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EXHIBIT 99.5
OPTION AGREEMENT
THIS OPTION AGREEMENT (the "Agreement"), dated as of November 1, 1999,
is entered into by and between XXXXX XXXXXX (the "Stockholder") and COVALENT
PARTNERS, LLC, a Delaware limited liability corporation ("Optionee").
RECITALS:
A. The Stockholder is a stockholder of Covalent Group, Inc., a Nevada
corporation (the "Company"), and owns 6,015,500 shares of the outstanding stock
of the Company, par value $0.001 (the "Company Stock").
B. The Stockholder wishes to provide the Optionee an option to purchase
the Company Stock (the "Option") and the Optionee desires to acquire the Option.
C. The Stockholder and Optionee desire to enter into this Agreement to
set forth the terms and conditions of the Option.
D. As a condition to the willingness of the Optionee to enter into this
Agreement, Optionee has required that Stockholder agree, and in order to induce
Optionee to enter into the Agreement and for other valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Stockholder has agreed
to invite, in his capacity as a member of the Company's Board of Directors (the
"Board") and a stockholder of the Company, Xx. Xxxxxxx X. Xxxxxxx to attend, as
an invited guest and observer, all Board meetings until January 15, 2000.
AGREEMENT:
NOW THEREFORE, in consideration of the foregoing recitals and the
mutual covenants and promises contained herein, the parties hereto agree as
follows:
1. GRANT OF OPTION. Optionee shall have the Option to purchase,
on the terms and subject to the conditions set forth in this Agreement, all or
any part of the Company Stock from the Stockholder at the price of Two Dollars
($2.00) per share (the "Exercise Price") which may be paid by the Optionee to
the Stockholder in cash or by a check. Concurrent with the execution hereof, the
Option shall become exercisable as to all or any portion of the Company Stock.
2. TERM OF OPTION. To the extent the Option has not previously
been exercised, the Option and all of Optionee's rights under this Agreement
shall expire on November 1, 1999 (the "Initial Expiration Date"); provided,
however, that if the Optionee elects to purchase at least 1,000,000 shares of
the Company Stock on or prior to the Initial Expiration Date and 250,000 shares
of the Company Stock on or before November 24, 1999, on the terms and subject to
the conditions set forth in this Agreement, then to the extent the Option has
not previously been exercised, the Option and all of Optionee's rights under
this Agreement with respect to the
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remaining shares of Company Stock shall expire on January 15, 2000 (the "Final
Expiration Date").
3. METHOD OF EXERCISE OF THE OPTION. To exercise the Option or
any portion thereof, Optionee shall deliver to the Stockholder all of the
following: (i) a written notice stating that Optionee elects to exercise the
Option or any portion thereof, setting forth the number of shares of the Company
Stock with respect to which the option is being exercised and (ii) cash or a
check payable to the order of the Stockholder for the full purchase price of the
Company Stock to be purchased upon exercise of the Option. If the Company Stock
remains subject to any security interest, the Stockholder shall forward any such
notice of exercise and payment to the holder of such security interest as
required by the term of any such agreement and as necessary to provide for the
delivery of the shares of Company Stock to Optionee.
4. ESCROW AND STOCK POWER. If the Optionee elects to purchase at
least 1,000,000 shares of the Company Stock on or prior to the Initial
Expiration Date, Stockholder shall deliver (i) all remaining Company Stock to
Xxxxxxx X. Xxxx, as escrow agent in this transaction (the "Escrow Agent"), to
hold in escrow for delivery pursuant to the terms of this Agreement and (ii) a
form of stock assignment separate from certificate executed in blank (with date
and number of shares left blank) in the form attached hereto as EXHIBIT A and
Joint Escrow Instructions duly executed by the Escrow Agent, Stockholder and
Optionee in the form attached hereto as EXHIBIT B and incorporated herein by
this reference.
5. ADJUSTMENTS AND OTHER RIGHTS. If, after the date hereof, the
number of outstanding shares of stock of the Company shall be increased,
decreased or changed into, or exchanged for, a different number or kind of
shares or securities of the Company through reorganization, merger,
recapitalization, reclassification, stock split-up, stock dividend, stock
consolidation or otherwise, an appropriate and proportionate adjustment shall be
made in the number and kind of the Company Stock, as the case may be, covered by
the Option. A corresponding adjustment changing the Exercise Price per share of
the Company Stock, as the case may be, allocated to the unexercised portion of
the Option shall likewise be made. Any such adjustment, however, shall be made
without change in the total price applicable to the unexercised portion of the
Option with respect to the Company Stock, as the case may be.
