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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 Xxxxx XxXxxx, 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.
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(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
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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
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(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.
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(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 Xx. Xxxxxxx X. Xxxxxxx.
(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.
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(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
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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,
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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]
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The foregoing STOCKHOLDER AGREEMENT is hereby executed as of the
date first above written.
COVALENT PARTNERS: PURCHASERS:
COVALENT PARTNERS, LLC XXXXXX XXXXXXX
By: By:
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Name: Xx. Xxxxxxx X. Xxxxxxx Name:
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Title: Managing Member Title:
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HOUSTON VENTURE, INC.
By:
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Name:
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Title:
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SIGNATURE PAGE TO STOCKHOLDER AGREEMENT
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EXHIBIT A
LIST OF PURCHASERS
AGGREGATE
NAME AND ADDRESS SHARES PURCHASE PRICE
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Xxxxxx Xxxxxxx 500,000 $1,125,000
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Houston Venture, Inc. 500,000 $1,125,000
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Total: 1,000,000 $2,250,000
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