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As filed with the Securities and Exchange Commission on September 13, 2000.
Registration No. 333-44096
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
_______________
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------------
COVALENT GROUP, INC.
(Exact Name of Registrant as Specified in Charter)
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<S> <C>
Nevada 56-1668867
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Identification
Organization) Number)
</TABLE>
One Glenhardie Corporate Center
1275 Drummers Lane, Suite 100
Wayne, Pennsylvania 19087
(610) 975-9533
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
Kenneth M. Borow, M.D.
Chief Executive Officer
Covalent Group, Inc.
One Glenhardie Corporate Center
1275 Drummers Lane, Suite 100
Wayne, Pennsylvania 19087
(610) 975-9533
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
_______________
WITH A COPY TO:
Jeffery P. Libson, Esquire
Pepper Hamilton LLP
1235 Westlakes Drive, Suite 400
Berwyn, Pennsylvania 19312-2401
(610) 640-7800
_______________
Approximate date of commencement of proposed sale to public: As soon as
practicable after the effectiveness of this Registration Statement.
_______________
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box.[X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering.[ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.[ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.[ ]
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE
SELLING STOCKHOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
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TABLE OF CONTENTS
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Page
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PROSPECTUS SUMMARY............................... 5
FORWARD LOOKING STATEMENTS....................... 5
RISK FACTORS..................................... 6
USE OF PROCEEDS.................................. 10
SELLING STOCKHOLDERS............................. 10
PLAN OF DISTRIBUTION............................. 13
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.. 15
WHERE YOU CAN FIND MORE INFORMATION.............. 16
LEGAL MATTERS AND EXPERTS........................ 16
INDEMNIFICATION.................................. 16
</TABLE>
We have not authorized anyone to provide you with information different
from that contained or incorporated by reference in this prospectus. The selling
stockholders are offering to sell, and seeking offers to buy, shares of our
common stock only in jurisdictions where offers and sales are permitted. The
information contained in this prospectus is accurate only as of the date of this
prospectus, regardless of the time of delivery of this prospectus or any sale of
shares.
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SUBJECT TO COMPLETION, DATED SEPTEMBER 13, 2000
PROSPECTUS
COVALENT GROUP, INC.
6,365,500 Shares
of
Common Stock
This prospectus relates to resales of common stock and shares of common
stock underlying warrants that we issued and sold to the selling stockholders
listed on page 10. The selling stockholders, or their pledgees, donees,
transferees or other successors in interest, may offer the shares through public
or private transactions at prevailing market prices, at prices related to
prevailing market prices or at privately negotiated prices.
We will not receive any proceeds from the sale of the shares by the selling
stockholders.
Our common stock is traded on the Nasdaq SmallCap Market under the symbol
"CVGR." On September 11, 2000, the last sale price for the common stock was
$3.25 per share.
These securities have not been approved or disapproved by the Securities
and Exchange Commission or any state securities commission nor has the
securities and exchange commission or any state securities commission passed
upon the accuracy or adequacy of this prospectus. Any representation to the
contrary is a criminal offense.
Investing in our common stock involves risks. You should carefully consider
the "Risk Factors" beginning on page 6 of this prospectus before you decide to
invest.
The date of this prospectus is ________, 2000.
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PROSPECTUS SUMMARY
This summary highlights information contained in other parts of this
prospectus. Because it is a summary, it does not contain all of the information
that you should consider before investing in the common stock. You should read
the entire prospectus carefully.
Covalent Group, Inc.
We are a total research management organization that designs and manages
clinical trials in the drug and device development process and with associated
cost containment and quality of care components. We specialize in drug
development consultation services with full service contract research
organization capabilities provided to major customer groups such as
pharmaceutical companies, managed care organizations, insurers and employers. We
offer a full array of integrated services including study design, clinical trial
monitoring and management, data management, biostatistical analysis and
regulatory affairs services. Our business is structured to deliver customized
high quality solutions to our Fortune 500 and other clients. In addition, we
developed several proprietary products utilizing interactive speech recognition
technology that significantly improves the efficiency of conducting clinical
trials, including Teletrial(R) and Virtual HouseCall(R), a disease assessment
system.
Our principal executive and administrative offices are located at One
Glenhardie Corporate Center, 1275 Drummers Lane, Suite 100, Wayne, Pennsylvania
19087, telephone: (610) 975-9533. Information contained on our Web site at
www.covalentgroup.com does not constitute part of this prospectus.
The Offering
Common stock offered by the selling stockholders................... 6,365,500
Common stock to be outstanding after the offering.................. 12,174,577
Nasdaq SmallCap National Market symbol............................. "CVGR"
The amount of common stock to be outstanding after the offering is based on
12,174,577 shares of common stock outstanding on August 1, 2000.
