-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CeE9vPQZ1CCzn+rEVbbvUqmdqeDkpbNRhQegefen37U3t0L+l7FZROqvpC4AHd12 UphC7WrHEionjp77Lt98mg== 0000950123-00-000767.txt : 20000207 0000950123-00-000767.hdr.sgml : 20000207 ACCESSION NUMBER: 0000950123-00-000767 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 20000204 GROUP MEMBERS: HASSAN NEMAZEE GROUP MEMBERS: NEMAZEE HASSAN & HOUSTON VENTURE INC SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: COVALENT GROUP INC CENTRAL INDEX KEY: 0000856569 STANDARD INDUSTRIAL CLASSIFICATION: LABORATORY ANALYTICAL INSTRUMENTS [3826] IRS NUMBER: 561668867 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: SEC FILE NUMBER: 005-54209 FILM NUMBER: 524381 BUSINESS ADDRESS: STREET 1: ONE GLENHARDIE CORPORATE CENTER STREET 2: 1275 DRUMMERS LANE STE 201 CITY: WAYNE STATE: PA ZIP: 19087 BUSINESS PHONE: 6109759533 MAIL ADDRESS: STREET 1: ONE GLENHARDIE CORPORATE CENTER STREET 2: 1275 DRUMMERS LANE, SUITE 100 CITY: WAYNE STATE: PA ZIP: 19087 FORMER COMPANY: FORMER CONFORMED NAME: FUTURE MEDICAL TECHNOLOGIES INTERNATIONAL INC DATE OF NAME CHANGE: 19950801 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: NEMAZEE HASSAN & HOUSTON VENTURE INC CENTRAL INDEX KEY: 0001105396 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: 720 FIFTH AVENUE CITY: NEW YORK STATE: NY ZIP: 10019 MAIL ADDRESS: STREET 1: 720 FIFTH AVENUE CITY: NEW YORK STATE: NY ZIP: 10019 SC 13D/A 1 COVALENT GROUP, INC. 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------------------- SCHEDULE 13D (AMENDMENT NO. 1) UNDER THE SECURITIES EXCHANGE ACT OF 1934 COVALENT GROUP, INC. - -------------------------------------------------------------------------------- (NAME OF THE ISSUER) Common Stock, $0.001 par value per share - -------------------------------------------------------------------------------- (TITLE OF CLASS OF SECURITIES) 222815 10 2 - -------------------------------------------------------------------------------- (CUSIP NUMBER) Bruce LaMont Covalent Group, Inc. One Glenhardie Corp. Center 1275 Drummers Lane, Suite 1000 Wayne, PA 19087 (610) 975-9533 - -------------------------------------------------------------------------------- (NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS) January 26, 2000 - -------------------------------------------------------------------------------- (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 9 Pages) (Continued on following pages) 2 CUSIP NO. 22815 102 13D Page 2 of 9 Pages 1 NAME OF REPORTING PERSONS S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS HOUSTON VENTURE, INC. 76-0076145 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a)[ ] (b)[ ] 3 SEC USE ONLY 4 SOURCE OF FUNDS AF, 00 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDING IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ] 6 CITIZENSHIP OR PLACE OF ORGANIZATION TEXAS NUMBER OF 7 SOLE VOTING POWER SHARES 500,000 BENEFICIALLY OWNED BY REPORTING PERSON WITH 8 SHARED VOTING POWER 0 9 SOLE DISPOSITIVE POWER 500,000 10 SHARED DISPOSITIVE POWER 1,000,000 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 1,000,000 - SEE ITEM 5 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW 11 EXCLUDES CERTAIN SHARES [ ] 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 8.29% - SEE ITEM 5 14 TYPE OF REPORTING PERSON CO * Calculated pursuant to Rule 13d-3 of the Securities Exchange Act of 1934, as amended. ** 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 CUSIP NO. 22815 102 13D Page 3 of 9 Pages 1 NAME OF REPORTING PERSONS S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS HASSAN NEMAZEE 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ] (b) [ ] 3 SEC USE ONLY 4 SOURCE OF FUNDS PF 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDING IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ] 6 CITIZENSHIP OR PLACE OF ORGANIZATION UNITED STATES NUMBER OF 7 SOLE VOTING POWER SHARES 1,000,000 BENEFICIALLY OWNED BY REPORTING PERSON WITH 8 SHARED VOTING POWER 0 9 SOLE DISPOSITIVE POWER 500,000 10 SHARED DISPOSITIVE POWER 1,000,000 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 1,000,000 - SEE ITEM 5 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW 11 EXCLUDES CERTAIN SHARES [ ] 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 8.29% - SEE ITEM 5 14 TYPE OF REPORTING PERSON IN * Calculated pursuant to Rule 13d-3 of the Securities Exchange Act of 1934, as amended. ** 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 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 OFFICER: One Glenhardie Corp. Center 1275 Drummers Lane, Suite 100 Wayne, PA 19087 ITEM 2. IDENTITY AND BACKGROUND (a) This statement is being filed jointly (sometimes collectively the "Reporting Persons") on behalf of Hassan Nemazee ("Nemazee") and Houston Venture, Inc. ("Houston"). Nemazee, Individually and through various entities including Houston is engaged in making venture capital investments in various entities. Nemazee, through various entities, owns in excess of seventy (70%) percent of the shares of Common Stock of Houston. (b)-(c) 720 Fifth Avenue, New York, New York 10019. (d)-(e) During the last five years, there have been no criminal proceedings against the Reporting Persons. During the last five years, the Reporting Person has not 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) Nemazee is a citizen of the United States. 