<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
SCHEDULE 13D
(AMENDMENT NO. 2)
UNDER THE SECURITIES EXCHANGE ACT OF 1934
COVALENT GROUP, INC.
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(NAME OF THE ISSUER)
COMMON STOCK, $0.001 PAR VALUE PER SHARE
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(TITLE OF CLASS OF SECURITIES)
222815 10 2
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(CUSIP NUMBER)
BRUCE LAMONT
COVALENT GROUP, INC.
ONE GLENHARDIE CORP. CENTER
1275 DRUMMERS LANE, SUITE 100
WAYNE, PA 19087
(610) 975-9533
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(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON
AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS)
JANUARY 26, 2000
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(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 14 Pages)
(Continued on following pages)
1.
<PAGE> 2
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CUSIP NO. 222815 10 2 13D Page 2 of 13 Pages
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1 NAME 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) [ ]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS
WC, 00
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDING IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e) [ ]
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
DELAWARE
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NUMBER 7 SOLE VOTING POWER
OF -0-
SHARES -------------------------------------------------------
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 6,219,500
REPORTING -------------------------------------------------------
PERSON 9 SOLE DISPOSITIVE POWER
WITH -0-
-------------------------------------------------------
10 SHARED DISPOSITIVE POWER
3,061,167
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
6,219,500 - SEE ITEM 5
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12 CHECK BOX IF THE 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
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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
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CUSIP NO. 22815 10 2 13D Page 3 of 13 Pages
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1 NAME 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
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4 SOURCE OF FUNDS
PF
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDING IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e) [X]
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
UNITED STATES
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NUMBER 7 SOLE VOTING POWER
OF 333,000
SHARES -------------------------------------------------------
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 6,219,500
REPORTING -------------------------------------------------------
PERSON 9 SOLE DISPOSITIVE POWER
WITH 333,000
-------------------------------------------------------
10 SHARED DISPOSITIVE POWER
3,061,167
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
6,552,500 - SEE ITEM 5
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW 11 EXCLUDES CERTAIN SHARES
[X]
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
54.3% - SEE ITEM 5
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14 TYPE OF REPORTING PERSON IN
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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.
3.
<PAGE> 4
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CUSIP NO. 22815 10 2 13D Page 4 of 13 Pages
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1 NAME 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
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4 SOURCE OF FUNDS
PF
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDING IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e) [ ]
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
UNITED STATES
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NUMBER 7 SOLE VOTING POWER
OF 43,000
SHARES -------------------------------------------------------
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 6,219,500
REPORTING -------------------------------------------------------
PERSON 9 SOLE DISPOSITIVE POWER
WITH 43,000
-------------------------------------------------------
10 SHARED DISPOSITIVE POWER
3,061,167
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
6,262,500 - SEE ITEM 5
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW 11 EXCLUDES CERTAIN SHARES
[X]
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
51.9% - SEE ITEM 5
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14 TYPE OF REPORTING PERSON IN
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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.
4.
<PAGE> 5
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CUSIP NO. 22815 10 2 13D Page 5 of 13 Pages
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1 NAME 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
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDING IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e) [ ]
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
PAKISTAN
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NUMBER 7 SOLE VOTING POWER
OF 16,700
SHARES -------------------------------------------------------
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY -0-
REPORTING -------------------------------------------------------
PERSON 9 SOLE DISPOSITIVE POWER
WITH 16,700
-------------------------------------------------------
10 SHARED DISPOSITIVE POWER
-0-
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
16,700 - SEE ITEM 5
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW 11 EXCLUDES CERTAIN SHARES
[X]
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) LESS THAN
1% - SEE ITEM 5
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14 TYPE OF REPORTING PERSON IN
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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.
5.
<PAGE> 6
This Amendment No. 2 amends and restates the Schedule 13D filed by the Reporting
Persons (as defined in Item 2) on November 10, 1999, as amended by Amendment No.
1 to Schedule 13D filed on November 27, 1999.
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
6.
<PAGE> 7
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.
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 common stock of the Issuer held by LaMont (the
"Shares"), at a per share price of $2.00 (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 for an aggregate purchase price of $2,000,000. On November
27, 1999, pursuant to the terms of the Option Agreement, Covalent
Partners elected to purchase 250,000 Shares of the Issuer for an
aggregate purchase price of $500,000. On January 15, 2000,
pursuant to the terms of the Option Agreement, Covalent Partners
elected to purchase the remaining 4,765,500 shares of the Issuer
for an aggregate purchase of $9,531,000.
Covalent Partners obtained funds to make the purchases on
November 1, 1999 and November 27, 1999 through capital
contributions and 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.
Covalent Partners obtained funds to make the final
purchase pursuant to the Option Agreement through capital
contributions from Propper and promissory notes (the "Promissory
Notes") with the following entities and individuals: (i) Acorn
Technology Fund, in the amount of $1,800,000; (ii) Bedford Oak
Partners, L.P., in the amount of $1,800,000; (iii) Thomas Hodapp,
in the amount of $1,500,000; (iv) Hassan Nemazee, in the amount
of $1,125,000; (v) Houston Ventures, Inc., in the amount of
$1,125,000; (vi) Montpellier International LDC,
7.