FORWARD LOOKING STATEMENTS
Some statements in this prospectus and the documents incorporated in it by
reference contain forward-looking statements about our plans, objectives,
expectations and intentions. You can identify these statements by words such as
"estimate," "expect," "project," "plan," "intend," "believe," "may," "will,"
"anticipate" or other similar words. You should read statements that contain
these words carefully. They discuss our future expectations, contain projections
concerning our future results of operations or our financial conditions or state
other forward-looking information, and may involve known and unknown risks over
which we have no control. We cannot guarantee any future results, level of
activity, performance or achievements. Moreover, we assume no obligation to
update forward-looking statements or update the reasons why actual results could
differ materially from those anticipated in forward-looking statements. The
factors discussed in the section captioned "Risk Factors," and elsewhere in this
prospectus and the documents incorporated in it by reference identify important
factors that may cause our actual results to differ materially from the
expectations we described in our forward-looking statements.
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RISK FACTORS
This section highlights specific risks with respect to an investment in our
business. Investing in our common stock involves a high degree of risk.
Purchasing our common stock is very risky and you should be able to bear the
complete loss of your investment. We also caution you that this prospectus
includes forward-looking statements that are based on management's beliefs and
assumptions and on information currently available to management. You should
carefully consider the risks described below and the other information in this
prospectus before purchasing our common stock. The risks and uncertainties
described below are not the only ones we face. Additional risks and
uncertainties not presently known by us or that we currently deem immaterial
also may impair our business operations. If any of the following risks actually
occur, our business could be harmed. In such case, the trading price of our
common stock could decline, and you may lose all or part of your investment.
Our customers are concentrated and the loss of one of our largest customers
could cause our revenues to drop quickly and unexpectedly.
Several of our clients account for a significant percentage of our
revenues. For the year ended December 31, 1999, revenues from our four largest
clients amounted to approximately 25%, 25%, 21% and 18% respectively, (or 89%
in the aggregate) of our total revenues; for the year ended December 31, 1998,
revenues from our four largest clients amounted to approximately 24%, 22%, 16%,
and 12% respectively (or 74% in the aggregate) of our total revenues; for the
year ended December 31, 1997, revenues from our four largest clients amounted to
approximately 21%, 20%, 19% and 15% respectively (or 75% in the aggregate) of
our total revenues. The loss of business from any of these major clients or
failure of us to continue to obtain new business would have a material adverse
effect on our business and revenues.
Our revenues are highly dependent on research and development expenditures
by the pharmaceutical industry. Decreases in these expenditures, including
decreases resulting from an economic downturn in this industry or from mergers
or other consolidations, could have a material adverse effect on us.
Additionally, we have benefited from the trend in the pharmaceutical industry to
outsource an increasing percentage of their clinical trial projects. A reversal
of this trend would have a material adverse effect on our business and revenues.
The loss or delay of large contracts would materially hurt our revenues and our
business.
Most of our service contracts are terminable without cause by our client
with 30 days prior notice. Our clients may terminate or delay contracts for a
variety of reasons, including:
. the failure of drugs being tested to meet safety requirements;
. unexpected or undesired clinical results of the product;
. the client's decision to forego a particular study;
. insufficient patient enrollment or investigator recruitment; or
. production problems resulting in shortages of the drug.
We believe that several factors, including increased cost containment
pressures associated with healthcare reform, have caused pharmaceutical
companies to apply more stringent criteria to the decision to proceed with
clinical trials and therefore may result in a greater willingness of these
companies to cancel contracts. The loss or delay of a large contract would have
a material adverse effect on our business, results of operations and financial
condition.
Intense competition and increasing consolidation in the contract research
industry could create stronger competitors and result in the loss of our
customers.
We compete against in-house departments of pharmaceutical companies and
against other contract research organizations, most of which possess
substantially greater capital, technical and other resources than we have.
Contract research organizations generally compete on the basis of previous
experience, medical and scientific expertise in specific therapeutic areas, the
quality of contract research, the ability to organize and manage large scale
trials, database
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management capabilities, the ability to provide statistical and regulatory
services, the ability to recruit investigators, the ability to integrate
information technology with systems to improve the effectiveness of contract
research and price. Our failure to compete effectively in any one or more of
these areas could have a material adverse effect on our business, results of
operations and financial condition.
The contract research organization industry is highly fragmented with
several hundred contract research organizations ranging from small, limited
service providers to full service contract research organizations with global
drug development operations. However, the industry is consolidating. This
consolidation is due, in part, to the decision by pharmaceutical companies to
contract with fewer contract research organizations, to streamline the
outsourcing process by entering into preferred provider relationships with a few
contract research organizations or awarding a smaller number of large contracts
to qualified contract research organizations. This trend is likely to increase
competition among the larger contract research organizations and may lead to
price erosion and other forms of competition that could have a material adverse
effect on our business, results of operations and financial condition.
Failure to Manage Our Growth May Seriously Harm Our Ability to Provide Services
In a Timely Manner and Attract and Retain New Customers
Our growth has placed, and is expected to continue to place, a significant
strain on our managerial, operational and financial resources. The potential for
additional growth is particularly significant in light of the frequent need to
tailor our products and services to our customers' unique needs. To the extent
we add several customers simultaneously or add customers whose needs require
extensive customization, we may need to significantly expand our operations.
Anticipated additional growth will place a significant strain on our
limited personnel, financial and other resources. Our future success will
depend, in part, upon the ability of our senior management to manage growth
effectively. This will require us to implement additional management information
systems, to further develop our operating, administrative, financial and
accounting systems and controls, to hire additional personnel, to develop
additional levels of management within the corporation and to maintain close
coordination among our development, accounting, finance, sales and marketing,
customer service and support organizations. Failure to accomplish any of these
requirements would seriously harm our ability to deliver products in a timely
fashion, fulfill existing customer commitments and attract and retain new
customers.
