Updates: 28 August 2003 23 April 2005 27 April 2005 27 July 2005
While doing some research in The SCO Group's SEC filings I came across the name of John R. Wall as a person who owned 800,000 shares of SCOX stock. I show some information that I was able to dig up on John Wall below that leads me to believe that he probably had close ties to MicroSoft. Note that this does not appear to be any smoking gun, because about the time of the lawsuit, John Wall filed with the SEC his intention to sell off all of his shares. Note however, that he filed 3 different times as the stock price continued to rise, so it is possible that he never actually sold.
I definitely think there is a story here and I do not have all the answers. I did want to present this to the community so they could see what I have found and add any relevant information. Note that like many that have been following this case, I am not a person who really knows and understands the stock market. I have, however, been learning quickly. So, I would appreciate any and all information you might have to add. Please send any comments, corrections or new information to john_wall_info@threenorth.com.
John Wall is the founder and president of vista.com. In August of 2002, vista.com and SCO entered into a typically SCO Enron-like byzantine deal; though it appears on the surface that SCO was rescuing Vista in this deal. In the process, John Wall ended up with 800,000 shares of SCO stock. John Wall, according to Vista's webpage, used to own Wall Data--which was acquired by NetManage in December 1999. Wall Data had some deals going with MS in the 90's. In fact, John Wall, is quoted in PR releases on MS's site. The address listed on the SEC forms for Wall is also just a few miles from MS's Redmond headquarters (red star is Wall, grey blob near Overlake in lower left is MS) and is not the same as the Redmond address for Vista.com.
After acquiring his 800,000 shares in August 2002, John R. Wall appears to have been the largest single shareholder after The Canopy Group. This was certainly true at the time of the SCO Groups filing of their second ammended annual report. From a Schedule 13G filing last year, we learn that Mr. Wall acquired his shares in August of 2002. We also learn in three different S-3's (03 Feb 2003, 27 Mar 2003 and 07 Apr 2003) of his intent to sell all of those 800,000 shares and that "[The SCO Group] sold the shares of our common stock being offered by this prospectus to Mr. Wall in exchange for a promissory note that was payable to Mr. Wall that is now payable to [the SCO Group]". Note those dates. I think they are rather interesting. The early February one is before the lawsuit goes public on 6 March 2003. The other two are both after the lawsuit but as the share price is climbing. I wonder if Mr. Wall knew in Feb that the lawsuit was coming and wanted his paperwork on file so he could get out once it was announced--but as the price continued to climb, he continued to re-file. On 3 Feb, SCO's stock closed at $1.38. It was 2.60 on 27 Mar and 3.15 on 7 Apr.
It is also interesting to note that in all 3 filings, the announcement is for Wall to sell 800,000 shares and for Morgan Keegan & Co., Inc to sell 200,000 shares. According to SCO's latest filed 10-Q, Morgan Keegan also got their shares in August 2002 in exchange for "act[ing] as an exclusive financial advisor to assist the Company in its analysis, consideration and if appropriate, execution of various financial and strategic alternatives including, but not limited to, securing additional equity and/or debt capital and potential strategic transactions including mergers, acquisitions and joint ventures." Presumably, the vista.com deal had something to do with this. I find it interesting that the vista.com president and the investment banking firm that proabably helped with the deal, thrice filed the exact same paperwork of their intention to sell their stock right around the time of the lawsuit, but that on at least two occasions, both failed to follow through. You'd think that one or the other would have sold on one of those occasions. I also wonder if they actually sold that final time.
Now, the vista.com deal is pretty interesting in and of itself. To my rather untrained eye, it appears that it was an instance of SCO helping vista.com out in exchange for the potential to make money selling vista.com product and giving Canopy the option to add to its warchest of companies. However, I think Mr. Wall has come out quite well given the results of SCO's stock pump--even if he actually sold the final time at somewhere around $3/share. This deal is a bit convoluted, so I am going to letSCO's 10-Q filed in June describe it:
During August 2002, the Company entered into a license agreement with Community IQ.com d/b/a Vista.com (“Vista”). Under the agreement, the Company acquired an exclusive license from Vista to sell and market Vista’s web services solutions to the Company’s channel partners. The Company prepaid $100,000 of royalties under the license agreement and advanced $250,000 to Vista in connection with a right to purchase 3,313,000 shares of Vista’s Series C convertible preferred stock for $500,000 (see below). Additionally, the Company acquired a $1,000,000 convertible note receivable payable by Vista that bears interest at 8 percent and is due on August 15, 2003. The $1,000,000 note receivable was acquired from Vista’s founder and majority stockholder in exchange for 800,000 shares of the Company’s common stock (which had an estimated fair value of $900,000) and $100,000 in cash. The note receivable is guaranteed by Vista’s founder and majority stockholder and is convertible at the Company’s option into a 20 percent fully diluted interest in Vista. The note receivable and related accrued interest are included in other current assets (see Note 3).