If the Company proposes to dissolve or to liquidate or proposes to
merge or consolidate with or into any other corporation, or to sell
substantially all of its assets, whether for cash or stock or any other property
or consideration, the Option shall be adjusted so as to apply to the securities
to which a holder of the number of shares of the Company Stock, as the case may
be, subject to the unexercised portion of the Option would have been entitled by
reason of such merger, consolidation or sale if such portion had been exercised
prior to such merger, consolidation or sale.
6. VOTING, BUYBACK AND LIMITATION OF OPTIONEE'S RIGHTS.
(a) Neither Optionee nor any other person entitled to exercise the
Option shall have any of the rights or privileges of a stockholder of the
Company in respect of any of the Company Stock, as the case may be, issuable
upon exercise of the Option unless and until a certificate representing such
shares shall have been issued in the name of Optionee or such
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person. No adjustment will be made for dividends or other rights for which the
record date is prior to the date such stock certificate or certificates are
issued, except for adjustments required or permitted pursuant to Section 4
hereof.
(b) Until the earlier of (i) January 31, 2000 or (ii) the date
Optionee exercises the entire Option, Optionee hereby grants to Stockholder
voting rights on all Company Stock acquired by the Optionee's exercise of any
part of the Option. The grant of voting rights shall terminate immediately prior
to a lawful sale of the Company Stock by the Optionee in the public market
(NASDAQ).
(c) Optionee hereby agrees that after January 15, 2000 Stockholder
has the right to buy back any and all the Company Stock acquired by Optionee's
exercise of the Option at a price of $2.00 per share (the "Buyback Right") if
the Optionee elects to purchase less than the entire Option by the Final
Expiration Date. The Buyback Right shall expire on January 31, 2000. To exercise
the Buyback Right, the stockholder shall deliver to the Optionee, on or prior to
January 31, 2000, a written notice stating that the Stockholder elects to
exercise the Buyback Right. The Buyback Right shall be paid in six equal monthly
payments by check or cash commencing on the date Stockholder gives Optionee
written notice of Stockholders' election to exercise the Buyback Right.
7. BOARD GUEST AND BOARD APPOINTMENT. Until the Final Expiration
Date, the Stockholder, in his capacity as a member of the Board and as a
stockholder of the Company, shall invite Xx. Xxxxxxx X. Xxxxxxx, as an invited
guest and observer, to all Board meetings held prior to January 15, 2000. In the
event that Stockholder fails to exercise the "Buyback Right" pursuant to Section
6 above, the Stockholder shall use his efforts in his capacity as a member of
the Board and as a stockholder of the Company to appoint one (1) additional
member, as designated by Optionee, to the Board (the "Optionee Representative").
At each election of directors in which the holders of Common Stock are entitled
to elect directors of the Company, the Stockholder shall vote all of his Company
Stock so as to elect the Optionee Representative to the Board.
8. RESIGNATION AS CHIEF EXECUTIVE OFFICER, PRESIDENT AND BOARD
MEMBER. Upon the Optionee's exercise of the entire Option on or before the Final
Expiration Date, the Stockholder shall immediately resign on such date of
Optionee's exercise of the entire Option as the Chief Executive Officer,
President and employee of the Company and/or its affiliates and as a member of
the Company's Board.
9. NO-SHOP.
(a) The Stockholder acknowledges and agrees that, until the Final
Expiration Date, the Stockholder will not:
(i) solicit the initiation or submission of any expression of
interest, proposal or offer from any person or entity (other than the Optionee)
relating to a Strategic Transaction (as defined below);
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(ii) participate in any negotiations or enter into any agreement
with, or provide any non-public information to, any person or entity (other than
the Optionee) relating to or in connection with a Strategic Transaction; or
(iii) accept any proposal or offer from any person or entity
(other than the Optionee) relating to a Strategic Transaction.