Our Quarterly Operating Results are Volatile and May Cause Our Stock Price to
Fluctuate
Our quarterly operating results have been and will be subject to volatility
due to factors such as the commencement, delay, completion or cancellation of
significant contracts and the mix of contracted services. Because a large
portion of our operating costs are fixed, variations in the timing and progress
of large contracts or of multiple contracts can have a material effect on our
quarterly results. We believe that quarter-to quarter comparisons of operating
results may not be a good indication of our future performance, nor would
operating results for any particular quarter be indicative of future operating
results. In some future quarters, operating results may be below the
expectations of the public market analysts and investors. In such event, the
price of our common stock may decrease.
We Are Exposed to Potential Liability From Conducting Clinical Trials
Clinical research services involve the testing of new drugs on human
volunteers pursuant to a study protocol that has been approved by an impartial
review board composed of medical and non-medical members. Such testing involves
risk of liability for personal injury or death to patients due to, among other
reasons, possible unforeseen adverse side effects or improper administration of
a new drug. Many of these patients are already seriously ill and are at risk of
further illness or death. While we are not aware of any event which would likely
have a material adverse impact on our financial condition, we could be
materially and adversely affected if we were required to pay damages or incur
defense costs in connection with a claim that is outside the scope of an
indemnity or our insurance coverage, or if the indemnity, although applicable,
is not performed in accordance with its terms or if our liability exceeds the
amount of applicable insurance. Additionally, there can be no assurance that
such insurance coverage will continue to be available on terms acceptable to us.
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Changes in Government Regulation of the Pharmaceutical Industry Could Decrease
Our Business Opportunities
Our business depends on strict regulation of the drug development process
by the federal government. Changes in regulations, including a relaxation in
regulatory standards or the introduction of streamlined drug approval
procedures, could materially adversely affect the demand for our services.
Furthermore, our failure to comply with current regulations regarding conduct of
a clinical trial could result in termination of ongoing research or
disqualification of data for submission to regulatory authorities.
Changes in the Healthcare Industry Could Decrease Our Business Opportunities
The healthcare industry is subject to changing political, economic and
regulatory influences that may affect the pharmaceutical industry.
Implementation of comprehensive or incremental government healthcare reform, as
well as industry wide healthcare containment pressures, may adversely affect
research and development expenditures by pharmaceutical companies, which could
decrease the business available to the contract research organization industry.
We are unable to predict the likelihood of healthcare legislation being enacted
or the effects such legislation would have on us.
Our executive officers, directors and principal stockholders and their
affiliates own a large percentage of our voting stock and have the ability to
make decisions that could adversely affect our stock price.
Our officers, directors and greater-than five percent stockholders (and
their affiliates), in the aggregate, beneficially own more than 61% of our
outstanding common stock. These persons, acting together, have the ability to
control substantially all matters submitted to our stockholders for approval,
including the election and removal of directors and any merger, consolidation or
sale of all or substantially all of our assets, and to control management and
affairs. Pursuant to a voting agreement, substantially all of the selling
securityholders have agreed to vote their shares in the same manner as Covalent
Partners LLC. Accordingly, this concentration of ownership may have the effect
of delaying, deferring or preventing a change in control, impeding a merger,
consolidation, takeover or other business combination or discouraging a
potential acquirer from making a tender offer or otherwise attempting to obtain
control, which in turn could materially adversely affect the price of our common
stock.
Failure to Maintain NASDAQ Smallcap Market Maintenance Criteria Could Negatively
Impact the Liquidity and Market Price of Our Common Stock.
Our common stock began trading on the Nasdaq SmallCap Market in December
1997. The Nasdaq SmallCap Market imposes continued listing requirements on all
securities listed on this market. These requirements include, among other
things, that we maintain net tangible assets of $2 million or more, or market
capitalization of $35 million or more, or net income in the latest fiscal year
or two of our last three fiscal years of $500,000 or more. In addition, the
Nasdaq SmallCap Market requires that the shares listed maintain a minimum bid
price of $1.00 per share. While we presently believe that we meet all of the
Nasdaq SmallCap continued listing requirements, we cannot be certain that we
will continue to meet such requirements in the foreseeable future. Accordingly,
we run the risk of having our common stock delisted from the Nasdaq SmallCap
Market if we fail to continue to meet the quantitative and qualitative continued
listing standards. If a delisting were to occur, our common stock would be
traded in the over-the-counter market.
The Potential For Our Common Stock Shares to Become a "Penny Stock" May Affect
its liquidity.
Under Securities and Exchange Commission rules, stocks not traded on an
exchange or the Nasdaq market that trade for less than $5.00 per share may come
under the penny stock rules which require, among other things, that broker
dealers, in advance of any transactions in such stock, furnish to the customer a
detailed disclosure document and obtain from the customer a signed
acknowledgement of receipt of such document. Additional detailed information
about the penny stock transactions by the broker dealer engaged in on behalf of
the customer must also be supplied after such transaction. The penny stock
rules, while designed to protect investors, may have the effect of causing the
market for such stocks to become less liquid due to the increased administrative
burden imposed upon the broker associated with trading
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in such securities.
