SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant To Section 14(a)
of the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only
(as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Under Rule 14a-12
COVALENT GROUP, INC.
(Name Of Registrant As Specified In Its Charter)
(Name Of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials:
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
COVALENT GROUP, INC.
One Glenhardie Corporate Center, Suite 100
1275 Drummers Lane
Wayne, PA 19087
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 4, 2002
To the Stockholders of
Covalent Group, Inc.:
The Annual Meeting of Stockholders (the "Meeting") of Covalent Group, Inc.
(the "Company") will be held at the Wyndham Valley Forge Hotel, 888
Chesterbrook Boulevard, Wayne, PA 19087 on June 4, 2002, at 1:00 p.m. to
consider proposals:
1. To elect five directors for the ensuing year;
2. To approve and adopt an Agreement and Plan of Merger providing for the
merger of the Company into its wholly-owned subsidiary, Covalent Group
(Delaware), Inc., a Delaware corporation, for the purpose of changing
the Company's state of incorporation from Nevada to Delaware;
3. To approve and adopt an amendment to the Company's Certificate of
Incorporation to authorize 250,000 shares of preferred stock;
4. To approve and adopt the Company's 2002 Equity Incentive Plan;
5. To ratify the selection of Deloitte & Touche LLP as the Company's
independent public accountants for the year ending December 31, 2002;
and
6. To transact any other business as may properly be brought before the
Meeting.
Any action may be taken on the foregoing matters at the Meeting on the date
specified above, or on any date or dates to which the Meeting may be adjourned.
The Board of Directors has fixed the close of business on April 22, 2002 as
the record date for determining the stockholders entitled to notice of and to
vote at the Meeting and at any adjournments or postponements thereof. Only
stockholders of record of the Company's Common Stock at the close of business
on that date will be entitled to notice of and to vote at the Meeting and at
any adjournments or postponements thereof.
Your attention is directed to the accompanying Proxy Statement for the text
of the resolutions to be proposed at the Meeting and further information
regarding each proposal to be made. A copy of the Company's Annual Report to
Stockholders for the year ended December 31, 2001 is enclosed herewith.
STOCKHOLDERS UNABLE TO ATTEND THE MEETING IN PERSON ARE ASKED TO VOTE, SIGN,
DATE AND RETURN PROMPTLY THE ENCLOSED PROXY IN THE ENCLOSED SELF-ADDRESSED
ENVELOPE, WHICH DOES NOT REQUIRE ANY POSTAGE IF MAILED IN THE UNITED STATES.
By order of the Board of Directors
/s/ David Weitz
_____________________________________
David Weitz,
Secretary
May 6, 2002
Wayne, Pennsylvania
COVALENT GROUP, INC.
One Glenhardie Corporate Center, Suite 100
1275 Drummers Lane
Wayne, PA 19087
----------------
PROXY STATEMENT
----------------
General
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors (the "Board") of Covalent Group, Inc., a Nevada corporation
(the "Company"), of proxies, in the enclosed form, for use in voting at the
Annual Meeting of Stockholders (the "Meeting") to be held on June 4, 2002 at
1:00 p.m. at the Wyndham Valley Forge Hotel, 888 Chesterbrook Boulevard, PA
19087 and any adjournments or postponements thereof.
This Proxy Statement, the enclosed proxy card and the Company's Annual
Report to Stockholders for the year ended December 31, 2001, including
financial statements, are being mailed on or about May 6, 2002 to stockholders
entitled to vote at the meeting.
Revocability of Proxies
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Secretary of the
Company a written notice of revocation or a duly executed proxy bearing a later
date, or by attending the Meeting and voting in person.
Record Date; Voting Securities
Stockholders of record as of the close of business on April 22, 2002 (the
"Record Date") will be entitled to vote at the Meeting and any adjournment
thereof. As of the Record Date, 12,610,370 shares of Common Stock of the
Company were outstanding.
Voting and Solicitation
Each outstanding share of Common Stock on the Record Date is entitled to one
vote on all matters. Shares of Common Stock may not be voted cumulatively.
Votes cast by proxy or in person at the Meeting will be tabulated by the
Inspector of Election (the "Inspector") with the assistance of the Company's
transfer agent. The Inspector will also determine whether or not a quorum is
present. Under the Company's Bylaws, the holders of fifty percent (50%) of the
voting power of the outstanding shares of capital stock of the Company entitled
to vote at the Meeting shall constitute a quorum. Stockholders holding shares
of capital stock of the Company who are present in person or represented by
proxy (including stockholders who abstain from voting their shares or who do
not vote with respect to one or more of the matters presented for stockholder
approval) will be counted for purposes of determining whether a quorum is
present.
The nominees for election as directors at the Meeting will be elected by a
plurality of the votes of the shares of Common Stock present in person or
represented by proxy at the Meeting. Proposals 2 and 3, to adopt and approve an
Agreement of Merger providing for the merger of the Company into its wholly-
owned subsidiary for the purpose of changing the Company's state of
incorporation from Nevada to Delaware and to approve an amendment of the
Company's Certificate of Incorporation to authorize 250,000 shares of preferred
stock, require the affirmative vote of a majority of the outstanding stock
entitled to vote on each such proposal to be approved. All other matters
submitted to the stockholders will require the affirmative vote of a majority
of
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the shares of capital stock having voting power present in person or
represented by proxy at a duly held meeting, at which a quorum is present.
Stockholders who abstain from voting as to a particular matter will not be
counted as votes in favor of that matter. Accordingly, abstentions will have
the effect of a "NO" vote on any matter submitted to the stockholders.
If a broker indicates on the enclosed proxy or its substitute that it does
not have discretionary authority as to certain shares to vote on a particular
matter ("broker non-votes"), those shares will not be considered as present
with respect to that matter and will have the same effect as negative votes
with respect to Proposals 2 and 3.
Other Matters
The Board does not intend to bring any matters before the Meeting other than
as stated in this Proxy Statement, and is not aware that any other matters will
be presented for action at the Meeting. If any other matters come before the
Meeting, the persons named in the enclosed form of proxy will vote the proxy
with respect thereto in accordance with their best judgment, pursuant to the
discretionary authority granted by the proxy.
All properly executed proxies delivered pursuant to this solicitation and
not revoked will be voted at the Meeting in accordance with the directions
given. In voting by proxy in regard to the election of five Directors to serve
until the 2002 Annual Meeting of Stockholders, stockholders may vote in favor
of all nominees or withhold their votes as to all nominees or withhold their
votes as to specific nominees. With respect to other items to be voted upon,
stockholders may vote in favor of the item or against the item or may abstain
from voting. Stockholders should specify their choices on the enclosed proxy
card. If no specific instructions are given with respect to the matters to be
acted upon, and the proxy is returned properly executed, the shares represented
by the proxy will be voted FOR all the nominees identified below under
"Proposal 1--Election of Directors," FOR the approval of the Agreement and Plan
of Merger effecting the change in the Company's state of incorporation from
Nevada to Delaware, FOR the approval of the amendment to the Company's
Certificate of Incorporation authorizing 250,000 shares of preferred stock, FOR
the approval of the Company's 2002 Equity Incentive Plan, and FOR the
ratification of the selection of accountants identified below under "Proposal
5--Ratification of Accountants."
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of April 22, 2002 certain information
with regard to beneficial ownership of outstanding shares of the Company's
Common Stock by (i) each director and Named Executive Officer individually,
(ii) all executive officers and directors of the Company as a group, and (iii)
each person known by the Company to beneficially own five percent or more of
the outstanding shares of the Company's Common Stock:
Percentage of
Name and Address of Beneficial Owner(1)(2) Shares Outstanding
- ------------------------------------------ --------- -------------
Kenneth M. Borow, M.D........................... 1,476,389(3) 11.7%
Earl M. Collier, Jr. ........................... 15,000(3) *
Genzyme Corporation
One Kendall Square
Cambridge, MA 02139
Scott M. Jenkins................................ 41,250(3) *
c/o S.M. Jenkins & Co.
One Tower Bridge
100 Front Street, Suite 1410
West Conshohocken, PA 19428
Thomas E. Hodapp................................ 550,951(3) 4.4%
254 Glen Drive
Sausalito, CA 94965
Brian M. Dickson, M.D........................... 20,000(3) *
Joseph A. Delikat............................... 62,600(3)(4) *
John D. Hall, MB., ChB.......................... 27,500(3) *
Catherine G. Spear.............................. 22,000(3) *
James J. Cappola, M.D., Ph.D. .................. -- (5) *
1105 Greystone Drive
Ambler, PA 19002
All current executive officers and directors as
a group (eight persons)........................ 2,215,690(6) 17.6%
Richard D. Propper, M.D......................... 1,185,919(7) 9.4%
4350 LaJolla Village Dr., Suite 970
San Diego, CA 92121
Hassan Nemazee.................................. 1,031,105(8) 8.2%
777 Park Avenue
New York, NY 10021
Houston Ventures, Inc........................... 1,000,000(9) 7.9%
720 Fifth Avenue
New York, NY 10019
Townsend Group Investments, Inc................. 646,480(10) 5.1%
22601 Pacific Coast Hwy.
Suite 200
Malibu, CA 90265
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- --------
* Less than 1% of the outstanding Common Stock.
(1) Unless otherwise noted, the Company believes that all persons have sole
voting and investment power with respect to all shares of Common Stock
beneficially owned by them.
(2) Unless otherwise noted, the address shall be as follows: c/o Covalent
Group, Inc., One Glenhardie Corporate Center, 1275 Drummers Lane, Wayne,
PA 19087.
(3) The amounts shown include shares of Common Stock which may be acquired
currently or within 60 days of April 22, 2002 through the exercise of
stock options, as follows: Dr. Borow, 908,889 shares; Mr. Collier, 15,000
shares; Mr. Jenkins, 41,250 shares; Mr. Hodapp, 41,250 shares; Dr.
Dickson, 20,000 shares; Mr. Delikat, 44,700 shares; Dr. Hall, 27,500
shares; and Ms. Spear, 22,000 shares.
(4) Includes 500 shares of Common Stock held by Mr. Delikat's spouse.
(5) Dr. Cappola resigned on November 26, 2001 and his vested options expired
on February 24, 2002.
(6) Includes an aggregate 1,120,589 shares of Common Stock subject to stock
options exercisable currently or within 60 days of April 22, 2002,
including the options described in note 3 above.
(7) As per the Schedule 13G filed by Richard Proper on August 29, 2000.
(8) As per the Schedule 13G filed by Hassan Nemazee on February 2, 2000,
includes 500,000 shares of Common Stock owned by Houston Ventures, Inc.
as to which Hassan Nemazee has joint power, as well as 31,105 shares held
by Mr. Nemazee's children.
(9) As per the Schedule 13G filed by Houston Ventures, Inc. on February 2,
2000, includes beneficial ownership of 500,000 shares of Common Stock
otherwise beneficially owned by Hassan Nemazee.
(10) As per the Schedule 13G filed by Townsend Group Investments, Inc. on
February 1, 2002. Townsend Group Investments, Inc. reports sole
voting/dispositive power for 64,000 shares and shared voting/dispositive
power for 582,480 shares.
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PROPOSAL 1--ELECTION OF DIRECTORS
Five directors are to be elected at the Meeting, each to serve until the
next annual meeting and until his or her successor shall have been elected and
qualified. Four of the nominees named below are presently members of the Board
of Directors. In case any of the nominees should become unavailable for
election, for any reason not presently known or contemplated, the persons named
on the proxy card will have discretionary authority to vote pursuant to the
proxy for a substitute.
Director
Name Age Since Principal Occupation
- ---- --- -------- --------------------
Kenneth M. Borow, M.D... 54 1998 Chief Executive Officer and President of
the Company
Earl M. Collier, Jr..... 54 2002 Executive Vice President, Genzyme
Corporation and President, Genzyme
Biosurgery
Thomas E. Hodapp........ 42 2001 President, Access Capital Management
Scott M. Jenkins........ 47 2001 President of S.M. Jenkins & Co, General
Partner, Jenkins Partners, L.P.
Brian M. Dickson, M.D... 51 Chief Operating Officer and Chief Medical
Officer of the Company
Kenneth M. Borow, M.D., Chief Executive Officer, President and Director,
joined the Company in 1997. For the previous four years, Dr. Borow was Senior
Director, Medical Research Associates Department, Merck Research Laboratories
where he directed clinical research operations for 163 different protocols, and
developed a Merck-based contract group consisting of field monitors, data
coordinators and statisticians. Previously, he was a Professor of Medicine and
Pediatrics at the University of Chicago, and originator of a worldwide clinical
research program in cardiac function which included investigative sites in the
United States, United Kingdom, Norway, Israel and South Africa. Dr. Borow
graduated from the Temple Medical School in 1974. Dr. Borow is a Harvard-
trained Internist, Pediatrician, Adult Cardiologist and Pediatric Cardiologist.
Earl M. Collier, Jr., Director, was appointed a Director in March 2002. Mr.
Collier is currently Executive Vice President, Genzyme Corporation and
President, Genzyme Biosurgery. Prior to joining Genzyme in 1997, Mr. Collier
was President of Vitas Healthcare Corporation, the largest provider of hospice
services in the United States. Previously, Mr. Collier was a partner with the
Washington, D.C. based law firm of Hogan and Hartson. He also served as Deputy
Administrator for the Health Care Financing Administration during the Carter
Administration. Mr. Collier earned a B.A. at Yale University and a J.D. at the
University of Virginia Law School.
Thomas E. Hodapp, Director, was appointed a Director in October 2001. He is
currently President of Access Capital Management, a financial advisory and
investment management firm providing financial and strategic advisory services
to both private and leading healthcare service, information technology and life
science companies. From 1992 to 1999, he was a Managing Director and Senior
Healthcare Research Analyst at Robertson Stephens & Company, LLC, where he
oversaw research for the managed care, practice management and healthcare
information services industries. Previously, from 1988 to 1992, he was with
Montgomery Medical Ventures, a $140 million venture capital partnership with
private investments in approximately 40 early stage healthcare service, medical
device and biotechnology companies. Mr. Hodapp currently maintains a number of
board positions, including Proxymed, Inc., a publicly traded healthcare
information technology company.
Scott M. Jenkins, Director, was appointed a Director in October 2001. He is
currently President of S. M. Jenkins & Co., which he founded in 1991. S. M.
Jenkins & Co. provides a wide range of financial and consulting services to
private companies, wealthy family groups and a variety of businesses. In
addition, Mr. Jenkins is the General Partner of Jenkins Partners, L.P., which
has invested in many early stage, private and
5
public companies. Prior to founding S. M. Jenkins & Co., Mr. Jenkins was with
Goldman Sachs & Co., where he worked from 1984 until 1990 when he joined First
Boston Corporation. Mr. Jenkins has also served in the not-for-profit
healthcare sector as the Chair of the Board of Trustees of the Presbyterian
Medical Center of Philadelphia Foundation, which is now part of the University
of Pennsylvania Health System.
Brian M. Dickson, M.D., was appointed Chief Operating Officer and Chief
Medical Officer of the Company in November 2001 and is nominated for Director.
Dr. Dickson has more than 22 years of pharmaceutical industry experience in
Research and Development, including senior responsibilities at SmithKline &
French, G.D. Searle Pharmaceuticals, Warner Lambert/Parke Davis
Pharmaceuticals, and most recently Celltech plc., where he was Executive Vice
President for Worldwide Clinical Development.
Meetings of the Board of Directors
The Board held eight meetings during 2001. There was no director who, during
the last full fiscal year, attended in person or by phone fewer than 75% of
Board or committee meetings while such person was a director. Messrs. Hodapp
and Jenkins joined the Company's Board in November 2001. Mr. Collier joined the
Company's Board in March 2002.
Committees of the Board
The Board has a Compensation Committee and an Audit Committee.
Compensation Committee
The Compensation Committee reviews and approves salaries for corporate
officers and reviews, approves and administers the Company's stock option plans
and grants thereunder. The Compensation Committee did not meet in 2001. The
Compensation Committee is presently composed of two non-employee directors,
Earl M. Collier, Jr. and Scott M. Jenkins, both of whom were appointed to the
Compensation Committee in March 2002.
Audit Committee
The Audit Committee recommends the engagement of the firm of certified
public accountants to audit the financial statements of the Company and
monitors the effectiveness of the audit effort, the Company's financial and
accounting organization and its system of internal accounting controls. The
Audit Committee met one time in 2001. The Compensation Committee is presently
composed of two non-employee directors, Thomas E. Hodapp and Scott M. Jenkins,
both of whom were appointed to the Audit Committee in November 2001.
THE FOLLOWING REPORT OF THE AUDIT COMMITTEE SHALL NOT BE DEEMED
INCORPORATED BY REFERENCE BY ANY GENERAL STATEMENT INCORPORATING BY
REFERENCE THIS PROXY STATEMENT INTO ANY FILING UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED,
EXCEPT TO THE EXTENT THAT THE COMPANY SPECIFICALLY INCORPORATES THIS
INFORMATION BY REFERENCE. THE FOLLOWING REPORT SHALL NOT OTHERWISE BE
DEEMED FILED UNDER SUCH ACTS.
REPORT OF THE
AUDIT COMMITTEE
The Audit Committee of the Board is currently composed of two non-employee
directors, Thomas E. Hodapp and Scott M. Jenkins, who were appointed in
November 2001. The Board, in its business judgment, has determined that all
members of the committee are "independent," as required by applicable listing
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standards of the Nasdaq National Market. The Committee operates pursuant to a
charter that was adopted by the Board on March 16, 2000, a copy of which was
attached to the Proxy Statement dated April 30, 2001. The role of the Audit
Committee is to assist the Board in its oversight of the Company's financial
reporting process. Management of the Company is responsible for the
preparation, presentation and integrity of the Company's financial statements,
the Company's accounting and financial reporting principles and internal
controls and procedures designed to assure compliance with accounting standards
and applicable laws and regulations. The independent auditors are responsible
for auditing the company's financial statements and expressing an opinion as to
their conformity with generally accepted accounting principles.
In the performance of its oversight function, the Audit Committee has
considered and discussed the audited financial statements for the year ended
December 31, 2001 with management and the independent auditors. The Audit
Committee has also discussed with the independent auditors the matters required
to be discussed by Statement on Auditing Standards No. 61, Communication with
Audit Committees, as currently in effect. Finally, the Audit Committee has
received the written disclosures and the letter from the independent auditors
required by Independence Standards Board Standard No. 1, Independence
Discussions with Audit Committees, as currently in effect, and has considered
whether the provision of non-audit services by the independent auditors to the
Company is compatible with maintaining the auditor's independence and has
discussed with the auditors the auditors' independence.
The members of the Audit Committee are not professionally engaged in the
practice of auditing or accounting and are not experts in the fields of
accounting or auditing, including in respect of auditor independence. Members
of the Audit Committee rely without independent verification on the information
provided to them and on the representations made by management and the
independent accountants. Accordingly, the Audit Committee's oversight does not
provide an independent basis to determine that management has maintained
appropriate accounting and financial reporting principles or appropriate
internal controls and procedures designed to assure compliance with accounting
standards and applicable laws and regulations. Furthermore, the Audit
Committee's considerations and discussions referred to above do not assure that
the audit of the Company's financial statements has been carried out in
accordance with generally accepted auditing standards, that the financial
statements are presented in accordance with generally accepted accounting
principles or that the Company's auditors are in fact "independent".
Based upon the reports and discussions described in this report, and subject
to the limitations on the role and responsibilities of the committee referred
to above and in the charter, the Audit Committee recommended to the Board that
the audited financial statements be included in the Company's annual report on
Form 10-KSB for the year ended December 31, 2001 to be filed with the
Securities and Exchange Commission.
MEMBERS OF THE AUDIT COMMITTEE
THOMAS E. HODAPP
SCOTT M. JENKINS
Director's Remuneration
Non-employee directors receive $50,000 per year for their service as
directors paid at the rate of $4,167 per month, and are reimbursed for
reasonable expenses incurred in connection with attendance at meetings of the
Board. In addition, if the number of Board meetings during the year exceeds
eight, the non-employee directors will receive cash payments for each
additional meeting ranging from $250 to $1,000, depending on the length of such
additional meeting. Non-employee directors who are members of the Audit
Committee receive a yearly option grant to purchase 82,500 shares of Common
Stock. All other non-employee directors receive a yearly grant to purchase
60,000 shares of Common Stock. The annual option grants vest quarterly, with
the first 25% vesting on the 90th day from the date such grant was made.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR"
ALL OF THE NOMINEES FOR DIRECTOR LISTED ABOVE
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Executive Officers
Executive officers serve at the discretion of the Board and serve until
their successors have been duly elected and qualified or until their earlier
resignation or removal. The current executive officers of the Company are as
follows:
Name Age Position(s) Held With Company
- ---- --- -----------------------------
Kenneth M. Borow, M.D........... 54 Chief Executive Officer, President,
Director
Brian M. Dickson, M.D........... 51 Chief Operating Officer, Chief Medical
Officer
Catherine G. Spear.............. 41 Vice President Global Business Development
and Strategic Marketing
John Hall, MB, ChB.............. 54 Vice President Clinical Operations and
Managing Director, Europe
Joseph A. Delikat............... 55 Principal Accounting Officer
Kenneth M. Borow, M.D., was appointed Chief Executive Officer of the Company
in January 2000. Please see "Election of Directors" on page 5 for a description
of the biography of Dr. Borow.
Brian M. Dickson, M.D., was appointed Chief Operating Officer and Chief
Medical Officer of the Company in November 2001. Please see "Election of
Directors" on page 6 for a description of the biography of Dr. Dickson.
Catherine G. Spear, Vice President Global Business Development and Strategic
Marketing, joined the Company in December 2000. Previously, she spent eight
years in Marketing at Wyeth; devoting her last eighteen months to leading the
e-business operation for Wyeth, North America. Ms. Spear's other healthcare
industry experience includes management positions with Merck & Co., Inc. and
AdvaCare, Inc.
John Hall, MB., ChB., was appointed Vice President Clinical Operations and
Managing Director, Europe of the Company in November 2000. Prior to joining the
Company, Dr. Hall provided consultant services to Covalent Group, Inc., as well
as major pharmaceutical companies and other clients. He has guided several
premier European bio-pharmaceutical companies through Mutual Recognition
Procedures for new chemical entities (NCEs). From 1987 to 1995, he was Medical
Director for Glaxo UK and oversaw the launch of several products. From 1983 to
1987, he served as Deputy Medical Director for Lilly Industries UK LTD and was
responsible for research, medical and commercial support for CNS, respiratory,
and anti-infective products.
Joseph A. Delikat, Principal Accounting Officer, joined the Company in 1997.
He has over 25 years of diverse domestic and international financial management
experience. From 1989 to September 1997, he was Corporate Controller and
Officer for Scott Specialty Gases, Inc., a manufacturer of calibration and
medical gases. Previously, he was employed by Graphco American Charts and Leeds
& Northrup Co.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors to file initial reports of ownership and
reports of change of ownership with the Securities and Exchange Commission (the
"SEC"). Executive officers and directors are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms they file. Based
solely upon a review of copies of reports furnished to the Company during the
fiscal year ended December 31, 2001, all executive officers and directors were
in compliance, except that a Form 3 was not filed in a timely manner for
Catherine Spear upon being named an executive officer in 2000 and that a Form 3
was not filed in a timely manner for John Hall upon being named an executive
officer in 2000.
8
Certain Relationships and Related Transactions
In 2000, the Company began a collaboration with SpeedTrials.com, Inc.
("SpeedTrials") to develop web-based clinical research management applications.
Richard Propper, a greater than 5% stockholder of the Company, held a greater
than 10% equity interest in SpeedTrials. During the second quarter of 2001, the
Company terminated its relationship with SpeedTrials. As a result of this
termination, the Company had no further obligations in connection with the
relationship except approximately $45,000, which the Company paid to the
outside technology company that provided services for the project.
Executive Compensation
The following table sets forth the total compensation paid by the Company to
the Chief Executive Officer and the four other most highly compensated
individuals, who served as an executive officer in 2001 and were paid more than
$100,000 in salary and bonus in 2001 (the "Named Executive Officers").
Long-term
Annual Compensation
Compensation Shares
---------------- Underlying All Other
Name and Principal Position Year Salary Bonus Options (#) Compensation
- --------------------------- ---- -------- ------- ------------ ------------
Kenneth M. Borow, M.D......... 2001 $261,458 $55,000 -- --
President and Chief Executive 2000 248,301 -- -- $19,041(1)
Officer 1999 225,000 47,750 -- 31,537(1)
Catherine G. Spear(2)......... 2001 135,000 15,000 -- --
Vice President Global Business 2000 15,923 -- -- --
Development and Strategic -- --
Marketing
John Hall, MB., ChB.(3)....... 2001 199,783 15,000 -- 20,324(4)
Vice President Clinical 2000 33,687 -- -- 3,427(4)
Operations, Europe
Joseph A. Delikat............. 2001 117,138 7,500 -- --
Principal Accounting Officer 2000 96,593 -- -- --
1999 85,733 7,500 -- --
James J. Cappola, M.D.,
Ph.D.(5)..................... 2001 179,651 -- -- --
Former Chief Medical Officer 2000 133,360 -- -- --
- --------
(1) In 1999, Mr. Bruce LaMont, the Company's former Chief Executive Officer,
transferred 12,307 shares of his stock to Dr. Borow. The transaction was
valued at the closing price of the Company's Common Stock on the Nasdaq
Small Cap market on the day of transfer. In 2000, the Company paid $19,041
to Dr. Borow to cover the taxes due on the transfer of shares.
(2) Ms. Spear was not an employee prior to November 2000.
(3) Dr. Hall was not an employee prior to November 2000.
(4) Includes Company contributions to a pension plan, $1,823 in 2000 and
$10,811 in 2001, and payments for a car allowance, $1,604 in 2000 and
$9,513 in 2001.
(5) Dr. Cappola resigned on November 26, 2001 and was not an employee prior to
May 2000. Dr. Dickson, the Company's current Chief Operating Officer and
Chief Medical Officer does not appear in the above table, since his
employment with the Company commenced in November 2001.
Employment Agreements
All executive officers of the Company are full-time employees of the
Company.
9
Dr. Borow is a party to an employment agreement dated November 1999. The
agreement will expire in November 2002 but will automatically renew for
additional one-year terms after that date unless either the Company or Dr.