(b) "Strategic Transaction" shall mean any transaction, other than
an Acquisition Transaction, involving the sale, pledge, grant of an option to
purchase, disposition or acquisition of (A) any capital stock or other equity
security of the Company or any direct or indirect subsidiary of the Company
owned by the Stockholder, (B) any option, call, warrant or right (whether or not
immediately exercisable) to acquire any capital stock or other equity security
of the Company or any direct or indirect subsidiary of the Company owned by the
Stockholder, or (C) any security, instrument or obligation that is or may become
convertible into or exchangeable for any capital stock or other equity security
of the Company or any direct or indirect subsidiary of the Company owned by the
Stockholder. "Acquisition Transaction" shall mean a transaction between the
Company and any third party other than the Optionee involving (A) the sale,
license, disposition or acquisition of all or a material portion of the business
or assets of the Company or any direct or indirect subsidiary or division of the
Company; (B) the issuance, grant, disposition or acquisition of (i) in excess of
25% of the outstanding capital stock or other equity security of the Company or
any direct or indirect subsidiary of the Company, (ii) any option, call, warrant
or right (whether or not immediately exercisable) to acquire in excess of 25% of
the outstanding capital stock or other equity security of the Company or any
direct or indirect subsidiary of the Company, or (iii) any security, instrument
or obligation that is or may become convertible into or exchangeable for in
excess of 25% of the outstanding capital stock or other equity security of the
Company or any direct or indirect subsidiary of the Company; or (C) any merger,
consolidation, business combination, share exchange, reorganization or similar
transaction involving the Company or any direct or indirect subsidiary of the
Company.
(c) The Stockholder shall immediately discontinue any ongoing
discussions or negotiations (other than any ongoing discussions with the
Optionee) relating to a possible Strategic Transaction, and shall promptly
provide the Optionee with an oral and a written description of any expression of
interest, inquiry, proposal or offer relating to a possible Strategic
Transaction that is received by the Stockholder or by any representative of the
Stockholder from any person or entity (other than the Optionee) from the date of
this Agreement until the Final Expiration Date.
10. PAYMENT OF TAXES, FEES, AND OTHER EXPENSES. The Stockholder agrees
to pay any and all original issue taxes and stock transfer taxes that may be
imposed on the issuance of the Company Stock acquired pursuant to exercise of
the Option, together with any and all other fees and expenses necessarily
incurred by the Stockholder in connection therewith.
11. NOTICES. All notices, requests, demands and other communications
under this Agreement must be in writing and shall be deemed to have been duly
given on the date of service if served personally on the party to whom notice is
to be given, or on the date indicated on the return receipt as the date of
receipt or refusal if mailed to the party to whom notice is to be given
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by first class mail, registered or certified, postage prepaid, return receipt
requested, and properly addressed as follows:
To the Stockholder: Xxxxx XxXxxx
The Covalent Group, Inc.
One Glenhardie Corp. Center
0000 Xxxxxxxx Xxxx, Xxxxx 000
Xxxxx, XX 00000
To the Optionee: Covalent Partners, LLC
0000 Xxxx Xxxxx Xxxxx
Xx Xxxxx, XX 00000
Attn: Xx. Xxxxxxx X. Xxxxxxx
With a copy to: Xxxxxx Godward LLP
0000 Xxxxxxxxx Xxxxx, Xxxxx 0000
Xxx Xxxxx, XX 00000
Attn: Xxxxx X. Xxxxxxxx, Esq.
Any party may change its address for the purpose of this Section 9 by
giving the other party written notice of the new address in the manner set forth
above.
12. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
and understanding of the parties with respect to the transactions contemplated
hereby, and supersedes all prior agreements, arrangements and understandings
relating to the subject matter hereof, written or otherwise.
13. AMENDMENT. This Agreement may be amended, modified, superseded or
canceled, and any of the terms, covenants or conditions hereof may be amended,
only by a written instrument executed by the Stockholder and by an authorized
representative of the Optionee which expressly states the intention of the
parties to modify the terms of this Agreement.
14. WAIVER. A waiver of any of the provisions of this Agreement shall
not be deemed, nor shall constitute, a waiver of any other provision, whether or
not similar, nor shall any waiver constitute a continuing waiver. A waiver shall
not be binding unless executed in writing by the party making the waiver.
15. SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be valid and effective under
applicable law. If any provision of this Agreement shall be unlawful, void or
for any reason unenforceable, it shall be deemed separable from, and shall in no
way affect the validity or enforceability of, the remaining provisions of this
Agreement, and the rights and obligations of the parties shall be enforced to
the fullest extent possible.