We depend on key personnel and may not be able to retain these employees or
recruit additional qualified personnel, which would harm our business.
Because of the specialized scientific nature of our business, we are highly
dependent upon qualified scientific, technical and managerial personnel. Our
anticipated growth will require additional expertise and the addition of new
qualified personnel. We will face intense competition in recruiting these
persons. We may not be able to attract and retain qualified personnel to develop
our sales and marketing forces. There is intense competition for qualified
personnel in the contract research field. Therefore, we may not be able to
attract and retain the qualified personnel necessary for the development of our
business. The loss of the services of existing personnel, as well as the failure
to recruit additional key scientific, technical and managerial personnel in a
timely manner would harm our clinical development trails and our business. We do
not maintain key man life insurance on any of our employees.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares by the selling
stockholders. The selling stockholders will receive all of the net proceeds from
the sale of the shares.
The selling stockholders will pay any underwriting discounts and
commissions and expenses incurred by them for brokerage, accounting, tax, legal
services or other expenses incurred by the selling stockholders in disposing of
their shares. We will bear all other costs, fees and expenses incurred in
effecting the registration of the shares covered by this prospectus, including,
without limitation, all registration and filing fees, Nasdaq listing fees, fees
and expenses of our counsel and accountants, and blue sky fees and expenses.
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SELLING STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of the shares of common stock by the selling stockholder as of August
14, 2000. The selling stockholders acquired beneficial ownership of the shares
listed below either through (1) the satisfaction of promissory notes issued by
Covalent Partners, LLC to selling stockholders in connection with the
acquisition by Covalent Partners, LLC of the common stock held by Mr. Bruce
LaMont, our former President, Chief Executive Officer and majority stockholder
or (2) the exercise of warrants previously issued by us to some of the selling
stockholders. The information regarding the selling stockholders' beneficial
ownership after this offering assumes that all of the shares of the commons
stock offered by the selling stockholders through this prospectus are actually
sold. None of the selling stockholders has held a position or office with, or
has otherwise had a material relationship with us, within the past thee years.
The presentation is based on 12,174,577 shares of our common stock outstanding
as of August 1, 2000:
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Shares Shares
Beneficially Owned Beneficially Owned
Prior to Offering Number of After Offering
------------------------- Shares -------------------
Name of Selling Stockholder Number Percentage Being Offered Number Percent
------------------------------------------ ------------ ----------- ---------------- -------- ---------
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Dr. Richard D. Propper 1,185,586 9.7% 513,487 672,099 5.5%
Michael Chermak 669,062 5.5 603,562 65,500 *
Hassan Nemazee 1,006,600(1) 8.3 500,000 6,600 *
Berkshire International Finance, Inc. 200,000(2) 1.6 200,000 -- --
Bedford Oak Partners, L.P. 741,642 6.1 731,642 10,000 *
Acorn Technology Fund 600,000 4.9 600,000 -- --
Thomas Hodapp 559,701 4.6 559,701 -- --
Houston Ventures, Inc. 500,000 4.1 500,000 -- --
S&F Consulting, Inc. 150,000(3) 1.2 150,000 -- --
Montpellier International LDC 146,328 1.2 146,328 -- --
Maxwell H. Gluck Foundation 121,940 1.0 121,940 -- --
Gerry Beemiller 50,000 * 50,000
David Smith 46,642 * 46,642 -- --
Emerald International 42,679 * 42,679 -- --
Ashish Vibhakar 33,333 * 33,333 -- --
U.S. Equity Portfolio LP 30,485 * 30,485 -- --
United Congregation Mesorah 24,388 * 24,388 -- --
Interim Advantage Fund, LLC 18,657 * 18,657 -- --
Contra VC, LLC 18,656 * 18,656 -- --
Patti Davis 10,000 * 10,000 -- --
Daniel Beharry 25,000 * 25,000 -- --
Joel Hand 7,500 * 7,500 -- --
Marble Mountain, Ltd. 325,000 2.7 325,000 -- --
Kenneth Borow,M.D. 1,171,104(4) 9.2 460,000 711,104 5.6
Anthony Cerami 75,000 * 75,000 -- --
Jared I. Chaudry 231,500 1.9 231,500 -- --
Kerry Propper 300,000 2.5 300,000 -- --
John Belknap 40,000 * 40,000 -- --
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________________________
* Represents less than 1% of our outstanding common stock.
(1) Includes 500,000 shares held by Houston Ventures, Inc. of which Mr.
Nemazee, through various entities, is a majority stockholder and 6,600
shares held in the names of three of Mr. Nezamee's children for which Mr.
Nemazee is a custodian under the New York Uniform Gift to Minors Act.
(2) Represents shares of common stock underlying a warrant containing
registration rights issued on June 20, 1996 exercisable for 5 years at an
exercise price of $2.75 per share.