Borow give notice to not renew the agreement at least sixty days prior to the
expiration of the then existing term. The agreement provides for an initial
annual salary of $250,000. In addition, Dr. Borow is entitled to an annual
bonus to be determined by the Board. Additionally, Dr. Borow was granted an
option to acquire 500,000 shares of the Company's Common Stock. In the event
that Dr. Borow is terminated without cause, he will be entitled to receive
severance equal to twelve months of his base salary in effect at the time of
termination and the accelerated vesting of the portion of Dr. Borow's options
which would have vested during such additional twelve months.
Option Grant Table
The following table provides information about grants of stock options made
during 2001 to each of the Named Executive Officers.
Individual Grants
---------------------------------------------------
Number of
Shares
Underlying Percentage of
Options Total Options Exercise Expiration
Name Granted(1) Granted to Employees Price Date
- ---- ---------- -------------------- -------- ----------
Kenneth M. Borow, MD.... 50,000 7.5% $1.9375 03/07/06
Catherine G. Spear...... -- 0.0 -- --
John Hall, MB., ChB..... -- 0.0 -- --
Joseph A. Delikat....... 18,000 2.0 1.9375 03/07/06
James J. Cappola, M.D.,
Ph.D................... 2,500 0.3 1.9375 02/24/02(2)
- --------
(1) Each option has a term of five years from the date of grant and vests
ratably over a four-year period, beginning on the first anniversary of the
date of grant.
(2) Dr. Cappola's options expired on February 24, 2002, ninety days from the
date of his departure from the Company.
Aggregated Fiscal Year-End Option Values
There were no option exercises by any of the Named Executive Officers during
the twelve months ended December 31, 2001. The following table presents certain
information with respect to the number and value at December 31, 2001, of
options held by each of the Named Executive Officers. The value actually
realized upon future option exercises by the Named Officers will depend on the
value of the Common Stock at the time of exercise.
Number of Shares
Underlying Unexercised Values of Unexercised
Options In-The-Money Options(1)
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
Kenneth M. Borow, M.D..... 908,889 141,111 $1,031,900 $23,475
Catherine G. Spear........ 22,000 33,000 15,840 23,760
John Hall, MB., ChB....... 27,500 27,500 6,050 6,050
Joseph A. Delikat......... 41,600 26,400 25,830 16,906
James J. Cappola, M.D.,
Ph.D.(2)................. 24,500 38,000 391 1,565
- --------
(1) Based on the closing price of $2.72 of the Common Stock on the Nasdaq
SmallCap Market on December 31, 2001, net of the exercise price.
(2) Dr. Cappola's options expired on February 24, 2002, ninety days from the
date of his departure from the Company.
10
PROPOSAL 2--APPROVAL AND ADOPTION OF AN AGREEMENT
AND PLAN OF MERGER PROVIDING FOR THE MERGER OF THE COMPANY
INTO ITS WHOLLY-OWNED SUBSIDIARY FOR THE PURPOSE OF CHANGING THE COMPANY'S
STATE OF INCORPORATION FROM NEVADA TO DELAWARE
Introduction
For the reasons set forth below, the Company's Board unanimously approved
the Proposed Reincorporation and believes that it is in the best interests of
the Company and its stockholders to change the state of incorporation of the
Company from Nevada to Delaware (the "Proposed Reincorporation"). Throughout
this section of the Proxy Statement, the Company as currently incorporated in
Nevada will be referred to as "Covalent-Nevada" and the Company as
reincorporated in Delaware (which reincorporation is subject to approval of the
Proposed Reincorporation by the stockholders at the Meeting) will be referred
to as "Covalent-Delaware".
Stockholders are urged to read carefully this section of this Proxy
Statement, including the related appendices referenced below and attached to
this Proxy Statement, before voting on the Proposed Reincorporation.
Method of Reincorporation
The Proposed Reincorporation will be effected by merging Covalent-Nevada
into a newly formed Delaware corporation that is a wholly-owned subsidiary of
Covalent-Nevada (the "Merger") pursuant to an Agreement and Plan of Merger, in
the form attached hereto as Appendix A (the "Merger Agreement"). Upon
completion of the Merger, Covalent-Nevada, as a corporate entity, will cease to
exist and Covalent-Delaware will succeed to the assets and liabilities of
Covalent-Nevada and will continue to operate the business of the Company under
its current name, "Covalent Group, Inc."
As provided by the Merger Agreement, each outstanding share of Covalent-
Nevada common stock, $0.001 par value per share, will be automatically
converted into one share of Covalent-Delaware common stock, $0.001 par value
per share, at the effective time of the Merger. Each stock certificate
representing issued and outstanding shares of Covalent-Nevada common stock will
continue to represent the same number of shares of Covalent-Delaware common
stock.
DO NOT SEND IN ANY OF YOUR STOCK CERTIFICATES REPRESENTING SHARES OF THE
COMPANY'S COMMON STOCK, AS IT WILL NOT BE NECESSARY FOR STOCKHOLDERS TO
EXCHANGE THEIR EXISTING COVALENT-NEVADA STOCK CERTIFICATES FOR COVALENT-
DELAWARE STOCK CERTIFICATES. HOWEVER, STOCKHOLDERS MAY REQUEST THAT THEIR
CERTIFICATES BE EXCHANGED IF THEY SO CHOOSE. DELIVERY OF THE COVALENT-NEVADA
COMMON STOCK CERTIFICATES WILL CONSTITUTE DELIVERY FOR TRANSACTIONS IN SHARES
OF COVALENT-DELAWARE COMMON STOCK AFTER THE EFFECTIVE DATE OF THE MERGER.
Covalent-Nevada common stock is listed for trading on the Nasdaq SmallCap
Market and, after the Merger, Covalent-Delaware common stock will continue to
be listed for trading on the Nasdaq SmallCap Market under the same symbol
("CVGR") as the shares of Covalent-Nevada common stock are currently traded,
and the shares of Covalent-Delaware common stock will continue to be
represented by the same CUSIP number as that is currently used for Covalent-
Nevada common stock. There will be no interruption in the trading of Covalent's
common stock as a result of the Proposed Reincorporation. The Proposed
Reincorporation includes the adoption of a new certificate of incorporation and
bylaws for Covalent-Delaware (the "Delaware Charter" and "Delaware Bylaws,"
respectively) to replace the current certificate of incorporation and bylaws of
Covalent-Nevada (the "Nevada Charter" and "Nevada Bylaws," respectively). As a
Delaware corporation, Covalent-Delaware will be subject to the Delaware General
Corporation Law (the "Delaware corporate law"). Covalent-Nevada is subject to
the corporation laws of Nevada set out in the Nevada Revised Statutes (the
11
"Nevada corporate law"). Differences between the Delaware Charter and Delaware
Bylaws, on the one hand, and the Nevada Charter and Nevada Bylaws, on the other
hand, must be viewed in the context of the differences between Delaware
corporate law and Nevada corporate law. These differences are discussed below
under "Comparison of the Charters and Bylaws of Covalent-Nevada and Covalent-
Delaware and Significant Differences between the Corporation Laws of Nevada and
Delaware".
The Proposed Reincorporation will NOT result in any change in the name,
business, management, capitalization, board of directors structure, fiscal
year, assets, liabilities or location of principal facilities of the Company.
The directors elected at the Meeting to serve on the Board of Covalent-Nevada
will become the directors of Covalent-Delaware. All employee benefit and stock
option plans of Covalent-Nevada will become Covalent-Delaware plans, and each
option or right issued by such plans will automatically be converted into an
option or right to purchase the same number of shares of Covalent-Delaware
common stock, at the same price per share, upon the same terms and subject to
the same conditions. Stockholders should note that approval of the Proposed
Reincorporation will also constitute approval of these plans continuing as
Covalent-Delaware plans. Other employee benefit arrangements of Covalent-Nevada
will also be continued by Covalent-Delaware upon the terms and subject to the
conditions currently in effect.
The Company believes that the Proposed Reincorporation will not affect any
of its material contracts with any third parties and that Covalent-Nevada's
rights and obligations under such material contractual arrangements will
continue as rights and obligations of Covalent-Delaware.
The Proposed Reincorporation has been approved by the members of the
Company's Board, who unanimously voted "FOR" the Proposed Reincorporation. If
approved by the stockholders, it is anticipated that the Merger will become
effective under the Merger Agreement (the "Effective Time") at 5:00 p.m.,
Nevada time, on June 4, 2002, or as soon as practicable thereafter. However, as
described in the Merger Agreement, if prior to the Effective Time the Board
determines that circumstances have arisen that make it inadvisable to proceed
with the Proposed Reincorporation under the original terms of the Merger
Agreement, the Merger (and thus the Proposed Reincorporation) may be abandoned
or the Merger Agreement may be amended by the Board either before or after
stockholder approval has been obtained (except that the principal terms may not
be amended without obtaining further stockholder approval). The discussion
below is qualified in its entirety by reference to the Merger Agreement, the
Delaware Charter and the Delaware Bylaws, copies of which are attached to this
Proxy Statement as Appendices A, B and C, respectively, and by the applicable
provisions of Nevada corporate law and Delaware corporate law.
THE BOARD RECOMMENDS A VOTE "FOR" THE PROPOSED REINCORPORATION. THE EFFECT
OF AN ABSTENTION IS THE SAME AS THAT OF A VOTE AGAINST THIS PROPOSAL.
Vote Required For the Proposed Reincorporation
Approval of the Merger Agreement and the Proposed Reincorporation, which
will also constitute approval of the Delaware Charter and the Delaware Bylaws,
will require the affirmative vote of a majority of the outstanding shares of
Common Stock as of the Record Date.
Principal Reasons For the Reincorporation Proposal
For many years, Delaware has followed a policy of encouraging incorporation
in that state and, in furtherance of that policy, has been a leader in
adopting, construing, and implementing comprehensive, flexible corporate laws
responsive to the legal and business needs of corporations organized under its
laws. Many corporations have initially chosen Delaware, or have chosen to
reincorporate in Delaware, in a manner similar to that proposed by the Company.
The Board believes that the principal reasons for considering such a
reincorporation are:
. the development in Delaware over the last century of a well-established
body of case law construing the Delaware General Corporation Law, which
provides businesses with a greater measure of predictability than exists
in any other jurisdiction;
12
. the certainty afforded by the well-established principles of corporate
governance under Delaware corporate law are of benefit to the Company
and its stockholders and should increase the Company's ability to
attract and retain quality directors and officers;
. Delaware corporate law itself, which is generally acknowledged to be the
most advanced and flexible corporate statute in the country;
. the Delaware Court of Chancery, which brings to its handling of complex
corporate issues a level of experience, a speed of decision and a degree
of sophistication and understanding unmatched by any other court in the
country, and the Delaware Supreme Court, the only appeals court; and
. the Delaware General Assembly, which each year considers and adopts
statutory amendments that have been proposed by the Corporation Law
Section of the Delaware bar to meet changing business needs.
Significant Changes Caused By Reincorporation
In general, the Company's corporate affairs are presently governed by the
corporate law of Nevada, the Company's state of incorporation, the Nevada
Charter and by the Nevada Bylaws, which have been adopted pursuant to Nevada
law. The Nevada Charter and Nevada Bylaws are available for inspection during
business hours at the principal executive offices of the Company. In addition,
copies may be obtained by writing to the Company at One Glenhardie Corporate
Center, Suite 100, 1275 Drummers Lane, Wayne, PA 19087, Attention: Secretary.
Following the Merger, issues of corporate governance and control would be
controlled by Delaware, rather than Nevada, corporate law. The Nevada Charter
and Nevada Bylaws, will, in effect, be replaced by the Delaware Charter and the
Delaware Bylaws, copies of which are attached as Appendices B and C,
respectively, to this Proxy Statement.
No Dissenter's or Appraisal Rights
Under Nevada corporate law, stockholders of the Company will not be entitled
to exercise dissenter's rights or to demand appraisal and payment for their
shares in connection with the Merger or the Proposed Reincorporation.
Comparison of the Charters of the Bylaws of Covalent-Nevada and Covalent-
Delaware and Significant Differences Between the Corporation Laws of Delaware
and Nevada
Fiduciary Duties of Directors
Both Delaware and Nevada law provide that the board of directors has the
ultimate responsibility for managing the business and affairs of a corporation.
In discharging this function, directors of Nevada and Delaware corporations owe
fiduciary duties of care and loyalty to the corporations they serve, as well as
their stockholders.
The fiduciary duty provisions included in Nevada corporate law may provide
significantly broader discretion, and increased protection from liability, to
directors in exercising their fiduciary duties, particularly in the context of
a change in control.
The following summarizes certain aspects of Delaware and Nevada law as they
relate to fiduciary duties of directors:
Standard of Care
Delaware courts have held that the directors of a Delaware corporation are
required to exercise an informed business judgment in performing their duties.
An informed business judgment means that the
13
directors have informed themselves of all material information reasonably
available to them. Delaware courts have also imposed a heightened standard of
conduct on directors in matters involving a contest for control of the
corporation.
A director of a Nevada business corporation must perform his or her duties
as a director in good faith and with a view to the interests of the
corporation.
Justifiable Reliance
A director of a Delaware corporation, in performing his or her duties, is
protected in relying, in good faith, upon the records of the corporation and
upon such information, opinions, reports or statements presented to the
corporation by any of the corporation's officers or employees, or by committees
of the board of directors, or by any other person as to matters the director
reasonably believes are within such other person's professional or expert
competence. Such person must also have been selected with reasonable care by or
on behalf of the corporation.
In performing his or her duties, a director of a Nevada business corporation
is entitled to rely, in good faith, on information, opinions, reports, books of
account or statements (including financial statements and other financial data)
prepared or presented by any of the corporation's directors, officers or
employees so long as the director reasonably believes such persons to be
reliable and competent in such matters; counsel, public accountants, financial
advisers, investment bankers or other persons as to matters which the director
reasonably believes to be within the professional or expert competence of such
persons; and a duly designated committee of the board which the director
reasonably believes merits confidence and upon which the director does not
serve, but only as to matters within the committee's designated authority.
However, a director of a Nevada corporation will not be considered to be acting
in good faith if he or she has knowledge concerning the matter in question
which would cause such reliance to be unwarranted.
Consideration of Factors
Delaware corporate law does not contain any statutory provision permitting
the board of directors, committees of the board and individual directors, when
discharging their duties, to consider the interests of any constituencies other
than the corporation or its stockholders.
Nevada corporate law, on the other hand, provides that in discharging their
duties, the board of directors, committees of the board and individual
directors may, in exercising their respective powers with a view to the
interests of the corporation, choose, to the extent they deem appropriate, to
subordinate the interests of stockholders to the interests of employees,
suppliers, customers or creditors of the corporation or to the interests of the
communities served by the corporation.
Presumption
Under Delaware corporate law, it is presumed that the directors of a
Delaware corporation acted on an informed basis, in good faith and in the
honest belief that their actions were in the best interest of the corporation.
This presumption may be overcome, however, if a preponderance of the evidence
shows that the directors' decision involved a breach of fiduciary duty such as
fraud, overreaching, lack of good faith, failure of the board to inform itself
properly or actions by the board to entrench itself in office.
Under Nevada corporate law, unless there is a breach of fiduciary duty or a
lack of good faith, any act of the board of directors, any committee of the
board or any individual director is presumed to be in the corporation's best
interest. No higher burden of proof or greater obligation to justify applies to
any act relating to or affecting an acquisition or a potential or proposed
acquisition of control of the corporation than to any other action.
14
Specific Applications
Delaware courts have imposed a heightened standard of conduct upon directors
of a Delaware corporation who take any action designed to defeat a threatened
change in control of the corporation. The heightened standard has two elements.
First, the board must demonstrate some basis for concluding that a proper
corporate purpose is served by implementation of any defensive measure, and,
second, that measure must be reasonable in relation to the perceived threat
posed by the change in control.
Nevada corporate law also imposes the same heightened standard of conduct
upon directors who take action to resist a change or potential change in
control of a corporation, when such action impedes the exercise of the
stockholders' right to vote for or remove directors.
Anti-Takeover Laws
Section 203 of the Delaware General Corporation Law contains certain "anti-
takeover" provisions that apply to a Delaware corporation, unless the
corporation elects not to be governed by such provisions in its certificate of
incorporation or bylaws. Covalent-Delaware has not elected to opt out of the
provisions of Section 203. Section 203 precludes a corporation from engaging in
any "business combination" with any person that owns 15% or more of its
outstanding voting stock for a period of three years following the time that
such stockholder obtained ownership of more than 15% of the outstanding voting
stock of the corporation. A business combination includes any merger,
consolidation, or sale of substantially all of a corporation's assets.
The three-year waiting period does not apply, however, if any of the
following conditions are met:
. the board of directors of the corporation approved either the business
combination or the transaction which resulted in such stockholder owning
more than 15% of such stock before the stockholder obtained ownership of
more than 15% of the corporation's stock;
. once the transaction which resulted in the stockholder owning more than
15% of the outstanding voting stock of the corporation is completed,
such stockholder owns at least 85% of the voting stock of the
corporation outstanding at the time that the transaction commenced; or
. at or after the time the stockholder obtains more than 15% of the
outstanding voting stock of the corporation, the business combination is
approved by the board of directors and authorized at an annual or
special meeting of stockholders (and not by written consent) by the
affirmative vote of at least 66 2/3% of the outstanding voting stock
that is not owned by the acquiring stockholder.
In addition, Section 203 does not apply to any person who became the owner
of more than 15% of a corporation's stock if it was as a result of action taken
solely by the corporation.
The Nevada Revised Statute contains certain "anti-takeover" provisions that
apply to a Nevada corporation, unless the corporation elects not to be governed
by such provisions in its articles of incorporation or bylaws. Covalent-Nevada
did not elect to opt out of any of these provisions. Nevada corporate law
precludes a corporation from engaging in any "business combination" with any
person that owns 10% or more of its outstanding voting stock for a period of
three years following the time that such stockholder obtained ownership of more
than 10% of the outstanding voting stock of the corporation. A business
combination includes any merger, consolidation, or sale of substantially all of
a corporation's assets.
The three-year waiting period does not apply, however, if the board of
directors of the corporation approved either the business combination or the
transaction which resulted in such stockholder owning more than 10% of such
stock before the stockholder obtained ownership of more than 10% of the
corporation's stock.
Furthermore, a corporation may not engage in any business combination with
an interested stockholder after the expiration of three years from the date
that such stockholder obtained ownership of more than 10% of
15
the outstanding voting stock of the corporation unless the combination meets
all the requirements of the corporation's articles of incorporation and
. is approved by the affirmative vote of the holders of stock representing
a majority of the outstanding voting power not beneficially owned by the
interested stockholder proposing the combination at a meeting called for
that purpose no earlier than 3 years after the interested stockholder's
date of acquiring shares; or
. the form and amount of consideration to be received by stockholders
(excluding the interested stockholder) of the corporation satisfy
certain tests and, with limited exceptions, the interested stockholder
has not become the beneficial owner of additional voting shares of the
corporation after becoming an interested stockholder and before the
business combination is consummated.
In addition, the Nevada Revised Statute suspends the voting rights of the
"control shares" of a stockholder that acquires 20% or more of a corporation's
shares entitled to be voted in an election of directors. The voting rights of
the control shares generally remain suspended until such time as the
"disinterested" stockholders of the company vote to restore the voting power of
the acquiring stockholder.
If full voting rights are accorded to the shares held by the acquiring
person and the acquiring person has acquired shares amounting to or greater
than a majority of all voting power, any stockholder of record, other than the
acquiring person, who did not vote in favor of granting voting power to the
shares held by the acquiring person may demand payment for the fair value of
such stockholder's shares. Within 20 days of the vote according the shares of
the acquiring person voting rights, the corporation shall send notice to any
stockholders who did not vote in favor of such action notifying them of their
right to demand payment for their shares. Within 20 days of receipt of such
notice, a stockholder seeking payment must demand payment for such
stockholder's shares and the corporation must comply within 30 days.
Nevada corporate law provides that the provisions described above apply to
all corporations, unless the articles of incorporation or the bylaws of the
corporation in effect on the tenth day after an acquiring person acquires a
controlling interest provide that such provisions do not apply to the
corporation. Covalent-Nevada did not elect to opt out of any of these
provisions.
Dividend Rights and Repurchase of Shares
Under Delaware corporate law, a corporation may declare and pay dividends
out of surplus or, if no surplus exists, out of net profits, for the fiscal
year in which the dividends are declared and/or for its preceding fiscal year,
provided that dividends may not be paid out of net profits if the capital of
the corporation is less than the aggregate amount of capital represented by the
outstanding stock of all classes having a preference upon the distribution of
assets. Surplus is defined as net assets minus stated capital. Delaware
corporate law applies different tests to the payment of dividends and the
repurchase of shares. Delaware corporate law generally provides that a
corporation may redeem or repurchase its shares only if such redemption or
repurchase would not impair the capital of the corporation.
Under Nevada corporate law, a corporation is prohibited from making a
distribution (including dividends on, or redemption or repurchase of, shares of
capital stock) to its stockholders if, after giving effect to the distribution:
. the corporation would be unable to pay its debts as they become due in
the usual course of business; or
. the total assets of the corporation would be less than the sum of its
total liabilities plus the amount that would be needed, if that
corporation were then dissolved, to satisfy the rights of stockholders
having superior preferential rights upon dissolution to the stockholders
receiving the distribution.
The board of directors of a Nevada corporation may base the above
determination on: financial statements prepared on the basis of accounting
principals; fair valuation, including but not limited to, unrealized
appreciation or depreciation, or any other method that is reasonable under the
circumstances.
16
Number and Election of Directors
There are no material differences in the number and election of directors
between Delaware and Nevada corporate law.
Liability of Directors and Officers
Delaware corporate law permits a corporation to include in its certificate
of incorporation a provision limiting or eliminating the personal liability of
its directors to the corporation or its stockholders for monetary damages
arising from a breach of fiduciary duty, except for:
. a breach of the duty of loyalty to the corporation or its stockholders;
. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. a declaration of a dividend or the authorization of the repurchase or
redemption of stock in violation of Delaware corporate law; or
. any transaction from which the director derived an improper personal
benefit.
The Delaware Bylaws and the Delaware Charter each include provisions which
limit the liability of directors of Covalent-Delaware to the maximum extent
permitted by law.
Nevada corporate law permits a corporation to adopt any provision in its
articles of incorporation that are not contrary to the laws of the state of
Nevada; there is no restriction on a corporation's ability to limit the
personal liability of a director or officer to the corporation. Under Nevada
corporate law, a director or officer is not individually liable to a
corporation or its stockholders for any damages as a result of any act or
failure to act in his capacity as a director or officer unless it is proven
that:
. his act or failure to act constituted a breach of his fiduciary duties;
and
. his breach of those duties involved intentional misconduct, fraud or a
knowing violation of the law.
The Nevada Charter provides that Covalent-Nevada's directors and officers
shall not be personally liable for monetary damages for any breach of fiduciary
duty except for (i) acts or omissions which involve intentional misconduct,
fraud or a knowing violation of law, or (ii) for the payment of dividends in
violation of Nevada corporate law.
While these provisions provide officers and directors with protection from
awards for monetary damages for breaches of their duty of care, they do not
eliminate such duty. Accordingly, these provisions will have no effect on the
availability of equitable remedies such as an injunction or rescission based on
an officer's or director's breach of such duties.
Indemnification of Directors and Officers
Both Delaware and Nevada permit a corporation to indemnify officers,
directors, employees and agents for actions taken in good faith and in a manner
they reasonably believed to be in, or not opposed to, the best interests of the
corporation, and with respect to any criminal action, which they had no
reasonable cause to believe that their conduct was unlawful.
Under Delaware corporate law, a corporation may indemnify any person
involved in a third-party action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of being a director, officer,
employee or agent of the corporation, against expenses (including attorneys'
fees), judgments, fines and settlement amounts actually and reasonably incurred
in connection with such action, suit or proceeding or incurred by reason of
such persons being or having been a representative of the corporation, if he or
she acted
17
in good faith and reasonably believed that his or her actions were in or not
opposed to the best interests of the corporation and, with respect to any
criminal proceeding, had no reasonable cause to believe that his or her conduct
was unlawful. Under Delaware corporate law, a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust of
other enterprise against expenses, including attorneys' fees, actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
corporation; except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper. Delaware corporate law also provides that a corporation may
advance to a director or officer expenses incurred by him in defending any
action, upon receipt of an undertaking by the present or former director or
officer to repay the amount advanced if it is ultimately determined that he is
not entitled to indemnification. Delaware corporate law provides further that
the provisions for indemnification contained therein are nonexclusive of any
other rights to which the party may be entitled under any bylaw, agreement,
vote of stockholders, disinterested directors or otherwise.
The provisions of Nevada corporate law regarding indemnification are
substantially similar to those of Delaware corporate law. Nevada corporate law
provides that a corporation may indemnify any director, officer, employee or
agent for any expenses incurred in connection with such person's position with
the corporation, provided such person acted in good faith and in a manner which
they reasonably believed to be in or not opposed to the best interests of the
corporation. Nevada corporate law requires, unless ordered by a court, a
finding to be made, that the officer, director, employee or agent has met the
above-described standard of conduct, by (a) a majority vote of the board of
directors for which the quorum does not consist of parties to the proceeding;
(b) independent legal counsel in a written opinion, or (c) stockholder
approval. Nevada corporate law also provides that a corporation must advance to
a director or officer expenses incurred by him in defending any action, upon
receipt of an undertaking by the present or former director or officer to repay
the amount advanced if it is ultimately determined that he is not entitled to
indemnification.
Annual Meetings
Under Delaware corporate law, if the annual meeting for the election of
directors is not held on the designated date, or action by written consent to
elect directors in lieu of an annual meeting has not been taken, the directors
are required to cause that meeting to be held as soon as is convenient. If
there is a failure to hold the annual meeting or to take action by written
consent to elect directors in lieu of an annual meeting for a period of 30 days
after the designated date for the annual meeting, or if no date has been
designated for a period of 13 months after the latest to occur of the
organization of the corporation, its last annual meeting or the last action by
written consent to elect directors in lieu of an annual meeting, the Court of
Chancery may summarily order a meeting to be held upon the application of any
stockholder or director.
