-----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, OJrylCPdagbzo/XAX7HQSZ1WL+l+IsGF7iC77z0DPaildlvwHstIE4umrv/vx6I5 1LvE6iuvwEfdVDY2L5Xlnw== /in/edgar/work/20000714/0001019687-00-000946/0001019687-00-000946.txt : 20000920 0001019687-00-000946.hdr.sgml : 20000920 ACCESSION NUMBER: 0001019687-00-000946 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 20000714 GROUP MEMBERS: COVALENT PARTNERS LLC GROUP MEMBERS: COVALENT PARTNERS, LLC GROUP MEMBERS: MICHAEL D. CHERMAK GROUP MEMBERS: RICHARD D. PROPPER GROUP MEMBERS: SALMAN J. CHAUDHRY SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: COVALENT GROUP INC CENTRAL INDEX KEY: 0000856569 STANDARD INDUSTRIAL CLASSIFICATION: [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: 672712 BUSINESS ADDRESS: STREET 1: ONE GLENHARDIE CORPORATE CENTER STREET 2: 1275 DRUMMERS LANE STE 100 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: COVALENT PARTNERS LLC CENTRAL INDEX KEY: 0001081278 STANDARD INDUSTRIAL CLASSIFICATION: [ ] IRS NUMBER: 330878998 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: 4350 LA JOLLA VILLAGE DR STREET 2: STE 970 CITY: SAN DIEGO STATE: CA ZIP: 92121 BUSINESS PHONE: 8584537702 MAIL ADDRESS: STREET 1: 4350 LA JOLLA VILLAGE DR STREET 2: STE 970 CITY: SAN DIEGO STATE: CA ZIP: 92121 SC 13D/A 1 0001.txt AMENDMENT NO. 3 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 13D (AMENDMENT NO. 3) 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) JOEL E. HAND, ESQ. COVALENT PARTNERS, LLC 4350 LA JOLLA VILLAGE DRIVE SUITE 970 SAN DIEGO, CALIFORNIA 92122 (858) 558-3443 -------------- (NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS) JULY 13, 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 14 Pages) (Continued on following pages) 1. CUSIP NO. 222815 10 2 13D PAGE 2 OF 13 PAGES --- ------------------ 1 NAME OF REPORTING PERSONS S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS COVALENT PARTNERS, LLC 33-08-78998 ----------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [X] (B) [ ] 3 SEC USE ONLY ------------ 4 SOURCE OF FUNDS WC, 00 ------ 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDING IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ] ------------------ --- 6 CITIZENSHIP OR PLACE OF ORGANIZATION DELAWARE -------- NUMBER 7 SOLE VOTING POWER OF 1,850,009 SHARES BENEFICIALLY 8 SHARED VOTING POWER OWNED BY 6,219,500 REPORTING PERSON 9 SOLE DISPOSITIVE POWER WITH -0- 10 SHARED DISPOSITIVE POWER 1,850,009 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 6,219,500 - SEE ITEM 5 ---------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW 11 EXCLUDES CERTAIN SHARES [X] 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 51.6% - SEE ITEM 5 ----- - ---------- 14 TYPE OF REPORTING PERSON CO ------------------------ -- * 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 March 31, 2000. 2. CUSIP NO. 22815 10 2 13D PAGE 3 OF 13 PAGES --- ------------------ 1 NAME OF REPORTING PERSONS S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS RICHARD D. PROPPER 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [X] (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) [X] ------------------ --- 6 CITIZENSHIP OR PLACE OF ORGANIZATION UNITED STATES ------------- NUMBER 7 SOLE VOTING POWER OF 1,150,600 SHARES BENEFICIALLY 8 SHARED VOTING POWER OWNED BY 6,219,500 REPORTING PERSON 9 SOLE DISPOSITIVE POWER WITH 1,150,600 10 SHARED DISPOSITIVE POWER 1,850,009 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 6,666,100 - SEE ITEM 5 --------- ---------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW 11 EXCLUDES CERTAIN SHARES [X] 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 55.27% - SEE ITEM 5 ------ ---------- 14 TYPE OF REPORTING PERSON IN ------------------------ -- * Calculated pursuant to Rule 13d-3 of the Securities Exchange Act of 1934, as amended. Includes any rights to acquire beneficial ownership of securities of the Issuer within 60 days of the date of the filing of this Schedule 13D. ** Based upon 12,059,693 shares of Common Stock issued and outstanding as reported on the Issuer's Quarterly Report filed on Form 10-QSB for the quarter ended March 31, 2000.3. 