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(3) Includes 100,000 shares underlying a warrant containing registration rights
issued on May 8, 1996 exercisable for 5 years at an exercise price of $5.25
per share and 50,000 shares underlying a warrant containing registration
rights issued on June 20, 1996 exercisable for 5 years at an exercise price
of $2.75 per share.
(4) Includes options to purchase 611,104 shares of common stock which are
exercisable within sixty days of the date of this Prospectus.
Covalent Partners, LLC was formed for the purpose of acquiring Bruce
LaMont's entire holdings of our common stock in order to acquire a controlling
interest in us. Mr. LaMont formerly was our President and Chief Executive
Officer and majority stockholder. Covalent Partners, LLC obtained funds to
purchase a majority of Mr. LaMont's shares through promissory notes issued to
the following selling stockholders:
1) Acorn Technology Fund, in the amount of $1,800,000;
2) Bedford Oak Partners, L.P., in the amount $1,800,000;
3) Thomas Hodapp, in the amount of $1,500,000;
4) Hassan Nemazee, in the amount of $1,125,000;
5) Houston Ventures, Inc., in the amount of $1,125,000;
6) Montpellier International LDC, in the amount of $360,000;
7) Maxwell H. Gluck Foundation, in the amount of $300,000;
8) Gerry Beemiller, in the amount of $150,000;
9) David Smith, in the amount of $225,000;
10) Emerald International, in the amount of $105,000;
11) Ashish Vibhakar, in the amount of $100,000;
12) U.S. Equity Portfolio LP, in the amount of $75,000;
13) United Congregation Mesorah, in the amount of $60,000;
14) Interim Advantage Fund, LLC, in the amount of $50,000; and
15) Contra VC, LLC, in the amount of $50,000.
Pursuant to the terms of the promissory notes, Covalent Partners, LLC
discharged the notes in exchange for the shares of our common stock being
offered and sold in this prospectus. In satisfaction of the notes, Covalent
Partners, LLC delivered to the selling stockholders listed above shares of our
common stock in the following amounts:
1) Bedford Oak Partners, L.P., in the amount 600,000 shares;
2) Acorn Technology Fund, in the amount of 600,000 shares;
3) Thomas Hodapp, in the amount of 500,000 shares;
4) Hassan Nemazee, in the amount of 500,000 shares;
5) Houston Ventures, Inc., in the amount of 500,000 shares;
6) Montpellier International LDC, in the amount of 120,000 shares;
7) Maxwell H. Gluck Foundation, in the amount of 100,000 shares;
8) Gerry Beemiller, in the amount of 50,000 shares;
9) David Smith, in the amount of 41,667shares;
10) Emerald International, in the amount of 35,000 shares;
11) Ashish Vibhakar, in the amount of 33,333 shares;
12) U.S. Equity Portfolio LP, in the amount of 25,000 shares; and
13) United Congregation Mesorah, in the amount of 20,000 shares.
14) Interim Advantage Fund, LLC, in the amount of 16,667; and
15) Contra VC, LLC, in the amount of 16,666.
Covalent Partners, LLC and each of the selling stockholders other than
Berkshire International Finance, Inc. and S&F Consulting, Inc. entered into a
stockholder agreement, under which Covalent Partners, LLC agreed to cause us to
file a registration statement under the Securities Act covering the registration
of the resale of all of the above shares of our common stock. In addition, under
the stockholder agreement, each of the selling stockholders listed above, with
the exception of Berkshire International Finance, Inc., S&F
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Consulting, Inc., Hassan Nemazee and Houston Ventures, Inc., has agreed to vote
all of such stockholder's shares of common stock in accordance with those voted
by Covalent Partners, LLC. If Covalent Partners, LLC ceases to operate as an
entity during the term of the stockholder agreement, each of the selling
stockholders listed above, with the exception of Berkshire International
Finance, Inc., S&F Consulting, Inc., Hassan Nernazee and Houston Ventures, Inc.,
has agreed to vote all of such stockholder's shares of common stock in
accordance with those voted by Dr. Richard D. Propper. The agreement to vote
their shares of common stock in accordance with those voted by Covalent
Partners, LLC or Dr. Richard D. Propper terminates immediately prior to a lawful
sale of the shares in the public market; upon the occurrence of a change in
control as defined in the stockholder agreement; upon the termination of the
stockholder agreement or ten years from the date of the stockholder agreement.
The stockholders agreement also contains certain co-sale rights which permit
Covalent Partners, LLC and each of the selling stockholders listed above, with
the exception of Dr. Richard D. Propper, Berkshire International Finance, Inc.
and S&F Consulting, Inc., to transfer such stockholder's shares of common stock
to a third party, provided that the non-selling stockholders may include a
proportionate amount of their shares of common stock in such sale under the same
terms and conditions as the original selling stockholder. The selling
stockholders are not afforded these co-sale rights in the event of a sale by
Hassan Nemazee and Houston Ventures, Inc. This agreement was terminated on
August 29, 2000.