Under Nevada corporate law, if the annual meeting is not held within 18
months after the last election of directors, the district court has
jurisdiction to order the election of directors, upon application of any one or
more stockholders holding at least 15% of the voting power.
Special Meetings
Under Delaware corporate law, a special meeting of the stockholders may be
called by the board of directors or any other person as may be authorized by
the bylaws. The Delaware Bylaws provide that special
18
meetings may be called by the president, by resolution of the Board of
Directors or at the request in writing of stockholders of record owning fifty
percent (50%) in amount of capital stock outstanding and entitled to vote
Under Nevada corporate law, special meetings of stockholders may be called
by the board of directors, by any two directors and by the president, unless
otherwise provided in the articles of incorporation or bylaws. Under the Nevada
Bylaws, special meetings of the stockholders may be called at any time by the
president, secretary or by the Board of Directors or at the request in writing
of stockholders of record owning at least ten percent (10%) of all the shares
entitled to vote at the meeting.
Notice of Stockholder Meetings
Under Delaware corporate law, written notice of any meeting of the
stockholders shall be given not less than ten (10) nor more than sixty (60)
days before the date of the meeting to each stockholder entitled to vote at
such meeting.
Under Nevada corporate law, written notice of any meeting of the
stockholders shall be given not less than ten (10) nor more than sixty (60)
days before the date of the meeting to each stockholder entitled to vote at
such meeting. Nevada corporate law also provides that the articles of
incorporation or bylaws may require that the notice be also published in one or
more newspapers. Neither the Nevada Bylaws nor the Nevada Charter contain such
a requirement.
Notice of Adjournment of Stockholder Meetings and Business Transacted at
Adjourned Meeting
Under Delaware corporate law, if a meeting of stockholders is adjourned due
to lack of a quorum and the adjournment is for more than thirty (30) days, or
if after the adjournment a new record date is fixed for the adjourned meeting,
notice of the adjourned meeting must be given to each stockholder of record
entitled to vote at the meeting. In addition, at the adjourned meeting the
corporation may transact any business which might have been transacted at the
original meeting regardless of whether or not there exists a quorum.
Under Nevada corporate law, a corporation is not required to give any notice
of an adjourned meeting or of the business to be transacted at an adjourned
meeting, other than by announcement at the meeting at which the adjournment is
taken, unless the board fixes a new record date for the adjourned meeting.
Fixing Date for Determination of Stockholders of Record
There are no material differences in fixing a date for determination of
stockholders of record between Delaware and Nevada corporate law.
Action by Stockholders Without a Meeting
There are no material differences in the action by stockholders without a
meeting between Delaware and Nevada corporate law.
Advance Notice of Director Nominations and Stockholder Proposals
Delaware corporate law does not specify the manner in which nominations for
directors may be made by stockholders or the manner in which business may be
brought before a meeting. The Delaware Bylaws provide that notice of a director
nominations or other stockholder proposal must be received by the Company not
less than 90 days nor more than 120 days prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in the event that the
date of the annual meeting is advanced by more than 30 days or delayed by more
than 60 days from such anniversary date, the proposing stockholder must deliver
such notice not earlier than the 120th day prior to such annual meeting and not
later than the close of business on the later of the 90th day prior to such
annual meeting or the 10th day following the day on which public announcement
of the date of such meeting is first made.
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Nevada corporate law, like Delaware corporate law, does not specify the
manner in which nominations for directors may be made by shareholders or the
manner in which business may be brought before a meeting. With respect to
director nominations and stockholder proposals, the Nevada Bylaws provide that,
in order to be deemed properly presented, notice of such nomination or proposal
must be delivered to the Secretary of the Company at the principal executive
offices of the Company (a) with respect to an annual meeting of stockholders,
no less than 90 days prior to the stockholder meeting (or, if the date of such
meeting has not yet been set, 90 days prior to the anniversary of the previous
year's meeting), and (b) with respect to special meetings, the close of
business on the 7th day following the date on which such notice of meeting is
first given to stockholders. Each such notice must set forth a general
description of each item of business proposed to be brought before the meeting,
the name and address of the shareholder proposing to bring such item of
business before the meeting and a representation that the shareholder intends
to appear in person or by proxy at the meeting.
Charter Amendments
Under Delaware corporate law, an amendment or change to the certificate of
incorporation generally requires the approval of the board of directors,
followed by the approval of such amendment by the affirmative vote of the
holders of a majority of the outstanding shares entitled to vote thereon. When
an amendment of the certificate would adversely affect the rights of a class of
stock or the rights of a series of a class, Delaware corporate law provides
that the enactment of the amendment also requires the affirmative vote of the
holders of a majority of the outstanding shares of such class or series.
Under Nevada corporate law, an amendment to the articles requires the
approval of the board of directors followed by the affirmative vote of a
majority of the votes cast by all stockholders entitled to vote thereon and, if
any class or series of shares is entitled to vote thereon as a class, the
affirmative vote of a majority of the votes cast in each such class vote.
Amendments to Bylaws
Under Delaware corporate law, bylaws may be adopted, amended or repealed by
the stockholders entitled to vote thereon provided that any corporation may, in
its certificate of incorporation, confer this power upon the directors.
However, the power vested in the stockholders shall not be divested or limited
where the board of directors also has such power. The Delaware Charter provides
that the directors have the power to adopt, amend or repeal the Delaware Bylaws
in a manner not inconsistent with such bylaws. The Delaware Bylaws provide that
the vote of a majority of all directors (subject to amendments that are solely
within the province of the stockholders) or the affirmative vote of a majority
of the votes cast by all stockholders entitled to vote is required to alter,
amend or repeal the bylaws.
There is no provision in Nevada corporate law that expressly requires a
grant of power to the board of directors in the articles of incorporation in
order to adopt bylaws for a corporation. Rather, Nevada corporate law provides
that the board of directors of a corporation may make the bylaws, but that such
bylaws are subject to those adopted by the stockholders, if any. Further,
although not part of Nevada corporate law, an opinion of the Nevada Attorney
General also provides that directors may adopt bylaws for a corporation in the
event that the stockholders do not; however, stockholders retain the right to
adopt bylaws superseding those adopted by the board of directors. The Nevada
Bylaws contain substantially the same provision as the Delaware Bylaws
regarding amendment.
Interested Director Transactions
Under Delaware corporate law, some contracts or transactions in which one or
more of a corporation's directors has an interest are not void or voidable
because of such interest, provided that certain conditions, such as obtaining
the required approval and fulfilling the requirements of good faith and full
disclosure are met.
20
Under Delaware corporate law, the conditions are that either (1) the
stockholders or the disinterested directors must approve any such contract or
transaction after the full disclosure of material facts, or (2) the contract or
transaction must have been fair as to the corporation at the time it was
approved. Under Delaware corporate law, if board approval is sought, the
contract or transactions must be approved by a majority of the disinterested
directors (even though less than a quorum).
Nevada corporate law does not automatically void contracts or transactions
between a corporation and one of the corporation's directors. Under Nevada
corporate law, a contract or transaction is not voidable solely because:
. the contract is between the corporation and a director of the
corporation or an entity in which a director of the corporation has a
financial interest;
. an interested director is present at the meeting of the board of
directors that authorizes or approves the contract or transaction; or
. the vote or votes of the interested director are counted for purposes of
authorizing or approving the contract or transaction involving the
interested transaction.
Instead, under Nevada corporate law, contracts or transactions such as those
described above are permissible if:
. the facts surrounding the contract or transaction are known to the board
of directors and the board of directors authorize, approves, or ratifies
the contract or transaction in good faith by a vote without counting the
vote of the interested director; or
. the facts or circumstances surrounding the contract or transaction are
made known to the stockholders and they authorize, approve or ratify the
contract or transaction in good faith by a majority vote of the shares
entitled to vote, including the votes, if any, of the interested
director; or
. the fact that the contract or transaction will prove to be in the
interested director's financial interest is unknown to the interested
director at the time it is brought before the board of directors; or
. the contract or transaction is fair as to the corporation at the time it
is authorized or approved.
Removal of Directors
Under Delaware corporate law, any director or the entire board of directors
may be removed, with or without cause, by the majority vote of the stockholders
then entitled to vote at an election of directors.
A director of a Nevada corporation or the entire board of directors may be
removed with or without cause during their term of office only by a vote of
two-thirds of the voting power of the then outstanding shares entitled to vote
in an election of directors.
Stockholder Derivative Suits
There are no material differences in the area of stockholder derivative
suits between Delaware and Nevada corporate law.
Mergers and Major Transactions
Under Delaware corporate law, whenever the approval of the stockholders of a
corporation is required for an agreement of merger or consolidation or for a
sale, lease or exchange of all or substantially all of its assets, such
agreement, sale, lease or exchange requires the affirmative vote of the owners
of a majority of the outstanding shares entitled to vote thereon.
Notwithstanding the foregoing, under Delaware law, unless required
21
by its certificate of incorporation, no vote of the stockholders of a
constituent corporation surviving a merger is necessary to authorize a merger
if:
. the agreement of merger does not amend in any respect the certificate of
incorporation of such constituent corporation; and
. each share of stock of the constituent corporation outstanding
immediately prior to the merger is to be an identical outstanding or
treasury share of the surviving corporation after the merger; and
. either no shares of common stock of the surviving corporation and no
shares, securities or obligations convertible into the common stock are
to be issued under such agreement of merger, or the number of shares of
common stock issued or so issuable does not exceed 20% of the number
thereof outstanding immediately prior to the merger.
In addition, Delaware corporate law provides that a parent corporation that
is the record holder of at least 90% of the outstanding shares of each class of
stock of a subsidiary may merge the subsidiary into the parent corporation
without the approval of the subsidiary's stockholders or board of directors and
without the approval of the parent's stockholders.
Under Nevada corporate law, the sale, lease, exchange or disposal of all of
the assets of a corporation as well as any merger, consolidation or share
exchange generally must be recommended by the board of directors and requires
the approval of a majority of the shares of each class of the stock of the
corporation entitled to vote on such matters. Under Nevada corporate law, the
vote of the stockholders of a Nevada corporation surviving a merger is not
required if:
. the articles of incorporation of the surviving corporation will not
substantially differ from its articles of incorporation before the
merger; and
. each stockholder of the surviving corporation before the effective date
will hold the same number of shares, with identical designations,
preferences, limitations and relative rights immediately after the
merger; and
. the number of voting shares outstanding immediately after the merger,
plus the number of voting shares issued as a result of the merger, will
not exceed by more than 20% the total number of voting shares of the
surviving entity outstanding immediately before the merger; and
. the number of participating shares outstanding immediately before the
merger, plus the number of participating shares issuable as a result of
the merger, will not exceed by more than 20% the total number of
participating shares outstanding immediately before the merger.
In addition, Nevada corporate law provides that no stockholder approval is
required if, prior to the adoption of the plan, another corporation that is a
party to such equity plan owns 90% or more of the outstanding shares of each
class of such constituent corporation.
Dissenters' Rights of Appraisal
Under both Delaware and Nevada corporate law, a dissenting stockholder of a
corporation engaged in certain major corporate transactions may, under certain
limited circumstances, be entitled to appraisal rights. Appraisal rights permit
a stockholder to receive cash in the amount of the fair market value of his or
her shares (as determined by agreement of the parties or a court), in lieu of
the consideration that he or she would otherwise receive in any such
transaction.
Under Delaware corporate law, unless the certificate of incorporation of a
corporation provides otherwise, appraisal rights are only available with
respect to a merger or consolidation of a corporation under certain limited
circumstances. No appraisal rights are provided in the case of a sale or
transfer of all or substantially all of the corporation's assets or an
amendment to the corporation's certificate of incorporation. Moreover,
22
Delaware corporate law does not provide appraisal rights in connection with a
merger or consolidation, unless the certificate of incorporation provides
otherwise, to the owners of shares of a corporation that, at the record date
fixed to determine the stockholders entitled to receive notice of and to vote
at the meeting of stockholders to act upon the merger or consolidation, is
either:
. listed on a national securities exchange or designated as a national
market system security by the National Association of Securities
Dealers, Inc.; or
. held of record by more than 2,000 stockholders;
unless the applicable agreement of merger or consolidation requires the owners
of these shares to receive, in exchange for these shares, anything other than
shares of stock of the resulting or surviving corporation or shares of stock of
any other corporation listed on a national securities exchange, designated as
described above, or held of record by more than 2,000 holders.
In addition, Delaware corporate law denies appraisal rights to the
stockholders of the surviving corporation in a merger if that merger did not
require for its approval the vote of the stockholders of the surviving
corporation. Under Delaware corporate law, no vote of the stockholders of a
surviving corporation is required if the number of shares to be issued in the
merger does not exceed 20% of the shares of the surviving corporation
outstanding immediately prior to the merger and certain other conditions are
met.
Nevada corporate law provides that stockholders of a corporation are
entitled to dissent from and obtain payment of the fair market value of his or
her shares in the event of the following corporate actions, including:
. consummation of a plan of merger to which the Nevada corporation is a
party (i) if approval by the stockholder is required for the merger and
he or she is entitled to vote on the merger, or (ii) in certain
circumstances, if the domestic corporation is a subsidiary and is merged
with its parent;
. consummation of a plan of exchange to which the domestic corporation is
a party as the corporation whose subject owner's interest will be
acquired, if he or she is entitled to vote on the plan; or
. any corporate action taken pursuant to a vote of the stockholders to the
extent that the articles of incorporation, bylaws or a resolution of the
board of directors provide that voting or nonvoting stockholders are
entitled to dissent and obtain payment for such stockholder's shares.
Under Nevada corporate law, appraisal rights are not provided, however, to
the holders of shares of any class that is either listed on a national
securities exchange or held of record by more than 2,000 stockholders; unless
the articles of incorporation of the corporation provide otherwise or if the
stockholder will receive for the stockholder's shares, anything except:
. shares of stock of the corporation surviving or resulting from such
merger;
. shares of stock of any other corporation listed on a national securities
exchange or on the national market system of the National Association of
Securities Dealers automated quotation system, or which will, upon
completion of the merger, be held by record by more than 2,000 holders;
. cash in lieu of fractional shares; or
. any combination of shares or cash in lieu of fractional shares.
Dissolution
Under Delaware corporate law, if the board of directors of the corporation
deems it advisable that the corporation should be dissolved and the holders of
a majority of the outstanding shares of stock of the corporation entitled to
vote thereon votes in favor of the proposed dissolution, the corporation shall
be dissolved upon the filing of a certificate of dissolution with the Secretary
of State of the State of Delaware. The
23
corporation shall continue after dissolution for the purposes of defending
suits and settling its affairs for a three-year period. Delaware corporate law
sets forth payment and distribution procedures a dissolving corporation must
follow in connection with winding up its affairs. Such procedures include
notification requirements and, under specified circumstances, obtaining the
approval of the Delaware Court of Chancery. Under Delaware corporate law,
directors of a dissolved corporation that comply with the payment and
distribution procedures provided therein shall not be personally liable to the
claimants of the dissolved corporation.
Under Nevada corporate law, if the board of directors decides after the
issuance of stock or the beginning of business, that the corporation should be
dissolved, it must adopt a resolution to that effect and such dissolution must
also be approved by the affirmative vote of a majority of the votes cast by all
stockholders entitled to vote, unless a higher vote is required by the articles
of incorporation or by the bylaws. Covalent-Nevada does not require a higher
vote for dissolution.
Inspection of Stockholders List and Other Corporate Matters
Delaware corporate law permits any stockholder to inspect a corporation's
stockholders' list for a purpose reasonably related to such person's interest
as a stockholder and, during the ten days preceding a stockholders' meeting,
for any purpose germane to that meeting.
Nevada corporate law permits any person who has been a stockholder of record
for at least six months, or any person holding at least 5% of all outstanding
shares, to inspect and copy the stockholders' list, articles or bylaws,
provided that the stockholder gives at least 5 business days' prior written
notice. The corporation may deny inspection if the stockholder refuses to
furnish an affidavit that the inspection is not desired for a purpose that is
the business or object other than the business of the corporation and that he
or she has not at any time offered for sale or sold any stockholders' lists of
any corporation or aided and abetted any person in procuring a list for that
purpose. In addition, a Nevada corporation must allow stockholders who own or
represent at least 15% of the corporation's outstanding shares the right, upon
at least five days written demand, to inspect the books of account and
financial records of the corporation, to make copies from them and to conduct
an audit of those records, except that any corporation listed and traded on any
recognized stock exchange or any corporation that furnishes to its stockholders
a detailed, annual financial statement is exempt from this requirement.
Duration of Proxies
Under Delaware corporate law, a proxy executed by a stockholder will remain
valid for a period of three years, unless the proxy provides for a longer
period. Under Nevada corporate law, a proxy is effective only for a period of
six months, unless it is coupled with an interest or unless otherwise provided
in the proxy, which duration may not exceed seven years.
Consideration for Stock
Under Delaware corporate law, a corporation may accept as consideration for
its stock a combination of cash, property or past services in an amount not
less than the par value of the shares being issued, and a secured promissory
note or other binding obligation executed by the subscriber for any unpaid
balance, if any, the total of which must equal at least the par value of the
issued stock, as determined by the board of directors.
Under Nevada corporate law, a corporation may issue its capital stock in
return for consideration consisting of any tangible or intangible property or
benefit to the corporation, including but not limited to cash, promissory
notes, services performed, or other securities of the corporation.
24
Committees of the Board of Directors
Delaware and Nevada corporate law both provide that the board of directors
may delegate certain of their duties to one or more committees elected by a
majority of the board. A Delaware corporation can delegate to a committee of
the board of directors, among other things, the responsibility of nominating
candidates for election to the office of director, to fill vacancies on the
board of directors, and to reduce earned or capital surplus and authorize the
acquisition of the corporation's own stock. Moreover, if the corporation's
certificate of incorporation or bylaws, or the resolution of the board of
directors creating the committee so permits, a committee of the board of
directors may declare dividends and authorize the issuance of stock.
Under Nevada corporate law, unless it is otherwise provided in the articles
of incorporation, a committee of the board of directors has and may exercise
the powers of the board of directors in the management of the business and
affairs of the corporation.
Differences in Franchise Taxes Payable in Delaware as Opposed to Nevada
Currently, the Company pays approximately $85 in annual franchise taxes to
the state of Nevada. Upon effecting the Proposed Reincorporation, Covalent-
Delaware will have to pay more in annual franchise taxes to the State of
Delaware.
In Delaware, a corporation has to pay a franchise tax, which is not based
upon income, but rather on formulae involving the number of authorized shares
(the Authorized Shares method), or alternatively, the value of the corporation
(the Assumed Par Value method), whichever would impose a lesser tax. Covalent-
Delaware would mostly likely pay under the Assumed Par Value method, which is
based on the amount of total gross assets of the corporation. Under this
method, Covalent-Delaware would have owed approximately $3,600 in franchise
taxes for 2002, had it been incorporated in Delaware for the entire year. For
actual 2002, the Company will pay a pro rata share of Nevada and Delaware
franchise taxes if the Proposed Reincorporation is approved based upon the date
upon which the Merger is completed.
Certain Federal Income Tax Considerations
Subject to the limitations, qualifications and exceptions described in this
section, it is expected that, for federal income tax purposes, no gain or loss
will be recognized by the holders of shares of Covalent-Nevada Common Stock as
a result of the consummation of the Proposed Reincorporation, and no gain or
loss will be recognized by Covalent-Nevada or Covalent-Delaware. In addition,
it is expected that each former holder of shares of Covalent-Nevada Common
Stock will have the same aggregate tax basis in the shares of Covalent-Delaware
common stock received by such person in the Proposed Reincorporation as such
holder had in the shares of Covalent-Nevada Common Stock held by such person at
the time of consummation of the Proposed Reincorporation, and such person's
holding period with respect to such shares of Covalent-Delaware common stock
will include the period during which such holder held the corresponding shares
of Covalent-Nevada Common Stock, provided the latter were held by such person
as capital assets at the time of the consummation of the Proposed
Reincorporation.
The Company has not requested a ruling from the Internal Revenue Service
(the "IRS") or an opinion of counsel with respect to the federal income tax
consequences of the Proposed Reincorporation under the Internal Revenue Code. A
successful IRS challenge to the reorganization status of the Proposed
Reincorporation would result in a stockholder recognizing gain or loss with
respect to each share of Covalent-Nevada common stock exchanged in the Proposed
Reincorporation equal to the difference between the stockholder's basis in such
share and the fair market value, as of the time of the Proposed
Reincorporation, of the shares of Covalent-Delaware common stock received in
exchange therefor. In such event, a stockholder's aggregate basis in the shares
of Covalent-Delaware common stock received in the exchange would equal their
fair market value on such date, and the stockholder's holding period for such
shares would not include the period during which the
25
stockholder held shares of Covalent-Nevada Common Stock. State, local, or
foreign income tax consequences to stockholders may vary from the federal tax
consequences described above.
Stockholders should consult their own tax advisors as to the effect of the
Proposed Reincorporation under applicable federal, state, local, or foreign
income tax laws.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU
VOTE "FOR" THE PROPOSED REINCORPORATION AS DESCRIBED IN PROPOSAL 2.
PROPOSAL 3--APPROVE AND ADOPT AN AMENDMENT TO THE
COMPANY'S CERTIFICATE OF INCORPORATION
TO AUTHORIZE 250,000 SHARES OF PREFERRED STOCK
Introduction
On March 8, 2002, the Board voted to propose and recommend approval of an
amendment to the Company's Certificate of Incorporation, attached as Appendix D
hereto, to increase the authorized capital stock of the Company and to create a
new class of authorized preferred stock, par value $0.001 per share (the
"Preferred Stock"), consisting of 250,000 shares of Preferred Stock (the
"Preferred Stock Amendment"). The Board also directed that the Preferred Stock
Amendment be submitted to the stockholders at the Meeting. The Board will only
effect the Preferred Stock Amendment if the Reincorporation Proposal is
approved by the stockholders and the Company's state of incorporation is
changed from Nevada to Delaware.
Vote Required For the Preferred Stock Amendment
Approval of the Preferred Stock Amendment will require the affirmative vote
of a majority of the outstanding shares of Common Stock as of the Record Date.
Description of New Class of Preferred Stock
If the Preferred Stock Amendment is approved, the authorization of such
Preferred Stock, called "blank check" preferred stock, would permit the Board
to issue Preferred Stock from time to time in one or more series having such
rights, preferences and other terms as the Board may determine in its
discretion, without any further action or vote by the stockholders.
The Board would be empowered to fix, among other things, the designation of
and number of shares to comprise each series and the relative rights,
preferences and privileges of shares of each series, including the dividends
payable thereon, voting rights, conversion rights, the price and terms on which
shares may be redeemed, the amounts payable upon such shares in the event of
voluntary or involuntary liquidation and any sinking fund provisions for
redemption or purchases of such shares. The Board would be required to make any
determination to issue shares of Preferred Stock based on its judgment as to
the best interests of the stockholders of the Company.
The Company has no immediate plans to issue any shares of Preferred Stock;
therefore the particular rights, preferences and other terms of the Preferred
Stock subject to this proposal cannot be stated or predicted with accuracy.
The proposed amendment may provide the Company with increased financial
flexibility in meeting future capital requirements by providing another type of
security in addition to its Common Stock.
Effect of the Preferred Stock on Stockholders
It is not possible to state the effects of the proposed amendment upon the
rights of the holders of Common Stock unless and until the Board determines the
respective rights of the holders of one or more series of
26
Preferred Stock. However, the issuance of shares of Preferred Stock pursuant to
the Board's authority described above may adversely affect the rights of the
holders of Common Stock. Specifically, the effects of such issuance of
Preferred Stock could include:
. reduction of the amount otherwise available for payment of dividends on
Common Stock, if any;
. restrictions on dividends on Common Stock;
. dilution of the voting power of Common Stock;
. restrictions on the rights of holders of Common Stock to share in the
Company's assets on liquidation until satisfaction of any liquidation
preference granted to the holders of Preferred Stock; and
. other effects which could have a negative effect on the Common Stock.
For example, Preferred Stock issued by the Company in the future may rank
prior to the Common Stock as to dividend rights, liquidation preferences or
both, may have full or limited voting rights, and may be convertible into
shares of Common Stock. Accordingly, the issuance of shares of Preferred Stock
in the future could decrease the amount of earnings and assets allocable to or
available for distribution to holders of Common Stock and adversely affect the
rights and powers, including voting rights of the Common Stock, and may
discourage bids for the Common Stock or may otherwise adversely affect the
market price of the Common Stock.
Possible Anti-Takeover Effects of the Preferred Stock
In addition to financing purposes, the Company could issue shares of
Preferred Stock that may, depending on the terms of such series, make more
difficult or discourage an attempt to obtain control of the Company by means of
a merger, tender offer, proxy contest or other means. When, in the judgment of
the Board, this action will be in the best interests of the stockholders and
the Company, such shares could be used to create voting or other impediments or
to discourage persons seeking to gain control of the Company. Such shares also
could be privately placed with purchasers who might align themselves with the
Board in opposing such action. In addition, the Board could authorize holders
of a series of Preferred Stock to vote either separately as a class, or with
the holders of the Company's Common Stock, on any merger, sale or exchange of
assets by the Company or any other extraordinary corporate transaction. The
existence of the additional authorized shares could have the effect of
discouraging unsolicited takeover attempts. The issuance of new shares also
could be used to dilute the stock ownership of a person or entity seeking to
obtain control of the Company should the Board consider the action of such
entity or person not to be in the best interests of the stockholders of the
Company.
While it may be deemed to have potential anti-takeover effects, the Board is
proposing the authorization of the Preferred Stock to increase its financial
flexibility, and not to address any imminent takeover threat.
No Dissenters' or Appraisal Rights
Under Delaware corporate law, stockholders of the Company will not be
entitled to exercise dissenters' rights or to demand appraisal and payment for
their shares in connection with the authorization of the Preferred Stock.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR"
THE PREFERRED STOCK AMENDMENT AS DESCRIBED IN PROPOSAL 3.
