, at the time of Executive's
termination or one (1) year immediately prior thereto, was doing business with
the Company or listed on Company's customer, supplier, service provider, vendor
or distributor list.
6. ASSIGNMENT AND BINDING EFFECT.
This Agreement shall be binding upon and inure to the benefit of the
Executive and the Executive's heirs, executors, personal representatives,
assigns, administrators and legal representatives. Because of the unique and
personal nature of the Executive's duties under this Agreement, neither this
Agreement nor any rights or obligations under this Agreement shall be assignable
by the Executive. This Agreement shall be binding upon and inure to the benefit
of the Company and its successors, assigns and legal representatives.
7. NOTICES.
All notices or demands of any kind required or permitted to be given
by the Company or the Executive under this Agreement shall be given in writing
and shall be personally
7.
<PAGE> 10
delivered (and receipted for) faxed during normal business hours or mailed by
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Company:
COVALENT GROUP, INC.
2890 Moon Ridge Drive
La Jolla, CA 92037
If to the Executive:
KENNETH M. BOROW, M.D.
407 Wyntre Lea Drive
Bryn Mawr, PA 19019
Any such written notice shall be deemed received when personally delivered or
three (3) days after its deposit in the United States mail as specified above.
Either Party may change its address for notices by giving notice to the other
Party in the manner specified in this section.
8. CHOICE OF LAW.
This Agreement is made in Wayne, Pennsylvania. This Agreement shall
be construed and interpreted in accordance with the laws of the State of
Pennsylvania.
9. INTEGRATION.
This Agreement contains the complete, final and exclusive agreement
of the Parties relating to the terms and conditions of the Executive's
employment, and supersedes all prior and contemporaneous oral and written
employment agreements or arrangements between the Parties.
10. AMENDMENT.
This Agreement cannot be amended or modified except by a written
agreement signed by the Executive and the Company.
11. WAIVER.
No term, covenant or condition of this Agreement or any breach
thereof shall be deemed waived, except with the written consent of the Party
against whom the wavier is claimed, and any waiver or any such term, covenant,
condition or breach shall not be deemed to be a waiver of any preceding or
succeeding breach of the same or any other term, covenant, condition or breach.
12. SEVERABILITY.
The finding by a court of competent jurisdiction of the
unenforceability, invalidity or illegality of any provision of this Agreement
shall not render any other provision of this Agreement unenforceable, invalid or
illegal. Such court shall have the authority to modify or
8.
<PAGE> 11
replace the invalid or unenforceable term or provision with a valid and
enforceable term or provision which most accurately represents the Parties'
intention with respect to the invalid or unenforceable term or provision.
13. INTERPRETATION; CONSTRUCTION.
The headings set forth in this Agreement are for convenience of
reference only and shall not be used in interpreting this Agreement. This
Agreement has been drafted by legal counsel representing the Company, but the
Executive has been encouraged, and has consulted with, Executive's own
independent counsel and tax advisors with respect to the terms of this
Agreement. The Parties acknowledge that each Party and its counsel has reviewed
and revised, or had an opportunity to review and revise, this Agreement, and the
normal rule of construction to the effect that any ambiguities are to be
resolved against the drafting party shall not be employed in the interpretation
of this Agreement.
14. REPRESENTATIONS AND WARRANTIES.
The Executive represents and warrants that Executive is not
restricted or prohibited, contractually or otherwise, from entering into and
performing each of the terms and covenants contained in this Agreement, and that
Executive's execution and performance of this Agreement will not violate or
breach any other agreements between the Executive and any other person or
entity.
15. COUNTERPARTS.
This Agreement may be executed in two counterparts, each of which
shall be deemed an original, all of which together shall contribute one and the
same instrument.
16. ARBITRATION.
To ensure rapid and economical resolution of any disputes which may
arise under this Agreement, the Executive and the Company agree that any and all
disputes or controversies of any nature whatsoever, arising from or regarding
the interpretation, performance, enforcement or breach of this Agreement shall
be resolved by confidential, final and binding arbitration (rather than trial by
jury or court or resolution in some other forum) to the fullest extent permitted
by law. Any arbitration proceeding pursuant to this Agreement shall be conducted
by the American Arbitration Association ("AAA") in Pennsylvania under the then
existing employment-related AAA arbitration rules. If for any reason all or part
of this arbitration provision is held to be invalid, illegal, or unenforceable
in any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other portion of
this arbitration provision or any other jurisdiction, but this provision will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable part or parts of this provision had never been
contained herein, consistent with the general intent of the Parties insofar as
possible.