In December 2002, the Company and Vista entered into a Stock Purchase Agreement, pursuant to which the Company acquired 3,313,000 shares of Vista’s Series C preferred stock for $500,000. The 3,313,000 shares of Series C preferred stock represent a 10 percent fully diluted interest in Vista. The $250,000 advance discussed above was applied toward the purchase and during January 2003 the remaining $250,000 was paid. Additionally, the Company and Vista entered into an Agreement and Plan of Merger pursuant to which the Company received an option through March 31, 2003 to acquire the remaining 70 percent ownership interest of Vista in exchange for 2,500,000 shares of the Company’s common stock. The Company also received the right to representation on Vista’s board of directors. The option to purchase the remaining 70 percent of Vista expired unexercised on March 31, 2003.
In January 2003, the Company advanced Vista $100,000 in the form of a promissory note due on April 14, 2003. On April 2, 2003, the maturity date on this promissory note was extended to April 30, 2003. This promissory note bears interest at 8 percent payable at maturity and is convertible at the Company’s option into a 5 percent fully diluted interest in Vista. On April 2, 2003, the Company advanced Vista an additional $100,000 in the form of a promissory note due on April 30, 2003. The promissory note bears interest at 8 percent payable at maturity and is convertible at the Company’s option into a 5 percent fully diluted interest in Vista. As of April 30, 2003, both $100,000 notes were outstanding and in technical default; however, the Company had not demanded repayment pending management’s decision whether or not to exercise the conversion rights for an additional equity interest in Vista. The Company and Vista continue to work together under the license agreement discussed above.
As a result of the Company’s current 10 percent ownership interest in Vista, the right to representation on Vista’s board of directors, and the convertible features of the notes receivable from Vista, the Company has accounted for its interest in Vista using the equity method of accounting. Under the equity method, the Company recognizes its portion of the net income or net loss of Vista in its consolidated statements of operations. Accordingly, during the quarter ended January 31, 2003, the Company recognized $25,000 equity in loss of affiliate and during the quarter ended April 30, 2003, the Company recognized $75,000 equity in loss of affiliate.
So, in August, SCO gets exclusive right to sell Vista's web services to SCO customers and the option of purchasing a sizable chunk of Vista stock. In exchange, SCO gave Vista $350,000 in August. In January, SCO decided to purchase the Vista stock and gave Vista another $250,000, giving SCO a 10% interest in Vista.
In addtion, the John Wall, Vista's founder, had given Vista $1,000,000 in exchange for a promissory note. SCO bought that from Wall for 800,000 shares and $100,000 dollars. Wall himself personally guaranteed the note in addition to Vista doing so. That note was due on 15 August 2003. If Wall sold his 800,000 shares at any point after his last S-3, he would have had more than enough cash to pay SCO the $1,000,000 dollars. So, it is likely that sometime around 15 August of this year that SCO got a cash infusion of $1,000,000 + interest.
SCO also gave Vista two more loans of $100,000 dollars in January and in April. Vista was in default on both at the end of April, but SCO had not called the notes. However, at this point, Wall had enough money in SCO shares to pay the 1,000,000 dollars due on 15 August and SCO would continue to earn interest on the two smaller notes. So, at the time this was filed, SCO had 10% of Vista, a place on the board, the right to convert its 3 promissory notes into an additional 30% of Vista, and the probable expectation that they would be able to get the $1,000,000 back with interest.
During this entire process, SCO considered and had options to buyout Vista but chose not to do so. The reasons for that are anyone's guess. Perhaps Vista--who appears to offer a web services produce that actually runs on SCO's own product--was not a good business prospect and Vultus--who offer a web services product that runs on the Windows platform--was a better fit. Possibly, Wall's S-3 filing gave a legal opportunity for 800,000 shares worth of stock available to other Canopy entities at just the right time. Maybe SCO wanted to wait for the August payment of a million bucks before calling in the smaller notes or converting them into greater ownership of Vista.
That's about all I know at this point. I thought it was an interesting story. It shows another cash infusion available to SCO in mid-August. It also makes the Vultus deal look even more questionable to me. Again, if anyone has anything to add, please e-mail me at sco_ravings@threenorth.com
It looks like SCO checked this page out within minutes of a post on Yahoo's message board.
It also appears that John Wall sold off 200,000 shares before mid-June of 2003, according to this Forbes article. Quoting from the article:
The IBM lawsuit could bring a windfall to Canopy, which owns 46% of SCO. Another beneficiary could be John Wall, chief executive of Vista.com, a Redmond, Wash., company that last August struck a licensing arrangement with SCO. Wall got 800,000 shares of SCO stock in the deal and still holds 600,000, making him SCO's biggest individual shareholder after Canopy. Those shares, which were worth about $1 each when Wall made the deal, now trade above $10.
I am trying to locate information as to when, so we can know how much he made on it. By June, the valuation on SCO stock was certainly high enough that he could have made more than the 1.2 million plus interest that Vista.com owed to SCO by selling 200,000 shares.
It seems that John Wall is selling Vista.com. Well, sort of selling it
SCO still owns quite a bit of Vista.com and SCO's ex-CFO Bob Bench is CFO for Vista.com
In May 2005, SCO claimed in an investor e-mail that they had not owned any Vista.com stock since 2003. See updated April story for details and link to e-mail.
I can be contacted at sco_ravings@threenorth.com.