27
PROPOSAL 4--APPROVAL AND ADOPTION
OF THE COMPANY'S 2002 EQUITY INCENTIVE PLAN
In March 2002, the Board unanimously adopted a new stock option and
restricted share plan, the Covalent Group, Inc. 2002 Equity Incentive Plan (the
"Plan"). The Company is seeking shareholder approval in order to satisfy the
requirements under Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code") with respect to incentive stock options to the extent such options
are granted under the Plan and the requirements for performance-based
compensation under Section 162(m) of the Code. Under the Plan, rights to
acquire shares of common stock may be structured as:
. options intended to qualify as incentive stock options, or ISOs, under
Section 422(b) of the Internal Revenue Code;
. non-qualified stock options, or NSOs; or
. sales or grants of restricted shares.
The Company can grant option and restricted share awards under the Plan to
its employees, directors, consultants and advisors.
On March 8, 2002, the Board adopted the Plan and reserved for issuance up to
1,000,000 shares of common stock upon the exercise of stock options or the
grant of restricted shares under the Plan. Stock options are a vital component
of employment compensation packages that the Company can offer to attract high-
caliber individuals. The Board adopted the Plan to ensure that the Company can
compete effectively in its recruitment efforts, and create incentives for the
retention of its employees, by granting stock options and restricted shares to
employees.
The Plan provides an overall limit of 10% of the shares authorized for
issuance under the plan for the shares of common stock that may be awarded as
restricted shares. Additionally, the aggregate number of options and restricted
shares that may be granted under the Plan to any one person is limited to
500,000 shares, subject to proportionate adjustment for changes in
capitalization.
A copy of the Plan can be found at the end of this proxy statement as
Appendix E.
Description of Plan
The Plan may be administered by the Board or by a committee of the Board.
Currently, the Compensation Committee of the Board is authorized to administer
the Plan. Subject to the terms of the Plan, the Compensation Committee has the
authority to:
. determine the persons to whom options or restricted shares will be
awarded and the number of shares to be covered by each award;
. determine the exercise price per share subject to a stock option and/or
the purchase price for restricted shares, if any;
. determine the time or times within which restricted shares may be
subject to forfeiture and all other conditions of such awards;
. prescribe, amend and rescind rules and regulations relating to the Plan;
. determine the conditions which must be satisfied in order for an option
to vest and become exercisable and/or for the restrictions on restricted
shares to lapse;
. accelerate the vesting or exercise date of any option and/or waive, in
whole or in part, any or all remaining restrictions on any restricted
shares; and
. interpret the Plan and any agreement entered into with respect to an
award.
28
The Plan provides that the Compensation Committee must establish an exercise
price for ISOs that is equal to the fair market value per share of the common
stock at the date of grant and NSOs that may be more than, less than or equal
to such fair market value. The option exercise price must be paid in full at
the time the notice of exercise of the option is delivered to the Company and
must be tendered in cash, or by personal or certified check. The Compensation
Committee has the discretion to permit a participant to exercise by delivering
a combination of shares and cash.
Pursuant to the Plan, options can be granted with expiration dates as
determined by the Compensation Committee; provided, however, that the
expiration date may not be more than 10 years after the date of grant. The
aggregate number of options which may be granted under the Plan to any one
person is limited to 500,000 shares, subject to proportionate adjustment for
changes in capitalization. Options vest upon satisfaction of vesting
conditions, which may include completion of specified periods of service,
attainment of performance goals, or other conditions specified by the
Compensation Committee. However, if ISOs are granted to persons owning more
than 10% of the voting stock, the exercise price may not be less than 110% of
the fair market value per share at the date of grant, and the term of the ISOs
may not exceed five years.
Generally, if a participant is an employee or director and the participant's
relationship with the Company ceases for any reason, other than termination for
cause, death or disability, the participant may exercise options that are then
vested within the three-month period following the end of the relationship.
Options may terminate or expire sooner, however, by their terms. If the
participant commences competitive employment within the three-month period, all
unexercised options will terminate immediately. If a participant is an advisor
or consultant, termination of the relationship with the Company does not cause
acceleration of the expiration of the option. However, if the advisor or
consultant violates the terms of a non-competition covenant in an agreement
that he or she may have with the Company, all unexercised options will
terminate immediately.
If a participant's relationship with the Company ends due to disability or
death, the option may be exercised by the participant or executor, as
appropriate, for a period of 12 months from the date of termination. However,
if the relationship ends because of a disability, unexercised options will
terminate if a participant who is an employee or director commences competitive
employment or service or, in the case of a consultant or advisor, violates the
terms of his or her non-competition covenant, in the 12-month period following
termination. If a participant is terminated for cause, all unexercised options
are forfeited, including options that have been exercised but for which no
share certificates have been issued, provided that the Company must refund the
exercise price paid by the participant.
Restricted shares may be issued either alone or in addition to other awards
granted under the Plan. The provisions of restricted share awards need not be
the same with respect to each participant. The Compensation Committee may
require participants to pay for their restricted shares, and a specific method
of payment, including the use of cash, or a personal or certified check, may be
required. If the Compensation Committee approves, the participant also may
elect to purchase restricted shares using a combination of shares and cash.
After the Compensation Committee authorizes an award, the recipient of
restricted shares must execute an award agreement which states the terms and
conditions of the award. A share certificate will be issued in connection with
each award of restricted shares. This certificate will bear a legend marking
the shares as restricted shares and will be held in custody by the Company or
an escrow agent until the restrictions on the award have lapsed.
During the restriction period set by the Compensation Committee, the
participant will not be permitted to transfer or encumber the restricted
shares. The participant will be entitled to vote and to receive any cash
dividends with respect to restricted shares. Dividends paid in the form of
securities will be subject to the same conditions as the restricted shares with
respect to which they were paid. Unless there is a forfeiture of the restricted
shares, a change of control of the Company, or a waiver of the restrictions,
the restrictions on restricted shares generally lapse in accordance with the
conditions stipulated in the award agreement, which may include continued
employment, engagement or service of the participant for a specified time
period, attainment of specific performance goals, or any other factor that the
Compensation Committee selects.
29
Forfeitures occur during the restriction period either when the participant's
relationship with the Company is terminated for any reason, if specified
performance goals are not attained, or if the Company and the participant agree
to the forfeiture. Under certain circumstances, forfeitures also occur when
there is a change of control. Participants will receive a refund of their
purchase price if they paid for the restricted shares that were forfeited.
When the restrictions on restricted shares lapse, the certificates for the
restricted shares will be replaced by new certificates that do not bear a
restrictive legend. These new certificates will be delivered to the participant
subject to the terms of the Plan.
The Plan also has provisions that take effect if the Company experiences a
change of control. As used in the Plan, a change of control means:
. the acquisition in one or more transactions by any person of beneficial
ownership of 25% or more of the combined voting power of the Company's
then outstanding voting securities excluding voting securities acquired
directly from the Company;
. the approval by stockholders of the Company of:
. a merger, reorganization or consolidation involving the Company if the
stockholders of the Company immediately before such merger,
reorganization or consolidation do not or will not own directly or
indirectly immediately following such merger, reorganization or
consolidation, more than fifty percent of the combined voting power of
the outstanding voting securities of the Company resulting from or
surviving such merger, reorganization or consolidation in
substantially the same proportion as their ownership of the voting
securities outstanding immediately before such merger, reorganization
or consolidation;
. a complete liquidation or dissolution of the Company; or
. an agreement for the sale or other disposition of all or substantially
all of the assets of the Company; or
. acceptance by stockholders of the Company of shares in a share exchange
if the stockholders of the Company immediately before such share
exchange do not or will not own directly or indirectly immediately
following such share exchange more than fifty percent of the combined
voting power of the outstanding voting securities of the entity
resulting from or surviving such share exchange in substantially the
same proportion as their ownership of the voting securities outstanding
immediately before such share exchange.
If a change of control occurs and the Plan is not continued by a successor
corporation, and if the participants do not receive substantially equivalent,
substituted stock options or restricted shares in a successor corporation, then
the Plan will be terminated. In this case, all of the participants, employees
or members of the Board, unvested options shall vest and be fully and
immediately exercisable and restrictions on restricted shares shall lapse and
the shares become nonforfeitable.
If a change of control occurs and the Plan is continued by a successor
corporation, or if the participants receive substantially equivalent,
substituted options or restricted shares in a successor corporation, then for
participants who are employees or members of the Board shall vest as follows:
. if at the time of the change of control, the participant is a member of
the management team or is a Board member and is not offered
substantially equivalent employment with the successor corporation, both
in terms of duties and compensation, then, in the manner described
above, unvested options will become fully vested and the restrictions on
restricted shares will lapse; and
. if any participant, without regard to such participant's title, is
offered substantially equivalent employment with the successor
corporation, both in terms of duties and compensation, then his or her
options will not be subject to accelerated vesting and the restrictions
on his or her restricted shares will
30
not lapse. If that participant's employment with the successor corporation
is terminated during the six month period following the change of control,
however, then any unvested options will vest and the restrictions on all
restricted shares will lapse in the manner described above.
The Board may suspend, amend or terminate the Plan. However, stockholder
approval must be obtained for amendments that would:
. increase the number of shares which are reserved for the issuance of
options or restricted shares under the Plan; or
. permit the granting of options to a class of employees other than those
presently permitted to receive options under this Plan.
Federal Tax Consequences
The following is a brief description of the federal income tax consequences
of stock options and restricted shares that may be granted under the Plan under
present tax laws. The following description does not address all of the tax
consequences that may be applicable to the Company or to any particular
participant. In addition, the discussion does not address foreign, state or
local taxes, nor does it address federal taxes other than federal income tax.
The discussion is based upon applicable statutes, regulations, case law, and
administrative interpretations in effect as of the date of this proxy
statement.
Incentive Stock Options. There are no federal income tax consequences to
either the participant or the Company upon the grant of an ISO. Upon a sale of
the shares obtained from the exercise of an ISO, the participant will recognize
a long-term capital gain (or loss) measured by the excess (or deficit) of the
amount realized from such sale over the option price of such shares, but no
deduction will be allowed to the Company, if the following holding period
requirement is satisfied:
. the participant does not dispose of the shares within two years from the
date the ISO was granted; or
. the participant does not dispose of the shares within one year from the
date the shares were issued to the participant.
If a participant disposes of shares before the holding period requirement is
satisfied, the participant will recognize ordinary income in the year of
disposition, and the Company will be entitled to a corresponding deduction, in
an amount equal to the lesser of:
. the excess of the fair market value of the shares on the date of
exercise over the option price of the shares; or
. the excess of the amount realized from such disposition over the option
price of the shares.
Where shares are sold before the holding period requirement is satisfied,
the participant will also recognize a capital gain to the extent that the
amount realized from the disposition of the shares exceeds the fair market
value of the shares on the date of exercise. Upon exercise of an ISO, the
excess, if any, of the fair market value over the exercise price will be an
item of tax preference for purposes of the participant's alternative minimum
tax.
Non-Qualified Stock Options. There are no federal income tax consequences to
either the participant or to the Company upon the grant of an NSO. Upon the
exercise of an NSO, the participant will recognize ordinary compensation income
in an amount equal to the excess of the fair market value of each share on the
date of exercise over the option price, and the Company generally will be
entitled to a federal income tax deduction in the same amount.
In general, if previously owned shares are used to pay the exercise price of
options, the participant's tax basis and holding period of such previously
owned shares will be carried over to the equal number of shares
31
received on exercise. The fair market value of any additional shares received
upon the exercise of an option will be recognized by the participant as
ordinary income. The tax basis of the additional shares will be equal, in the
aggregate, to the ordinary income recognized by the participant. The holding
period will begin on the day after the tax basis of the shares is determined.
However, if the previously owned shares had been acquired on the exercise of an
ISO and the holding period requirement for those shares was not satisfied at
the time they were used to exercise an option, such use would constitute a
disposition of such previously owned shares resulting in the recognition of
ordinary income as described above.
Restricted Shares. Unless the participant elects to recognize income at the
time of an award of restricted shares, the participant will not recognize
taxable income until the shares are no longer subject to a substantial risk of
forfeiture. The participant's recognized income will equal the amount that the
fair market value of such shares--measured at the time of grant if an election
is made, or otherwise at the time the restrictions lapse or are removed--
exceeds any sum paid for such shares (the "bargain element"). The Company will
generally be entitled to a deduction in the same amount, and in the same year
as the participant of restricted shares has income. The Company will comply
with all applicable withholding requirements with respect to such income.
The aforementioned election allows the participant to recognize the bargain
element as income in the year of the award (as opposed to when the restrictions
lapse or are removed) by making an election with the Internal Revenue Service
within 30 days after the award is made. If the participant subsequently
forfeits the restricted shares, the participant would not be entitled to any
tax deduction for the value of the shares on which the participant previously
paid tax. Dividends received by a participant on restricted shares during the
restriction period are taxable to the participant as ordinary compensation
income and will be deductible by the Company unless the aforementioned election
is made, rendering dividends taxable as dividends and nondeductible.
Special rules apply if a participant uses previously owned shares to pay for
restricted shares, but, in general, the participant's tax basis and holding
period of such previously owned shares will be carried over to the equal number
of restricted shares for which a purchase price is paid in the form of
previously owned shares.
Option Grants
No options or awards have been granted under the Plan. The future benefits
or amounts that would be received under the Plan by executive officers and
other employees are discretionary and are therefore not determinable at this
time.
During the calendar year 2001, the following persons or groups received
options under the Company's 1996 Stock Incentive Plan: (i) the Named Executive
Officers: Dr. Borow 50,000 shares, Dr. Dickson 100,000 shares; Mr. Delikat
18,000 shares, and Dr. Cappola, 2,500 shares, Dr. Hall and Ms. Spear did not
receive any grants in 2001; (ii) all current executive officers of the Company
as a group: 168,000 shares; (iii) all current directors who are not executive
officers as a group: 165,000; and (iv) all current employees, who are not
executive officers, as a group: 560,400 shares. As of April 16, 2002, the
Company's preexisting stock option plans have 153,756 shares remaining
available for issuance.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU
VOTE "FOR" THE APPROVAL AND ADOPTION OF THE
2002 EQUITY INCENTIVE PLAN AS DESCRIBED IN PROPOSAL 4.
32
PROPOSAL 5--RATIFICATION OF SELECTION OF
DELOITTE & TOUCHE LLP AS THE COMPANY'S INDEPENDENT
PUBLIC ACCOUNTANTS FOR THE YEAR ENDING DECEMBER 31, 2002
Subject to stockholder ratification, the Board intends to appoint Deloitte
& Touche LLP as its independent public accountants for the year ending
December 31, 2002. One or more members of Deloitte & Touche LLP are expected
to be present at the Meeting, and will have the opportunity to make a
statement if they desire to do so and will be available to respond to
appropriate questions.
The following additional information is provided as required by the
Securities and Exchange Commission:
Fees billed to the Company by Deloitte & Touche LLP during 2001
Audit Fees:
Audit fees billed to the Company by its public accountants, Deloitte &
Touche LLP, during the Company's 2001 fiscal year for review of the Company's
annual report on Form 10-KSB and its quarterly reports on Form 10-QSB,
including the financial statements included in those reports, totaled
$164,200.
Financial Information Systems Design and Implementation Fees:
The Company did not engage Deloitte & Touche LLP to provide advice to the
Company regarding financial information systems design and implementation
during the fiscal year ended December 31, 2001.
All Other Fees:
Fees billed to the Company by Deloitte & Touche LLP during the Company's
2001 fiscal year for all other non-audit services rendered to the Company,
including tax related services, totaled $25,629.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE
RATIFICATION OF THE SELECTION OF THE INDEPENDENT PUBLIC ACCOUNTANTS
AS DESCRIBED IN PROPOSAL 5
Stockholder Proposals for 2003 Annual Meeting
Any stockholder proposal intended to be presented at the Company's 2003
Annual Meeting of Stockholders must be received by the Company at its office
in Wayne, Pennsylvania on or before January 6, 2003 in order to be considered
for inclusion in the Company's proxy statement and form of proxy relating to
such meeting.
With respect to stockholder proposals brought before the 2003 Annual
Meeting of Stockholders that are not included in the Company's proxy statement
relating to such meeting, the Company may utilize discretionary authority
conferred by proxy in voting on any such proposals if the stockholder does not
give the Company notice of such matter by March 6, 2003.
Expenses of Solicitation
The solicitation of proxies will be conducted by mail and the Company will
bear all attendant costs. These costs will include the expense of preparing
and mailing proxy solicitation materials for the Meeting and reimbursements
paid to brokerage firms and others for their expenses incurred in forwarding
solicitation materials regarding the Meeting to beneficial owners of the
Company's Common Stock. The Company may conduct further solicitation
personally, telephonically, by facsimile or via electronic mail through its
officers, directors and employees, none of whom will receive additional
compensation for assisting with the solicitation.
33
PLEASE DATE AND SIGN THE ENCLOSED PROXY THAT IS BEING SOLICITED BY THE BOARD
OF DIRECTORS AND RETURN IT IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF
IT IS MAILED IN THE UNITED STATES.
By order of the Board of Directors
/s/ David Weitz
_____________________________________
David Weitz,
Secretary
34
Appendix A--Form of Agreement and Plan of Merger
Appendix B--Certificate of Incorporation of Covalent-Delaware
Appendix C--Form of Covalent-Delaware Bylaws
Appendix D--Form of Certificate of Amendment to Certificate of
Incorporation of Covalent-Delaware
Appendix E--2002 Equity Incentive Plan
35
APPENDIX A
FORM OF
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made as of this
day of , 2002, by and between Covalent Group, Inc., a Nevada corporation
(the "Nevada Corporation"), and Covalent Group (Delaware), Inc., a Delaware
corporation (the "Delaware Corporation").
W I T N E S S E T H:
WHEREAS, the Nevada Corporation is a corporation duly organized, validly
existing and in good standing under the laws of the State of Nevada, and on the
date of this Agreement has authority to issue twenty-five million (25,000,000)
shares of common stock, par value $0.001 per share (the "Nevada Common Stock"),
of which [12,250,750] shares are issued and outstanding;
WHEREAS, the Delaware Corporation is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, and has
authority to issue twenty-five million (25,000,000) shares of common stock, par
value $0.001 per share (the "Delaware Common Stock"), of which 1,000 shares are
issued and outstanding and owned by the Nevada Corporation;
WHEREAS, the respective Boards of Directors of the Nevada Corporation and
the Delaware Corporation have determined that, for purposes of effecting the
reincorporation of the Nevada Corporation in the State of Delaware, it is
advisable, to the advantage of and in the best interests of the Delaware
Corporation and its stockholder and the Nevada Corporation and its stockholders
that the Nevada Corporation merge with and into the Delaware Corporation upon
the terms and subject to the conditions herein provided;
WHEREAS, the parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code
of 1986, as amended (the "Code"), and to cause the merger described herein to
qualify as a reorganization under the provisions of Section 368 of the Code;
and
WHEREAS, the respective Boards of Directors of the Nevada Corporation and
the Delaware Corporation and the stockholder of the Delaware Corporation have
unanimously adopted and approved this Agreement, and the Board of Directors of
the Nevada Corporation has directed that this Agreement be submitted to the
stockholders of the Nevada Corporation for their consideration;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and intending to be legally bound, the Nevada Corporation and
the Delaware Corporation hereby agree as follows:
1. Merger. Subject to the approval of the stockholders of the Nevada
Corporation in accordance with the Nevada Revised Statutes (the "NRS"), at such
time thereafter as the parties hereto shall mutually agree, the Nevada
Corporation shall be merged with and into the Delaware Corporation (the
"Merger"), and the Delaware Corporation shall be the surviving company
(hereinafter sometimes referred to as the "Surviving Corporation"). The Merger
shall be effective upon (a) the filing of this Agreement together with Articles
of Merger (the "Articles of Merger") with the office of the Secretary of State
of the State of Nevada in accordance with the provisions of Chapter 92-A of the
NRS; and (b) the filing of a duly certified counterpart of this Agreement and a
duly executed Certificate of Merger (the "Certificate of Merger") with the
Secretary of State of the State of Delaware in accordance with the applicable
provisions of the Delaware General Corporation Law (the "DCGL"); the date and
time of the later of such filings being hereinafter referred to as the
"Effective Date." Immediately following the due approval of the Merger by the
stockholders of the Nevada Corporation, subject to the provisions of this
Agreement, the Articles of Merger shall be duly executed by the Delaware
Corporation and the Nevada Corporation and thereafter delivered to the office
of the Secretary of
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State of the State of Nevada, as provided in Chapter 92-A of the NRS, and the
Certificate of Merger shall be duly executed by the Delaware Corporation and
the Nevada Corporation and thereafter delivered to the office of the Secretary
of State of Delaware, pursuant to Section 251 of the DGCL.
2. Governing Documents.
a. The Certificate of Incorporation of the Delaware Corporation, a copy of
which is attached hereto as Exhibit A, shall be the Certificate of
Incorporation of the Surviving Corporation, except that the name of the
Surviving Corporation shall be changed to Covalent Group, Inc. and Article I of
the Certificate of Incorporation shall be amended to read in its entirety as
follows:
"The name of this corporation is Covalent Group, Inc."
b. The By-Laws of the Delaware Corporation, a copy of which is attached
hereto as Exhibit B, shall be the By-Laws of the Surviving Corporation.
3. Officers and Directors. The directors of the Nevada Corporation
immediately prior to the Effective Date shall be the directors of the Surviving
Corporation and the officers of the Nevada Corporation immediately prior to the
Effective Date shall be the officers of the Surviving Corporation. Such
directors and officers will hold office from the Effective Date until their
respective successors are duly elected or appointed and qualified in the manner
provided in the Certificate of Incorporation and By-Laws of the Surviving
Corporation, as the same may be lawfully amended, or as otherwise provided by
law.
4. Succession. As of the Effective Date, the separate existence of the
Nevada Corporation shall cease and the Nevada Corporation shall be merged with
and into the Delaware Corporation, and the name of the Surviving Corporation
shall be Covalent Group, Inc. The Surviving Corporation shall have all of the
rights, privileges, immunities and powers and be subject to all of the duties
and liabilities granted or imposed by Section 259 of the DGCL.
5. Further Assistance. From and after the Effective Date, as and when
required by the Delaware Corporation or by its successor and assigns, there
shall be executed and delivered on behalf of the Nevada Corporation such deeds
and other instruments, and there shall be taken or caused to be taken by it
such further and other action, as shall be appropriate or necessary in order to
vest, perfect or confirm, of record or otherwise, in the Delaware Corporation
the title to and possession of all the property, interests, assets, rights,
privileges, immunities, power, franchises and authority of the Nevada
Corporation, and otherwise to carry out the purposes of this Agreement, and the
officers and directors of the Delaware Corporation are fully authorized in the
name and on behalf of the Nevada Corporation or otherwise to take any and all
such action and to execute and deliver any and all such deeds and other
instruments.
6. Capital Stock. At the Effective Date, by virtue of the Merger and without
any action on the part of the holder thereof, each share of Nevada Common Stock
outstanding immediately prior thereto shall be changed and converted into one
fully paid and non-assessable share of Delaware Common Stock.
7. Outstanding Stock of the Delaware Corporation. At the Effective Date, the
1,000 shares of the Delaware Common Stock presently issued and outstanding in
the name of the Nevada Corporation shall be canceled and retired and resume the
status of authorized and unissued shares of Delaware Common Stock, and no
shares of Delaware Common Stock or other securities of Delaware Common Stock
shall be issued in respect thereof.
8. Stock Certificates. From and after the Effective Date, all of the
outstanding certificates which prior to that time represented shares of Nevada
Common Stock shall be deemed for all purposes to evidence ownership and to
present the shares of Delaware Common Stock into which such shares of Nevada
Common Stock represented by such certificates have been converted as herein
provided. The registered owner on the books and
A-2
records of the Delaware Corporation or its transfer agent of any such
outstanding stock certificate shall, until such certificate shall have been
surrendered for transfer or otherwise accounted for to the Delaware Corporation
or its transfer agent, have and be entitled to exercise any voting and other
rights with respect to and to receive any dividend and other distributions upon
the shares of Delaware Common Stock evidenced by such outstanding certificates
as above provided.
9. Options. At the Effective Date, each outstanding option or other right to
purchase shares of Nevada Common Stock, including options granted and
outstanding under the 2002 Equity Incentive Plan, the 1996 Stock Incentive
Plan, and the 1995 Employee Stock Option Plan (collectively, the "Nevada Option
Plans"), shall, by virtue of the Merger and without any action on part of the
holder thereof, be converted into and become an option or right to purchase the
same number of shares of Delaware Common Stock at a price per share equal to
the exercise price of the option or right to purchase Nevada Common Stock and
upon the same terms and subject to the same conditions as set forth in the
Nevada Option Plans and the agreements entered into by the Nevada Corporation
pertaining to such options or rights. A number of shares of Delaware Common
Stock shall be reserved for purposes of such options and rights equal to the
number of shares of Nevada Common Stock so reserved immediately prior to the
Effective Date. As of the Effective Date, the Delaware Corporation shall assume
all obligations of the Nevada Corporation under agreements pertaining to such
options and rights, including the Nevada Option Plans, and the outstanding
options or other rights, or portions thereof, granted pursuant thereto.
10. Validity of Delaware Common Stock. All shares of Delaware Common Stock
into which Nevada Common Stock is to be converted pursuant to the Merger shall
not be subject to any statutory or contractual preemptive rights, shall, when
issued, be validly issued, fully paid and nonassessable and shall be issued in
full satisfaction of all rights pertaining to such Nevada Common Stock.
11. Rights of Former Holders. From and after the Effective Date, no holder
of certificates which evidenced Nevada Common Stock immediately prior to the
Effective Date shall have any rights with respect to the shares formerly
evidenced by those certificates, other than to receive the shares of Delaware
Common Stock into which such Nevada Common Stock shall have been converted
pursuant to the Merger.
12. Covenants of the Delaware Corporation. The Delaware Corporation
covenants and agrees that, effective not later than the Effective Date, it will
(a) qualify to do business as a foreign corporation in all states in which the
Nevada Corporation is so qualified and in which failure so to qualify would
have a material adverse effect on the business or financial condition of the
Delaware Corporation and its subsidiaries, taken together as a whole, and, in
connection therewith, shall irrevocably appoint an agent for service of process
as required under applicable provisions of state law in the states in which
qualification is required hereunder; and (b) file any and all documents with
the Nevada Franchise Tax Board necessary to the assumption by the Delaware
Corporation of all of the franchise tax liabilities of the Nevada Corporation.