I HAVE READ SECTION 17 AND AGREE TO ARBITRATE ANY DISPUTE IDENTIFIED ABOVE.
______ (EXECUTIVE'S INITIALS)
9.
<PAGE> 12
17. INJUNCTIVE RELIEF.
The Executive is obligated under this Agreement to render services
and comply with covenants of a special, unique, unusual and extraordinary
character, thereby giving this Agreement peculiar value, so that the loss of
such service or violation by the Executive of this Agreement, including, but not
limited to, the Proprietary Information and Inventions Agreement, could not
reasonably or adequately be compensated in damages in an action at law.
Therefore, notwithstanding Section 18 herein, in addition to any other remedies
or sanctions provided by law, whether criminal or civil, and without limiting
the right of the Company and successors or assigns to pursue all other legal and
equitable rights available to them, the Company shall have the right during the
Executive's employment hereunder (or thereafter with respect to obligation
continuing after the termination of this Agreement) to compel specific
performance hereof by the Executive or to obtain temporary and permanent
injunctive relief against violations hereof by the Executive, including, but not
limited to violations of the Proprietary Information and Inventions Agreement,
and, in furtherance thereof, to apply to any court with jurisdiction over the
Parties to enforce the provisions hereof.
18. TRADE SECRETS OF OTHERS.
It is the understanding of both the Company and the Executive that
the Executive shall not divulge to the Company and/or its subsidiaries any
confidential information or trade secrets belonging to others, including the
Executive's former employers, nor shall the Company and/or its affiliates seek
to elicit from the Executive any such information. Consistent with the
foregoing, the Executive shall not provide to the Company and/or its affiliates,
and the Company and/or its affiliates shall not request, any documents or copies
of documents containing such information.
19. ADVERTISING WAIVER.
During the Term of this Agreement, the Executive agrees to permit
the Company and/or its affiliates, and persons or other organizations authorized
by the Company and/or its affiliates, to use, publish and distribute advertising
or sales promotional literature concerning the products and/or services of the
Company and/or its affiliates, or the machinery and equipment used in the
provision thereof, in which the Executive's name and/or pictures of the
Executive taken in the course of the Executive's provision of services to the
Company and/or its affiliates, appear. The Executive hereby waives and releases
any claim or right the Executive may otherwise have arising out of such use,
publication or distribution.
10.
<PAGE> 13
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date first above written.
COVALENT GROUP, INC.
By:
-----------------------------------------
Its:
----------------------------------------
Dated:
--------------------------------------
EXECUTIVE:
- --------------------------------------------
KENNETH M. BOROW, M.D.
Dated:
--------------------------------------
11.
<PAGE> 14
EXHIBIT A
RELEASE AND WAIVER OF CLAIMS
In consideration of the payments and other benefits set forth in
Section 4 of the Employment Agreement dated ________ __, 1999, to which this
form is attached, I, KENNETH M. BOROW, M.D., hereby furnish COVALENT GROUP, INC.
(the "Company"), with the following release and waiver ("Release and Waiver").
I hereby release, and forever discharge the Company, its officers,
directors, agents, employees, stockholders, successors, assigns affiliates and
Benefit Plans, of and from any and all claims, liabilities, demands, causes of
action, costs, expenses, attorneys' fees, damages, indemnities and obligations
of every kind and nature, in law, equity, or otherwise, known and unknown,
suspected and unsuspected, disclosed and undisclosed, arising at any time prior
to and including my employment Termination Date with respect to any claims
relating to my employment and the termination of my employment, including but
not limited to, claims pursuant to any federal, state or local law relating to
employment, including, but not limited to, discrimination claims, claims under
the Federal Age Discrimination in Employment Act of 1967, as amended ("ADEA"),
or claims for wrongful termination, breach of the covenant of good faith,
contract claims, tort claims, and wage or benefit claims, including but not
limited to, claims for salary, bonuses, commissions, stock, stock options,
vacation pay, fringe benefits, severance pay or any form of compensation.
I also acknowledge that I have read and understand Section 1542 of the
California Civil Code which reads as follows: "A GENERAL RELEASE DOES NOT EXTEND
TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT
THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY
AFFECTED HIS SETTLEMENT WITH THE DEBTOR." I hereby expressly waive and
relinquish all rights and benefits under that section and any law of any
jurisdiction of similar effect with respect to any claims I may have against the
Company.