<PAGE> 8
in the amount of $360,000; (vii) Maxwell H. Gluck Foundation, in
the amount of $300,000; (viii) David Smith, in the amount of
$225,000; (ix) Gerry Beemiller, in the amount of $150,000; (x)
Emerald International, in the amount of $105,000; (xi) Ashish
Vibhakar, in the amount of $100,000; (xii) U.S. Equity Portfolio
LP, in the amount of $75,000; and (xiii) United Congregation
Mesorah, in the amount of $60,000 (each individually, the
"Lender" and collectively, the "Lenders"). Pursuant to the terms
of the Promissory Notes, the loans are repayable by Covalent
Partners by either (i) payment of the outstanding principal plus
accrued interest on the unpaid principal at the rate of 5.88% per
annum; or (ii) provided that the Shares are purchased under the
Option Agreement, delivery of Shares of Common Stock of the
Issuer. Covalent Partners elected to purchase the Shares pursuant
to the Option Agreement and each of the Lenders received Shares
held by Covalent Partners in full payment of the outstanding
principal and accrued interest under the Promissory Notes.
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, (iii) the loan agreement
between Propper and California Bank and Trust included as Exhibit
99.3 and incorporated herein in its entirety by reference, and
(iv) the form of Promissory Note attached hereto as Exhibit 99.8
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, 333,000 shares
of Common Stock of the Issuer in open market transactions for an
aggregate approximate amount of $726,934.
Chermak purchased, through personal funds, 43,000 shares
of Common Stock of the Issuer in open market transactions for an
aggregate approximate amount of $90,092.
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.
8.
<PAGE> 9
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. On November 27, 1999, Covalent Partners
elected to exercise its rights to purchase 250,000 additional
Shares. On January 15, 2000, Covalent Partners elected to
exercise its rights to purchase the remaining 4,765,500 shares
pursuant to the Option. A substantial majority of the outstanding
shares of Common Stock of the Issuer were exchanged for cash at a
per share price of $2.00. Upon completion of the purchase of the
Shares and as payment in full of the principal amounts and all
accrued and unpaid interest pursuant to the Promissory Notes,
Covalent Partners delivered to each of the Lenders, shares of
common stock of the Issuer in the following amounts: (i) Acorn
Technology Fund, in the amount of 600,000 shares; (ii) Bedford
Oak Partners, L.P., in the amount of 600,000 shares; (iii) Thomas
Hodapp, in the amount of 500,000 shares; (iv) Hassan Nemazee, in
the amount of 500,000 shares; (v) Houston Ventures, Inc., in the
amount of 500,000 shares; (vi) Montpellier International LDC, in
the amount of 120,000 shares; (vii) Maxwell H. Gluck Foundation,
in the amount of 100,000 shares; (viii) David Smith, in the
amount of 75,000 shares; (ix) Gerry Beemiller, in the amount of
50,000 shares; (x) Emerald International, in the amount of 35,000
shares; (xi) Ashish Vibhakar, in the amount of 33,333 shares;
(xii) U.S. Equity Portfolio LP, in the amount of 25,000 shares;
and (xiii) United Congregation Mesorah, in the amount of 20,000
shares.
Upon Covalent Partners' election to exercise the Option in
full on 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.
9.
<PAGE> 10
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 333,000 6,552,500 54.3%
Michael D. Chermak 43,000 6,262,500 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
333,000 shares of Common Stock of the Issuer beneficially owned
by Propper, 43,000 shares beneficially owned by Chermak and
16,700 shares beneficially owned by Chaudhry; Propper disclaims
beneficial ownership of 43,000 shares of Common Stock of the
Issuer beneficially owned by Chermak and 16,700 shares held by
Chaudhry; Chermak disclaims beneficial ownership of 333,000
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, 6,552,500 shares beneficially owned by Propper and
6,262,500 shares beneficially owned by Chermak.
Propper has sole voting and dispositive power with respect
to 333,000 shares of Common Stock of the Issuer. Chermak has sole
voting and dispositive power with respect to 43,000 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 3,061,167 shares of Common Stock
of the Issuer and shares dispositive power with its managing
members with respect to 3,061,167 shares of Common Stock of the
Issuer.
10.
<PAGE> 11
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 1,250,000 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. Covalent Partners exercised the Option
in full thereby terminating the grant of voting rights to LaMont
with respect to the Shares.
Pursuant to Stockholder Agreements, dated as of January
20, 2000, entered into by and between Covalent Partners and each
of the Lenders, the Lenders have agreed to vote the Shares
delivered pursuant to the Promissory Notes in accordance with
those voted by Covalent Partners. The agreement to vote such
shares terminates immediately prior to a lawful sale of the
Shares in the public market. The foregoing summary of such voting
requirements is qualified in its entirety by reference to a copy
of a form of Stockholder Agreement included as Exhibit 99.9 and
incorporated in its entirety by reference.
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.
11.
<PAGE> 12
(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 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
agreed 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 ("Borow Option"). Prior to the exercise of the Option in
full by Covalent Partners, Borow waived all rights to receive the
Borow Option and any Common Stock thereunder. Covalent Partners
and Borow have agreed that the Company will not grant any options
to Borow pursuant to the Letter Agreement.
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.
12.
<PAGE> 13
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS
<TABLE>
<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.
99.8 Form of Promissory Note.
99.9 Form of Stockholder Agreement.
</TABLE>
- --------
* Previously filed by the Reporting Persons with the Schedule 13D on November
10, 1999.
13.
<PAGE> 14
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.