4 5 ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION Pursuant to an agreement among the Reporting Person, and Covalent Partners, LLC ("Covalent"), the Reporting Persons agreed to acquire an aggregate of 1,000,000 shares of Common Stock of the Issuer (the "Shares"), of which 500,000 Shares were acquired by Houston and 500,000 Shares were acquired by Nemazee, for a purchase price of $2.25 per share or an aggregate $2,250,000. In connection therewith, Houston and Nemazee each advanced the sum of $1,25,000.00 to Covalent evidenced by promissory notes (the "Notes"). On January 26, 2000, the Notes were repaid by the transfer of Shares by Covalent to Houston and Nemazee. The funds for the acquisition of the Shares were personal funds of Nemazee. ITEM 4. PURPOSE OF THE TRANSACTION Nemazee and Houston acquired shares of the Issuer for general investment purposes. ITEM 5. INTEREST IN SECURITIES OF THE ISSUER (a)- 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:
NUMBER OF SHARES OF NUMBER OF SHARES OF STOCK (BUT FOR RULE 13D- STOCK BENEFICIALLY PERCENTAGE OF CLASS INVESTOR 5(B)(1) OWNED BENEFICIALLY OWNED - ----------------------------- ----------------------------- ----------------------------- ----------------------------- Hassan Nemazee 500,000 1,000,000 8.29% Houston Venture, Inc. 500,000 1,000,000 8.29%
Beneficial ownership of 500,000 shares of Common Stock of the Issuer otherwise beneficially owned by Houston is attributed to Nemazee by virtue of Rule 13d-3(a)(1) and 13d-3(a)(2) of the Exchange Act. (b) Not applicable. (c) Not applicable. (d) Not applicable. 5 6 ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER In connection with the sale of the Shares, the Reporting Persons entered into a Stockholders' Agreement with Covalent pursuant to which the Reporting Persons agreed to vote the Shares as directed by Covalent to and including May 15, 2000. In addition, there are certain restrictions on the transfer of the Shares through May 15, 2000. Finally, there are tag along rights and registration rights relating to the Shares. The foregoing summary of the Stockholders' Agreement is qualified in its entirety by reference to a copy of the Agreement included as Exhibit 99.3 to this Schedule 13D and incorporated herein in its entirety by reference. Other than as described in the foregoing paragraphs and in Item 6 above, to the Reporting Person's knowledge, there are no contracts, arrangements, understandings or relationships (legal or otherwise) among the persons named in Item 2 and between such persons and any person with respect to any securities , finder's fees, joint ventures, loan or option arrangements, puts or calls, guarantees of profits, division of profits or loss, or the giving or withholding of proxies. ITEM 7. MATERIAL TO BE FILED AS EXHIBITS 99.1 Promissory Note dated January 20, 2000, by and between Hassan Nemazee and Covalent Partners, LLC 99.2 Promissory Note dated January 20, 2000, by and between Houston Venture, Inc. and Covalent Partners, LLC 99.3 Stockholders' Agreement dated January 20, 2000, by and among Covalent Partners, LLC, Hassan Nemazee and Houston Venture, Inc. 6 7 SIGNATURES After reasonably 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. February 2, 2000 HOUSTON VENTURE, INC. By: /s/ Hassan Nemazee ----------------------------- Hassan Nemazee, President /a/ Hassan Nemazee ----------------------------- Hassan Nemazee 7 8 JOINT FILING AGREEMENT In accordance with Rule 13d(l)(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 any 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. February 2, 2000 HOUSTON VENTURE, INC. By: /s/ Hassan Nemazee ------------------------------ Hassan Nemazee, President /s/ Hassan Nemazee ----------------------------- Hassan Nemazee 8 9 EXHIBIT INDEX EXHIBIT DESCRIPTION OF DOCUMENT 99.1 Promissory Note dated January 20, 2000, by and between Hassan Nemazee and Covalent Partners, LLC 99.2 Promissory Note dated January 20, 2000, by and between Houston Venture, Inc. and Covalent Partners, LLC 99.3 Stockholders' Agreement dated January 20, 2000, by and among Covalent Partners, LLC, Hassan Nemazee and Houston Venture, Inc. 9 EX-99.1 2 PROMISSORY NOTE 1 SECURED PROMISSORY NOTE $1,125,00 January 20, 2000 FOR VALUE RECEIVED, the undersigned hereby unconditionally promises to pay to the order of Hassan Nemazee, an individual ("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 one million one hundred twenty-five thousand ($1,125,000) dollars together with interest accrued from the date hereof on the unpaid principal at the rate of 5.88% per annum, or the maximum rte 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 Opinion 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 five hundred thousand (500,000) 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. 