PLAN OF DISTRIBUTION
We are registering the shares on behalf of the selling stockholders. As used
herein, "selling stockholders" includes donees, pledgees, transferees or other
successors in interest (including, without limitation, corporate or partnership
distributees of the selling stockholders which are privately held corporations
or partnerships) selling shares received from a named selling stockholder after
the date of this prospectus. We will bear all costs, expenses and fees in
connection with the registration of the shares offered hereby. Any brokerage
commissions and similar selling expenses attributable to the sale of shares will
be borne by the selling stockholders. Sales of shares may be effected by
selling stockholders from time to time in one or more types of transactions
(which may include block transactions) on the Nasdaq national market or on any
other market on which our shares may then be trading, in the over-the-counter
market, in negotiated transactions, through put or call options transactions
relating to the shares, through short sales of shares, or a combination of such
methods of sale, at market prices prevailing at the time of sale, or at
negotiated prices. Such transactions may or may not involve brokers, dealers or
underwriters. The selling stockholders have advised us that they have not
entered into any agreements, understandings or arrangements with any
underwriters or broker-dealers regarding the sale of their shares. The selling
stockholders have also advised us that no underwriter or coordinating broker is
acting in connection with the proposed sale of shares by the selling
stockholders, however, the selling stockholders may enter into agreements,
understandings or arrangements with an underwriter or broker-dealer regarding
the sale of their shares in the future.
The selling stockholders may effect sales by selling shares directly to
purchasers or to or through broker-dealers which may act as agents or
principals. These broker-dealers and underwriters may receive compensation in
the form of discounts, concessions, or commissions from the selling stockholders
and/or the purchasers of shares for whom the broker-dealers and underwriters may
act as agents or to whom they sell as principal, or both. This compensation to
a particular broker-dealer or underwriter might be in excess of customary
commissions.
The selling stockholders may enter into hedging transactions with broker-
dealers or other financial institutions. In connection with such transactions,
broker-dealers or other financial institutions may engage in short sales of our
common stock in the course of hedging the positions they assume with the selling
stockholders. The selling stockholders may also enter into options or other
transactions with broker-dealers or other financial institutions which require
the delivery to such broker-dealers or other financial institutions of shares
offered hereby, which shares such broker-dealers or other financial institutions
may resell pursuant to this prospectus (as supplemented or amended to reflect
such transaction).
The selling stockholders and any broker-dealers or underwriters that act in
connection with the sale of shares might be deemed to be "underwriters" within
the meaning of Section 2(11) of the Securities Act, and any commissions received
by broker-dealers or underwriters and any profit on the resale of the shares
sold by them while acting as principals might be deemed to be underwriting
discounts or commissions under the Securities Act. We
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have agreed to indemnify each selling stockholder against certain liabilities,
including liabilities arising under the Securities Act. The selling stockholders
may agree to indemnify any agent, dealer, broker-dealer or underwriter that
participates in transactions involving sales of the shares against certain
liabilities, including liabilities arising under the Securities Act.
Because selling stockholders may be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act, the selling stockholders will be
subject to the prospectus delivery requirements of the Securities Act and the
rules promulgated thereunder. We have informed the selling stockholders that
the anti-manipulative provisions of Regulation M promulgated under the Exchange
Act may apply to their sales in the market.
Selling stockholders also may resell all or a portion of the shares in open
market transactions in reliance upon Rule 144 under the Securities Act, provided
they meet the criteria and conform to the requirements of that rule.
All or any part of the shares offered hereby may or may not be sold by the
selling stockholders.
After being notified by a selling stockholder that any material arrangement
has been entered into with a broker-dealer or underwriter for the sale of shares
through a block trade, special offering, exchange distribution or secondary
distribution or a purchase by a broker, dealer or underwriter, we will file a
supplement to this prospectus, if required, pursuant to Rule 424(b) under the
Securities Act.
Pursuant to the registration rights agreement between us and certain selling
stockholders, certain selling stockholders have agreed to (i) not to effect any
offer or sales of our common stock in any manner other than as specified in this
prospectus and (ii) to inform us of any sale of their shares at least three
business days prior to such sale.
We have agreed, subject to certain limitations set forth in the registration
rights agreements governing the registration rights of some of the selling
stockholders, to keep the Registration Statement of which this prospectus
constitutes a part effective until the earlier of (i) the date on which all of
the Registrable Securities have been sold pursuant to any Registration
Statement, whether filed pursuant to the registration rights agreements or
otherwise; (ii) the first date on which public sale of all of the Registrable
Securities held by each selling stockholder is permitted to be made in any
period of 90 days pursuant to Rule 144 or any other rule or regulation
permitting public sale without registration under the 1933 Act (in any case, as
amended or supplemented, or an successors thereto); and (iii) January 15, 2002.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Securities and Exchange Commission allows us to "incorporate by
reference" the information we file with the Securities and Exchange Commission,
which means we can satisfy our legal obligations to disclose important
information contained in those documents by referring you to them. The
information included in the following documents is incorporated by reference and
is considered part of this prospectus. More recent information that we file with
the Securities and Exchange Commission automatically updates and supersedes any
inconsistent information contained in prior filings.
The documents listed below have been filed under the Exchange Act with the
Securities and Exchange Commission and are incorporated by reference:
(a) Our annual report on Form 10-KSB for the fiscal year ended
December 31, 1999;
(b) Our quarterly reports on Form 10-QSB for the quarters ended
March 31, 2000 and June 30, 2000;
(c) Our definitive proxy statement, as amended, relating to our 2000
annual meeting of stockholders filed on May 10, 2000;
(d) Our current reports on Form 8-K filed on November 30, 1999 and
February 7, 2000; and
(e) The description of our common stock contained in the our
registration statement on Form 8-A filed under Section 12 of the
Exchange Act, including any amendments or reports filed for the
purpose of updating such description.