January 28, 2000
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 J. CHAUDHRY
----------------------------------------
SALMAN J. CHAUDHRY
14.
<PAGE> 15
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> 16
SCHEDULE II
NAME PRINCIPAL OCCUPATION OR EMPLOYMENT
- ---- ----------------------------------
Acorn Technology Fund, LP N/A
Five Vaughn Drive
Princeton, NJ 08540-6313
Bedford Oak Partners, L.P., N/A
a Delaware limited partnership
100 South Bedford Road
Mt. Kisco, NY 10549
Thomas Hodapp Investment Advisor
254 Glenn Drive
Sausalito, CA 94965
Hassan Nemazee Investment Advisor
720 5th Avenue
New York, NY 10019
Houston Venture Inc., N/A
a Texas corporation
720 5th Avenue
New York, NY 10019
Montpellier International, LDC N/A
Harbour Chambers, 3rd Floor
P.O. 1348 Harbour Center
Georgetown, Grand Caymen Islands
Maxwell H. Gluck Foundation N/A
10375 Wilshire Boulevard
Los Angeles, CA 90024
David Smith Investment Advisor
82 Beachside Ave.
Greens Farms, CT 06436
Gerry Beemiller Senior Vice President of Sales,
3300 Zaker Rd. Sony Semiconductor Company of
Maildrop 5J 3C 4 America
San Jose, CA 95134
Emerald International N/A
Strategic Restructuring Partners
1114 Avenue of the Americas, 38th Floor
New York, NY 10036
Ashish Vibhakar Chief Executive Officer,
5331 Bindewald Road cyberoffice.com, Inc.
Torrance, CA 90505
<PAGE> 17
US Equity Portfolio LP N/A
Strategic Restructuring Partners
1114 Avenue of the Americas, 38th Floor
New York, New York 10036
United Congregation Mesorah N/A
1 State Street
New York, New York 10004
2.
<PAGE> 18
SCHEDULE III
<TABLE>
<CAPTION>
AMOUNT OF
DATE OF THE COMMON STOCK
INVESTOR TRANSACTION OF ISSUER PRICE PER SHARE ($) TYPE OF TRADE BROKER
-------- ----------- ------------ ------------------- ------------- ------
<S> <C> <C> <C> <C> <C>
Propper 01/10/00 4,000 4.9878 Purchase BLC*
01/10/00 5,000 5.00 Purchase BOA**
01/13/00 3,000 4.8333 Purchase BOA
01/18/00 2,000 4.50 Purchase BOA
01/20/00 5,000 4.375 Purchase BOA
01/21/00 4,000 4.95310 Purchase BOA
</TABLE>
* Balis, Lewittes & Coleman Inc. ("BLC")
** Bank of America ("BOA")
<PAGE> 19
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 filing, 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.
January 28, 2000
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 J. CHAUDHRY
----------------------------------------
SALMAN J. CHAUDHRY
<PAGE> 20
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.
99.8 Form of Promissory Note.
99.9 Form of Stockholder Agreement.
</TABLE>
- --------
* Previously filed by the Reporting Persons with the Schedule 13D on November
10, 1999.
<PAGE> 1
EXHIBIT 99.8
SECURED PROMISSORY NOTE
$____________ January __, 2000
FOR VALUE RECEIVED, the undersigned hereby unconditionally promises to
pay to the order of Houston Venture Group, Inc. ("Note Holder"), at the address
set forth on the signature page hereof, or at such other place as the holder
hereof may designate in writing, in lawful money of the United States of America
and in immediately available funds, (except as provided below with respect to
delivery of the Shares (as defined below)) the principal sum of ________________
($_______) DOLLARS together with interest accrued from the date hereof on the
unpaid principal at the rate of 5.88% 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. Subject to the immediately
following sentence, the outstanding principal amount hereunder plus all
accrued unpaid interest shall be due and payable in full on the earlier
of (i) January 21, 2000 or (ii) one (1) business day following the date
of the exercise of the option (the "Option") to purchase all of the
shares of Common Stock of Covalent Group, Inc. subject to exercise under
the Option Agreement (the "Option Shares") by and between the
undersigned and Bruce LaMont, attached hereto as EXHIBIT A (the "Option
Agreement"). In the event that the Option Shares are purchased under the
Option Agreement, the undersigned shall repay, and the holder hereof
shall accept as payment in full of the principal amount of, and all
accrued and unpaid interest on this Note by delivery of _____________
(_______) shares of Common Stock of Covalent Group, Inc. (the "Shares").
If the undersigned fails to pay any of the principal and accrued
interest or deliver the Shares when due, the Note Holder, 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 the Note Holder 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 undersigned agrees that the proceeds received by the undersigned
under this Note shall be retained in an escrow account held at Cooley Godward
LLP, the undersigned's attorneys, and the undersigned shall not receive any of
the proceeds of this Note unless and until the Option under the Option Agreement
is exercised in full. The full amount of this Note is
1.
<PAGE> 2
secured by a pledge of ___________ (______) shares of Common Stock of Covalent
Group, Inc. held by the undersigned.
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, 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:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
Acknowledged and Agreed:
[NOTE HOLDER]
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
Address:
---------------------------
---------------------------
---------------------------
2.