3. CUSIP NO. 22815 10 2 13D PAGE 4 OF 13 PAGES --- ------------------ 1 NAME OF REPORTING PERSONS S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS MICHAEL D. CHERMAK 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [X] (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 7 SOLE VOTING POWER OF 446,241 SHARES BENEFICIALLY 8 SHARED VOTING POWER OWNED BY 6,219,500 REPORTING PERSON 9 SOLE DISPOSITIVE POWER WITH 446,241 ---- 10 SHARED DISPOSITIVE POWER 1,850,009 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 6,275,000 - SEE ITEM 5 --------- ---------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW 11 EXCLUDES CERTAIN SHARES [X] 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 52% - SEE ITEM 5 --- ---------- 14 TYPE OF REPORTING PERSON IN ------------------------ -- * Calculated pursuant to Rule 13d-3 of the Securities Exchange Act of 1934, as amended. Includes any rights to acquire beneficial ownership of securities of the Issuer within 60 days of the date of the filing of this Schedule 13D. ** Based upon 12,059,693 shares of Common Stock issued and outstanding as reported on the Issuer's Quarterly Report filed on Form 10-QSB for the quarter ended March 31, 2000. 4. CUSIP NO. 22815 10 2 13D PAGE 5 OF 13 PAGES --- ------------------ 1 NAME OF REPORTING PERSONS S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS SALMAN J. CHAUDHRY 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [X] (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 PAKISTAN -------- 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- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 16,700 - SEE ITEM 5 ------ ---------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW 11 EXCLUDES CERTAIN SHARES [X] 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) LESS THAN 1% - SEE ITEM 5 --------------- 14 TYPE OF REPORTING PERSON IN ------------------------ -- * Calculated pursuant to Rule 13d-3 of the Securities Exchange Act of 1934, as amended. Includes any rights to acquire beneficial ownership of securities of the Issuer within 60 days of the date of the filing of this Schedule 13D. ** Based upon 12,059,693 shares of Common Stock issued and outstanding as reported on the Issuer's Quarterly Report filed on Form 10-QSB for the quarter ended March 31, 2000. 5. This Amendment No. 3 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, and Amendment No. 2 to Schedule 13D filed on January 26, 2000. 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 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") (collectively, the "Reporting Persons"). Covalent Partners is principally in the business of acquiring equity securities of the Issuer, including without limitation, the right to vote and dispose of such securities. (b)-(c)Set forth in Schedule I to this Schedule 13D is information concerning the Reporting Persons as required to be disclosed in response to this Item 2. (d) To the best knowledge of the Reporting Persons, during the last five years, there have been no criminal proceedings against the Reporting Persons. (e) On June 24, 1996, the SEC initiated an administrative proceeding against Propper and others alleging that Propper violated Sections 13(d), 13(g) and 16(a) of the Securities Exchange Act of 1934, as amended ("Exchange Act"), and Rules 13d-1, 13d-2; 16a-2, 16a-3 and former Rule 16a-1 promulgated thereunder, by untimely filing Schedules 13D and 13G, and Forms 3, 4 and 5 with respect to certain transactions relating to the beneficial ownership of securities held by Montgomery Medical Ventures, L.P., Montgomery Medical Ventures II, L.P., Montgomery Medical Partners, L.P. and Montgomery Medical Partners II, L.P. The Commission accepted an offer of settlement submitted by Propper whereby Propper agreed to the Commission's order to cease and desist from committing or causing any violation or future violation of, Sections 13(d), 13(g) and 16(a) of the Exchange Act and Rules 13d-1, 13d-2, 16a-2 and 16a-3 promulgated thereunder. 6. 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. 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 were 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 were 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, 446,600 shares of Common Stock of the Issuer in open market transactions for an aggregate approximate amount of $1,237,343. 