2 secured by a pledge of five hundred thousand (500,000) 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: Dr. Richard Propper ------------------- Title: Managing Member ------------------- Acknowledged and Agreed: - ------------------------- Hassan Nemazee Address: ----------------- ----------------- ----------------- ----------------- 2. EX-99.2 3 PROMISSORY NOTE 1 SECURED PROMISSORY NOTE $1,125,000 January 20, 2000 FOR VALUE RECEIVED, the undersigned hereby unconditionally promises to pay to the order of Houston Venture, Inc., a corporation ("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 one million one hundred twenty five thousand ($1,125,000) 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 Opinion 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 five hundred thousand (500,000) 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. 2 secured by a pledge of five hundred thousand (500,000) 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: Dr. Richard Propper -------------------- Title: Managing Member -------------------- Acknowledged and Agreed: Houston Venture, Inc. By: ---------------------- Name: ---------------------- Its: ---------------------- Address: --------------------- --------------------- --------------------- 2. EX-99.3 4 STOCKHOLDERS' AGREEMENT 1 COVALENT PARTNERS, LLC STOCKHOLDER AGREEMENT THIS STOCKHOLDER AGREEMENT (the "Agreement") is made and entered into as of January 20, 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 "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 in to 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. 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 other than a sale in the public market (NASDAQ). 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. PURCHASER'S 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 or 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 participating 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. 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 late 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. EXEMPT TRANSFERS. (a) Notwithstanding the foregoing, the co-sale rights of the Purchaser shall not apply to (i) any transfer to a stockholder partner or member of or the ancestors, descendants or spouse or to trusts for the benefit of such stockholder partner or member of, or any entity that controls, is controlled by or under common control with Covalent Partners, (ii) any pledge of Co-Sale Stock made pursuant to a bona fide loan transaction that create a mere security interest, or (iii) any bona fide gift; provided that in the event of any transfer made pursuant to one of the exemptions provided by clauses (i), (ii) and (iii), (A) Covalent Partners shall inform the party holding the co-sale rights of such pledge, transfer or gift prior to the effecting it and (B) the pledgee, transferee or donee shall furnish the Purchasers, as applicable, with a written agreement to be bound by and comply with all provisions of this Agreement. Such transferred Co-Sale Stock shall remain "Co-Sale Stock" hereunder, and such pledgee, transferee or donee shall be treated as "Covalent Partners," as applicable, for purposes of this Agreement. (b) Notwithstanding the foregoing, the provisions of Section 3 shall not apply to the sale of any Co-Sale Stock to te 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"). 5. DRAG-ALONG RIGHTS. (a) At any time prior to May 15, 2000, Covalent Partners will have the right (the "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 one-half of such Purchaser's total number of shares of Co-Sale Stock (the "Transaction"), provided that: (i) Covalent Partners participates on a pari passu basis with each Purchaser in the Transaction; and 3. 4 (ii) the Purchaser receivers a cash sum equal to the aggregate purchase price that it paid to acquire the total number of shares of Co-Sale Stock that it acquired. (b) The exercise of the Drag-Along Right and the purchase and sale of the shares resulting from the exercise of the 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 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 thereof, 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 o the securities transferred by them, free and clear of all liens, security interests, pledges, charges encumbrances, stockholders' agreements and voting trusts. The Drag-Along Right established by this Section 5 shall terminate upon the earlier of (i) May 15, 2000, or (ii) a Change in Control. 