<PAGE> 1
EXHIBIT 99.9
COVALENT PARTNERS, LLC
STOCKHOLDER AGREEMENT
THIS STOCKHOLDER AGREEMENT (the "Agreement") is made and entered into as
of January __, 2000, by and among COVALENT PARTNERS, LLC, a Delaware limited
liability company (the "Covalent Partners"), and each of the persons and
entities listed on EXHIBIT A hereto (each referred to herein as a "Purchaser"
and collectively as the "Purchasers").
RECITALS
WHEREAS, Covalent Partners is the beneficial owner of Common Stock of
Covalent Group, Inc. (the "Company");
WHEREAS, Covalent Partners has executed a promissory note (the
"Promissory Note") in favor of each of the Purchasers, that provides that, if
Covalent Partners elects to exercise the option to purchase all of the shares of
Common Stock of Covalent Group, Inc. (the "Company") subject to exercise under
the Option Agreement by and between Covalent Partners and Bruce LaMont, dated
November 1, 1999 (the "Option Agreement"), then Covalent Partners shall deliver
in full payment of the Promissory Note the number of shares of Common Stock of
the Company (individually and collectively, the "Shares") set forth opposite
such Purchasers' name on EXHIBIT A attached hereto (the "Transaction");
WHEREAS, in connection with the consummation of the Transaction, the
parties desire to enter into this Agreement in order to grant registration, drag
along and co-sale rights to the Purchasers and to agree to a lock-up and voting
of their Shares;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree hereto as follows:
1. DEFINITIONS.
(a) "Change of Control" shall mean (a) the acquisition of all or
substantially all of the assets of the Company or (b) an acquisition of the
Company by another corporation or entity by consolidation, merger or other
reorganization, in either case, in which the holders of the Company's
outstanding voting stock immediately prior to such transaction own, immediately
after such transaction, securities representing less than fifty percent (50%) of
the voting power of the corporation or other entity acquiring such assets or
surviving such transaction.
(b) "Co-Sale Stock" shall mean shares of the Company's Common
Stock now beneficially owned or subsequently acquired by Covalent Partners or
the Purchasers by gift, purchase, dividend, option exercise or any other means.
(c) "Common Stock" shall mean the Company's Common Stock and
shares of Common Stock issued or issuable upon exercise of any option, warrant
or other security or right of any kind convertible into or exchangeable for
Common Stock.
1.
<PAGE> 2
(d) For the purpose of this Agreement, the term "Transfer" shall
include any sale, assignment, encumbrance, hypothecation, pledge, conveyance in
trust, gift, transfer by request, devise or descent, or other transfer or
disposition of any kind, including, but not limited to, transfers to receivers,
levying creditors, trustees or receivers in bankruptcy proceedings or general
assignees for the benefit of creditors, whether voluntary or by operation of
law, directly or indirectly, of any of the Co-Sale Stock prior to May 15, 2000.
2. TRANSFERS BY COVALENT PARTNERS. If Covalent Partners proposes to
Transfer any shares of Co-Sale Stock then Covalent Partners shall promptly give
written notice (the "Notice") simultaneously to each of the Purchasers at least
fifteen (15) days prior to the closing of such Transfer. The Notice shall
describe in reasonable detail the proposed Transfer including, without
limitation, the number of shares of Co-Sale Stock to be transferred, the nature
of such Transfer, the consideration to be paid, and the name and address of each
prospective purchaser or transferee. In the event that the Transfer is being
made pursuant to the provisions of Section 4(a), the Notice shall state under
which section the Transfer is being made.
3. PURCHASERS' CO-SALE RIGHTS.
(a) Each Purchaser shall have the right, exercisable upon written
notice to Covalent Partners within seven (7) days after the Notice, to
participate in such Transfer of Co-Sale Stock on the same terms and conditions.
Such notice shall indicate the number of shares of Common Stock such Purchaser
wishes to sell under his or her right to participate. To the extent one of more
of Purchasers exercises such right of participation in accordance with the terms
and conditions set forth below, the number of shares of Co-Sale Stock that
Covalent Partners may sell in the transaction shall be correspondingly reduced.
(b) Each Purchaser may sell all or any part of that number of
shares equal to the product obtained by multiplying (i) the aggregate number of
shares of Co-Sale Stock covered by the Notice by (ii) a fraction the numerator
of which is the number of shares of Co-Sale Stock owned by such Purchaser at the
time of the Transfer and the denominator of which is the total number of shares
of Co-Sale Stock owned by Covalent Partners and the Purchasers at the time of
the Transfer.
(c) Each Purchaser who elects to participate in the Transfer
pursuant to this Section 3 (a "Participant") shall effect its participation in
the Transfer by promptly delivering to Covalent Partners for transfer to the
prospective purchaser one or more certificates, properly endorsed for transfer,
which represent the type and number of shares of Common Stock which such
Participant elects to sell.
(d) The stock certificate or certificates that the Participant
delivers to Covalent Partners pursuant to Section 3(c) shall be transferred to
the prospective purchaser in consummation of the sale of the Common Stock
pursuant to the terms and conditions specified in the Notice, and Covalent
Partners shall concurrently therewith remit to such Participant that portion of
the sale proceeds to which such Participant is entitled by reason of its
participation in such sale. To the extent that any prospective purchaser or
purchasers prohibits such assignment or otherwise refuses to purchase shares or
other securities from a Participant exercising its rights of co-sale hereunder,
Covalent Partners shall not sell to such prospective purchaser or purchasers
2.