I acknowledge that, among other rights, I am waiving and releasing any
rights I may have under ADEA, that this Release and Waiver is knowing and
voluntary, and that the consideration given for this Release and Waiver is in
addition to anything of value to which I was already entitled as an executive of
the Company. I further acknowledge that I have been advised, as required by the
Older Workers Benefit Protection Act, that: (a) the Release and Waiver granted
herein does not relate to claims which may arise after this Release and Waiver
is executed; (b) I have the right to consult with an attorney prior to executing
this Release and Waiver (although I may choose voluntarily not to do so); and if
I am 40 years or older upon execution of this Release and Waiver: (c) I have
twenty-one (21) days from the date of termination of my employment with the
Company in which to consider this Release and Waiver (although I may choose
voluntarily to execute this Release and Waiver earlier); (d) I have seven (7)
days following the execution of this Release and Waiver to revoke my consent to
this Release and Waiver; and (e) this Release and Waiver shall not be effective
until the seven (7) day revocation period has expired.
Date: By:
------------------ -------------------------------
KENNETH M. BOROW, M.D.
<PAGE> 15
EXHIBIT B
COVALENT GROUP, INC.
EMPLOYEE PROPRIETARY INFORMATION
AND INVENTIONS AGREEMENT
(NON-CALIFORNIA FORM)
In consideration of my employment or continued employment by COVALENT
GROUP, INC. (the "COMPANY"), and the compensation now and hereafter paid to me,
I hereby agree as follows:
1. NONDISCLOSURE.
1.1 RECOGNITION OF COMPANY'S RIGHTS; NONDISCLOSURE. At all times during
my employment and thereafter, I will hold in strictest confidence and will not
disclose, use, lecture upon or publish any of the Company's Proprietary
Information (defined below), except as such disclosure, use or publication may
be required in connection with my work for the Company, or unless an officer of
the Company expressly authorizes such in writing. I will obtain Company's
written approval before publishing or submitting for publication any material
(written, verbal, or otherwise) that relates to my work at Company and/or
incorporates any Proprietary Information. I hereby assign to the Company any
rights I may have or acquire in such Proprietary Information and recognize that
all Proprietary Information shall be the sole property of the Company and its
assigns.
1.2 PROPRIETARY INFORMATION. The term "PROPRIETARY INFORMATION" shall
mean any and all confidential and/or proprietary knowledge, data or information
of the Company. By way of illustration but not limitation, "PROPRIETARY
INFORMATION" includes: tangible and intangible information relating to
antibodies and other biological materials, cell lines, samples of assay
components, media and/or cell lines and procedures and formulations for
producing any such assay components, media and/or cell lines, formulations,
products, processes, know-how, designs, formulas, methods, developmental or
experimental work, clinical data, improvements, discoveries, plans for research,
development, new products, marketing and selling, business plans, budgets and
unpublished financial statements, licenses, prices and costs, suppliers and
customers, and information regarding the skills and compensation of other
employees of the Company. Notwithstanding the foregoing, it is understood that,
at all such times, I am free to use information which is generally known in the
trade or industry, which is not gained as result of a breach of this Agreement,
and my own skill, knowledge, know-how and experience to whatever extent and in
whichever way I wish.
1.3 THIRD PARTY INFORMATION. I understand, in addition, that the
Company has received and in the future will receive from third parties
confidential or proprietary information ("THIRD PARTY INFORMATION") subject to a
duty on the Company's part to maintain the confidentiality of such information
and to use it only for certain limited purposes. During the term of my
employment and thereafter, I will hold Third Party Information in the strictest
confidence and will not disclose to anyone (other than Company personnel who
need to know such information in connection with their work for the Company) or
use, except in connection with my work for the Company, Third Party Information
unless expressly authorized by an officer of the Company in writing.
1.4 NO IMPROPER USE OF INFORMATION OF PRIOR EMPLOYERS AND OTHERS.
During my employment by the Company I will not improperly use or disclose any
confidential information or trade secrets, if any, of any former employer or any
other person to whom I have an obligation of confidentiality, and I will not
bring onto the premises of the Company any unpublished documents or any property
belonging to any former employer or any other person to whom I have an
obligation of confidentiality unless consented to in writing by that former
employer or person. I will use in the performance of my duties only information
which is generally known and used by persons with training and experience
comparable to my own, which is common knowledge in the industry or otherwise
legally in the public domain, or which is otherwise provided or developed by the
Company.
2. ASSIGNMENT OF INVENTIONS.
2.1 PROPRIETARY RIGHTS. The term "PROPRIETARY RIGHTS" shall mean all
trade secret, patent, copyright, mask work and other intellectual property
rights throughout the world.