6. PROHIBITED TRANSFERS. (a) In the event that Covalent Partners should Transfer any Co-Sale Stock in contravention of the co-sale rights 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 Covalent Partners 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 Covalent Partners the type 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), 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 Covalent Partners shall be equal tot eh price pre share paid by the purchaser to Covalent Partners in such Prohibited Transfer. Covalent Partners 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. (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 Covalent Partners the certificate or certificates representing shares to be sold, each certificate to be properly endorsed for transfer. 4. 5 (iii) Covalent Partners 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 6(b)(i), in cash or by other means acceptable to the Purchaser. 7. REGISTRATION RIGHTS; LOCK-UP AND EXECUTIVE POOL RESERVE. (a) REGISTRATION OF SHARES. Promptly following its election of a controlling number of directors to the Board of Covalent, but no later than February 29, 2000, Covalent Partners or any of its current managing members will cause the Company to file on or prior to March 30, 2000, a registration statement under the Securities Act covering the registration of the re-sale of the Shares held by the Purchasers (the "Registration Statement"). Thereafter, Covalent partners will use its best efforts to cause the Registration Statement to be declared by the Securities and Exchange Commission (the "SEC"). (i) All registration expenses incurred in connection with any registration pursuant to Section 7(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. (b) Notwithstanding Sections 3 and 6 of this Agreement, the Purchasers each agree to hold all shares of voting capital stock of the Company registered in their respective names or beneficially owned by them as of the date hereof and any and all other securities of the Company legally or beneficially acquired by each of the Purchasers after the date hereof until May 15, 2000 subject to, and to vote the Shares in accordance with, Section 8 hereof. 8. 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 in accordance with those voted by Covalent Partners and/or any of its managing members on behalf of Covalent Partners. 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 8 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. 5. 6 (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 VOTING AGREEMENT WILL BE FURNISHED TO THE RECORD HOLDER OF THIS CERTIFICATE WITHOUT CHARGE UPON WRITTEN REQUEST TOT HE 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 or 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 8 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 8(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) May 15, 2000. 9. 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 6. 7 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 retroactively or prospectively), only by the written consent of (i) Covalent Partners and (ii) the Purchaser. (d) TERM. Other than Sections 1, 2, 3 and 6 hereof that survive the termination of this Agreement, 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, but no earlier than May 15, 2000, or a registration statement filed with the SEC, and declared effective under the Securities Act of 1933, as amended, pursuant to Section 7(a) hereof; (ii) the occurrence of a Change in Control; and (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) 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. (f) 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 hour 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 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. (g) 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, 7. 8 Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. (h) 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. (i) 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. (j) 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] 8. 9 The foregoing STOCKHOLDER AGREEMENT is hereby executed as of the date first above written. COVALENT PARTNERS: PURCHASERS: COVALENT PARTNERS, LLC HASSAN NEMAZEE By: By: ------------------------- ----------------------------- Name: Dr. Richard D. Propper Name: ----------------------- --------------------------- Title: Managing Member Title: ---------------------- -------------------------- HOUSTON VENTURE, INC. By: ------------------------------ Name: ---------------------------- Title: -------------------------- SIGNATURE PAGE TO STOCKHOLDER AGREEMENT 9. 10 EXHIBIT A LIST OF PURCHASERS
AGGREGATE NAME AND ADDRESS SHARES PURCHASE PRICE - -------------------------------------------------------------------------------- Hassan Nemazee 500,000 $1,125,000 - -------------------------------------------------------------------------------- Houston Venture, Inc. 500,000 $1,125,000 - -------------------------------------------------------------------------------- Total: 1,000,000 $2,250,000 ========= ========== - --------------------------------------------------------------------------------
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