<PAGE> 3
any Co-Sale Stock unless and until, simultaneously with such sale, Covalent
Partners shall purchase such shares or other securities from such Participant on
the same terms and conditions specified in the Notice.
(e) The exercise or non-exercise of the rights of the Purchasers
hereunder to participate in one or more Transfers of Co-Sale Stock made by
Covalent Partners shall not adversely affect their rights to participate in
subsequent Transfers of Co-Sale Stock subject to this Section 3.
(f) If none of the Purchasers elect to participate in the sale of
the Co-Sale Stock subject to the Notice, Covalent Partners may, not later than
sixty (60) days following delivery of the Notice, enter into an agreement
providing for the closing of the Transfer of the Co-Sale Stock covered by the
Notice within thirty (30) days of such agreement on terms and conditions not
materially more favorable to the transferor than those described in the Notice.
Any proposed transfer on terms and conditions materially more favorable than
those described in the Notice, as well as any subsequent proposed transfer of
any of the Co-Sale Stock by Covalent Partners, shall again be subject to the
co-sale rights of the Purchasers and shall require compliance by Covalent
Partners with the procedures described in this Section 3.
4. TRANSFERS BY A PURCHASER. If a Purchaser (other than a member of the
Bedford Oak Group) (the "Transferring Purchaser") proposes to Transfer any
shares of Co-Sale Stock then the Transferring Purchaser shall promptly give
written notice (the "Notice") simultaneously to Covalent Partners and the other
Purchasers at least fifteen (15) days prior to the closing of such Transfer. The
Notice shall describe in reasonable detail the proposed Transfer including,
without limitation, the number of shares of Co-Sale Stock to be transferred, the
nature of such Transfer, the consideration to be paid, and the name and address
of each prospective purchaser or transferee. In the event that the Transfer is
being made pursuant to the provisions of Section 6(a), the Notice shall state
under which section the Transfer is being made.
5. COVALENT PARTNERS' AND OTHER PURCHASERS' CO-SALE RIGHTS.
(a) Covalent Partners and the other Purchasers shall have the
right, exercisable upon written notice to the Transferring Purchaser within
seven (7) days after the Notice, to participate in such Transfer of Co-Sale
Stock on the same terms and conditions. Such notice shall indicate the number of
shares of Co-Sale Stock Covalent Partners and such other Purchaser's wish to
sell under their respective rights to participate. To the extent Covalent
Partners and the other Purchasers exercise their rights of participation in
accordance with the terms and conditions set forth below, the number of shares
of Co-Sale Stock that such Transferring Purchaser may sell in the transaction
shall be correspondingly reduced.
(b) Each of Covalent Partners and the other Purchasers,
respectively, may sell all or any part of that number of shares equal to the
product obtained by multiplying (i) the aggregate number of shares of Co-Sale
Stock covered by the Notice by (ii) a fraction, the numerator of which is the
number of shares of Co-Sale Stock owned by such party at the time of the
Transfer and the denominator of which is the total number of shares of Co-Sale
Stock owned by Covalent Partners and the Purchasers at the time of the Transfer.
3.
<PAGE> 4
(c) If any of Covalent Partners and the other Purchasers elects
to participate in the Transfer pursuant to this Section 5 (a "Participant"),
such Participant or Participants shall effect their participation in the
Transfer by promptly delivering to such Transferring Purchaser for transfer to
the prospective purchaser one or more certificates, properly endorsed for
transfer, which represent the type and number of shares of Co-Sale Stock which
such Participant has elected to sell.
(d) The stock certificate or certificates that the Participant or
Participants delivers to such Transferring Purchaser pursuant to Section 5(c)
shall be transferred to the prospective purchaser in consummation of the sale of
the Common Stock pursuant to the terms and conditions specified in the Notice,
and the Purchaser shall concurrently therewith remit to such Participant or
Participants that portion of the sale proceeds to which each such Participant is
entitled by reason of its participation in such sale. To the extent that any
prospective purchaser or purchasers prohibits such assignment or otherwise
refuses to purchase shares or other securities from a Participant exercising its
rights of co-sale hereunder, such Transferring Purchaser shall not sell to such
prospective purchaser or purchasers any Co-Sale Stock unless and until,
simultaneously with such sale, such Transferring Purchaser shall purchase such
shares or other securities from each Participant whose shares the prospective
purchaser refused on the same terms and conditions specified in the Notice.
(e) The exercise or non-exercise of the rights of Covalent
Partners or any Purchaser hereunder to participate in one or more Transfers of
Co-Sale Stock made by a Purchaser shall not adversely affect the rights of
Covalent Partners or such Purchaser that did not participate to participate in
subsequent Transfers of Co-Sale Stock subject to this Section 2.
(f) If Covalent Partners does not elect to participate in the
sale of the Co-Sale Stock subject to the Notice, such Transferring Purchaser
may, not later than sixty (60) days following delivery to the Company of the
Notice, enter into an agreement providing for the closing of the Transfer of the
Co-Sale Stock covered by the Notice within thirty (30) days of such agreement on
terms and conditions not more materially favorable to the transferor than those
described in the Notice. Any proposed transfer on terms and conditions
materially more favorable than those described in the Notice, as well as any
subsequent proposed transfer of any of the Co-Sale Stock by a Transferring
Purchaser, shall again be subject to the co-sale rights of the Purchasers and
shall require compliance by a Purchaser with the procedures described in this
Section 3.