2.2 PRIOR INVENTIONS. Inventions, if any, patented or unpatented, which
I made prior to the commencement of my employment with the Company are excluded
from the scope of this Agreement. To
<PAGE> 16
preclude any possible uncertainty, I have set forth on Exhibit A (Previous
Inventions) attached hereto a complete list of all Inventions that I have, alone
or jointly with others, conceived, developed or reduced to practice or caused to
be conceived, developed or reduced to practice prior to the commencement of my
employment with the Company, that I consider to be my property or the property
of third parties and that I wish to have excluded from the scope of this
Agreement (collectively referred to as "PRIOR INVENTIONS"). If disclosure of any
such Prior Invention would cause me to violate any prior confidentiality
agreement, I understand that I am not to list such Prior Inventions in Exhibit A
but am only to disclose a cursory name for each such invention, a listing of the
party(ies) to whom it belongs and the fact that full disclosure as to such
inventions has not been made for that reason. A space is provided on Exhibit A
for such purpose. If no such disclosure is attached, I represent that there are
no Prior Inventions. If, in the course of my employment with the Company, I
incorporate a Prior Invention into a Company product, process or machine, the
Company is hereby granted and shall have a nonexclusive, royalty-free,
irrevocable, perpetual, worldwide license (with rights to sublicense through
multiple tiers of sublicensees) to make, have made, modify, use and sell such
Prior Invention. Notwithstanding the foregoing, I agree that I will not
incorporate, or permit to be incorporated, Prior Inventions in any Company
Inventions without the Company's prior written consent.
2.3 ASSIGNMENT OF INVENTIONS. Subject to Sections 2.4, and 2.6, I
hereby assign and agree to assign in the future (when any such Inventions or
Proprietary Rights are first reduced to practice or first fixed in a tangible
medium, as applicable) to the Company all my right, title and interest in and to
any and all Inventions (and all Proprietary Rights with respect thereto) whether
or not patentable or registrable under copyright or similar statutes, made or
conceived or reduced to practice or learned by me, either alone or jointly with
others, during the period of my employment with the Company. Inventions assigned
to the Company, or to a third party as directed by the Company pursuant to this
Section 2, are hereinafter referred to as "COMPANY INVENTIONS."
2.4 NONASSIGNABLE INVENTIONS. I recognize that, in the event of a
specifically applicable state law, regulation, rule, or public policy ("SPECIFIC
INVENTIONS LAW"), this Agreement will not be deemed to require assignment of any
invention which qualifies fully for protection under a Specific Inventions Law
by virtue of the fact that any such invention was, for example, developed
entirely on my own time without using the Company's equipment, supplies,
facilities, or trade secrets and neither related to the Company's actual or
anticipated business, research or development, nor resulted from work performed
by me for the Company. In the absence of a Specific Inventions Law, the
preceding sentence will not apply.
2.5 OBLIGATION TO KEEP COMPANY INFORMED. During the period of my
employment and for six (6) months after termination of my employment with the
Company, I will promptly disclose to the Company fully and in writing all
Inventions authored, conceived or reduced to practice by me, either alone or
jointly with others. In addition, I will promptly disclose to the Company all
patent applications filed by me or on my behalf within a year after termination
of employment. At the time of each such disclosure, I will advise the Company in
writing of any Inventions that I believe fully qualify for protection under the
provisions of a Specific Inventions Law; and I will at that time provide to the
Company in writing all evidence necessary to substantiate that belief. The
Company will keep in confidence and will not use for any purpose or disclose to
third parties without my consent any confidential information disclosed in
writing to the Company pursuant to this Agreement relating to Inventions that
qualify fully for protection under a Specific Inventions Law. I will preserve
the confidentiality of any Invention that does not fully qualify for protection
under a Specific Inventions Law.
2.6 GOVERNMENT OR THIRD PARTY. I also agree to assign all my right,
title and interest in and to any particular Company Invention to a third party,
including without limitation the United States, as directed by the Company.
2.7 WORKS FOR HIRE. I acknowledge that all original works of authorship
which are made by me (solely or jointly with others) within the scope of my
employment and which are protectable by copyright are "works made for hire,"
pursuant to United States Copyright Act (17 U.S.C., Section 101).