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16. ATTORNEYS' FEES. In any judicial action or proceeding or any
arbitration proceeding between the parties to enforce any of the provisions of
this Agreement, to seek damages on account of the breach hereof, to seek
injunctive relief to prevent the breach hereof, to seek a judicial determination
of the rights or obligations of any party hereto, or in any judicial action or
proceeding or any arbitration proceeding between the parties in which this
Agreement is raised as a defense, regardless of whether the action or proceeding
is prosecuted to judgment, and in addition to any other remedy, the unsuccessful
party shall pay the successful party all costs and expenses, including
reasonable attorneys' fees, incurred by the successful party.
17. GOVERNING LAW. This letter agreement shall be governed by and
construed in accordance with the laws of the State of California. The parties:
(a) irrevocably and unconditionally consent and submit to the jurisdiction of
the state and federal courts located in the State of California for purposes of
any action, suit or proceeding arising out of or relating to this letter
agreement; (b) agree that service of any process, summons, notice or document by
U.S. mail addressed to the Stockholder or the Optionee at the address set forth
in Section 7 shall be deemed to constitute effective service thereof for
purposes of any action, suit or proceeding arising out of or relating to this
letter agreement; (c) irrevocably and unconditionally waives any objection to
the laying of venue of any action, suit or proceeding arising out of or relating
to this letter agreement in any state or federal court located in San Diego
County in the State of California; and (d) irrevocably and unconditionally waive
the right to plead or claim, and irrevocably and unconditionally agree not to
plead or claim, that any action, suit or proceeding arising out of or relating
to this letter agreement that is brought in any state or federal court located
in San Diego County in the State of California has been brought in an
inconvenient forum.
18. EFFECT OF HEADINGS. The subject headings of this Agreement are
included for convenience only, and shall not affect the construction or
interpretation of any of its provisions.
19. COUNTERPARTS. This Agreement may be executed simultaneously in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the Stockholder and Optionee have caused this
Agreement to be executed as of the date and year first above written.
"STOCKHOLDER" XXXXX XXXXXX
/s/ Xxxxx XxXxxx
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Xxxxx XxXxxx
"OPTIONEE" COVALENT PARTNERS, LLC
/s/ Xx. Xxxxxxx X. Xxxxxxx
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By: Xx. Xxxxxxx X. Xxxxxxx
Title: Manager
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EXHIBIT A
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Option Agreement dated
sells, assigns and transfers unto COVALENT PARTNERS LLC _____________ shares of
common stock of Covalent Group, Inc., a Nevada corporation (the "Company"),
standing in the undersigned's name on the books of said corporation represented
by Certificate No.(s) ______ herewith, and does hereby irrevocably constitute
and appoint the Secretary of the Assignor's attorney to transfer the said stock
on the books of the said corporation with full power of substitution in the
premises.
Dated: November 1, 1999
Signature: /s/ Xxxxx XxXxxx
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XXXXX XXXXXX
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EXHIBIT B
JOINT ESCROW INSTRUCTIONS
Xxxxxxx X. Xxxx
Levy & Levy, P.A.
Suite 309, Plaza 0000
Xxxx Xxxxxx
Xxxxxxxx, Xxx Xxxxxx 00000-0000
Dear Sir or Madam:
As Escrow Agent for both Xxxxx XxXxxx (the "Seller"), the majority stockholder
of Covalent Group, Inc., a Nevada corporation (the "Company"), and the
undersigned purchaser of stock of the Company ("Purchaser"), you are hereby
authorized and directed to hold the documents delivered to you pursuant to the
terms of that certain Option Agreement ("Agreement"), dated November 1, 1999, to
which a copy of these Joint Escrow Instructions is attached as Exhibit B, in
accordance with the following instructions:
1. In the event the Purchaser or an assignee shall elect to exercise
the Option set forth in the Agreement, the Purchaser or its assignee will give
to Seller and you a written notice specifying the number of shares of stock to
be purchased, the purchase price, and the time for a closing hereunder at the
offices of Xxxxxx Godward LLP, 0000 Xxxxxxxxx Xxxxx, Xxxxx 0000, Xxx Xxxxx,
Xxxxxxxxxx 00000. Seller and Purchaser hereby irrevocably authorize and direct
you to close the transaction contemplated by such notice in accordance with the
terms of said notice.
2. At the closing you are directed (a) to date any stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Purchaser against the
simultaneous delivery to you of the purchase price (which may include suitable
acknowledgment of cancellation of indebtedness) of the number of shares of stock
being purchased pursuant to the exercise of the Option.