13. Condition. It shall be a condition precedent to the consummation of the
Merger and the other transactions contemplated in this Agreement that the
shares of Delaware Common Stock to be issued by Covalent Delaware shall, upon
official notice of issuance, be listed on the Nasdaq SmallCap Market as of the
Effective Date.
14. Waiver and Amendment. At any time prior to the Effective Date and after
approval and adoption of this Agreement by the stockholders of the Nevada
Corporation, this Agreement may be amended in any manner as may be determined
in the judgment of the respective Boards of Directors of the Delaware
Corporation and the Nevada Corporation to be necessary, desirable or expedient
in order to clarify the intention of the parties hereto or to effect or
facilitate the purposes and intent of this Agreement without action by the
respective stockholders of the parties, except that any (a) amendments to
Section 6, (b) amendments changing the terms, rights, powers or preferences of
Delaware Common Stock or Delaware Preferred Stock, or (c) amendments altering
any terms of this Agreement if such alteration would adversely affect the
holders of the capital stock of
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the Nevada Company or the Delaware Company, must be approved by the holders of
a majority of the Nevada Common Stock.
15. Abandonment and Termination. At any time before the Effective Date, this
Agreement may be terminated and the Merger may be abandoned by the Board of
Directors of either the Nevada Corporation or the Delaware Corporation or both,
notwithstanding approval of this Agreement by the sole stockholder of the
Delaware Corporation and the stockholders of the Nevada Corporation.
16. Counterparts. In order to facilitate the filing and recording of this
Agreement, this Agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original.
17. Headings. The paragraph headings in the Agreement are intended
principally for convenience and shall not, by themselves, determine rights and
obligations of the parties to this Agreement.
18. Third Parties. Except as provided in this Agreement, nothing herein
expressed or implied is intended or shall be construed to confer upon or give
any person, firm or corporation, other than the parties hereto or their
respective successors and assigns, any rights or remedies under or by reason of
this Agreement.
19. Governing Law. The Merger shall be governed by, and construed in
accordance with the laws of the State of Delaware.
20. Approval of Nevada Corporation as the Sole Stockholder of the Delaware
Corporation. By its execution and delivery of this Agreement, the Nevada
Corporation, as the sole stockholder of the Delaware Corporation, consents to,
approves and adopts this Agreement and approves the Merger, subject to the
approval and adoption of this Agreement by the holders of a majority of the
shares of the Nevada Common Stock. The Nevada Corporation agrees to execute
such instruments as may be necessary or desirable to evidence its approval and
adoption of this Agreement and Merger as the sole stockholder of the Delaware
Corporation.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have caused this Agreement to be executed as of this day and year first
above written.
Covalent Group, Inc.
___________________________________
By:
Name:
Title:
Covalent Group (Delaware), Inc.
___________________________________
By:
Name:
Title:
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APPENDIX B
CERTIFICATE OF INCORPORATION
OF
COVALENT GROUP (DELAWARE), INC.
ARTICLE I
The name of the corporation is Covalent Group (Delaware), Inc.
ARTICLE II
The address of the corporation's registered office in the State of Delaware
is 1209 Orange Street, in the city of Wilmington, County of New Castle. The
name of the corporation's registered agent at such address is The Corporation
Trust Company.
ARTICLE III
The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware.
ARTICLE IV
The total number of shares of all classes of stock which the corporation
shall have authority to issue is 25,000,000 shares of Common Stock, $0.001 par
value per share (the "Common Stock").
ARTICLE V
The name and mailing address of the incorporator is as follows:
Heather L. Reid
c/o Pepper Hamilton LLP
400 Berwyn Park
899 Cassatt Road
Berwyn, PA 19312-1183
ARTICLE VI
The corporation is to have perpetual existence.
ARTICLE VII
In furtherance and not in limitation of the powers conferred by the laws of
the State of Delaware:
(A) The board of directors of the corporation is expressly authorized to
adopt, amend or repeal the By-Laws of the corporation.
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(B) Elections of directors need not be by written ballot unless the By-Laws
of the corporation shall so provide.
(C) The books of the corporation may be kept at such place within or without
the State of Delaware as the By-Laws of the corporation may provide or as may
be designated from time to time by the board of directors of the corporation.
ARTICLE VIII
(A) No Personal Liability. A director of the corporation shall not be
personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under section 174
of the Delaware General Corporation Law or (iv) for any transaction from which
the director derived an improper personal benefit.
(B) Indemnification. Each person who is or is made a party or is threatened
to be made a party to or is involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter a "proceeding"),
by reason of the fact that he or she, or a person of whom he or she is the
legal representative, is or was a director or officer of the corporation or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation or of a partnership, joint venture,
trust or other enterprise, including service with respect to employee benefit
plans, whether the basis of such proceeding is alleged action in an official
capacity as a director, officer, employee or agent or in any other capacity
while serving as a director, officer, employee or agent, shall be indemnified
and held harmless by the corporation to the fullest extent authorized by the
Delaware General Corporation Law, as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits the corporation to provide broader indemnification rights
than said law permitted the corporation to provide prior to such amendment),
against all expense, liability and loss (including attorneys' fees, judgments,
fines, ERISA excise taxes or penalties and amounts paid or to be paid in
settlement) reasonably incurred or suffered by such person in connection
therewith and such indemnification shall continue as to a person who has ceased
to be a director, officer, employee or agent and shall inure to the benefit of
his or her heirs, executors and administrators; provided, however, that, except
as provided in the second paragraph hereof, the corporation shall indemnify any
such person seeking indemnification in connection with a proceeding (or part
thereof) initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the corporation. The right to
indemnification conferred in this section shall be a contract right and shall
include the right to be paid by the corporation any expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
however, that, if the Delaware General Corporation Law requires, the payment of
such expenses incurred by a director or officer in his or her capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such person while a director or officer, including, without
limitation, service to an employee benefit plan) in advance of the final
disposition of a proceeding, shall be made only upon delivery to the
corporation of an undertaking, by or on behalf of such director or officer, to
repay all amounts so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under this section or
otherwise. The corporation may, by action of its Board of Directors, provide
indemnification to employees and agents of the corporation with the same scope
and effect as the foregoing indemnification of directors and officers.
If a claim under the first paragraph of this section is not paid in full by
the corporation within thirty (30) days after a written claim has been received
by the corporation, the claimant may at any time thereafter bring suit against
the corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending any
proceeding
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in advance of its final disposition where the required undertaking, if any is
required, has been tendered to the corporation) that the claimant has not met
the standards of conduct which make it permissible under the Delaware General
Corporation Law for the corporation to indemnify the claimant for the amount
claimed, but the burden of proving such defense shall be on the corporation.
Neither the failure of the corporation (including its Board of Directors,
independent legal counsel, or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant
is proper in the circumstances because he or she has met the applicable
standard of conduct set forth in the Delaware General Corporation Law, nor an
actual determination by the corporation (including its Board of Directors,
independent legal counsel, or its stockholders) that the claimant has not met
such applicable standard of conduct, shall be a defense to the action or create
a presumption that the claimant has not met the applicable standard of conduct.
The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this
section shall not be exclusive of any other right which any person may have or
hereafter acquire under any statute, provision of the Restated Certificate of
Incorporation, Bylaw, agreement, vote of stockholders or disinterested
directors or otherwise.
(C) The corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the corporation
would have the power to indemnify such person against such expense, liability
or loss under the Delaware General Corporation Law.
(D) If the Delaware General Corporation Law is hereafter amended to
authorize the further elimination or limitation of the liability of a director,
then the liability of a director of the corporation shall be eliminated or
limited to the fullest extent permitted by the Delaware General Corporation
Law, as so amended.
(E) Any repeal or modification of the foregoing provisions of this Article
VIII shall not adversely affect any right or protection of any director,
officer, employee or agent of the corporation existing at the time of such
repeal or modification.
ARTICLE IX
The corporation reserves the right to amend or repeal any provision
contained in this Certificate of Incorporation, in the manner now or hereafter
prescribed by statute, and all rights conferred upon a stockholder herein are
granted subject to this reservation.
I, THE UNDERSIGNED, being the sole incorporator hereinabove named, for the
purpose of forming a corporation pursuant to Delaware General Corporation Law
of the State of Delaware, do make this certificate, hereby declaring and
certifying that said instrument is my act and deed and that the facts stated
herein are true, and accordingly executed this Certificate of Incorporation as
of April 16, 2002.
/s/ Heather L. Reid
_____________________________________
Heather L. Reid
Incorporator
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APPENDIX C
FORM OF BYLAWS
OF
COVALENT GROUP (DELAWARE), INC.
(a Delaware Corporation)
ARTICLE I
Offices and Fiscal Year
Section 1.1. Offices. The Corporation may have an office or offices at such
places as the Board of Directors may from time to time designate.
Section 1.2. Fiscal Year. The fiscal year of the Corporation shall end on
31st day of December each year.
ARTICLE II
Meeting of Stockholders
Section 2.1. Annual Meetings. An annual meeting of stockholders shall be
held for the election of directors at such date, time and place, either within
or without the State of Delaware, as may be designated by resolution of the
Board of Directors from time to time. Any other proper business may be
transacted at the annual meeting.
(a) The Corporation shall hold annual meetings of stockholders on such date
and at such time as shall be designated from time to time by the Board of
Directors, the Chairman of the Board or the President. At each annual meeting,
the stockholders shall elect, in accordance with Section 2.9 hereof, directors
to serve until the next annual meeting of stockholders. The nomination of
persons for election to the Board of Directors and the proposal of any other
business to be transacted at an annual meeting may be made only (i) by or at
the direction of the Board of Directors or (ii) by any stockholder who
satisfies the qualifications set forth in Section (b) hereof and gives notice
in accordance with the procedures set forth in Section (b) hereof. Only persons
thereby nominated shall be eligible to serve as directors and only business
thereby proposed shall be transacted at an annual meeting. The presiding
officer of the annual meeting shall determine whether a nomination or any
proposal of business complies or complied with this ARTICLE II.
(b) Except as otherwise provided by law (including but not limited to Rule
14a-8 of the Securities and Exchange Act of 1934, as amended or any successor
provision thereto (the "Exchange Act")), or in these bylaws, or except as
permitted by the presiding officer of the meeting in the exercise of such
officer's sole discretion in any specific instance, the business which shall be
conducted at any meeting of the stockholders shall (a) have been specified in
the written notice of the meeting (or any supplement thereto) given by the
Corporation, or (b) be brought before the meeting at the direction of the Board
of Directors or the presiding officer of the meeting, or (c) have been
specified in a written notice (a "Stockholder Meeting Notice") given to the
Corporation, in accordance with all of the requirements set forth below in this
Section (b), by or on behalf of any stockholder who shall have been a
stockholder of record on the date of giving such notice and on the record date
for such meeting and who shall continue to be entitled to vote at such meeting
through the date of such meeting. Each Stockholder Meeting Notice must be
delivered to the Secretary at the principal executive offices of the
Corporation in accordance with this Section (b). The Stockholder Meeting Notice
must be received by the Secretary not less than ninety (90) days nor more than
one-hundred twenty (120) days prior to the first anniversary of the preceding
year's annual meeting; provided, however, that in the event that the date of
the annual meeting is advanced by more than thirty (30) days or delayed by more
than sixty (60) days from
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such anniversary date, the stockholder must deliver such Stockholder Meeting
Notice not earlier than the one-hundred twentieth (120th) day prior to such
annual meeting and not later than the close of business on the later of the
ninetieth (90th) day prior to such annual meeting or the tenth (10th) day
following the day on which public announcement of the date of such meeting is
first made. The Stockholder Meeting Notice must set forth: (i) as to each
person whom the stockholder proposes to nominate for election or reelection as
a director, whether or not the Corporation is then subject to Section 14(a) of
the Exchange Act, (a) all information relating to such person that is required
to be disclosed in solicitations of proxies for election of directors pursuant
to Section 14(a) of the Exchange Act, (b) such person's written consent to
being named in the proxy statement as a nominee and to serving as a director if
elected, and (c) a description of all arrangements or understandings among the
stockholder and each nominee and any other person or persons (naming such
person or persons) pursuant to which a nomination or nominations are to be made
by the stockholder; (ii) as to any other business that the stockholder proposes
to transact at the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting the business at the
meeting and any material interest in the business of the stockholder and of the
beneficial owner, if any, on whose behalf the proposal is made; (iii) as to the
stockholder giving the notice and the beneficial owner, if any, on whose behalf
the nomination or proposal is made, the name and address of the stockholder, as
they appear on the Corporation's books, and of such beneficial owner, the class
and number of shares of the Corporation that are owned beneficially and of
record by such stockholder and such beneficial owner and a representation that
the stockholder intends to appear in person or by proxy at the annual meeting
to bring such business before the meeting; and (vi) a representation that the
stockholder intends to appear in person or by proxy at the meeting to nominate
the candidate or candidates for election to the Board of Directors or to
present the proposal to be brought before the meeting. The presiding officer of
the meeting may refuse to consider any business that shall be brought before
any meeting of stockholders of the Corporation otherwise than as provided in
this Section (b).
(c) For purposes of this Section 2.1, a "public announcement," means
disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable news service, in a document publicly filed with
the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of
the Exchange Act (or their successor provisions), or in a notice of meeting or
proxy statement mailed generally to the Corporation's stockholders. In giving
notice under this Section 2.1, a stockholder must also comply with state law
and the Exchange Act. Nothing in this Section 2.1 shall be deemed to affect the
rights of a stockholder to request inclusion of proposals in the Corporation's
proxy statement pursuant to Rule 14a-8 (or its successor provision) under the
Exchange Act.
Section 2.2. Special Meetings. Special meetings of the stockholders may be
called at any time by the President, by resolution of the Board of Directors,
or at the request in writing of stockholders of record owning fifty percent
(50%) in amount of capital stock outstanding and entitled to vote. Special
meetings shall be at such date, time and place, either within or without the
State of Delaware, as may be designated by resolution of the Board of Directors
from time to time. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice relating to such meeting
(or to the purposes for which the meeting is called if such notice is waived or
is not required as provided in the General Corporation Law of the State of
Delaware (the "Delaware General Corporation Law") or these bylaws); provided,
however, that whenever the language of a proposed resolution is included in a
written notice of a special meeting of stockholders required to be given under
these bylaws, the meeting considering the resolution may without further notice
adopt it with such clarifying or other amendments as do not enlarge its
original purpose. In the case of a special meeting of stockholders called for
the purpose of electing directors, nominations may be made only (i) by or at
the direction of the Board of Directors or (ii) by any stockholder of record
who delivers to the Secretary, no later than the tenth day following the day on
which public announcement of the special meeting is made, a notice that
complies with and is delivered in accordance with Section Section 2.1(b)
hereof.
Section 2.3. Notice of Meetings. Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting
shall be given by, or at the direction of, the Secretary or other authorized
person that shall state the place, date and hour of the meeting and, in the
case of a special meeting,
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the purpose or purposes for which the meeting is called. Unless otherwise
provided by law, the certificate of incorporation or these bylaws, the written
notice of any meeting shall be given not less than ten (10) nor more than sixty
(60) days before the date of the meeting to each stockholder entitled to vote
at such meeting. If the Secretary neglects or refuses to give notice of a
meeting, the person or persons calling the meeting may do so.
Section 2.4. Waivers of Notice. Whenever the giving of any notice is
required by statute, the certificate of incorporation or these bylaws, a waiver
thereof, in writing and delivered to the Secretary, signed by the person or
persons entitled to said notice, whether before or after the event as to which
such notice is required, shall be deemed equivalent to notice. Attendance of a
stockholder at a meeting shall constitute a waiver of notice of such meeting,
except when the stockholder attends such meeting for the express purpose of
objecting at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
stockholders need by specified in any written waiver of notice or any waiver by
the electronic transmission.
Section 2.5. Participation in Meetings of Stockholders. Subject to the
applicable provisions of the Delaware General Corporation Law, stockholders (or
proxy holders) not physically present at a meeting of stockholders may, by
means of remote communication, participate in a meeting of stockholders and be
deemed present in person and vote at a meeting of stockholders, whether such
meeting is to be held at a designated place or solely by means of remote
communication.
Section 2.6. Adjournments. Any meeting of stockholders, annual or special,
may adjourn from time to time to reconvene at the same or some other place, and
notice need not be given of any such adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken. At the
adjourned meeting the Corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
thirty (30) days, or if after the adjournment a new record date is fixed for
the adjourned meeting, notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 2.7. Quorum. Except as otherwise provided by law, the certificate of
incorporation or these bylaws, at each meeting of stockholders the presence in
person or by proxy of the holders of a majority in voting power of the
outstanding shares of stock entitled to vote at the meeting shall be necessary
and sufficient to constitute a quorum. In the absence of a quorum, the
stockholders so present may, by a majority in voting power thereof, adjourn the
meeting from time to time in the manner provided in Section 2.6 hereof until a
quorum shall attend. Shares of its own stock belonging to the Corporation or to
another corporation, if a majority of the shares entitled to vote in the
election of directors of such other corporation is held, directly or
indirectly, by the Corporation, shall neither be entitled to vote nor be
counted for quorum purposes; provided, however, that the foregoing shall not
limit the right of the Corporation or any subsidiary of the Corporation to vote
stock, including but not limited to its own stock, held by it in a fiduciary
capacity. Subject to any limitations contained in the laws of the State of
Delaware, the stockholders present at a duly organized meeting can continue to
do business until adjournment notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
Section 2.8. Organization. Meetings of stockholders shall be presided over
by the Chairman of the Board, if any, or in his absence by the President, or in
his absence by a Vice President, or in the absence of the foregoing persons by
a chairman designated by the Board of Directors, or in the absence of such
designation by a chairman chosen at the meeting. The Secretary shall act as
secretary of the meeting, but in his absence the chairman of the meeting may
appoint any person to act as secretary of the meeting.
Section 2.9. Voting; Proxies.
(a) Except as otherwise provided by or pursuant to the provisions of the
certificate of incorporation, each stockholder entitled to vote at any meeting
of stockholders shall be entitled to one (1) vote for each share of
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stock held by such stockholder which has voting power upon the matter in
question. Voting at meetings of stockholders need not be by written ballot. At
all meetings of stockholders for the election of directors, a plurality of the
votes cast shall be sufficient to elect. All other elections and questions
shall, unless otherwise provided by the certificate of incorporation, these
bylaws, the rules or regulations of any stock exchange applicable to the
Corporation, as otherwise provided by law or pursuant to any regulation
applicable to the Corporation, be decided by the affirmative vote of the
holders of a majority in voting power of the shares of stock of the Corporation
which are present in person or by proxy and entitled to vote thereon.
(b) Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for such stockholder by proxy, but
no such proxy shall be voted or acted upon after three (3) years from its date,
unless the proxy provides for a longer period. A proxy shall be irrevocable if
it states that it is irrevocable and if, and only as long as, it is coupled
with an interest sufficient in law to support an irrevocable power. A
stockholder may revoke any proxy which is not irrevocable by attending the
meeting and voting in person or by filing an instrument in writing revoking the
proxy or by delivering a proxy in accordance with applicable law bearing a
later date to the Secretary. Without limiting the manner in which a stockholder
may authorize another person or persons to act for such stockholder as proxy
pursuant to this Section (b), the following shall constitute a valid means by
which a stockholder may grant such authority:
(1) A stockholder may execute a writing authorizing another person or
persons to act for such stockholder as proxy. Execution may be accomplished
by the stockholder or such stockholder's authorized officer, director,
employee or agent signing such writing or causing such person's signature
to be affixed to such writing by any reasonable means including, but not
limited to, by facsimile signature.
(2) A stockholder may authorize another person or persons to act for
such stockholder as proxy by transmitting or authorizing the transmission
of a telegram, cablegram, or other means of electronic transmission to the
person who will be the holder of the proxy or to a proxy solicitation firm,
proxy support service organization or like agent duly authorized by the
person who will be the holder of the proxy to receive such transmission;
provided that any such telegram, cablegram or other means of electronic
transmission must either set forth or be submitted with information from
which it can be determined that the telegram, cablegram or other electronic
transmission was authorized by the stockholder. If it is determined that
such telegrams, cablegrams or other electronic transmissions are valid, the
inspectors or, if there are no inspectors, such other persons making that
determination shall specify the information upon which they relied.
Section 2.10. Voting Rights of Fiduciaries. Persons holding stock in a
fiduciary capacity shall be entitled to vote the shares so held. Persons whose
stock is pledged shall be entitled to vote (in person or by proxy), unless in
the transfer by the pledgor on the books of the Corporation such person has
expressly empowered the pledgee to vote thereon, in which case only the
pledgee, or such pledgee's proxy, may represent such stock and vote thereon.
Section 2.11. Voting by Joint Holders of Shares. If shares or other
securities having voting power stand of record in the names of two or more
persons, whether fiduciaries, members of a partnership, joint tenants, tenants
in common, tenants by the entirety or otherwise, or if two or more persons have
the same fiduciary relationship respecting the same shares, unless the
Secretary is given written notice to the contrary and is furnished with a copy
of the instrument or order appointing them or creating the relationship wherein
it is so provided, their acts with respect to voting shall have the following
effect: (a) if only one votes, such person's act binds all; (b) if more than
one vote, the act of the majority so voting binds all; (c) if more than one
vote, but the vote is evenly split on any particular matter, each faction may
vote the securities in question proportionally, or any person voting the
shares, or a beneficiary, if any, may apply to the Court of Chancery or such
other court as may have jurisdiction to appoint an additional person to act
with the persons so voting the shares, which shall then be voted as determined
by a majority of such persons and the person appointed by the
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Court. If the instrument so filed shows that any such tenancy is held in
unequal interests, a majority or even split for the purpose of this subsection
shall be a majority or even split in interest.
Section 2.12. Fixing Date for Determination of Stockholders of Record. In
order that the Corporation may determine the stockholders entitled to notice of
or to vote at any meeting of stockholders or any adjournment thereof, or to
express consent without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock
or for the purpose of any other lawful action, the Board of Directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which record date: (i) in the case of determination of stockholders entitled to
vote at any meeting of stockholders or adjournment thereof, shall, unless
otherwise required by law, not be more than sixty (60) nor less than ten (10)
days before the date of such meeting; and (ii) in the case of any other action,
shall not be more than sixty (60) days prior to such other action. If no record
date is fixed: (a) the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held; and (b) the record date for determining stockholders
for any other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned
meeting.
Section 2.13. List of Stockholders Entitled to Vote. The Secretary shall
prepare and make, at least ten (10) days before every meeting of stockholders,
a complete list of the stockholders entitled to vote at the meeting, arranged
in alphabetical order, and showing the address of each stockholder and the
number of shares registered in the name of each stockholder. Such list shall be
open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten (10) days
prior to the meeting, either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting, or if not
so specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole time
thereof and may be inspected by any stockholder who is present. Upon the
willful neglect or refusal of the directors to produce such a list at any
meeting for the election of directors, they shall be ineligible for election to
any office at such meeting. Except as otherwise provided by law, the stock
ledger shall be the only evidence as to who are the stockholders entitled to
examine the stock ledger, the list of stockholders or the books of the
Corporation, or to vote in person or by proxy at any meeting of stockholders.
Section 2.14. Inspectors of Election. The Corporation may, and shall if
required by law, in advance of any meeting of stockholders, appoint one or more
inspectors of election, who may be employees of the Corporation, to act at the
meeting or any adjournment thereof and to make a written report thereof. The
Corporation may designate one or more persons as alternate inspectors to
replace any inspector who fails to act. In the event that no inspector so
appointed or designated is able to act at a meeting of stockholders, the person
presiding at the meeting shall appoint one or more inspectors to act at the
meeting. Each inspector, before entering upon the discharge of his or her
duties, shall take and sign an oath to execute faithfully the duties of
inspector with strict impartiality and according to the best of his or her
ability. The inspector or inspectors so appointed or designated shall (i)
ascertain the number of shares of capital stock of the Corporation outstanding
and the voting power of each such share, (ii) determine the shares of capital
stock of the Corporation represented at the meeting and the validity of proxies
and ballots, (iii) count all votes and ballots, (iv) determine and retain for a
reasonable period a record of the disposition of any challenges made to any
determination by the inspectors, and (v) certify their determination of the
number of shares of capital stock of the Corporation represented at the meeting
and such inspectors' count of all votes and ballots. Such certification and
report shall specify such other information as may be required by law. In
determining the validity and counting of proxies and ballots cast at any
meeting of stockholders of the Corporation, the inspectors may
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consider such information as is permitted by applicable law. No person who is a
candidate for an office at an election may serve as an inspector at such
election.
Section 2.15. Conduct of Meetings. The date and time of the opening and the
closing of the polls for each matter upon which the stockholders will vote at a
meeting shall be announced at the meeting by the person presiding over the
meeting. The Board of Directors may adopt by resolution such rules and
regulations for the conduct of the meeting of stockholders as it shall deem
appropriate. Except to the extent inconsistent with such rules and regulations
as adopted by the Board of Directors, the chairman of any meeting of
stockholders shall have the right and authority to prescribe such rules,
regulations and procedures and to do all such acts as, in the judgment of such
chairman, are appropriate for the proper conduct of the meeting. Such rules,
regulations or procedures, whether adopted by the Board of Directors or
prescribed by the chairman of the meeting, may include, without limitation, the
following: (i) the establishment of an agenda or order of business for the
meeting; (ii) rules and procedures for maintaining order at the meeting and the
safety of those present; (iii) limitations on attendance at or participation in
the meeting to stockholders of record of the Corporation, their duly authorized
and constituted proxies or such other persons as the chairman of the meeting
shall determine; (iv) restrictions on entry to the meeting after the time fixed
for the commencement thereof; and (v) limitations on the time allotted to
questions or comments by participants. Unless and to the extent determined by
the Board of Directors or the chairman of the meeting, meetings of stockholders
shall not be required to be held in accordance with the rules of parliamentary
procedure.
Section 2.16. Minors as Security Holders. The Corporation may treat a minor
who holds shares of stock or obligations of the Corporation as having capacity
to receive and to empower others to receive dividends, interest, principal and
other payments or distributions, to vote or express consent or dissent and to
make elections and exercise rights relating to such shares of stock or
obligations unless, in the case of payments or distributions on shares, the
corporate officer responsible for maintaining the list of stockholders or the
transfer agent of the Corporation or, in the case of payments or distributions
on obligations, the treasurer or paying officer or agent has received written
notice that the holder is a minor.