We also incorporate by reference all documents subsequently filed by us
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act until the
offering of the shares of common stock under this prospectus is completed. You
may request a copy of these filings, at no cost, by writing or telephoning us at
Covalent Group, Inc. One Glenhardie Corporate Center, 1275 Drummers Lane, Suite
100, Wayne, Pennsylvania, 19087, attn: Secretary, telephone: (610) 975-9533.
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WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-3 with the Securities and
Exchange Commission registering the shares of our common stock that are being
offered by this prospectus. This prospectus is a part of the registration
statement and, as the Securities and Exchange Commission rules permit, does not
contain all of the information that stockholders can find in the registration
statement or the exhibits to the registration statement.
We file annual, quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
any document we file at the Securities and Exchange Commission's public
reference rooms at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
Securities and Exchange Commission's regional offices in New York (7 World Trade
Center, Suite 1300, New York, New York 10048) and Chicago (Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois, 60661-2511). In addition,
registration statements and certain other filings made with the Securities and
Exchange Commission through its "EDGAR" system are publicly available through
the Securities and Exchange Commission's Web site on the Internet located at
http://www.sec.gov. This registration statement, including all exhibits, has
been filed with the Securities and Exchange Commission through EDGAR. Reports,
proxy and information statements and other information concerning us can be
inspected at the offices of the Nasdaq SmallCap Market, 1735 K Street, N.W.,
Washington, D.C. 20006-1506.
LEGAL MATTERS AND EXPERTS
The validity of the shares of common stock offered by this prospectus will
be passed upon for us by Pepper Hamilton LLP, Berwyn, Pennsylvania.
The financial statements incorporated into this prospectus by reference to
our annual report on Form 10-KSB, for the fiscal year ended December 31, 1999
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said report.
INDEMNIFICATION
Section 12 of our bylaws states that we will indemnify and hold harmless
all our officers and directors from and against liability and litigation
expense, including reasonable attorney's fees, arising out of their status as
such or their activities in any of their capacities as our officers or
directors. Such liability could arise under the Securities Act. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to our directors, officers and controlling persons pursuant to the
foregoing bylaw provisions, or otherwise, we have been advised that, in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
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PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
<TABLE>
<CAPTION>
<S> <C> <C>
SEC registration fee.................................... $ 4,831
Printing fees........................................... $ 3,000
Legal fees and expenses*................................ $12,000
Accounting fees and expenses*........................... $ 2,500
Miscellaneous fees and expenses*........................ $ 2,000
TOTAL.............................................. $24,331
</TABLE>
* Represents the Registrant's estimate of such expenses.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Nevada General Corporation Law requires the Registrant to indemnify
officers and directors for any expenses incurred by any officer or director in
connection with any actions or proceedings, whether civil, criminal or
administrative, or investigative, brought against such officer or director
because of his or her status as an officer or director, to the extent that the
director or officer has been successful on the merits or otherwise in defense of
the action or proceeding. The Nevada General Corporation Law permits a
corporation to indemnify an officer or director, even in the absence of an
agreement to do so, for expenses incurred in connection with any action or
proceeding if such officer or director acted in good faith and in a manner in
which he or she reasonably believed to be in or not opposed to the best
interests of the corporation and such indemnification is authorized by the
stockholders, by a quorum of disinterested directors, by independent legal
counsel in a written opinion authorized by a majority vote of a quorum of
directors consisting of disinterested directors or by independent legal counsel
in a written opinion if a quorum of disinterested directors cannot be obtained.
The Nevada General Corporation Law prohibits indemnification of a director or
officer if a final adjudication establishes that the officer's or director's
acts or omissions involved intentional misconduct, fraud or a knowing violation
of the law and were material to the cause of action. Despite the foregoing
limitations on indemnification, the Nevada General Corporation Law also provides
that indemnification of directors is not permitted for the unlawful payment of
distributions, except for those directors registering their dissent to the
payment of the distribution.
The Registrant's bylaws provide that the Registrant shall indemnify and
hold harmless all officers and directors from and against liability and
litigation expense, including reasonable attorneys' fees, arising out of their
status as such and of their activities in any of their capacities as officers or
directors.
Moreover, the Registrant's bylaws provide that the Registrant may advance
expenses in defending any civil or criminal action prior to its final
disposition if the stockholders authorize it in a particular case and if the
person for whose benefit such expenses are paid shall agree to repay the
corporation unless it shall be ultimately determined that he is entitled to be
indemnified by the Registrant.
The directors and officers of the Registrant and its subsidiaries are
covered by policies of insurance under which they are insured, within limits and
subject to certain limitations, against certain expenses in connection with the
defense of actions, suits or proceedings, and certain liabilities which might be
imposed as a result of such actions, suits or proceedings, in which they are
parties by reason of being or having been directors or officers. The Registrant
is similarly insured, with respect to certain payments it might be required to
make to its directors or officers under applicable statutes and its charter
provisions.