6. EXEMPT TRANSFERS.
(a) Notwithstanding the foregoing, the co-sale rights of the
Purchasers and Covalent Partners shall not apply to (i) any transfer or
transfers which, in the aggregate, over the term of this Agreement, amount to
not more than twenty percent (20%) of the shares of Co-Sale Stock held by such
transferring stockholder as of the date hereof (as adjusted for stock splits,
dividends and the like), (ii) any transfer to a stockholder partner or member
of, or any entity that controls, is controlled by or under common control with,
Covalent Partners or a Purchaser, (iii) any pledge of Co-Sale Stock made
pursuant to a bona fide loan transaction that creates a mere security interest,
or (iv) any bona fide gift; provided that in the event of any transfer made
pursuant to one of the exemptions provided by clauses (ii), (iii) and (iv), (A)
Covalent Partners or
4.
<PAGE> 5
the Purchaser shall inform the party holding the co-sale rights of such pledge,
transfer or gift prior to effecting it and (B) the pledgee, transferee or donee
shall furnish the Purchasers or Covalent Partners, as applicable, with a written
agreement to be bound by and comply with all provisions of this Agreement.
Except with respect to Co-Sale Stock transferred under clause (i) above (which
Co-Sale Stock shall no longer be subject to the co-sale rights), such
transferred Co-Sale Stock shall remain "Co-Sale Stock" hereunder, and such
pledgee, transferee or donee shall be treated as a "Purchaser" or "Covalent
Partners", as applicable, for purposes of this Agreement.
(b) Notwithstanding the foregoing, the provisions of Section 3
and Section 5 shall not apply to the sale of any Co-Sale Stock to the public
pursuant to a registration statement filed with, and declared effective by, the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the "Securities Act").
7. DRAG-ALONG RIGHTS
(a) At any time prior to May 15, 2000, Covalent Partners will
have the right (the "First Drag-Along Right") to require each Purchaser to sell
or exchange, pursuant to an agreement entered into between Covalent Partners and
any person or entity (the "Buyer"), up to forty percent (40%) of such
Purchaser's total number of shares of Co-Sale Stock (the "Drag-Along Shares"),
provided that the Purchaser receives a cash sum at least equal to the aggregate
purchase price that it paid to acquire the total number of shares of Co-Sale
Stock that it acquired (the "Purchase Price"); and
(b) If Covalent Partners exercises the First Drag-Along Right, as
described in Section 7(a), then at any time prior to May 15, 2000, Covalent
Partners will have the right (the "Second Drag-Along Right") to require each
Purchaser to sell or exchange, pursuant to an agreement entered into between
Covalent Partners and the Buyer, up to the remainder of the Co-Sale Stock that
it acquired (the "Remainder Shares"), provided that the agreement requires the
Buyer to complete the purchase of the Remainder Shares within three (3) years
from the date of the agreement at a purchase price of at least $6.00 per share
as a floor within two (2) years from the date hereof, increasing at the rate
$3.00 per share per year thereafter.
(c) The exercise of the First Drag-Along Right and the purchase
and sale of the shares resulting from the exercise of the First Drag-Along Right
shall take place at the principal offices of Covalent Partners on the thirtieth
(30th) business day following the date of delivery of the notice of exercise of
the First Drag-Along Right, or at such other place, on such other date, or both,
as Covalent Partners and the Buyer shall agree upon in writing (the "Closing
Date"). On or before the Closing Date, the Purchaser shall deliver the
certificate(s) representing that number of its shares being sold to the Buyer in
proper form for transfer in exchange for payment of the purchase price therefor,
either by a wire transfer of immediately available funds to the respective bank
accounts designated by the Purchasers or by certified or official bank check or
checks, and shall take such other actions in their capacity as stockholders of
the Company (including without limitation the voting of their shares in favor of
any such transaction) necessary to effect such transaction. By delivering such
certificate(s), the Purchaser shall be deemed to represent that the Buyer will
receive good title to the securities transferred by
5.
<PAGE> 6
them, free and clear of all liens, security interests, pledges, charges,
encumbrances, stockholders' agreements and voting trusts.
(d) The exercise of the Second Drag-Along Right and the option or
warrant to purchase the shares resulting from the exercise of the Second
Drag-Along Right shall take place at the principal offices of Covalent Partners
on the thirtieth (30th) business day following the date of delivery of the
notice of exercise of the Second Drag-Along Right, or at such other place, on
such other date, or both, as Covalent Partners and the Buyer shall agree upon in
writing (the "Option Date"). On or before the Option Date, the Purchaser shall
deliver the Remainder Shares to an escrow agent, as agreed upon in writing by
Covalent Partners and the Buyer, along with a form of stock assignment separate
from certificate executed in blank and joint escrow instructions duly executed
by the escrow agent, Purchaser and Buyer.
(e) The First Drag-Along Right and Second Drag-Along Right
established by Sections 7(a) and 7(b) shall terminate upon the earlier of (i)
May 15, 2000, or (ii) a Change in Control.
8. PROHIBITED TRANSFERS.
(a) In the event that a Purchaser or Covalent Partners should
Transfer any Co-Sale Stock in contravention of the co-sale rights (the
"Violating Party") under this Agreement (a "Prohibited Transfer"), each holder
of the co-sale rights, in addition to such other remedies as may be available at
law, in equity or hereunder, shall have the put option provided below, and the
Violating Party shall be bound by the applicable provisions of such option.