Section 2.17. Stockholder Action Without Meeting. Any action required to be
taken at any annual or special meeting of stockholders, or any action which may
be taken at any annual or special meeting of such stockholders may be taken
without a meeting, without prior written notice and without a vote, if a
consent in writing setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted. Prompt notice of
the taking of corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.
ARTICLE III
Board of Directors
Section 3.1. Management. The property and business of the Corporation shall
be managed by or under the direction of its Board of Directors, consisting of
not less than three (3) nor more than seven (7) directors, as determined from
time to time by resolution of the Board of Directors.
Section 3.2. Number and Term. Within the limits set forth in these bylaws,
the number of directors shall be determined from time to time by resolution of
the Board of Directors. Once elected or chosen, a director shall hold office
until the next annual meeting of stockholders and until the director's
successor is elected and qualified or until the director dies, resigns or is
removed; provided, however, that if the Board of Directors decreases the number
of directors constituting the whole Board of Directors and designates a
particular directorship to be eliminated due to the decrease, a director in the
eliminated directorship shall cease to hold office after the next election of
directors, unless the director is nominated and elected to another directorship
on the Board of Directors.
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Section 3.3. Vacancies. Vacancies, and newly created directorships resulting
from any increase in the authorized number of directors, may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director, and each person so selected shall be a director to
serve until the next annual meeting of stockholders, and until a successor has
been selected and qualified or until his or her earlier death, resignation or
removal. When one or more directors resigns from the Board of Directors,
effective at a future date, a majority of the directors then in office,
including those who have so resigned, shall have power to fill such vacancy or
vacancies, the vote thereon to take effect when such resignation or
resignations shall become effective, and each director so chosen shall hold
office as provided in this Section 3.3 in the filling of other vacancies.
Section 3.4. Powers. The business and affairs of the Corporation shall be
managed by or under the direction of the Board of Directors, which may exercise
all such powers of the Corporation and do all such lawful acts and things,
subject to any limitation set forth in the certificate of incorporation or as
otherwise may be provided in the Delaware General Corporation Law.
Section 3.5. Place of Meetings. Meetings of the Board of Directors may be
held at such place within or without the State of Delaware as the Board of
Directors may from time to time appoint or as may be designated in the notice
of the meeting.
Section 3.6. Regular Meetings. Regular meetings of the Board of Directors
shall be held at such time and place as shall be designated from time to time
by resolution of the Board of Directors. Notice of a regular meeting of the
Board of Directors need not be given. Neither the business to be transacted at,
nor the purpose of, any regular meeting of the Board of Directors need be
specified in a notice of the meeting.
Section 3.7. Special Meetings. Special meetings of the Board of Directors
shall be held whenever called by the Chairman, the President or by two or more
of the directors. Notice of every special meeting of the Board of Directors
shall be given to each director by telephone or in writing at least twenty-four
(24) hours (in the case of notice by telephone or facsimile transmission) or
forty-eight (48) hours (in the case of notice by telegraph, courier service or
express mail) or five (5) days (in the case of notice by first class mail)
before the time at which the meeting is to be held. Every such notice shall
state the time and place of the meeting, which may be held within or without
the State of Delaware. Neither the business to be transacted at, nor the
purpose of, any special meeting of the Board of Directors need be specified in
a notice of the meeting.
Section 3.8. Presence at Meetings. Members of the Board of Directors may
participate in a meeting of the Board of Directors by any communication by
means of which all participating directors can simultaneously hear each other
during the meeting. A director participating in a meeting by this means is
deemed to be present in person at the meeting.
Section 3.9. Action Without Meeting. Any action required or permitted to be
taken at any meeting of the Board of Directors may be taken without a meeting
if the action is taken by all members of the Board of Directors. The action
must be evidenced by one (1) or more written consents describing the action
taken, signed by each director, and delivered to the Corporation for inclusion
in the minute book.
Section 3.10. Quorum; Vote Required. A majority of the directors shall
constitute a quorum, but a smaller number may adjourn from time to time,
without further notice, until a quorum is secured. The vote of the majority of
the directors present at a meeting at which a quorum is present shall be the
act of the Board of Directors.
Section 3.11. Waiver of Notice of Meeting. A director may waive any notice
required by statute, the certificate of incorporation or these bylaws before or
after the date and time (i) stated in the notice or (ii) of the meeting. Except
as set forth below, the waiver must be in writing, signed by the director
entitled to the notice, and delivered to the Corporation for inclusion in the
minute book. Notwithstanding the foregoing, a director's attendance at or
participation in a meeting waives any required notice to the director of the
meeting unless the
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director at the beginning of the meeting objects to holding the meeting or
transacting business at the meeting and does not thereafter vote for or assent
to action taken at the meeting.
Section 3.12. Removal. Any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors.
Section 3.13. Compensation. The Board of Directors shall have the authority
to fix the compensation of directors for their services as directors and a
director may be a salaried officer of the Corporation.
ARTICLE IV
Committees
Section 4.1. Committees. The Board of Directors may, by resolution or
resolutions passed by a majority of the whole Board of Directors, designate an
executive committee and one or more other committees each to consist of one (1)
or more of the directors of the Corporation. The executive committee, if so
designated, shall exercise all other powers of the Board of Directors between
the meetings of said Board of Directors, subject to the limitations on the
power and authority of committees of the Board of Directors set forth in
Section 4.4 hereof.
Section 4.2. Alternate Committee Members. The Board of Directors may
designate one or more directors as alternate members of any committee who may
replace any absent or disqualified member at any meeting of the committee or
for the purposes of any written action by the committee. In the absence or
disqualification of a member and alternate member or members of a committee,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not constituting a quorum, may unanimously appoint another
Director to act at the meeting in the place of the absent or disqualified
member.
Section 4.3. Term. Each committee of the Board of Directors shall serve at
the pleasure of the Board of Directors.
Section 4.4. Power. No committee of the Board of Directors shall have the
power or authority to (i) approve or adopt, or recommend to the stockholders,
any action or matter expressly required by the Delaware General Corporation Law
to be submitted to stockholders for approval; (ii) adopt, amend or repeal any
of these bylaws; (iii) fill vacancies in the Board of Directors; (iv) amend or
repeal of any resolution of the Board of Directors that by its terms is
amendable or repealable only by the Board of Directors; and (ix) act on matters
committed by a resolution of the Board of Directors to another committee of the
Board of Directors.
Section 4.5. Meeting. The executive committee and such other committees
shall meet at stated times or on notice to all by any of their own number. They
shall fix their own rules of procedure.
Section 4.6. Other Powers. Such other committees shall have and may exercise
the powers of the Board of Directors to the extent as provided in such
resolution or resolutions.
ARTICLE V
Officers
Section 5.1. Officers Generally.
(a) Number, Qualifications and Designation. The officers of the Corporation
shall be a President, a Secretary and a Treasurer. The Board of Directors may
also appoint a Chairman of the Board, one or more Vice Presidents, and such
other officers as may be elected in accordance with the provisions of Section
5.3 hereof. Officers may but need not be directors or stockholders of the
Corporation. Any number of offices may be held by the same person.
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(b) Bonding. The Corporation may secure the fidelity of any or all of its
officers by bond or otherwise.
Section 5.2. Election, Term of Office and Resignations.
(a) Election and Term of Office. The officers of the Corporation, except
those elected by delegated authority pursuant to Section 5.3 hereof, shall be
elected annually by the Board of Directors, and each such officer shall hold
office for a term of one year and until a successor has been selected and
qualified or until his or her earlier death, resignation or removal.
(b) Resignations. Any officer may resign at any time upon written notice to
the Corporation. The resignation shall be effective upon receipt thereof by
the Corporation or at such subsequent time as may be specified in the notice
of resignation.
Section 5.3. Subordinate Officers, Committees and Agents. The Board of
Directors may from time to time elect such other officers and appoint such
committees, employees or other agents as the business of the Corporation may
require, including one or more Assistant Secretaries, and one or more
Assistant Treasurers, each of whom shall hold office for such period, have
such authority, and perform such duties as are provided in these bylaws, or as
the Board of Directors may from time to time determine. The Board of Directors
may delegate to any officer or committee the power to elect subordinate
officers and to retain or appoint employees or other agents, or committees
thereof, and to prescribe the authority and duties of such subordinate
officers, committees, employees or other agents.
Section 5.4. Removal of Officers and Agents. Any officer or agent of the
Corporation may be removed by the Board of Directors with or without cause and
any other officer or agent appointed by a person to whom the authority to
appoint each officer or agent has been delegated pursuant to Section 5.3
hereof may be removed by such person with or without cause. The removal shall
be without prejudice to the contract rights, if any, of any person so removed.
Election or appointment of an officer or agent shall not of itself create
contract rights.
Section 5.5. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification, or any other cause, may be filled by
the Board of Directors or by the officer or committee to which the power to
fill such office has been delegated pursuant to Section 5.3 hereof, as the
case may be, and if the office is one for which these bylaws prescribe a term,
shall be filled for the unexpired portion of the term.
Section 5.6. Authority. All officers of the Corporation, as between
themselves and the Corporation, shall have such authority and perform such
duties in the management of the Corporation as may be provided by or pursuant
to resolutions or orders of the Board of Directors or, in the absence of
controlling provisions in the resolutions or orders of the Board of Directors,
as may be determined by or pursuant to these bylaws.
Section 5.7. The Chairman of the Board. The Chairman of the Board shall
preside at all meetings of the stockholders and of the Board of Directors, and
shall perform such other duties as may from time to time be requested by the
Board of Directors.
Section 5.8. The President. The President shall be the chief executive
officer of the Corporation, and shall have general supervision over the
business and operations of the Corporation, subject however, to the control of
the Board of Directors. In the absence of the Chairman of the Board, the
President shall preside at all meetings of the stockholders and of the Board
of Directors. The President shall sign, execute, and acknowledge, in the name
of the Corporation, deeds, mortgages, bonds, contracts or other instruments,
authorized by the Board of Directors, except in cases where the signing and
execution thereof shall be expressly delegated by the Board of Directors, or
by these bylaws, to some other officer or agent of the Corporation; and, in
general, shall perform all duties incident to the office of the President and
such other duties as from time to time may be assigned by the Board of
Directors.
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Section 5.9. The Vice Presidents. The Vice Presidents shall perform such
duties as from time to time may be assigned to them by the Board of Directors
or the President.
Section 5.10. The Secretary. The Secretary or an Assistant Secretary shall
attend all meetings of the stockholders and of the Board of Directors and all
committees thereof and shall record all the votes of the stockholders and of
the directors and the minutes of the meetings of the stockholders and of the
Board of Directors and of committees of the Board of Directors in a book or
books to be kept for that purpose; shall see that notices are given and records
and reports properly kept and filed by the Corporation as required by law;
shall be the custodian of the seal of the Corporation and see that it is
affixed to all documents to be executed on behalf of the Corporation under its
seal; and, in general, shall perform all duties incident to the office of
Secretary, and such other duties as from time to time may be assigned by the
Board of Directors or the President.
Section 5.11. The Treasurer. The Treasurer or an Assistant Treasurer shall
have or provide for the custody of the funds or other property of the
Corporation; shall collect and receive or provide for the collection and
receipt of moneys earned by or in any manner due to or received by the
Corporation; shall deposit all funds in his or her custody as Treasurer in such
banks or other places of deposit as the Board of Directors may from time to
time designate; shall, whenever so required by the Board of Directors, render
an account showing all transactions as Treasurer, and the financial condition
of the Corporation; and, in general, shall discharge such other duties as from
time to time may be assigned by the Board of Directors or the President.
Section 5.12. Salaries. The salaries of the officers elected by the Board of
Directors shall be fixed from time to time by the Board of Directors, by such
committee thereof or by such officer as may be designated by resolution of the
Board of Directors. The salaries or other compensation of any other officers,
employees and other agents shall be fixed from time to time by the officer or
committee to which the power to elect such officers or to retain or appoint
such employees or other agents has been delegated pursuant to Section 5.3
hereof. No officer shall be prevented from receiving such salary or other
compensation by reason of the fact that the officer is also a director of the
Corporation.
ARTICLE VI
Stock
Section 6.1. Certificates of Stock. Certificates of stock shall be signed by
the Chairman, the President or a Vice President and either the Treasurer,
Assistant Treasurer, Secretary or Assistant Secretary. The share certificates
of the Corporation shall be numbered and registered in the share register or
transfer books of the Corporation as they are issued. In case any officer,
transfer agent or registrar who has signed, or whose facsimile signature has
been placed upon, any share certificate shall have ceased to be such officer,
transfer agent or registrar because of death, resignation or otherwise, before
the certificate is issued, the certificate may be issued with the same effect
as if the officer, transfer agent or registrar had not ceased to be such at the
date of its issue. The provisions of this Section 6.1 shall be subject to any
inconsistent or contrary agreement in effect at the time between the
Corporation and any transfer agent or registrar.
Section 6.2. Form of Certificates. Certificates for shares of stock in the
Corporation shall be in such form as approved by the Board of Directors, and
shall state that the Corporation is incorporated under the laws of the State of
Delaware, the name of the person to whom issued, and the number and class of
shares and the designation of the series (if any) that the certificate
represents. If the Corporation is authorized to issue shares of more than one
class or series, certificates for shares of the Corporation shall set forth
upon the face or back of the certificate (or shall state on the face or back of
the certificate that the Corporation will furnish to any shareholder upon
request and without charge), a full or summary statement of the designations,
voting rights, preferences, limitations and special rights of the shares of
each class or series authorized to be issued so far as they have been fixed and
determined and the authority of the Board of Directors to fix and determine the
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designations, voting rights, preferences, limitations and special rights of the
classes and series of shares of the Corporation.
Section 6.3. Share Register. The share register or transfer books and blank
share certificates shall be kept by the Secretary or by any transfer agent or
registrar designated by the Board of Directors for that purpose.
Section 6.4. Lost or Destroyed Certificates. If a certificate of stock be
lost or destroyed, another may be issued in its stead upon proof of loss or
destruction and the giving of a satisfactory bond of indemnity in an amount
sufficient to indemnify the Corporation against any claim. A new certificate
may be issued without requiring bond when, in the judgment of the directors, it
is proper to do so.
Section 6.5. Transfer of Stock. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction on its books. No transfer shall be made inconsistent with the
provisions of the Uniform Commercial Code, 6 Del. C. (S) 8-101 et seq., and its
amendments and supplements.
Section 6.6. Stockholders of Record. The Corporation shall be entitled to
treat the holder of record of any share or shares of stock as the holder in
fact thereof and accordingly shall not be bound to recognize any equitable or
other claim to or interest in such share on the part of any other person
whether or not it shall have express or other notice thereof, save as expressly
provided by the laws of the State of Delaware.
ARTICLE VII
Indemnification
Section 7.1. Right To Indemnification. Each person who was or is a party or
is threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
("Proceeding"), including without limitation Proceedings by or in the right of
the Corporation to procure a judgment in its favor, by reason of the fact that
he or she or a person for whom he or she is the legal representative is or was
a director or officer, employee or agent of the Corporation or is or was
serving at the request of the Corporation as a director or officer, employee or
agent of another corporation, or of a partnership, joint venture, trust or
other enterprise, including service with respect to employee benefit plans,
whether the basis of such Proceeding is alleged action in an official capacity
as a director, officer, employee or agent or in any other capacity while
serving as a director, officer, employee or agent, shall be indemnified and
held harmless by the Corporation to the fullest extent authorized by the
Delaware General Corporation Law, as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the extent such
amendment permits the Corporation to provide broader indemnification rights
than said law permitted the Corporation to provide prior to such amendment)
against all expenses, liability and loss (including attorneys' fees, judgments,
fines, ERISA excise taxes or penalties and amounts paid or to be paid in
settlement) reasonably incurred or suffered by such person in connection
therewith. Such right shall be a contract right and shall include the right to
be paid by the Corporation for expenses incurred in defending any such
Proceeding in advance of its final disposition; provided, however, that the
payment of such expenses incurred by a director or officer of the Corporation
in his or her capacity as a director or officer (and not in any other capacity
in which service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of such Proceeding, shall be made only upon delivery
to the Corporation of an undertaking, by or on behalf of such director or
officer, to repay all amounts so advanced if it should be determined ultimately
that such director or officer is not entitled to be indemnified under this
Section 7.1 or otherwise.
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Section 7.2. Right of Claimant To Bring Suit. If a claim under Section 7.1
hereof is not paid in full by the Corporation within ninety (90) days after a
written claim has been received by the Corporation, the claimant may at any
time thereafter bring suit against the Corporation to recover the unpaid amount
of the claim, and if successful in whole or in part, the claimant shall be
entitled to be paid also the expense of prosecuting such claim. It shall be a
defense to any such action (other than an action brought to enforce a claim for
expenses incurred in defending any Proceeding in advance of its final
disposition where the required undertaking has been tendered to the
Corporation) that the claimant has not met the standards of conduct which make
it permissible under the Delaware General Corporation Law for the Corporation
to indemnify the claimant for the amount claimed, but the burden of proving
such defense shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel, or
its stockholders) to have made a determination prior to the commencement of
such action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel, or
its stockholders) that the claimant had not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that claimant
had not met the applicable standard of conduct.
Section 7.3. Non-Exclusivity of Rights. The rights conferred by Section 7.1
and Section 7.2 hereof shall not be exclusive of any other right which such
person may have or hereafter acquire under any statute, provision of the
certificate of incorporation, bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
Section 7.4. Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any such director, officer, employee or agent of
the Corporation or another corporation, partnership, joint venture, trust or
other enterprise against any such expense, liability or loss, whether or not
the Corporation would have the power to indemnify such person against such
expense, liability or loss under the Delaware General Corporation Law.
Section 7.5. Other Sources. The Corporation's obligation, if any, to
indemnify or to advance expenses to any indemnitee who was or is serving at its
request as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, enterprise or nonprofit entity shall be
reduced by any amount such indemnitee may collect as indemnification or
advancement of expenses from such other corporation, partnership, joint
venture, trust, enterprise or non-profit enterprise.
Section 7.6. Amendment or Repeal. Any repeal or modification of the
foregoing provisions of this Article VII shall not adversely affect any right
or protection hereunder of any indemnitee in respect of any act or omission
occurring prior to the time of such repeal or modification.
Section 7.7. Other Indemnification and Prepayment of Expenses. This Article
VII shall not limit the right of the Corporation, to the extent and in the
manner permitted by law, to indemnify and to advance expenses to persons other
than indemnitees when and as authorized by appropriate corporate action.
ARTICLE VIII
Miscellaneous
Section 8.1. Corporate Seal. The Corporation shall have a corporate seal in
the form of a circle containing the name of the Corporation, the year of
incorporation and such other details as may be approved by the Board of
Directors. The affixation of the corporate seal shall not be necessary to the
valid execution, assignment or endorsement by the Corporation of any instrument
or other document.
Section 8.2. Interested Directors; Quorum. No contract or transaction
between the Corporation and one or more of the directors or officers, or
between the Corporation and any other corporation, partnership,
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association, or other organization in which one or more of its directors or
officers, are directors or officers, or have a financial interest, shall be
void or voidable solely for this reason, or solely because the Director or
officer is present at or participates in the meeting of the Board of Directors
or committee which authorizes the contract or transaction, or solely because
any such Director's or officer's votes are counted for such purpose, if: (i)
the material facts as to the Director's or officer's relationship or interest
and as to the contract or transaction are disclosed or are known to the Board
of Directors or the committee, and the Board of Directors or committee in good
faith authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested
directors be less than a quorum; or (ii) the material facts as to the
Director's or officer's relationship or interest and as to the contract or
transaction are disclosed or are known to the stockholders entitled to vote
thereon, and the contract or transaction is specifically approved in good faith
by vote of the stockholders; or (iii) the contract or transaction is fair as to
the Corporation as of the time it is authorized, approved or ratified, by the
Board of Directors, a committee or the stockholders. Common or interested
directors may be counted in determining the presence of a quorum at a meeting
of the Board of Directors or of a committee which authorizes the contract or
transaction.
Section 8.3. Checks For Money. All checks, notes, bills of exchange or other
similar orders in writing shall be signed by such one or more officers or
employees of the Corporation as the Board of Directors may from time to time
designate.
Section 8.4. Contracts. Except as otherwise provided in the Delaware General
Corporation Law in the case of transactions that require action by the
stockholders, the Board of Directors may authorize any officer or agent to
enter into any contract or to execute or deliver any instrument on behalf of
the Corporation, and such authority may be general or confined to specific
instances.
Section 8.5. Books and Records. The Corporation shall keep complete and
accurate books and records of account, minutes of the proceedings of the
incorporators, stockholders and directors and a share register giving the names
and addresses of all stockholders and the number and class of shares held by
each. The share register shall be kept at either the registered office of the
Delaware General Corporation Law or at its principal place of business wherever
situated or at the office of its registrar or transfer agent. Any books,
minutes or other records may be in written form or any other form capable of
being converted into written form within a reasonable time. Any stockholder, in
person or by attorney or other agent, shall, upon written demand under oath
stating a proper purpose therefor, have the right during the usual hours for
business to inspect for any proper purpose the Corporation's stock ledger, a
list of its stockholders, and its other books and records, and to make copies
or extracts therefrom. A proper purpose shall mean a purpose reasonably related
to such person's interest as a stockholder. In every instance where an attorney
or other agent shall be the person who seeks the right to inspection, the
demand under oath shall be accompanied by a power of attorney or such other
writing which authorizes the attorney or other agent to so act on behalf of the
stockholder. The demand under oath shall be directed to the Corporation at its
registered office in the State of Delaware or at its principal place of
business.
Section 8.6. Amendment.
(a) Except as otherwise provided herein, these Bylaws may be amended by the
affirmative vote of a majority of the directors then holding office at any
regular or special meeting of the Board of Directors and/or by the affirmative
vote of the stockholders at any annual or special meeting of the stockholders
called for that purpose.
(b) Without the affirmative vote of the stockholders, the Board of Directors
shall have no power to adopt or amend a Bylaw: (a) requiring more than a
majority of the voting shares for a quorum at a meeting of stockholders or more
than a majority of the votes cast to constitute action by the stockholders,
except where higher percentages are required by law; (b) providing for the
management of the Corporation otherwise than by the Board of Directors or any
committee designated by it; or (c) classifying and staggering the election of
directors.
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Section 8.7. Notices. Except as otherwise specifically provided herein or
required by law, all notices required to be given to any stockholder, director,
officer, employee or agent shall be in writing and may be given to the person
either personally or by sending a copy thereof by first class or express mail,
postage prepaid, or by telegram (with messenger service specified), or courier
service, charges prepaid, or by facsimile transmission, to the address (or to
facsimile or telephone number) of the person appearing on the books of the
Corporation or, in the case of directors, supplied by the director to the
Corporation for the purpose of notice. If the notice is sent by mail, telegraph
or courier service, it shall be deemed to have been given to the person
entitled thereto when deposited in the United States mail or with a telegraph
office or courier service for delivery to that person or, in the case of
facsimile transmission, when received. A notice of meeting shall specify the
place, day and hour of the meeting and any other information required by any
other provision of the Business Corporation Law, the articles or these bylaws.
Section 8.8. Exception to Requirement of Notice.
(a) Whenever notice is required to be given, under any provision these
bylaws to any person with whom communication is unlawful, the giving of such
notice to such person shall not be required and there shall be no duty to apply
to any governmental authority or agency for a license or permit to give such
notice to such person. Any action or meeting which shall be taken or held
without notice to any such person with whom communication is unlawful shall
have the same force and effect as if such notice had been duly given. In the
event that the action taken by the Corporation is such as to require the filing
of a certificate under the Delaware General Corporation Law, the certificate
shall state, if such is the fact and if notice is required, that notice was
given to all persons entitled to receive notice except such persons with whom
communication is unlawful.
(b) Whenever notice is required to be given, under these bylaws to any
stockholder to whom (1) notice of two consecutive annual meetings, and all
notices of meetings or of the taking of action by written consent without a
meeting to such person during the period between such two consecutive annual
meetings, or (2) all, and at least two, payments (if sent by first-class mail)
of dividends or interest on securities during a twelve (12) month period, have
been mailed addressed to such person at such person's address as shown on the
records of the Corporation and have been returned undeliverable, the giving of
such notice to such person shall not be required. Any action or meeting which
shall be taken or held without notice to such person shall have the same force
and effect as if such notice had been duly given. If any such person shall
deliver to the Corporation a written notice setting forth such person's then
current address, the requirement that notice be given to such person shall be
reinstated. In the event that the action taken by the Corporation is such as to
require the filing of a certificate under the Delaware General Corporation Law,
the certificate need not state that notice was not given to persons to whom
notice was not required to be given pursuant to this subsection.
Dated: ________________________
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APPENDIX D
FORM OF
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
COVALENT GROUP, INC.
COVALENT GROUP, INC. (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify:
FIRST: That the board of directors of the Corporation duly adopted a
resolution declaring advisable the amendments to the Certificate of
Incorporation of the Corporation and submitting the same to the stockholders of
the Corporation for approval. The resolutions setting forth the proposed
amendments are as follows:
RESOLVED, that Article FOUR of the Corporation's Certificate of
Incorporation be amended in its entirety to read as follows:
"ARTICLE FOUR
The total number of shares of stock which the Corporation shall have
authority to issue is 25,250,000 shares, divided into two classes, one
class consisting of 25,000,000 shares of common stock, par value $.001 per
share, and the other class consisting of 250,000 shares of preferred stock,
par value $.001 per share.
The Board of Directors of the Corporation is hereby expressly
authorized, at any time and from time to time, to divide the preferred
stock into one or more series, to issue from time to time in whole or in
part the stock of any such series, and in the resolution or resolutions
providing for the issuance of stock of a series to fix and determine the
dividend rates, voting rights, designations, preferences, qualifications,
privileges, limitations, options, conversion rights, redemption rights,
restrictions and special or relative rights of the series that may be
desired.
Except for and subject to the rights expressly granted to the holders of
preferred stock or any series thereof, pursuant to the authority hereby
vested in the Board of Directors, and except as may be provided by the laws
of the State of Delaware, the holders of common stock shall have
exclusively the rights of stockholder."