2.8 ENFORCEMENT OF PROPRIETARY RIGHTS. I will assist the Company in
every proper way to obtain, and from time to time enforce, United States and
foreign Proprietary Rights relating to Company Inventions in any and all
countries. To that end I will execute, verify and deliver such documents and
perform such other acts (including appearances as a witness) as the Company may
reasonably request for use in applying for, obtaining, perfecting, evidencing,
sustaining and enforcing such Proprietary Rights and the assignment thereof. In
addition, I will execute, verify and deliver assignments of such Proprietary
Rights to the Company or its designee. My obligation to assist the Company with
respect to Proprietary Rights relating to such Company Inventions in any and all
countries shall continue beyond the termination of my employment, but the
Company shall
<PAGE> 17
compensate me at a reasonable rate after my termination for the time actually
spent by me at the Company's request on such assistance.
In the event the Company is unable for any reason, after reasonable
effort, to secure my signature on any document needed in connection with the
actions specified in the preceding paragraph, I hereby irrevocably designate and
appoint the Company and its duly authorized officers and agents as my agent and
attorney in fact, which appointment is coupled with an interest, to act for and
in my behalf to execute, verify and file any such documents and to do all other
lawfully permitted acts to further the purposes of the preceding paragraph with
the same legal force and effect as if executed by me. I hereby waive and
quitclaim to the Company any and all claims, of any nature whatsoever, which I
now or may hereafter have for infringement of any Proprietary Rights assigned
hereunder to the Company.
3. RECORDS. I agree to keep and maintain adequate and current
records (in the form of notes, sketches, drawings and in any other form that may
be required by the Company) of all Proprietary Information developed by me and
all Inventions made by me during the period of my employment at the Company,
which records shall be available to and remain the sole property of the Company
at all times.
4. NO CONFLICTING OBLIGATION. I represent that my performance of
all the terms of this Agreement and as an executive of the Company does not and
will not breach any agreement to keep in confidence information acquired by me
in confidence or in trust prior to my employment by the Company. I have not
entered into, and I agree I will not enter into, any agreement either written or
oral in conflict herewith.
5. RETURN OF COMPANY DOCUMENTS. When I leave the employ of the
Company, I will deliver to the Company any and all drawings, notes, memoranda,
specifications, devices, formulas, and documents, together with all copies
thereof, and any other material containing or disclosing any Company Inventions,
Third Party Information or Proprietary Information of the Company. I further
agree that any property situated on the Company's premises and owned by the
Company, including disks and other storage media, filing cabinets or other work
areas, is subject to inspection by the officers of the Company at any time with
or without notice. Prior to leaving, I will cooperate with the Company in
completing and signing the Company's termination statement.
6. LEGAL AND EQUITABLE REMEDIES. Because my services are
personal and unique and because I may have access to and become acquainted with
the Proprietary Information of the Company, the Company shall have the right to
enforce this Agreement and any of its provisions by injunction, specific
performance or other equitable relief, without bond and without prejudice to any
other rights and remedies that the Company may have for a breach of this
Agreement.
7. NOTICES. Any notices required or permitted hereunder shall be
given to the appropriate party at the address specified below or at such other
address as the party shall specify in writing. Such notice shall be deemed given
upon personal delivery to the appropriate address or if sent by certified or
registered mail, three (3) days after the date of mailing.
8. NOTIFICATION OF NEW EMPLOYER. In the event that I leave the
employ of the Company, I hereby consent to the notification of my new employer
of my rights and obligations under this Agreement.
9. GENERAL PROVISIONS.
9.1 GOVERNING LAW; CONSENT TO PERSONAL JURISDICTION. This Agreement
will be governed by and construed according to the laws of the State of
Pennsylvania, as such laws are applied to agreements entered into and to be
performed entirely within Pennsylvania between Pennsylvania residents. I hereby
expressly consent to the personal jurisdiction of the state and federal courts
located in Pennsylvania for any lawsuit filed there against me by Company
arising from or related to this Agreement.
9.2 SEVERABILITY. In case any one or more of the provisions
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect the other provisions of this Agreement, and
this Agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein. If moreover, any one or more of the
provisions contained in this Agreement shall for any reason be held to be
excessively broad as to duration, geographical scope, activity or subject, it
shall be construed by limiting and reducing it, so as to be enforceable to the
extent compatible with the applicable law as it shall then appear.
9.3 SUCCESSORS AND ASSIGNS. This Agreement will be binding upon my
heirs, executors, administrators and other legal representatives and will be for
the benefit of the Company, its successors, and its assigns.
9.4 SURVIVAL. The provisions of this Agreement shall survive the
termination of my employment and the assignment of this Agreement by the Company
to any successor in interest or other assignee.