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. ITEM 4. PURPOSE OF THE TRANSACTION The July 13, 2000 transaction that is the subject of the third amendment of this Form 13D relates to the transfer of shares from Covalent Partners, LLC to certain Lenders previously identified in prior filings of this 13D. Covalent Partners has transferred additional shares (as identified below) to certain of the Lenders based upon a feature of their agreement with Covalent Partners that if a private transaction by which those lenders could recover the entire amount of their investment yet retain a substantial portion of their stock (roughly 50%) did not occur by a certain date, these Lenders would receive an additional number of shares that would reduce the effective purchase price of the stock that they had acquired from $3 per share down to $2.68. The amounts are David H. Smith 4,975 Interim Advantage 1,990 Contra VC, LLC 1,990 Bedford Oak Partners 71,642 Montpellier International LDC 14,328 Maxwell H. Gluck Foundation 11,940 Emerald International 4,179 US Equity Portfolio LP 2,985 United Congregation Mesorah 2,388 In addition to these above distributions, Propper and Chermak are members of Covalent Partners; the shares being transferred to Propper and Chermak represent a partial, prorata distribution of their membership interest. Richard Propper 704,000 Michael Chermak 390,741 Total distributions 1,211,158 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. 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 was required to 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. 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 March 31, 2000, 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 STOCK BENEFICIALLY PERCENTAGE OF CLASS INVESTOR RULE 13D-5(b)(1)) OWNED BENEFICIALLY OWNED -------- ----------------- ----- ------------------ Covalent Partners, LLC 6,219,500 6,219,500 51.6% Richard D. Propper 1,150,600 6,666,100 55.27% Michael D. Chermak 446,241 6,275,000 52.03% Salman J. Chaudhry 16,700 16,700 Less than 1%
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 1,150,600 shares of Common Stock of the Issuer beneficially owned by Propper, 446,241 shares beneficially owned by Chermak and 16,700 shares beneficially owned by Chaudhry; Propper disclaims beneficial ownership of 446,241 shares of Common Stock of the Issuer beneficially owned by Chermak and 16,700 shares held by Chaudhry; Chermak disclaims beneficial ownership of 1,150,600 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, 6,666,100 shares beneficially owned by Propper and 6,275,000 shares beneficially owned by Chermak. Propper has sole voting and dispositive power with respect to 1,150,600 shares of Common Stock of the Issuer. Chermak has sole voting and dispositive power with respect to 446,241 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 1,850,009 shares of Common Stock of the Issuer and shares dispositive power with its managing members with respect to 1,850,009 shares of Common Stock of the Issuer. 10. Pursuant to Section 6(b) of the Option Agreement, until the earlier of (i) January 31, 2000 or (ii) the date Covalent Partners exercises the Option in full, Covalent Partners agreed to grant voting rights to LaMont with respect to all of the shares of Common Stock of the Issuer purchased by Covalent Partners, including 1,250,000 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 terminates with respect to any shares being sold immediately prior to the lawful sale of such 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 individuals 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 within the last 60 days. All such transactions were made for cash in open market transactions. 11. (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 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 consideration of the above, Covalent Partners agreed to grant an option to Borow to acquire from Covalent Partners 460,000 shares of the Issuer's Common Stock at a price of $2.00 per share 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 Issuer 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. ITEM 7. MATERIAL TO BE FILED AS EXHIBITS *99.1 Promissory Note dated October 29, 1999 by and between Michael D. Chermak and Covalent Partners, LLC. *99.2 Promissory Note dated October 29, 1999 by and between Richard D. Propper and Covalent Partners, LLC. *99.3 Business Loan Agreement dated October 26, 1999 by and between Richard D. Propper and California Bank & Trust. *99.4 No-Shop Agreement dated September 1, 1999 by and between Bruce LaMont and RP Associates, LLC. *99.5 Option Agreement dated November 1, 1999 by and between Bruce LaMont and Covalent Partners, LLC. *99.6 Form of Employment Agreement to be entered into by and between Kenneth M. Borow and the Issuer. *99.7 Letter Agreement dated November 1, 1999 by and between Kenneth M. Borow and Covalent Partners, LLC. 99.8 Form of Promissory Note. 99.9 Form of Stockholder Agreement. * Previously filed by the Reporting Persons. 