SECOND: That the stockholders of the Corporation duly consented in writing
to the aforesaid amendments in accordance with the provisions of the Section
228 of the Delaware General Corporation Law ("DGCL").
THIRD: That the amendments were duly adopted in accordance with the
provisions of Section 242 of the DGCL.
IN WITNESS WHEREOF, Covalent Group, Inc., has caused this certificate to be
signed by Kenneth M. Borow, its President, this day of June, 2002.
Covalent Group, Inc.
By: _______________________________
Kenneth M. Borow, M.D.,
President
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APPENDIX E
COVALENT GROUP, INC.
2002 EQUITY INCENTIVE PLAN
Originally Effective March 8, 2002
COVALENT GROUP, INC.
2002 EQUITY INCENTIVE PLAN
Covalent Group, Inc. adopted its 2002 Equity Incentive Plan effective March
8, 2002. The purposes of the Plan are to: (a) further the growth and success of
Covalent Group, Inc. (the "Company") and its Subsidiaries by enabling selected
employees, directors, consultants and advisors of the Company and any
Subsidiaries to acquire shares of common stock of the Company, thereby
increasing their personal interest in such growth and success and (b) to
provide a means of rewarding outstanding performance of such persons. The terms
of the Plan shall be incorporated in the Award Agreement to be executed by the
Participant.
1. Definitions
1.1 "Affiliate" means, with respect to a Person, another Person that
directly or indirectly controls, or is controlled by, or is under common
control with such Person.
1.2 "Award" means a grant of Options or Restricted Shares to an Eligible
Person pursuant to the provisions of this Plan. Each separate grant of Options
or Restricted Shares to an Eligible Person and each group of Options that vests
on a separate date, or a group of Restricted Shares with respect to which
restrictions lapse on a separate date, is treated as a separate Award.
1.3 "Award Agreement" means a written agreement substantially in the form of
Exhibit A-1, A-2, A-3 or A-4, or such other form or forms as the Board or the
Committee (subject to the terms and conditions of this Plan) may from time to
time approve evidencing and reflecting the terms of an Award.
1.4 "Award Committee" means a committee appointed by the Board or the
Committee in accordance with Section 3.1(b) of the Plan, and if one is
appointed, then such committee shall possess all of the power and authority,
and shall be authorized to take any and all actions required to be taken
hereunder, and make any and all determinations required to be made hereunder,
to the extent authorized by the Committee.
1.5 "Board" means the Board of Directors of the Company, as constituted from
time to time.
1.6 "Change of Control" means the happening of an event, which shall be
deemed to have occurred upon the earliest to occur of the following events:
a. the acquisition in one or more transactions by any "Person" (as the
term person is used for purposes of Sections 13(d) or 14(d) of the Exchange
Act) of "Beneficial ownership" (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of twenty-five percent (25%) or more of
the combined voting power of the Company's then outstanding voting
securities (the "Voting Securities"), provided that for purposes of this
clause (i) Voting Securities acquired directly from the Company by any
Person shall be excluded from the determination of such Person's Beneficial
ownership of Voting Securities (but such Voting Securities shall be
included in the calculation of the total number of Voting Securities then
outstanding); or
b. approval by shareholders of the Company of:
1. a merger, reorganization or consolidation involving the Company
if the shareholders of the Company immediately before such merger,
reorganization or consolidation do not or will not own directly or
indirectly immediately following such merger, reorganization or
consolidation, more than fifty percent (50%) of the combined voting
power of the outstanding voting securities of the company resulting
from or surviving such merger, reorganization or consolidation in
substantially the same proportion as their ownership of the Voting
Securities outstanding immediately before such merger, reorganization
or consolidation;
2. a complete liquidation or dissolution of the Company; or
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3. an agreement for the sale or other disposition of all or
substantially all of the assets of the Company; or
c. acceptance by shareholders of the Company of shares in a share
exchange if the shareholders of the Company immediately before such share
exchange do not or will not own directly or indirectly immediately
following such share exchange more than fifty percent (50%) of the combined
voting power of the outstanding voting securities of the entity resulting
from or surviving such share exchange in substantially the same proportion
as their ownership of the Voting Securities outstanding immediately before
such share exchange.
1.7 "Code" means the Internal Revenue Code of 1986, as amended.
1.8 "Committee" means a committee appointed by the Board in accordance with
Section 3.1 of the Plan, and if one is appointed, then such committee shall
possess all of the power and authority of, and shall be authorized to take any
and all actions required to be taken hereunder by, and make any and all
determinations required to be taken hereunder by, the Board.
1.9 "Common Stock" means common stock of the Company, [$.001] par value per
Share.
1.10 "Company" means Covalent Group, Inc., a Nevada company.
1.11 "Director" means an individual who is a member of the Board of
Directors of the Company.
1.12 "Disability" means a disability of an employee or a Director which
renders such employee or Director unable to perform the full extent of his
duties and responsibilities by reason of his illness or incapacity which would
entitle that employee or Director to receive Social Security Disability Income
under the Social Security Act, as amended, and the regulations promulgated
thereunder. "Disabled" shall mean having a Disability. The determination of
whether a Participant is Disabled shall be made by the Board, whose
determination shall be conclusive; provided that, (i) if a Participant is bound
by the terms of an employment agreement between the Participant and the
Company, whether the Participant is "Disabled" for purposes of the Plan shall
be determined in accordance with the procedures set forth in said employment
agreement, if such procedures are therein provided; and (ii) a Participant
bound by such an employment agreement shall not be determined to be Disabled
under the Plan any earlier than he would be determined to be disabled under his
employment agreement.
1.13 "Eligible Person" means:
a. with respect to Awards of Incentive Stock Options, any person
employed by the Company or by any of its Subsidiaries;
b. with respect to Awards of non-qualified stock options, any person
employed by the Company or by any of its Subsidiaries, advisors and
consultants to the Company or any Subsidiary, Directors and members of the
board of directors of a Subsidiary;
c. with respect to any Award of Restricted Shares, any person employed
by the Company or by any of its Subsidiaries, and Directors and members of
the board of directors of a Subsidiary.
1.14 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
1.15 "Fair Market Value Per Share" means , as of any date: (i) the closing
price of the Shares as reported on the principal nationally recognized stock
exchange on which the Shares are traded on such date, or if no Share prices are
reported on such date, the closing price of the Shares on the next preceding
date on which there were reported Share prices; or (ii) if the Shares are not
listed or admitted to unlisted trading privileges on a nationally recognized
stock exchange, the closing price of the Shares as reported by The NASDAQ Stock
Market on such date, or if no Share prices are reported on such date, the
closing price of the Shares on the next
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preceding date on which there were reported Share prices; or (3) if the Shares
are not listed or admitted to unlisted trading privileges on a nationally
recognized stock exchange or traded on The NASDAQ Stock Market, then the Fair
Market Value shall be determined by the Board acting in its discretion, which
determination shall be conclusive.
1.16 "Incentive Stock Option" means an Option that is an incentive stock
option as described in Section 422 of the Code.
1.17 "Non-Employee Director" shall have the meaning set forth in Rule 16b-
3(b)(3)(i) promulgated by the Securities and Exchange Commission under the
Exchange Act, or any successor definition adopted by the Securities and
Exchange Commission; provided, however, that the Board or the Committee may,
to the extent it deems it necessary or desirable to comply with Section 162(m)
of the Code and applicable regulations thereunder, ensure that each Non-
Employee Director also qualifies as an outside director as that term is
defined in the regulations under Section 162(m) of the Code.
1.18 "Option" means an Incentive Stock Option or a non-qualified stock
option to purchase Shares that is awarded pursuant to the Plan.
1.19 "Other Available Shares" means, as of any date:
a. the total number of Shares owned by a Participant; in excess of
b. the sum of:
1. the number of Shares owned by such Participant for less than six
months; plus
2. the number of Shares owned by such Participant that has, within
the preceding six months, been surrendered as payment in full or in
part, of the exercise price for an option to purchase any securities of
the Company or an Affiliate under any restricted stock, stock bonus,
stock option or other compensation plan, program or arrangement
established or maintained by the Company or an Affiliate.
If 1.19(a) is not greater than 1.19(b), the amount of "Other Available
Shares" shall be zero.
1.20 "Participant" means an Eligible Person to whom an Award is granted
pursuant to the Plan.
1.21 "Person" means an individual, partnership, corporation, limited
liability company, trust, joint venture, unincorporated association, or other
entity or association.
1.22 "Plan" means this Covalent Group, Inc. 2002 Equity Incentive Plan, as
amended from time to time.
1.23 "Pool" means the pool of Shares subject to the Plan, as described in
Article 4, and as adjusted in accordance with Article 7 of the Plan.
1.24 "Restricted Shares" means Shares that are subject to restrictions
pursuant to Article 6 of the Plan.
1.25 "Securities Act" means the Securities Act of 1933, as amended.
1.26 "Shares" means shares of Common Stock including, without limitation,
Restricted Shares.
1.27 "Subsidiary" means a subsidiary corporation, whether now or hereafter
existing, as defined in Sections 424(f) and (g) of the Code.
2. Participation
Subject to the terms of the Plan, the Board, the Committee or the Award
Committee (i) will select Participants from among the Eligible Persons and
(ii) may make Awards at any time and from time to time to
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Eligible Persons. Any Award may include or exclude any Eligible Person, as the
Board, the Committee or the Award Committee shall determine in its sole
discretion. An Eligible Person who has received an Award, if he or she is
otherwise eligible, may receive additional Awards.
3. Administration
3.1 Procedure.
a. Committee. The Board shall administer the Plan. The Board may at any time
appoint a Committee consisting solely of Non-Employee Directors of at least two
persons to administer the Plan on behalf of the Board subject to such terms and
conditions as the Board may prescribe. Members of the Committee shall serve for
such period of time as the Board may determine. Members of the Board or the
Committee who are eligible for Awards or who have received Awards may vote on
any matters affecting the administration of the Plan or the granting of Awards
pursuant to the Plan, except that no such member shall act upon an Award to
himself or herself, but any such member may be counted in determining the
existence of a quorum at any meeting of the Board or the Committee during which
action is taken with respect to an Award to himself or herself. From time to
time the Board may increase the size of the Committee and appoint additional
members thereto, remove members (with or without cause) and appoint new members
in substitution therefor, fill vacancies however caused, or remove all members
of the Committee and thereafter directly administer the Plan.
b. Award Committee. To the extent authorized by the Board, the Committee may
at any time appoint an Award Committee of at least two officers of the Company
to administer the Plan on behalf of the Committee to the fullest extent allowed
by law subject to such terms, conditions and limitations as the Committee may
prescribe. Members of the Award Committee shall serve for such period of time
as the Committee may determine. Members of the Award Committee who have
received Awards may vote on any matters affecting the administration of the
Plan or the granting of Awards pursuant to the Plan, except that no such member
shall act upon an Award to himself or herself, but any such member may be
counted in determining the existence of a quorum at any meeting of the Award
Committee during which action is taken with respect to an Award to himself or
herself. From time to time the Committee may increase the size of the Award
Committee and appoint additional members thereto, remove members (with or
without cause) and appoint new members in substitution therefor, fill vacancies
however caused, or remove all members of the Award Committee and thereafter
directly administer the Plan.
3.2 Powers. Subject to the provisions of the Plan:
a. The Board or, to the extent delegated by the Board, the Committee
shall have the authority, in its discretion:
1. to make Awards to any Eligible Person;
2. to determine the Fair Market Value Per Share;
3. to determine the exercise price of the Options to be awarded in
accordance with Article 5 of the Plan;
4. to determine the purchase price, if any, for Restricted Shares
awarded in accordance with Article 6 of the Plan;
5. to determine the Eligible Persons to whom, and the time or times
at which, Awards shall be made, and the number of Shares to be subject
to each Award;
6. to prescribe, amend and rescind rules and regulations relating to
the Plan;
7. to determine the terms and provisions of each Award under the
Plan and each Award Agreement (which need not be identical with the
terms of other Awards and Award Agreements) and, with the consent of
the Participant, to modify or amend an outstanding Award or Award
Agreement;
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8. to determine the conditions that must be satisfied under any Award
in order for an Option to vest and become exercisable, or, for the
restrictions on any Restricted Share to lapse, which conditions may
include satisfaction of performance goals, passage of set periods of
time and/or other criteria as determined by the Board or the Committee;
9. to accelerate the vesting or exercise date of any Option and/or to
waive, in whole or in part any or all remaining restrictions on any
Restricted Shares;
10. to interpret the Plan or any agreement entered into with respect
to an Award, the exercise of Options, or the removal of restrictions on
Restricted Shares;
11. to authorize any person to execute on behalf of the Company any
instrument required to effectuate an Award or to take such other actions
that may be necessary or appropriate with respect to the Company's
rights pursuant to Awards or Award Agreements; and
12. to make such other determinations and establish such other
procedures as it deems necessary or advisable for the administration of
the Plan.
b. To the fullest extent allowed by applicable law and subject to the
scope of authority delegated by the Board and/or the Committee, the Award
Committee shall have the authority, in its discretion:
1. to make Awards to any Eligible Person who is employed by the
Company or any Subsidiary;
2. to determine the Fair Market Value Per Share;
3. to determine the exercise price of the Options to be awarded in
accordance with Article 5 of the Plan;
4. to determine the purchase price, if any, for Restricted Shares
awarded in accordance with Article 6 of the Plan;
5. subject to the limitations set forth in Section 3.2(b)(1), to
determine the Eligible Persons to whom, and the time or times at which,
Awards shall be made, and the number of Shares to be subject to each
Award;
6. to determine the terms and provisions of each Award under the Plan
and each Award Agreement (which need not be identical with the terms of
other Awards and Award Agreements) and, with the consent of the
Participant, to modify or amend an outstanding Award or Award Agreement;
7. to determine the conditions that must be satisfied under any Award
in order for an Option to vest and become exercisable, or, for the
restrictions on any Restricted Share to lapse, which conditions may
include satisfaction of performance goals, passage of set periods of
time and/or other criteria as determined by the Board or the Committee;
and
8. to authorize any person to execute on behalf of the Company any
instrument required to effectuate an Award or to take such other actions
that may be necessary or appropriate with respect to the Company's
rights pursuant to Awards or Award Agreements.
3.3 Effect of Decisions. All decisions, determinations and interpretations
of the Board or the Committee shall be final and binding with respect to all
Awards and Award Agreements under the Plan.
3.4 Limitation of Liability. Notwithstanding anything herein to the
contrary, no member of the Board, the Committee or the Award Committee shall be
liable for any good faith determination, act or failure to act in connection
with the Plan, any Award, or any Award Agreement hereunder.
4. Stock Subject to the Plan
4.1 Subject to the provisions of this Article 4 and the provisions of
Article 7 of the Plan, no more than 1,000,000 Shares of Common Stock
(collectively, the "Pool"), may be awarded and sold under the Plan, of
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which a maximum of 10% of the Shares reserved for issuance hereunder may be
awarded and sold or granted as Restricted Shares. No more than 500,000 Shares
of Common Stock may be awarded and sold (or, in the case of Restricted Shares
with no purchase price, granted) under the Plan to any individual Participant.
Options awarded from the Pool may be either Incentive Stock Options or non-
qualified stock options, as determined by the Board or the Committee. If an
Option expires or becomes unexercisable for any reason without having been
exercised in full, the unexercised Shares shall be returned to the Pool and
become available for future award under the Plan, unless the Plan was
terminated earlier. Similarly, if and to the extent that any Restricted Share
is canceled, repurchased or forfeited for any reason, that Share will again
become available for grant under the Plan.
4.2 Shares to be delivered under the Plan will be made available, at the
discretion of the Board or the Committee, from authorized but unissued Shares
and/or from previously issued Shares reacquired by the Company.
5. Terms and Conditions of Options
5.1 Option Awards. Options may be granted either alone or in conjunction
with other Awards. Each Option awarded pursuant to the Plan shall be authorized
by the Board, the Committee, or the Award Committee and shall be evidenced by
an Award Agreement in such form as the Board, the Committee, or the Award
Committee may from time to time determine. The provisions of Awards need not be
the same with respect to each Participant. The prospective recipient of an
Award of Options will not have any rights with respect to such Award, unless
and until such recipient has executed an Award Agreement and has delivered a
fully executed copy thereof to the Company, and has otherwise complied with the
applicable terms and conditions of such Award.
5.2 Option Award Agreements. Each Award Agreement shall incorporate by
reference all other terms and conditions of the Plan, including the following
terms and conditions:
a. Number of Shares. The Award Agreement shall state the number of
Shares subject to the Option, which shall not include fractional Shares.
b. Option Price. The price per Share payable on the exercise of any
Option shall be stated in the Award Agreement and may be more than, less
than or equal to the Fair Market Value Per Share on the date such Option is
awarded, without regard to any restriction other than a restriction that
will never lapse. Notwithstanding the foregoing, if an Incentive Stock
Option is awarded under this Plan to any person who, at the time of the
award of such Incentive Stock Option, owns stock possessing more than 10%
of the total combined voting power of all classes of the Company's stock,
the price per Share payable upon exercise of such Incentive Stock Option
shall be no less than 110 percent (110%) of the Fair Market Value Per Share
on the date such Option is awarded.
c. Form of Option. The Award Agreement will state whether the Option
awarded is an Incentive Stock Option or a non-qualified stock option, and
will constitute a binding determination as to the form of Option awarded,
subject to the provisions of Section 5.5(c) below.
The Award Agreement may contain such other provisions as the Board, the
Committee, or the Award Committee in its discretion deems advisable and which
are not inconsistent with the provisions of this Plan.
5.3 Consideration. The Board or the Committee shall determine the method of
payment for the Shares to be issued upon the exercise of an Option, which may
consist entirely of cash, personal or certified check, or, at the election of
the Participant and as the Board or the Committee may, in its sole discretion,
approve, by surrendering Shares with an aggregate Fair Market Value Per Share
equal to the aggregate Option price, or by delivering such combination of
Shares and cash as the Board or the Committee may, in its sole discretion,
approve; provided, however, that Shares may be surrendered in satisfaction of
the Option price only if the Participant certifies in writing to the Company
that the Participant owns a number of Other Available Shares as
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of the date the Option is exercised that is at least equal to the number of
Shares to be surrendered in satisfaction of the Option price; provided further,
that the Option price may not be paid in Shares if the Board or the Committee
determines that such method of payment would result in liability under Section
16(b) of the Exchange Act to a Participant.
Except as otherwise provided by the Board or the Committee, if payment is
made in whole or in part in Shares, the Participant shall deliver to the
Company certificates registered in the name of such Participant representing
Shares legally and beneficially owned by such Participant, free of all liens,
claims and encumbrances of every kind and having an aggregate Fair Market Value
Per Share on the date of delivery that is not greater than the aggregate Option
price accompanied by stock powers duly endorsed in blank by the record holder
of the Shares represented by such certificates. If the Board or the Committee,
in its sole discretion, should refuse to accept Shares in payment of the Option
price, any certificates representing Shares which were delivered to the Company
shall be returned to the Participant with notice of the refusal of the Board or
the Committee to accept such Shares in payment of the option price. The Board
or the Committee may impose such limitations and prohibitions on the use of
Shares to exercise an Option as it deems appropriate.
5.4 Exercise of Options. Any Option awarded hereunder shall be exercisable
at such times and under such conditions as shall be set forth in the Award
Agreement (as may be determined by the Board, the Committee, or the Award
Committee and as shall be permissible under the terms of the Plan), which may
include performance criteria with respect to the Company and/or the
Participant, and as shall be permissible under the terms of the Plan.
An Option may be exercised in accordance with the provisions of this Plan as
to all or any portion of the Shares then exercisable under an Option from time
to time during the term of the Option. If an Option is exercised for a fraction
of a Share, the Fair Market Value Per Share of such fractional Share, as of the
date of exercise, will be paid in cash.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company at its principal executive office in
accordance with the terms of the Award Agreement by the person entitled to
exercise the Option and full payment for the Shares with respect to which the
Option is exercised has been received by the Company, accompanied by any
agreements required by the terms of the Plan and/or Award Agreement. Full
payment may consist of such consideration and method of payment allowable under
this Article 5 of the Plan. No adjustment shall be made for a dividend or other
right for which the record date is earlier than the date the Option is
exercised, except as provided in Article 7 of the Plan.
As soon as practicable after any proper exercise of an Option in accordance
with the provisions of the Plan, the Company shall, without transfer or issue
tax to the Participant, deliver to the Participant at the principal executive
office of the Company or such other place as shall be mutually agreed upon
between the Company and the Participant, a certificate or certificates
representing the Shares for which the Option shall have been exercised.
Exercise of an Option in any manner shall result in a decrease in the number
of Shares that thereafter may be available for sale under the Option by the
number of Shares as to which the Option is exercised.
5.5 Term and Vesting of Options.
a. Except as provided in Section 5.6(d), Options awarded hereunder shall
vest and become exercisable in whole or in part, in accordance with such
vesting conditions as the Board, the Committee, or the Award Committee shall
determine, which conditions shall be stated in the Award Agreement. Vested
Options may be exercised in any order elected by the Participant whether or not
the Participant holds any unexercised Options under this Plan or any other plan
of the Company.
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b. Notwithstanding any other provision of this Plan, no Option shall be: (i)
awarded under this Plan after ten (10) years from the date on which this Plan
is adopted by the Board, or (ii) exercisable more than ten (10) years from the
date of award; provided, however, that if an Option that is intended to be an
Incentive Stock Option shall be awarded under this Plan to any person who, at
the time of the award of such Option, owns stock possessing more than 10% of
the total combined voting power for all classes of the Company's stock, the
foregoing clause (ii) shall be deemed modified by substituting "five (5) years"
for the term "ten (10) years" that appears therein.
c. No Option awarded to any Participant shall be treated as an Incentive
Stock Option, to the extent such Option would cause the aggregate Fair Market
Value Per Share (determined as of the date of award of each such Option) of the
Shares with respect to which Incentive Stock Options are exercisable by such
Participant for the first time during any calendar year to exceed $100,000. For
purposes of determining whether an Incentive Stock Option would cause such
aggregate Fair Market Value Per Share to exceed the $100,000 limitation, such
Incentive Stock Options shall be taken into account in the order awarded. For
purposes of this subsection, Incentive Stock Options include all Incentive
Stock Options under all plans of the Company and of any Subsidiary that are
Incentive Stock Option plans within the meaning of Section 422 of the Code.
d. The awarding or vesting of an Option shall impose no obligation upon the
Participant to exercise such Option.
e. A recipient of an Option shall have no rights as a stockholder of the
Company and shall neither have the right to vote nor receive dividends with
respect to any Shares subject to an Option until such Option has been exercised
and a certificate with respect to the Shares purchased upon such exercise has
been issued to him.
5.6 Termination of Options.
a. Unless sooner terminated as provided in this Plan, each Option shall be
exercisable for such period of time as shall be determined by the Board, the
Committee, or the Award Committee and set forth in the Award Agreement, and
shall be void and unexercisable thereafter.
b. Except as otherwise provided herein or by the terms of any Award, with
respect to a Participant who is an employee or Director, upon the termination
of such Participant's employment or other relationship with the Company for any
reason, Options exercisable on the date of such termination shall be
exercisable by the Participant (or in the case of the Participant's death
subsequent to termination of employment or such other relationship, by the
Participant's executor(s) or administrator(s)) for a period of three (3) months
from the date of the Participant's termination.
Except as otherwise provided herein or by the terms of any Award, with
respect to a Participant who is an advisor or consultant, the termination of
such Participant's relationship with the Company for any reason shall not
accelerate the expiration date of Options exercisable on the date of
termination; provided however, that if such Participant dies following such
termination, the Option shall be exercisable for a period of twelve (12) months
commencing on the date of the Participant's death by such Participant's
executor(s) or administrator(s).
c. Except as otherwise provided herein or by the terms of any Award, upon
the Disability or death of a Participant while in the service of the Company,
Options held by such Participant which are exercisable on the date of
Disability or death shall be exercisable for a period of twelve (12) months
commencing on the date of the Participant's Disability or death, by the
Participant or his legal guardian or representative or, in the case of death,
by his executor(s) or administrator(s).
d. Options may be terminated at any time by agreement between the Company
and the Participant.
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5.7 Forfeiture.
a. Termination for Cause. Notwithstanding any other provision of this Plan,
if the Participant's employment by or engagement with the Company is terminated
by the Company, and the Board, the Committee, or the Award Committee makes a
determination that the Participant:
1. has engaged in any type of disloyalty to the Company, including
without limitation, fraud, embezzlement, theft, or dishonesty in the course
of his employment or engagement, or has otherwise breached any fiduciary
duty owed to the Company;
2. has been convicted of a felony; or
3. has breached any agreement with or duty to the Company in respect of
confidentiality, non-disclosure, non-competition or otherwise;
then all unexercised Options shall terminate upon the date of such a finding,
or, if earlier, the date of termination of employment or engagement for such a
finding, and the Participant shall forfeit all Shares for which the Company has
not yet delivered share certificates to the Participant and the Company shall
refund to the Participant the Option purchase price paid to it, if any, in the
same form as it was paid (or in cash at the Company's discretion) for any
Options as to which an exercise was in process but not completed.
Notwithstanding anything herein to the contrary, the Company may withhold
delivery of share certificates pending the resolution of any inquiry that could
lead to a finding resulting in forfeiture.
6. Terms and Conditions of Restricted Shares
6.1 Restricted Share Awards. Restricted Shares may be granted either alone
or in conjunction with other Awards. Restricted Shares granted under an Award
will be issued for such consideration, if any, as the Board, the Committee, or
the Award Committee shall determine. Any Restricted Shares awarded pursuant to
the Plan shall be authorized by the Board, the Committee, or the Award
Committee and shall be evidenced by an Award Agreement in such form as the
Board, the Committee, or the Award Committee may from time to time determine.
The Board, the Committee, or the Award Committee will determine the time or
times within which Restricted Shares may be subject to forfeiture, and all
other conditions of such Awards. The provisions of Awards need not be the same
with respect to each Participant. The prospective recipient of an Award of
Restricted Shares will not have any rights with respect to such Award, unless
and until such recipient has executed an Award Agreement and has delivered a
fully executed copy thereof to the Company, and has otherwise complied with the
applicable terms and conditions of such Award.