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Item 16. Exhibits
Exhibit No. Description
----------- -----------
5 **** Opinion of Pepper Hamilton LLP.
10.1* Stock Purchase Warrant Agreement between the Registrant
and Berkshire International Finance, Inc. dated June 20,
1996 .
10.2 * Stock Purchase Warrant Agreement between the Registrant
and S&F Consulting, Inc. dated June 20, 1996.
10.3 * Stock Purchase Warrant Agreement between the Registrant
and S&F Consulting, Inc. dated May 8, 1996.
10.4 ** Stock Purchase Option Agreement between Bruce LaMont and
Covalent Partners, LLC dated November 1, 1999.
10.5 ** Form of Promissory Note.
10.6 **** Form of Registration Rights Agreement by and among
Covalent Partners LLC and the selling security holders
dated January 20, 2000.
23.1 Consent of Arthur Andersen LLP.
23.2**** Consent of Pepper Hamilton LLP (included as part of
Exhibit 5).
99.1*** Form of Stockholder Agreement among selling
securityholders.
* Incorporated by reference from the Registrant's Registration Statement on
Form S-3, as amended, filed on July 15, 1998 (filed as Exhibits 4.1, 4.2 and
4.3, respectively).
** Incorporated by reference from the Registrant's Current Report on Form 8-K
filed February 7, 2000 (filed as Exhibits 99.4 and 99.5, respectively)
*** Incorporated by reference from the Schedule 13D of Covalent Partners LLC
dated June 14, 2000 (filed as Exhibit 99.9).
**** Previously filed with the Registration Statement.
Item 17. Undertakings
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement to:
(i) To include any prospectus required by Section 10(a)(3)
the Securities Act;
(ii) To reflect in the prospectus any facts or events which,
individually or in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement. Notwithstanding the
foregoing, any increases or decreases in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than a 20% change in the maximum offering price set
forth in the "Calculation of Registration Fee" table in the effective
registration statement; and
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(iii) To include any additional or changed material
information with respect to the plan of distribution not previously disclosed in
the Registration Statement or any material change to such information in the
Registration Statement; provided, however, that paragraphs (a)(1)(i); and
(a)(1)(ii) do not apply if the information required to be included in a post-
effective amendment by those clauses is contained in periodic reports filed with
or furnished to the Commission by the Registrant pursuant to Section 13 or
Section 15(d) of the Exchange Act that are incorporated by reference in this
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the provisions described in Item 15 above, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Wayne, Pennsylvania, on September 13, 2000.
COVALENT GROUP, INC.
By: /s/ Kenneth M. Borow, M.D.
---------------------------
Kenneth M. Borow, M.D.,
Chief Executive Officer
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
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Date: Septmeber 13, 2000 /s/ Kenneth M. Borow, M.D.
------------------------------
Kenneth M. Borow, M.D.,
Chief Executive Officer
Date: September 13, 2000 /s/ Attorney-in-fact Kenneth M. Borow, M.D.
-------------------------------------------
William K. Robinson,
Chief Financial Officer and Director
Date: September 13, 2000 /s/ Attorney-in-fact Kenneth M. Borow, M.D.
-------------------------------------------
Anthony Cerami, Ph.D., Director
Date: September 13, 2000 /s/ Attorney-in-fact Kenneth M. Borow, M.D.
-------------------------------------------
Donald C. Holdsworth, Director
Date: September 13, 2000 /s/ Attorney-in-fact Kenneth M. Borow, M.D.
-------------------------------------------
Stephen E. Sallan, M.D., Director
Exhibit Index
Exhibit No. Description
----------- -----------
5 **** Opinion of Pepper Hamilton LLP.
10.1* Stock Purchase Warrant Agreement between the Registrant
and Berkshire International Finance, Inc. dated June 20,
1996.
10.3 * Stock Purchase Warrant Agreement between the Registrant
and S&F Consulting, Inc. dated June 20, 1996.
10.3 * Stock Purchase Warrant Agreement between the Registrant
and S&F Consulting, Inc. dated May 8, 1996.
10.4 ** Stock Purchase Option Agreement between Bruce LaMont and
Covalent Partners, LLC dated November 1, 1999.
10.5 ** Form of Promissory Note.
10.6 **** Registration Rights Agreement by and among Covalent
Partners, LLC and each of the persons and entities listed
on the Exhibit dated January 20, 2000.
23.1 Consent of Arthur Andersen LLP.
23.2**** Consent of Pepper Hamilton LLP (included Exhibit 5).
99.1*** Form of Stockholder Agreement among Selling
Securityholders.
* Incorporated by reference from the Registrant's Registration Statement on
Form S-3, as amended, filed on July 15, 1998 (filed as Exhibits 4.1, 4.2 and
4.3, respectively).
** Incorporated by reference from the Registrant's Current Report on Form 8-K
filed February 7, 2000 (filed as Exhibits 99.4 and 99.5, respectively)
*** Incorporated by reference from the Schedule 13D of Covalent Partners dated
July 14, 2000 (filed as Exhibits 99.9)
**** Previously filed with the Registration Statement.
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