Anyone care to comment on this convoluted portion of the 10QSB from EESV? And please don't ask me what EESV has to do with CVIA.
8. Transactions with Corporate Vision, Inc.
In September 2002, the Company entered into a Stock Purchase Agreement to purchase up to 20,000,000 shares of common stock to Corporate Vision, Inc. ("CVI") (Pink Sheets: CVIA) for $0.125 per share, for a total purchase price of $2,500,000. Under the September 2002 Agreement, the Company is obligated to purchase such common stock in installments equal to fifty (50%) of the amount it receives under a technology license agreement, up to a maximum of $2,500,000.
In December 2002, the Company entered into another Stock Purchase Agreement with CVI, under which the Company agreed to utilize amounts it receives under the above-described technology license to acquire certain shares of common stock in Gulftex Energy Corporation ("Gulftex") (Pink Sheets: GTXE) that CVI has a right to receive from the sale of a subsidiary to Gulftex. Specifically, CVI is entitled to receive 5,250,000 shares of Gulftex, and the Company has agreed to purchase those shares for total consideration of $1,250,000, or $0.2381 per share. The Company granted CVI a security interest in the technology license agreement to secure its obligation to purchase the Gulftex shares.
In April 2003, the Company amended the September 2002 Agreement to change its obligation to purchase shares from fifty percent (50%) of net payments the Company receives under the technology license agreement to one hundred percent (100%) of any payments received thereunder, net of amounts used to satisfy prior liens on the payments.
In April 2003, the Company received its first royalty payment under the technology license agreement. After satisfying prior liens on the royalty payment, the Company paid $1,672,947.50 to CVI to purchase 13,383,580 shares of common stock of CVI. CVI simultaneously loaned the Company $844,483.16 pursuant to a promissory note dated April 7, 2003 which bears interest at five percent (5%) per annum, and is secured by a lien on the Company's interest in the royalty agreement. In connection with the initial royalty distribution, the Company and CVI agreed that all royalty payments under the technology license agreement to which the Company is entitled shall be applied in the following manner: first to the payment of costs, interest and principal due under the April 7, 2003 Note, second to the purchase of additional shares of Company common stock under the September 2002 Agreement, and third to the purchase of Gulftex common stock under the December 2002 Agreement.
With respect to the September 2002 Agreement, the Company has the right to terminate its obligation to purchase CVI shares in the event there is a materially adverse change in the business or financial condition of CVI. With respect to the December 2002 Agreement, the Company has the right to terminate its obligation to purchase the Gulftex shares in the event there is a materially adverse change in the business or financial condition of Gulftex.
In June 2003, the Company notified CVI that it was terminating its obligation to purchase Gulftex shares as a result of a materially adverse changes in the financial condition of Gufltex. In August 2003, the Company notified CVI that it was terminating its obligation to purchase additional CVI shares under the September 2002 Agreement due to materially adverse changes in the financial condition of CVI, and further notified CVI that it was canceling the April 7, 2003 Note for the same reasons. CVI contends that the Company does not have grounds to cancel the September 2002 Agreement or the April 7, 2003 Note. The September 2002 Agreement provides that any disputes will be resolved by binding arbitration, but to date neither party has initiated arbitration provisions. However, the escrow agent that collects and disburses payments under the technology license agreement has notified the Company and CVI that it intends to interplead all disputed payments in the event the matter is not settled.
At the time of execution of the September 2002 Agreement, the December 2002 Agreement and the April 2003 amendments thereto, the Company's chairman and chief executive officer was an advisory board member of CVI, and also owns common stock in CVI. Under a stockholders' agreement concerning CVI, the Company has the right to appoint one member to CVI's board of directors when its total investment in CVI exceeds $500,000. Because the Company's investment in CVI exceeds $500,000 as a result of the purchases in April 2003, the Company has the right to appoint a member to the board of directors of CVI, but has not exercised that right.