6.2 Restricted Share Award Agreements. Each Award Agreement shall
incorporate by reference all other terms and conditions of the Plan, including
the following terms and conditions:
a. Number of Shares. The Award Agreement shall state the number of
Restricted Shares subject to the Award, which shall not include fractional
Shares.
b. Price. The price per Restricted Share, if any, and the time of
payment for the awarding of the Restricted Shares shall be stated in the
Award Agreement.
The Award Agreement may contain such other provisions as the Board, the
Committee, or the Award Committee in its discretion deems advisable and which
are not inconsistent with the provisions of this Plan.
6.3 Consideration. The Board or the Committee shall determine the method of
payment, if any payment is required, for the Restricted Shares to be granted
under an Award, which may consist entirely of cash, personal or certified
check, or, at the election of the Participant and as the Board or the Committee
may, in its sole discretion, approve, by surrendering Shares with an aggregate
Fair Market Value Per Share equal to the aggregate price payable for the
restricted Shares, or by delivering such combination of Shares and cash as the
Board or the Committee may, in its sole discretion, approve; provided, however,
that Shares may be surrendered in satisfaction of the Restricted Share price
only if the Participant certifies in writing to the Company that the
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Participant owns a number of Other Available Shares as of the date on which
payment is due that is at least equal to the number of Shares to be surrendered
in satisfaction of the Restricted Share price; provided further, that the
Restricted Share price may not be paid in Shares if the Board or the Committee
determines that such method of payment would result in liability under Section
16(b) of the Exchange Act to a Participant.
Except as otherwise provided by the Board or the Committee, if payment is
made in whole or in part in Shares, the Participant shall deliver to the
Company certificates registered in the name of such Participant representing
Shares legally and beneficially owned by such Participant, free of all liens,
claims and encumbrances of every kind and having an aggregate Fair Market Value
Per Share on the date of delivery that is not greater than the aggregate
Restricted Share price accompanied by stock powers duly endorsed in blank by
the record holder of the Shares represented by such certificates. If the Board
or the Committee, in its sole discretion, should refuse to accept Shares in
payment of the Restricted Share price, any certificates representing Shares
which were delivered to the Company shall be returned to the Participant with
notice of the refusal of the Board or the Committee to accept such Shares in
payment of the Restricted Share price. The Board or the Committee may impose
such limitations and prohibitions on the use of Shares to satisfy a Restricted
Share price as it deems appropriate.
6.4 Restricted Share Certificates and Legends. A share certificate will be
issued in connection with each Award of Restricted Shares. Such certificate
will be registered in the name of the Participant receiving the Award, and will
bear the following legend and/or any other legend required by this Plan, the
Award Agreement, any other applicable agreement, or by applicable law:
THE TRANSFERABILITY OF THIS CERTIFICATE AND THE SHARES REPRESENTED HEREBY
ARE SUBJECT TO THE TERMS AND CONDITIONS OF THE COVALENT GROUP, INC. 2002
EQUITY INCENTIVE PLAN AND AN AGREEMENT ENTERED INTO BETWEEN THE PARTICIPANT
AND COVALENT GROUP, INC. (WHICH TERMS AND CONDITIONS MAY INCLUDE, WITHOUT
LIMITATION, CERTAIN TRANSFER RESTRICTIONS, REPURCHASE RIGHTS AND FORFEITURE
CONDITIONS). COPIES OF THAT PLAN AND AGREEMENT ARE ON FILE IN THE PRINCIPAL
OFFICES OF COVALENT GROUP, INC. AND WILL BE MADE AVAILABLE TO THE HOLDER OF
THIS CERTIFICATE WITHOUT CHARGE UPON REQUEST TO THE SECRETARY OF THE
COMPANY.
Share certificates evidencing Restricted Shares will be held in custody by
the Company or in escrow by an escrow agent until the restrictions thereon have
lapsed. As a condition to any Restricted Share Award, the Participant may be
required to deliver to the Company a share power, endorsed in blank, relating
to the Restricted Shares covered by such Award.
6.5 Restrictions and Conditions. Restricted Shares awarded pursuant to this
Article 6 will be subject to the following restrictions and conditions:
a. Except as provided in Section 6.6, the restrictions on Restricted
Shares shall lapse in accordance with such conditions as the Board, the
Committee, or the Award Committee shall determine, which conditions shall
be stated in the Award Agreement and which may include the continued
employment, engagement or service of the recipient for a period of time,
the attainment of specified individual or corporate performance goals, or
any other factors that the Board, the Committee, or the Award Committee
selects, in its sole and absolute discretion. During the period beginning
on the date of an Award of Restricted Shares and ending when the
restrictions on such Restricted Shares lapse as set forth in the Award
Agreement or pursuant to Section 3.2(i) or Article 12 (the "Restriction
Period"), the Participant will not be permitted to sell, transfer, pledge,
assign or otherwise encumber such Restricted Shares.
b. During the Restriction Period, (i) the Participant will be entitled
to receive any cash distributions or cash dividends paid with respect to a
Restricted Share and will be entitled to vote such Restricted Share and
(ii) consistent with Article 7, a Participant will be entitled to receive
any distributions or dividends paid in the form of securities with respect
to any Restricted Share; provided, that such securities will be
E-10
subject to the same terms and conditions applicable to the Restricted Share
with respect to which they were paid, including, without limitation, the
same Restriction Period.
c. If and when the restrictions on Restricted Shares lapse through the
expiration of the Restriction Period or pursuant to Section 3.2(i) or
Article 12, the certificates for such Restricted Shares will be replaced
with new certificates, without the restrictive legends described in Section
6.4 applicable to such lapsed restrictions, and such new certificates will
be promptly delivered to the Participant, the Participant's representative
(if the Participant has suffered a Disability), or the Participant's estate
or heir (if the Participant has died) at the principal executive office of
the Company or such other place as shall be mutually agreed upon between
the Company and the Participant, the Participant's representative (if the
Participant has suffered a Disability), or the Participant's estate or heir
(if the Participant has died).
6.6 Forfeiture.
a. Except as otherwise provided herein or by the terms of any Award
Agreement, upon the termination of a Participant's employment or other
relationship with the Company for any reason, all of that Participant's
Restricted Shares then subject to a Restriction Period will be forfeited.
b. Except as otherwise provided herein or by the terms of any Award
Agreement, if an individual or corporate performance goal specified in an Award
Agreement is not attained, and if it is not possible later to attain such goal,
all of a Participant's Restricted Shares then subject to a Restriction Period
linked to the attainment of such goal will be forfeited.
c. Restricted Shares may be forfeited at any time during the applicable
Restriction Period by agreement between the Company and the Participant.
d. If a Participant has paid the Company for Restricted Shares that are
subsequently forfeited, the Company shall refund to the Participant the amounts
paid to it for the forfeited Restricted Shares in the same form as it was paid
(or in cash at the Company's discretion).
7. Adjustments
7.1 Subject to required action by the stockholders, if any, the number of
Shares that may be granted under this Plan, including the individual limit
specified in Article 4, and the number of Shares subject to outstanding Awards
of Options and Restricted Shares and the exercise or, if applicable, purchase
prices thereof shall be adjusted proportionately for any increase or decrease
in the number of outstanding Shares of Common Stock of the Company resulting
from stock splits, reverse stock splits, stock dividends, reclassifications and
recapitalizations, merger, consolidation, exchange of shares, or any similar
change affecting Common Stock.
7.2 No fractional Shares shall be issuable on account of any action
mentioned in Section 7.1, and the aggregate number of Shares into which Shares
then covered by the Award, when changed as the result of such action, shall be
increased to the next highest whole number of Shares resulting from such
action, provided that no such increase shall be made if such increase would
cause an Incentive Stock Option to lose its status a such without the consent
of the Participant.
8. Time of Award
The date of an Award shall, for all purposes, be the date which the Board,
the Committee, or the Award Committee specifies when the Board, the Committee,
or the Award Committee makes its determination that an Award is made, or if
none is specified, then the date of such determination. Notice of the
determination shall be given to each Eligible Person to whom an Award is made
within a reasonable time after the date of such Award.
E-11
9. Modification, Extension and Renewal of Award
Subject to the terms and conditions of the Plan, the Board or the Committee
may modify, extend or renew an Award, or accept the surrender of an Award to
the extent that an Option under the Award has not already been exercised, or
the restrictions on Restricted Shares under the Award have not already lapsed.
Notwithstanding the foregoing: (a) no modification of an Award that adversely
affects the Participant shall be made without the consent of the Participant,
and (b) no Incentive Stock Option may be modified, extended or renewed if such
action would cause it to cease to be an "Incentive Stock Option" within the
meaning of Section 422 of the Code, unless the Participant specifically
acknowledges and consents to the tax consequences of such action.
10. Purchase for Investment and Other Restrictions
10.1 The obligation of the Company to issue Shares to a Participant upon the
exercise of an Option or upon the Award of Restricted Shares granted under the
Plan is conditioned upon such issuance complying with all relevant provisions
of applicable law, including, without limitation, the Securities Act, the
Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the Shares may then be listed,
any applicable state or foreign law and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
10.2 At the option of the Board or the Committee, the obligation of the
Company to issue Shares to a Participant upon the exercise of an Option or upon
the Award of Restricted Shares granted under the Plan may be conditioned upon
obtaining appropriate representations, warranties, restrictions and agreements
of the Participant. Among other representations, warranties, restrictions and
agreements, the Participant may be required to represent and agree that the
purchase or receipt of Shares shall be for investment, and not with a view to
the public resale or distribution thereof, unless the Shares are registered
under the Securities Act and the issuance and sale of the Shares complies with
all other laws, rules and regulations applicable thereto. Unless the issuance
of such Shares is registered under the Securities Act (and any similar law of a
sate or a foreign jurisdiction applicable to the Participant), the Participant
shall acknowledge that the Shares purchased are not registered under the
Securities Act (or any such other law) and may not be sold or otherwise
transferred unless the Shares have been registered under the Securities Act (or
any such other law) in connection with the sale or other transfer thereof, or
that counsel satisfactory to the Company has issued an opinion satisfactory to
the Company that the sale or other transfer of such Shares is exempt from
registration under the Securities Act (or any such other law), and unless said
sale or transfer is in compliance with all other applicable laws, rules and
regulations, including all applicable federal, state and foreign securities
laws, rules and regulations. Unless the Shares subject to an Award are
registered under the Securities Act, the certificates representing such Shares
issued shall contain a legend in substantially the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR ANY APPLICABLE STATE
SECURITIES LAWS. THESE SHARES HAVE NOT BEEN ACQUIRED WITH A VIEW TO
DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED OR DISPOSED OF,
BY GIFT OR OTHERWISE, OR IN ANY WAY ENCUMBERED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT FOR SUCH SHARES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND ANY APPLICABLE STATE SECURITIES LAWS, OR A SATISFACTORY
OPINION OF COUNSEL SATISFACTORY TO COVALENT GROUP, INC. THAT REGISTRATION
IS NOT REQUIRED UNDER SUCH ACT AND UNDER APPLICABLE STATE SECURITIES LAWS.
If required under the laws of any jurisdiction in which the Participant
resides, the certificate or certificates may bear any such additional legend.
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11. Transferability
Unless and to the extent provided in the applicable Award Agreement, no
Award shall be assignable or transferable otherwise than by will or by the laws
of descent and distribution. During the lifetime of the Participant, the
Participant's rights regarding Awards shall be exercisable only by such
Participant, or, in the event of the legal incapacity or Disability of such
Participant, then by the Participant's legal guardian or representative.
12. Change of Control
12.1 Discontinuation of Plan and Non-Substitution of Shares. Notwithstanding
anything to the contrary set forth in this Plan other than Section 12.3, if
there is a Change of Control in which the Plan is not continued by a successor
corporation, and in which substantially equivalent, substituted options for
common stock and substituted restricted shares in a successor corporation are
not provided to Participants, then the Plan shall be terminated and, for a
Participant who is an employee of the Company or any of its Subsidiaries or who
is a Director, all unvested options shall vest and be fully and immediately
exercisable and restrictions on Restricted Shares shall lapse and the shares
become nonforfeitable.
12.2 Continuation of Plan or Substitution of Shares. If there is a Change of
Control in which the Plan is continued by a successor corporation or in which
substantially equivalent substituted options for common stock and substituted
restricted shares in a successor corporation are provided to Participants, with
respect to Participants who are employees of the Company or any of its
Subsidiaries or who are Directors, Options shall vest and restrictions on
Restricted Shares shall lapse as follows:
a. if a Participant who is employed by or is providing service to the
Company is not offered substantially equivalent employment or service with
the successor corporation or a related employer (both in terms of duties
and compensation), then any unvested Options and Restricted Shares held by
such Participant as of the date of the Change of Control shall be fully and
immediately vested and exercisable and shall have restrictions lapsed in
accordance with Section 12.1; and
b. if any Participant is offered substantially equivalent employment or
service with the successor corporation or a related employer (both in terms
of duties and compensation), then Options and Restricted Shares shall not
be subject to accelerated vesting; provided however, that if the
Participant's employment with or service to the successor corporation or
related employer is terminated by the successor corporation or related
employer during the six month period following such Change of Control, then
any unvested Options and Restricted Shares or substituted options or
restricted shares shall be fully and immediately vested and exercisable and
have restrictions lapsed in accordance with Section 12.1 at the date of the
Participant's termination of employment.
12.3 Notwithstanding Sections 12.1 and 12.2 hereof, any Participant who is a
"disqualified individual," as that term is defined in Section 280G(c) of the
Code, shall be notified by the Board or the Committee of any event that may
constitute a Change of Control in advance of the effective date of such Change
of Control. Notice shall be provided, in the sole discretion of the Board or
the Committee, as soon as reasonably practicable before the Change of Control.
The disqualified individual may refuse to accept accelerated vesting of his or
her Award after consideration of the tax consequences to such disqualified
individual resulting from the Change of Control, provided that any such refusal
shall be communicated to the Board or the Committee in writing before the
Change of Control. If it is not practicable to provide advance notice of such
Change of Control, the disqualified individual will be deemed to have elected
to refuse such acceleration, but only to the extent that it is determined, as
soon as practicable after the Change of Control, that accelerated vesting will
result in negative tax consequences to such individual under Section 280G of
the Code.
12.4 In addition to, or as an alternative to, arranging for the exchange of
Options for options to purchase common stock in a successor corporation and the
exchange of Restricted Shares for similarly restricted shares of common stock
in a successor corporation, in the event of a Change of Control of the Company
by reason of
E-13
a merger, consolidation or tax free reorganization or sale of all or
substantially all of the assets of the Company, the Board shall have the
authority, in its discretion, to terminate this Plan and (i) to distribute to
each Participant cash and/or other property in an amount equal to and in the
same form as the Participant would have received from the successor corporation
if the Participant had owned the Shares subject to the Option rather than the
Option at the time of the Change of Control, provided that any such amount paid
to a Participant shall reflect the deduction of the exercise price the
Participant would have paid to purchase such Shares and (ii) to redeem any
Restricted Share for cash and/or other property in an amount equal to and in
the same form as the Participant would have received from the successor
corporation if the Participant had owned the Restricted Shares at the time of
the Change in Control. The form of payment or distribution to the Participant
pursuant to this Section shall be determined by the Committee.
13. Amendment of the Plan and/or Award Agreements
Insofar as permitted by law and the Plan, and subject to Section 15.2, the
Board or the Committee may from time to time (a) suspend, terminate or
discontinue the Plan or revise or amend it in any respect whatsoever with
respect to any Shares at the time not subject to an Award, including amendments
necessary or advisable to assure that the Incentive Stock Options, non-
qualified stock options and Restricted Shares available under the Plan continue
to be treated as such, respectively, under all applicable laws and/or (b)
modify, extend or renew an Option, or accept the surrender of an Option (to the
extent not theretofore exercised); provided, however, that (x) no modification
of an Option which adversely affects the Optionee shall be made without the
consent of the Optionee, and (y) no Incentive Stock Option may be modified,
extended or renewed if such action would cause it to cease to be an "incentive
stock option" within the meaning of Section 422 of the Code.
14. Application of Funds
The proceeds received by the Company from the sale of Shares pursuant to the
exercise of Options and any sale of Restricted Shares shall be used for general
corporate purposes or such other purpose as may be determined by the Board.
15. Approval of the Plan
15.1 Effective Date of Plan. This Plan shall become effective on January 1,
2002; provided, however, that no Option granted hereunder shall be treated as
an Incentive Stock Option unless the Plan is approved by vote of the
shareholders on or before June 4, 2002.
15.2 Stockholder Approval of Certain Amendments.
a. If the Board or the Committee amends the Plan to increase the
aggregate number of Shares for which Awards may be awarded hereunder, and
approval of the stockholders by a majority of the votes cast at a duly held
stockholder meeting at which a quorum representing a majority of the
Company's outstanding voting shares is present (either in person or by
proxy), is not obtained within twelve (12) months of the adoption of such
amendment, all Awards with respect to such increased number of shares shall
lapse automatically on the first anniversary of the date of the adoption of
such amendment.
b. If the Board or the Committee amends the Plan to change the
designation of the class of employees eligible to receive Options, and
approval of the stockholders by a majority of the votes cast at a duly held
stockholder meeting at which a quorum representing a majority of the
Company's outstanding voting shares is present (either in person or by
proxy), is not obtained within twelve (12) months of the adoption of such
amendment, all Incentive Stock Options awarded after the date of such
adoption automatically shall be converted into non-qualified stock options
on the first anniversary of the date of the adoption of such amendment.
E-14
16. Reservation of Shares
16.1 The Company, during the term of this Plan, shall at all times reserve
and keep available such number of Shares as shall be sufficient to satisfy the
requirements of the Plan.
16.2 The Company, during the term of this Plan, shall use its best efforts
to seek to obtain from appropriate regulatory agencies any requisite
authorization in order to issue and sell such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. The inability of the
Company to obtain from any such regulatory agency having jurisdiction the
requisite authorization(s) deemed by the Company's counsel to be necessary for
the lawful issuance and sale of any Shares hereunder, or the inability of the
Company to confirm to its satisfaction that any issuance and/or sale of any
Shares hereunder will meet applicable legal requirements, shall relieve the
Company of any liability in respect to the failure to issue or sell such Shares
as to which such requisite authority shall not have been obtained.
17. Taxes, Fees, Expenses and Withholding of Taxes
17.1 The Company shall pay all original issue and transfer taxes (but not
income taxes, if any) with respect to the award of Options and Restricted
Shares and/or the issue and transfer of Shares pursuant to the exercise of
Options, and all other fees and expenses necessarily incurred by the Company in
connection therewith, and will use its best efforts to comply with all laws and
regulations that, in the opinion of counsel for the Company, shall be
applicable thereto.
17.2 The granting of Awards hereunder and the issuance of Shares pursuant to
the grant of Restricted Shares and the exercise of Options is conditioned upon
the Company's reservation of the right to withhold in accordance with any
applicable law, from any compensation or other amounts payable to the
Participant, any taxes required to be withheld under federal, state or local
law as a result of: the grant of an Award, the vesting of an Option, the
exercise of an Option, the lapse of restrictions with respect to Restricted
Shares, or the sale of Shares. To the extent that compensation or other
amounts, if any, payable to the Participant is insufficient to pay any taxes
required to be so withheld, the Company may, in its sole discretion, require
the Participant (or such other person entitled herein to exercise the rights
associated with such Award), as a condition of the exercise of an Option or
grant of Restricted Shares, to pay in cash to the Company an amount sufficient
to cover such tax liability or otherwise to make adequate provision for the
Company's satisfaction of its withholding obligations under federal, state and
local law, provided that such satisfaction of tax liability is made within 60
days of the date on which written notice of exercise has been given to the
Company. With respect to Restricted Shares, the minimum required withholding
obligations may be settled in Shares that are part of the Award that gives rise
to the withholding requirement.
18. Miscellaneous
18.1 Notices. Any notice to be given to the Company pursuant to the
provisions of this Plan shall be addressed to the Company in care of its
Secretary (or such other person as the Company may designate from time to time)
at its principal executive office, and any notice to be given to a Participant
shall be delivered personally or addressed to him or her at the address given
beneath his or her signature on his or her Award Agreement, or at such other
address as such Participant or his or her permitted transferee (upon the
permitted transfer) may hereafter designate in writing to the Company. Any such
notice shall be deemed duly given on the date and at the time delivered via
hand delivery, courier or recognized overnight delivery service or, if sent via
telecopier, on the date and at the time telecopied with confirmation of
delivery or, if mailed, on the date five (5) days after the date of the mailing
(which shall be by regular, registered or certified mail). Delivery of a notice
by telecopy (with confirmation) shall be permitted and shall be considered
delivery of a notice notwithstanding that it is not an original that is
received. It shall be the obligation of each Participant and each permitted
transferee holding Shares purchased upon exercise of an Option or granted
pursuant to an Award of Restricted Shares to provide the Secretary of the
Company, by letter mailed as provided herein, with written notice of his or her
direct mailing address.
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18.2 No Enlargement of Participant Rights. This Plan is purely voluntary on
the part of the Company, and the continuance of the Plan shall not be deemed to
constitute a contract between the Company and any Participant, or to be
consideration for or a condition of the employment or service of any
Participant. Nothing contained in this Plan shall be deemed to give any
Participant the right to be retained in the employ or service of the Company or
any Subsidiary, or to interfere with the right of the Company or any such
corporation to discharge or retire any Participant thereof at any time subject
to applicable law. No Participant shall have any right to or interest in Awards
authorized hereunder prior to the award thereof to such Participant, and upon
such Award the Participant shall have only such rights and interests as are
expressly provided herein, subject, however, to all applicable provisions of
the Company's Certificate of Incorporation, as the same may be amended from
time to time.
18.3 Information to Participants. The Company, upon request, shall provide
without charge to each Participant copies of such annual and periodic reports
as are provided by the Company to its stockholders generally.
18.4 Availability of Plan. A copy of this Plan shall be delivered to the
Secretary of the Company and shall be shown by him to any eligible person
making reasonable inquiry concerning it.
18.5 Section Headings. The descriptive headings of this Plan are for
convenience only, and shall be of no force or effect in construing or
interpreting any of the provisions of this Plan.
18.6 Invalid Provisions. If any provision of this Plan is found to be
invalid or otherwise unenforceable under any applicable law, such invalidity or
unenforceability shall not be construed to render any other provisions
contained herein as invalid or unenforceable, and all such other provisions
shall be given full force and effect to the same extent as though the invalid
or unenforceable provision were not contained herein.
18.7 Applicable Law. This Plan shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania, without regard to
the conflict of law principles of Pennsylvania or any other jurisdiction.
Executed this 8th day of March, 2002.
[Corporate Seal]
Covalent Group, Inc.
/s/ Joseph A. Delikat /s/ Kenneth M. Borow
Attest: _____________________________ By: _________________________________
E-16
PROXY CARD--COVALENT GROUP, INC. 2002 ANNUAL MEETING
SOLICITED ON BEHALF OF THE COMPANY AND APPROVED
BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Kenneth M. Borow and David Weitz, and each
of them, as proxies with full power of substitution, to vote all of the shares
of Covalent Group, Inc. that the undersigned is entitled to vote at the 2002
Annual Meeting of Covalent Group, Inc. (the "Company") to be held on June 4,
2002, and at any adjournment or adjournments thereof, with all the powers the
undersigned would possess if personally present. The undersigned hereby directs
that this proxy be voted as follows:
[X] Please mark your votes as in this example.
1. Election of Directors:
FOR WITHHELD
-------------------------------------------------
Kenneth M. Borow, M.D. [_] [_]
-------------------------------------------------
Earl M. Collier, Jr. [_] [_]
-------------------------------------------------
Thomas E. Hodapp [_] [_]
-------------------------------------------------
Scott M. Jenkins [_] [_]
-------------------------------------------------
Brian M. Dickson, M.D. [_] [_]
[_] FOR all nominees listed except as marked to the contrary below:
- -------------------------------
- -------------------------------
[_] WITHHOLD all nominees.
FOR AGAINST ABSTAIN
- -------------------------------------------------------------------------------
2. Proposal to approve and adopt an Agreement and Plan of
Merger providing for the merger of the Company into
its wholly-owned subsidiary, Covalent Group [_] [_] [_]
(Delaware), Inc., a Delaware corporation, for the
purpose of changing the Company's state of
incorporation from Nevada to Delaware.
FOR AGAINST ABSTAIN
- -------------------------------------------------------------------------------
3. Proposal to approve and adopt an amendment to the
Company's Certificate of Incorporation to authorize [_] [_] [_]
250,000 shares of preferred stock.
FOR AGAINST ABSTAIN
- -------------------------------------------------------------------------------
4. Proposal to approve and adopt the Company's 2002 [_] [_] [_]
Equity Incentive Plan.
FOR AGAINST ABSTAIN
- -------------------------------------------------------------------------------
5. Proposal to ratify the selection of Deloitte & Touche
LLP to serve as the Company's independent public [_] [_] [_]
accountants for the fiscal year ending December 31,
2002.
(Please date and sign on reverse side)
- --------------------------------------------------------------------------------
YOUR PROXY WILL BE VOTED AS DIRECTED. IN THE ABSENCE OF DIRECTION, YOUR
PROXY WILL BE VOTED FOR THE FIVE NOMINEES FOR ELECTION AS DIRECTORS AND FOR
PROPOSALS 2, 3, 4 AND 5. ABSTENTIONS ON THE REINCORPORATION PROPOSAL (PROPOSAL
2) AND THE PREFERRED STOCK PROPOSAL (PROPOSAL 3) WILL HAVE THE EFFECT OF A
NEGATIVE VOTE.
A majority of the proxy agents present and acting in person, or by their
substitutes (or if only one is present and acting, then that one) may exercise
all the powers conferred hereby. DISCRETIONARY AUTHORITY IS CONFERRED HEREBY AS
TO ALL OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
Receipt of the Company's 2001 Annual Report and the Notice of the 2002
Annual Meeting and Proxy Statement relating thereto is hereby acknowledged.
Date: ________________________ , 2002
_____________________________________
_____________________________________
Signature (s)
Please sign your name exactly as it appears hereon, indicating any official
position or representative capacity. If Shares are registered in more than one
name, all owners must sign.
PLEASE DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE
PAID ENVELOPE.