13. 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. DATED: July 13, 2000 COVALENT PARTNERS, LLC, a Delaware limited liability company BY: /S/ RICHARD D. PROPPER --------------------------- Dr. Richard D. Propper Managing Member /S/ RICHARD D. PROPPER, M.D --------------------------- RICHARD D. PROPPER /S/ MICHAEL D. CHERMAK ---------------------- MICHAEL D. CHERMAK /S/ SALMAN J. CHAUDHRY ---------------------- SALMAN J. CHAUDHRY 14. SCHEDULE I REPORTING PERSONS, CONTROLLING MEMBERS AND MANAGERS OF COVALENT PARTNERS, LLC
NAME AND BUSINESS ADDRESS PRINCIPAL OCCUPATION OR EMPLOYMENT ---------------------------------- 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 4350 La Jolla Village Drive, Suite 970 San Diego, CA 92122 Michael D. Chermak Member and Manager of Covalent Partners, LLC 4350 La Jolla Village Drive, Suite 970 San Diego, CA 92122 Salman Chaudhry Financial Consultant 4350 La Jolla Village Drive, Suite 970 San Diego, CA 92122
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, 23639 Hawthorne Boulevard Cyberoffice.com, Inc. Torrance, CA 90505 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. SCHEDULE III
AMOUNT OF DATE OF THE COMMON STOCK INVESTOR TRANSACTION OF ISSUER PRICE PER SHARE ($) TYPE OF TRADE BROKER ----------- --------- ------------------- ------------- ------ Propper 04/12/00 1,000 5.3800 Purchase BOA** 04/13/00 2,000 5.00 Purchase BOA 04/14/00 9,000 4.8600 Purchase BOA 04/18/00 3,900 4.25 Purchase BOA 04/20/00 3,000 3.560 Purchase BOA 04/24/00 2,500 3.88000 Purchase BOA 04/26/00 2,000 4.13000 Purchase BOA 05/02/00 1,000 4.68750 Purchase RJ 05/10/00 900 4.41666 Purchase RJ 05/19/00 3,000 4.15420 Purchase BOA 05/22/00 2,000 4.12500 Purchase BOA 05/24/00 1,000 4.00000 Purchase BOA 05/25/00 2,000 3.75000 Purchase BLC 05/26/00 2,000 4.03133 Purchase BOA 06/02/00 5,500 4.82840 Purchase BOA 06/30/00 900 4.43750 Purchase BOA
* Balis, Lewittes & Coleman Inc. ("BLC") ** Bank of America ("BOA") *** Raymond James ("RJ") 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. July 13, 2000 COVALENT PARTNERS, LLC, a Delaware limited liability company BY: /S/ RICHARD D. PROPPER M.D --------------------------- Dr. Richard D. Propper Managing Member /S/ RICHARD D. PROPPER M.D. ---------------------------- RICHARD D. PROPPER /S/ MICHAEL D. CHERMAK ---------------------------- MICHAEL D. CHERMAK /S/ SALMAN J.CHAUDHRY ---------------------------- SALMAN J. CHAUDHRY EXHIBIT INDEX EXHIBIT DESCRIPTION OF DOCUMENT - ------- ----------------------- *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. * Previously filed by the Reporting Persons EX-99.8 2 0002.txt FORM OF PROMISSORY NOTE 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 secured by a pledge of ___________ (______) shares of Common Stock of Covalent Group, Inc. held by the undersigned. 1. 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. EX-99.9 3 0003.txt FORM OF STOCKHOLDER AGREEMENT 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. (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. 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. (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 the Purchaser shall inform the party 1. 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 them, free and clear of all liens, security interests, pledges, charges, encumbrances, stockholders' agreements and voting trusts. 5. (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. 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 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." 7. (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 retroactively or prospectively), only by the written consent of (i) Covalent Partners and (ii) the Purchaser. 8. (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 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. 9. (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. 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 EXHIBIT A LIST OF PURCHASERS 2. -----END PRIVACY-ENHANCED MESSAGE-----