(b) In the event of a Prohibited Transfer, each holder of the
co-sale rights shall have the right to sell to the Violating Party the type and
number of shares of Common Stock equal to the number of shares the holder of the
co-sale rights would have been entitled to transfer to the purchaser under
Section 3(b) or Section 5(b), as applicable, hereof had the Prohibited Transfer
been effected pursuant to and in compliance with the terms hereof. Such sale
shall be made on the following terms and conditions:
(i) The price per share at which the shares are to be sold
to the Violating Party shall be equal to the price per share paid by the
purchaser to the Violating Party in such Prohibited Transfer. The Violating
Party shall also reimburse each holder of the co-sale rights for any and all
fees and expenses, including legal fees and expenses, incurred pursuant to the
exercise or the attempted exercise of such holder's rights under Section 3 and
Section 5.
(ii) Within ninety (90) days after the date on which the
holder of the co-sale rights received notice of the Prohibited Transfer or
otherwise became aware of the Prohibited Transfer, such holder of the co-sale
rights shall, if exercising the option created hereby, deliver to the Violating
Party the certificate or certificates representing shares to be sold, each
certificate to be properly endorsed for transfer.
(iii) The Violating Party shall, upon receipt of the
certificate or certificates for the shares to be sold by the holder of the
co-sale rights, pursuant to this Section 6(b), pay the aggregate purchase price
therefor and the amount of reimbursable fees and expenses, as specified in
Section 8(b)(i), in cash or by other means acceptable to the Purchaser.
6.
<PAGE> 7
9. REGISTRATION RIGHTS.
(a) REGISTRATION OF THE SHARES. Promptly following its election
of a controlling number of directors to the Board of Covalent, but no later than
February 29, 2000 (the "Registration Date") Covalent Partners or any of its
current managing members will cause the Company to file a registration statement
under the Securities Act covering the registration of the re-sale of the Shares
held by the Purchasers. All registration expenses incurred in connection with
any registration pursuant to this Section 9(a) hereof shall be borne by the
Company. All selling expenses relating to securities so registered shall be
borne by the Purchasers of such securities pro rata each on the basis of the
number of Common Stock so registered on their behalf.
10. AGREEMENT TO VOTE.
(a) AGREEMENT TO VOTE. On all matters submitted to a vote of the
holders of capital stock of the Company, the Purchasers agree to vote all Shares
held by them (i) in accordance with those voted by Covalent Partners and/or any
of its managing members on behalf of Covalent Partners and (ii) to elect Harvey
Eisen or his designee to the Board of Directors of the Company at each annual or
special meeting of the stockholders and each written consent of stockholders
after the date hereof. If Covalent Partners ceases to operate as an entity
during the term of this Agreement, the Purchasers agree to vote all Purchaser
shares held by them in accordance with those voted by Dr. Richard D. Propper.
(b) SUCCESSORS. The provisions of this Section 10 shall be
binding upon the successors in interest to any of the Shares. The Purchasers
shall not transfer any of the Shares unless and until the person to whom such
security is to be transferred shall have executed a written agreement,
substantially in the form of this Agreement, pursuant to which such person
becomes a party to this Agreement and agrees to be bound by all the provisions
hereof as if such person were a Purchaser, as applicable.
(c) OTHER RIGHTS. Except as provided by this Agreement or any
other agreement entered into in connection with the Transaction, each Purchaser
shall exercise the full rights of a holder of capital stock of the Company with
respect to the Purchaser Shares, respectively.
(d) LEGEND.
(i) Concurrently with the execution of this Agreement,
there shall be imprinted or otherwise placed, on certificates representing the
Purchaser Shares the following restrictive legend (the "Legend"):
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
TERMS AND CONDITIONS OF A VOTING AGREEMENT WHICH PLACES CERTAIN
RESTRICTIONS ON THE VOTING OF THE SHARES REPRESENTED HEREBY. ANY
PERSON ACCEPTING ANY INTEREST IN SUCH SHARES SHALL BE DEEMED TO
AGREE TO AND SHALL BECOME BOUND BY ALL THE PROVISIONS OF SUCH
AGREEMENT. A COPY OF SUCH
7.
<PAGE> 8
VOTING AGREEMENT WILL BE FURNISHED TO THE RECORD HOLDER OF THIS
CERTIFICATE WITHOUT CHARGE UPON WRITTEN REQUEST TO THE COMPANY AT
ITS PRINCIPAL PLACE OF BUSINESS."
(ii) The Company agrees that, during the term of this
Agreement, it will not remove, and will not permit to be removed (upon
registration of transfer, reissuance of otherwise), the Legend from any such
certificate and will place or cause to be placed the Legend on any new
certificate issued to represent Purchaser Shares theretofore represented by a
certificate carrying the Legend.
(e) TERM. The provisions of this Section 10 shall continue in
full force and effect from the date hereof through the earliest of the following
dates, on which date it shall terminate in its entirety:
(i) Immediately prior to a lawful sale of the Common Stock
by the Purchaser in the public market (NASDAQ);
(ii) the occurrence of a Change in Control; provided that
this Section 10(d)(ii) shall not apply to a merger effected exclusively for the
purpose of changing the domicile of the Company;
(iii) the date as of which the parties hereto terminate
this Agreement by written consent of a majority in interest of the Purchasers
and Covalent Partners; or
(iv) ten (10) years from the date of this Agreement.