<PAGE> 18
9.5 EMPLOYMENT. I agree and understand that nothing in this
Agreement shall confer any right with respect to continuation of employment by
the Company, nor shall it interfere in any way with my right or the Company's
right to terminate my employment at any time, with or without cause.
9.6 WAIVER. No waiver by the Company of any breach of this Agreement
shall be a waiver of any preceding or succeeding breach. No waiver by the
Company of any right under this Agreement shall be construed as a waiver of any
other right. The Company shall not be required to give notice to enforce strict
adherence to all terms of this Agreement.
9.7 ENTIRE AGREEMENT. The obligations pursuant to Sections 1 and 2
of this Agreement shall apply to any time during which I was previously
employed, or am in the future employed, by the Company as a consultant if no
other agreement governs nondisclosure and assignment of inventions during such
period. Except as provided in the Employment Agreement between the parties, this
Agreement is the final, complete and exclusive agreement of the parties with
respect to the subject matter hereof and supersedes and merges all prior
discussions between us. No modification of or amendment to this Agreement, nor
any waiver of any rights under this Agreement, will be effective unless in
writing and signed by the party to be charged. Any subsequent change or changes
in my duties, salary or compensation will not affect the validity or scope of
this Agreement.
This Agreement shall be effective as of the first day of my
employment with the Company, namely: ___________, 19__.
I HAVE READ THIS AGREEMENT CAREFULLY AND UNDERSTAND ITS TERMS. I
HAVE COMPLETELY FILLED OUT EXHIBIT A TO THIS AGREEMENT.
Dated:
-----------------------
- -----------------------------------------
(SIGNATURE)
- -----------------------------------------
KENNETH M. BOROW, M.D.
ACCEPTED AND AGREED TO:
COVALENT GROUP, INC.
By:
---------------------------------------
Title:
------------------------------------
- ------------------------------------------
(Address)
- ------------------------------------------
Dated:
-----------------------
<PAGE> 19
EXHIBIT A
TO: COVALENT GROUP, INC.
FROM: KENNETH M. BOROW, M.D.
DATE:
----------------------
SUBJECT: PREVIOUS INVENTIONS
1. Except as listed in Section 2 below, the following is a complete
list of all inventions or improvements relevant to the subject matter of my
employment by COVALENT GROUP, INC. (the "COMPANY") that have been made or
conceived or first reduced to practice by me alone or jointly with others prior
to my engagement by the Company:
[ ] No inventions or improvements.
[ ] See below:
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
[ ] Additional sheets attached.
2. Due to a prior confidentiality agreement, I cannot complete the
disclosure under Section 1 above with respect to inventions or improvements
generally listed below, the proprietary rights and duty of confidentiality with
respect to which I owe to the following party(ies):
INVENTION OR IMPROVEMENT PARTY(IES) RELATIONSHIP
1. ------------------------ -------------- --------------
2. ------------------------ -------------- --------------
3. ------------------------ -------------- --------------
[ ] Additional sheets attached.
<PAGE> 1
EXHIBIT 99.7
November 1, 1999
Dr. Richard Propper
Covalent Partners, LLC
2890 Moon Ridge Dr.
La Jolla, CA 92037
Dear Dr. Propper:
The purpose of this letter is to confirm my agreement (i) to remain employed as
the President, Chief Operating Officer and Chief Medical Officer of Covalent
Group, Inc. ("Covalent") from the date hereof through the purchase of all of the
Company Stock under the Option Agreement, dated November 1, 1999, between
Covalent Partners, LLC and Bruce LaMont on or before the Final Expiration Date
(the "Closing Date") and (ii) to execute the form of Employment Agreement
attached hereto as Exhibit A on or before the Closing Date. In consideration of
my agreement to remain employed by Covalent during this time and enter into the
Employment Agreement, Covalent Group, LLC has agreed that it will grant an
option to acquire 460,000 shares of Covalent Common Stock to me, concurrently
with the Closing Date, having an exercise price equal to the actual purchase
price paid by Covalent Partners, LLC for such shares. All defined terms used
herein shall have the meaning as set forth in the Option Agreement.
Sincerely,
/s/ Kenneth M. Borow
Kenneth M. Borow, M.D.
ACCEPTED AND AGREED
COVALENT PARTNERS, LLC
By: /s/ Richard D. Propper
-------------------------------------
Title: Managing Member
----------------------------------
1.
<PAGE> 2
EXHIBIT A
FORM OF EMPLOYMENT AGREEMENT
2.
