Of interest from "Tire Business" issue of 6/22/98:
CORPORATE VISION'S PLANS PUT ON HOLD: SHAREHOLDER SUIT STALLS FIRM'S ENTRY INTO RETAIL TIRE BUSINESS
By: Vera Fedchenko Tire Business staff
Category: Cover story
Issue Date: 06-22-98
Page: 1
TULSA, Okla.--Over the past six months, investors in Tulsa-based Corporate Vision Inc. have seen the price of their stock plummet to a penny or less with no explanations from the company. Now a group of shareholders have taken the firm to court for the right to elect new management and to see corporate documents pertaining to a proposed merger with Kirkland, Wash.-based Western Oil and Tire Distributors Inc. (WOTD).
Corporate Vision announced in January an intention to merge with WOTD. After the merger's completion, the new company, which was to be called WOTD, had planned to acquire independent wholesale and retail tire stores, fuel and lubricant distributors.
On June 3, a Tulsa County District Court judge granted a temporary restraining order on an ex parte basis against Corporate Vision. The court ordered Corporate Vision to turn over its records to shareholders and to maintain the status quo until June 19, according to attorney Cleve Powell, who represents the shareholder plaintiffs.
About 50 people who together own more than 10 percent of the company are named as plaintiffs in the injunction, Mr. Powell said. Under Oklahoma law, investors are entitled to see corporate documents, he said.
At the time of the January announcement, Corporate Vision was a shell corporation--meaning it had no assets or products but was still open to public trading. The firm was seeking to merge with another company to become profitable again, and chose WOTD, a private company, CEO Jack Arnold said in January.
Shareholders are upset that Corporate Vision's stock prices have dropped steadily since December. During that month, the company's stock fell from approximately four cents a share to about 1.5 cents per share, according to Keith Anderson, an investor and plaintiff.
It was also during December that Corporate Vision received $500,000 from a Regulation S offering, according to filings with the Securities and Exchange Commission.
Regulation S offerings are unregistered securities offered to foreign investors by U.S. companies, usually at significant discounts from current market prices. They provide a way for firms to raise money quickly without SEC approval.
Foreign investors must hold the stock for at least 40 days, after which they can sell the shares back into the U.S. market. The net result is that the company's stock often is diluted and its share price plummets.
As a result of the December offering, Corporate Vision's shares were diluted by 40 to 50 percent, said Mr. Anderson, who is president of Anderson Makati Corp., a New Jersey-based firm involved in international oil and gas trading.
In April, Corporate Vision announced a 300-to-1 reverse stock split, after which its stock price dropped from approximately two cents to about half a penny, he said.
A second Regulation S placement, also in April, further diluted the firm's stock prices by another 50 percent, Mr. Anderson said. That offering raised $1 million, according to SEC filings.
Investors say they were caught off guard by the reverse split and the resulting losses they incurred.
"It was understandable that they (WOTD and Corporate Vision) wanted to increase the share price to make it more attractive for buyouts of small tire dealerships,'' said Raffi Roubinian, a private investor and plaintiff based in Los Angeles. "No one, however, bothered to mention that they were going to wipe out the current shareholders with a 300 to 1 reverse split to get there.''
"We're trying to find out what these guys are doing to us,'' Mr. Anderson said.
Mr. Arnold said the stock split and Reg S offerings were necessary because the firm had no assets.
Corporate Vision trades over-the-counter on NASDAQ's bulletin board. WOTD is a privately held company that had planned to become public through the merger, Mr. Arnold told Tire Business in January.
On June 16, Corporate Vision appeared at a second court hearing to release its records. Mr. Arnold testified that no merger agreement with WOTD had been signed.
Among the documents Mr. Arnold gave to the plaintiffs under court order was a promissory note for $460,000 that Corporate Vision had loaned to WOTD, Mr. Powell said.
Mr. Arnold said the loan came from funds raised from investors for the purpose of merging with WOTD.
Other documents also show that the $1 million received from the April Reg S offering was a restricted offering dependent on the WOTD deal and is currently being held in escrow, according to Mr. Powell.
Another court hearing to determine whether the restraining order would be extended and if Corporate Vision's shareholders could elect a new board of directors by proxy was scheduled for June 19, the day after Tire Business went to press.
WOTD President Patrick Charles declined to comment on the restraining order or his firm's plans to enter the tire industry. Mr. Charles also declined to discuss his previous experience in the tire industry or WOTD's current operations. However, Mr. Arnold did say that WOTD has no current business operations in the oil or tire industries.
Despite investor discontent, Mr. Arnold said the firm would proceed with its plans to buy tire retail and wholesale outlets.
He also has posted a notice to investors on an Internet bulletin board at www.techstocks.com that the company will seek to recover legal fees from the investors who had obtained the restraining order.
Incorporated in 1994, Corporate Vision initially had produced interactive CD-ROMs, video and print materials for companies to use in training and marketing activities.
The company found that business unprofitable and divested it in June 1997, according to SEC filings. Most of Corporate Vision's top management, many of whom also served as directors, resigned by August. The circumstances surrounding those resignations are unclear. Mr. Arnold then became CEO and is reportedly now the only member of the board.
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Definitely of interest to all Oilex shareholders!
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