11. MISCELLANEOUS.
(a) SPECIFIC PERFORMANCE. The parties hereto hereby declare that
it is impossible to measure in money the damages which will accrue to a party
hereto or to their heirs, personal representatives, or assigns by reason of a
failure to perform any of the obligations under this Agreement and agree that
the terms of this Agreement shall be specifically enforceable. If any party
hereto or his heirs, personal representatives, or assigns institutes any action
or proceeding to specifically enforce the provisions hereof, any person against
whom such action or proceeding is brought hereby waives the claim or defense
therein that such party or such personal representative has an adequate remedy
at law, and such person shall not offer in any such action or proceeding the
claim or defense that such remedy at law exists.
(b) APPLICABLE LAW, JURISDICTION AND VENUE. This Agreement shall
be governed by and construed in accordance with the laws of the State of
California without reference to conflict of laws principles. Any disputes under
this Agreement shall be subject to the exclusive jurisdiction and venue of the
California state courts and the Federal courts located in San Diego County,
California, and the parties hereby consent to the personal and exclusive
jurisdiction and venue of these courts.
(c) AMENDMENT. Any provision of this Agreement may be amended and
the observance thereof may be waived (either generally or in a particular
instance and either
8.
<PAGE> 9
retroactively or prospectively), only by the written consent of (i) Covalent
Partners and (ii) the Purchaser.
(d) TERM. This Agreement shall continue in full force and effect
from the date hereof through the earliest of the following dates, on which date
it shall terminate in its entirety:
(i) the date of the closing of a registration statement
filed with the Securities and Exchange Commission, and declared effective under
the Securities Act of 1933, as amended, pursuant to Section 9(a) hereof;
(ii) the occurrence of a Change in Control; or
(iii) the date as of which the parties hereto terminate
this Agreement by written consent of a majority in interest of the Purchasers
and Covalent Partners.
(e) LEGEND.
(i) Each certificate representing shares of Co-Sale Stock
now or hereafter owned by the Purchasers and Covalent Partners or issued to any
person in connection with a transfer pursuant to Section 6(a) hereof shall be
endorsed with the following legend:
"THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND
CONDITIONS OF A CERTAIN CO-SALE AGREEMENT BY AND BETWEEN COVALENT
PARTNERS, LLC AND CERTAIN HOLDERS OF STOCK OF THE COMPANY. COPIES
OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE
SECRETARY OF THE COMPANY."
(ii) The Purchasers and Covalent Partners agree that the
Company may instruct its transfer agent to impose transfer restrictions on the
shares represented by certificates bearing the legend referred to in Section
11(e)(i) above to enforce the provisions of this Agreement and the Company
agrees to promptly do so. The legend shall be removed upon termination of this
Agreement
(f) ASSIGNMENT OF RIGHTS. This Agreement constitutes the entire
agreement between the parties relative to the specific subject matter hereof.
Any previous agreement among the parties relative to the specific subject matter
hereof is superseded by this Agreement. This Agreement and the rights and
obligations of the parties hereunder shall inure to the benefit of, and be
binding upon, their respective successors, assigns and legal representatives.
(g) NOTICES. All notices required or permitted hereunder shall be
in writing and shall be deemed effectively given: (i) upon personal delivery to
the party to be notified, (ii) when sent by confirmed electronic mail or
facsimile if sent during normal business hours of the recipient; if not, then on
the next business day, (iii) five (5) days after having been sent by registered
or certified mail, return receipt requested, postage prepaid, or (iv) one (1)
day after deposit with a nationally recognized overnight courier, specifying
next day delivery, with written
9.
<PAGE> 10
verification of receipt. All communications shall be sent to the party to be
notified at the address as set forth on the signature page hereof or at such
other address as such party may designate by ten (10) days advance written
notice to the other parties hereto.
(h) SEVERABILITY. In the event one or more of the provisions of
this Agreement should, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality, or unenforceability
shall not affect any other provisions of this Agreement, and this Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein.
(i) ATTORNEYS' FEES. In the event that any suit or action is
instituted to enforce any provision in this Agreement, the prevailing party in
such dispute shall be entitled to recover from the losing party all fees, costs
and expenses of enforcing any right of such prevailing party under or with
respect to this Agreement, including without limitation, such reasonable fees
and expenses of attorneys and accountants, which shall include, without
limitation, all fees, costs and expenses of appeals.
(j) ENTIRE AGREEMENT. This Agreement and the Exhibits hereto,
along with the Promissory Note, constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof and
no party shall be liable or bound to any other in any manner by any
representations, warranties, covenants and agreements except as specifically set
forth herein and therein.
(k) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[THIS SPACE INTENTIONALLY LEFT BLANK]
10.
<PAGE> 11
The foregoing STOCKHOLDER AGREEMENT is hereby executed as of the date
first above written.
COVALENT PARTNERS: PURCHASERS:
COVALENT PARTNERS, LLC
-----------------------------------
By: By:
-------------------------------- --------------------------------
Name: Name:
------------------------------ ------------------------------
Title: Title:
----------------------------- -----------------------------
SIGNATURE PAGE TO STOCKHOLDER AGREEMENT
<PAGE> 12
EXHIBIT A
LIST OF PURCHASERS
2.