3. Purchaser irrevocably authorizes the Seller to deposit with you any
certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as specified in the Agreement. Seller
does hereby irrevocably constitute and appoint you as his attorney-in-fact and
agent for the term of this escrow to execute with respect to such securities and
other property all documents of assignment and/or transfer and all stock
certificates necessary or appropriate to make all securities negotiable and
complete any transaction herein contemplated.
4. This escrow shall terminate upon expiration or exercise in full of
the Option, whichever occurs first.
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5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Purchaser,
you shall deliver all of same to Purchaser and shall be discharged of all
further obligations hereunder.
6. Except as otherwise provided in these Joint Escrow Instructions,
your duties hereunder may be altered, amended, modified or revoked only by a
writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as
are specifically set forth herein and may rely and shall be protected in relying
or refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties or
their assignees. You shall not be personally liable for any act you may do or
omit to do hereunder as Escrow Agent or as attorney-in-fact for Seller while
acting in good faith and any act done or omitted by you pursuant to the advice
of your own attorneys shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all
warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law, and are hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case you obey or comply with any such order, judgment or decree of any
court, you shall not be liable to any of the parties hereto or to any other
person, firm or corporation by reason of such compliance, notwithstanding any
such order, judgment or decree being subsequently reversed, modified, annulled,
set aside, vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authority or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under any
statute of limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel (including
without limitation the firm of Xxxxxx Godward LLP) and other experts as you may
deem necessary to properly advise you in connection with your obligations
hereunder, may rely upon the advice of such counsel, and may pay such counsel
reasonable compensation therefor.
12. Your responsibilities as Escrow Agent hereunder shall terminate if
you shall cease to be Secretary of the Seller's attorney or if you shall resign
by written notice to each party. In the event of any such termination, the
Purchaser may appoint any officer or assistant officer of the Purchaser as
successor Escrow Agent and Seller hereby confirms the appointment of such
successor or successors as his attorney-in-fact and agent to the full extent of
your appointment.
13. If you reasonably require other or further instruments in
connection with these Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.
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14. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities, you may (but are not obligated to) retain in your possession without
liability to anyone all or any part of said securities until such dispute shall
have been settled either by mutual written agreement of the parties concerned or
by a final order, decree or judgment of a court of competent jurisdiction after
the time for appeal has expired and no appeal has been perfected, but you shall
be under no duty whatsoever to institute or defend any such proceedings.
15. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in any United States Post Box, by registered or certified mail with
postage and fees prepaid, addressed to each of the other parties hereunto
entitled at the following addresses, or at such other addresses as a party may
designate by five (5) days' written notice to each of the other parties hereto:
PURCHASER: COVALENT PARTNERS, LLC
i/c/o xxxxxxx.xxx, Inc.
0000 Xxxxxxxx Xxxx, Xxxxx 000
Xx Xxxx, XX 00000
Attn: Xx. Xxxxxxx X. Xxxxxxx
SELLER: XXXXX XXXXXX
The Covalent Group, Inc.
One Glenhardie Corp. Center
0000 Xxxxxxxx Xxxx, Xxxxx 000
Xxxxx, XX 00000
ESCROW AGENT: XXXXXXX X. XXXX
Levy & Levy, P.A.
Suite 309, Plaza 0000
Xxxx Xxxxxx
Xxxxxxxx, Xxx Xxxxxx 00000-0000
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16. By signing these Joint Escrow Instructions you become a party
hereto only for the purpose of said Joint Escrow Instructions; you do not become
a party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assigns. It is
understood and agreed that references to "you" or "your" herein refer to the
original Escrow Agent and to any and all successor Escrow Agents. It is
understood and agreed that the Purchaser may at any time or from time to time
assign its rights under the Agreement and these Joint Escrow Instructions in
whole or in part.
Very truly yours,
PURCHASER
Signature: /s/ Xx. Xxxxxxx X. Xxxxxxx
--------------------------------
Printed Name: Xx. Xxxxxxx X. Xxxxxxx
-----------------------------
Title: Manager, Covalent Partners, LLC
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SELLER:
Signature: /s/ Xxxxx XxXxxx
--------------------------------
Xxxxx XxXxxx
ESCROW AGENT:
/s/ Xxxxxxx X. Xxxx
------------------------------------
Xxxxxxx X. Xxxx
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