Here is the Canopy Group/Noorda Family Trust Complaint against Ralph Yarro, Darcy Mott and Brent Christensen, as text, thanks to Scott Lazar, with some help proofing from Steve Martin.
I have redacted the names of the employees who are not accused of any impropriety. Please see the previous article for some explanatory remarks. UPDATE: On February 13, I inserted the names, after many of the named employees filed affidavits in support of Yarro/Mott/Chistensen's complaint against Noordas and the new management of Canopy, as it became clear they were choosing to be participants and it has become clearer that allegations of impropriety may go beyond the three named as defendants.
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David B. Watkiss, Esq. (#3401)
Anthony C. Kaye, Esq. (#8611)
James
W. Stewart, Esq. (#3959)
Boyd L. Rogers (#10095)
BALLARD
SPAHR ANDREWS & INGERSOLL, LLP
[address, phone, fax]
Attorneys for Plaintiffs The Canopy Group, Inc.,
and Raymond J. Noorda and Lewena
Noorda, as Trustees of the Noorda Family Trust
________________________________
IN THE FOURTH JUDICIAL DISTRICT COURT
UTAH COUNTY, STATE OF UTAH
________________________________
THE CANOPY GROUP, INC., a Utah
corporation, and RAYMOND J. NOORDA and
LEWENA NOORDA, as Trustees of the NOORDA FAMILY TRUST,
Plaintiffs,
vs.
RALPH J. YARRO III,
an individual, DARCY G. MOTT, an individual, and BRENT D. CHRISTENSEN, an
individual,
Defendants.
________________________________
COMPLAINT
Civil No.: 050400245
Honorable Schofield
JURY TRlAL DEMANDED
______________________________
Plaintiffs, The Canopy Group, Inc., and Raymond J. Noorda and Lewena
Noorda, in their capacity as trustees of The Noorda Family Trust, by and through their
undersigned counsel, hereby complain of Defendants, Ralph J. Yarro III,
Darcy G. Mott and Brent D. Christensen, as follows:
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INTRODUCTION
By this action, The Canopy Group, Inc., ("Canopy") seeks damages
arising from a series of self-dealing and wasteful transactions pursuant to which Defendants, in
breach of their fiduciary duty of loyalty to
Canopy and its shareholders,
paid themselves and other employees excessive and unfair equity and
incentive compensation and ceded undue control of Canopy to its employees. Although
the precise amount of damages suffered by virtue of Defendants' conduct is not yet
known, Defendants' improper gains alone exceeded at least $20 million. Canopy also seeks the
return, termination or rescission of unexercised stock options purportedly acquired by
Defendants, including an option held by defendant Ralph J. Yarro III,
the company's former President and Chief Executive Officer, pursuant to which he may
allegedly acquire forty percent of the company's non-voting shares.
In addition, Canopy and Mr. and Mrs. Raymond J. Noorda, in their
capacity as trustees of The Noorda Family Trust, the company's majority shareholder,
seek Yarro's removal as a Canopy director pursuant to Utah
Code Ann
§ 16-1Oa-809 for fraudulent and dishonest conduct and gross abuse of authority and
discretion.
THE PARTIES
1. Canopy (formerly known as NFT Ventures, Inc.) is a closely-held
corporation organized under the laws of the State of Utah and has its principal place of
business in Lindon, Utah.
2. Plaintiffs Raymond J. Noorda and Lewena Noorda (collectively, the "Noordas"),
in their capacity as trustees of The Noorda Family Trust (the "Trust"),
are residents of Utah County, Utah. The Noordas, who are husband and
wife, settled the Trust pursuant to a
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Declaration of Trust dated October 8, 1980, as subsequently amended, and hold a majority
of Canopy's shares. The Noordas serve as two of the three members of Canopy's Board of
Directors.
3. The Trust's principal beneficiaries are Angel Partners, Inc., and The Worth
of a Soul, both of which are Utah non-profit corporations. Angel Partners, Inc., is a
supporting organization for the Church of Jesus Christ of Latter-day Saints. Since December
2000, the Trust has specified that upon the death of both of the Noordas, all of the Trust's
stock in Canopy shall be distributed to Angel Partners, Inc. The Worth of a Soul, which is to
receive the vast remainder of the Trust's assets, is a private non-operating foundation whose
purpose is to provide grants to charitable organizations.
4. Defendant Ralph J. Yarro III
("Yarro") is an individual residing in Utah County, Utah. Yarro is the third member of
Canopy's Board of Directors. Yarro served as Canopy's President and Chief Executive
Officer from 1998 until his termination for cause on December 17, 2004.
5. Defendant Darcy G. Mott ("Mott") is an individual residing in Utah County, Utah.
Hired by Canopy on May 3, 1999, Mott served as Canopy's Vice President-Finance, Chief
Financial Officer and Treasurer until his termination for cause on December 17, 2004.
6. Defendant Brent D. Christensen ("Christensen") is an individual residing in Salt
Lake County, Utah. Hired by Canopy on January 16, 2001, Christensen served most recently
as Canopy's Vice President-Legal, Corporate Counsel and Assistant Secretary until his
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termination for cause on December 17, 2004. Prior to his employment with Canopy,
Christensen served as Canopy's outside legal counsel.
JURISDICTION AND VENUE
7. This Court has jurisdiction over this matter to Utah Code Ann. § 78-3-4(1).
8.
Venue of this action properly lies in this Court pursuant to Utah
Code
Ann. §§
78-13-4, -7.
GENERAL ALLEGATIONS
9.
On behalf of the Trust, Mr. Noorda founded Canopy in 1992 to
foster and
promote a strong local economy, support emerging technology companies located
predominantly in Utah, and establish a source of funding for the Noordas' charitable
endeavors.
10. Over time, the Trust has invested approximately $160 million in Canopy, and
with that investment, Canopy has acquired interests in several emerging technology
companies (the "Portfolio Companies").
11. Canopy's profitability since 1999 is a result of Canopy's liquidation of
investments in certain Portfolio Companies (discussed more fully below) and a settled
antitrust lawsuit by the Portfolio Company Caldera, Inc. ("Caldera") against Microsoft Corporation.
Canopy's investments in these companies and its prosecution of the Caldera lawsuit were
driven by the investment decisions of Mr. Noorda, and absent these investment decisions,
Canopy would have incurred net losses in each year as far back as 1999. In addition, a significant
portion of Canopy's current value resides in its investment in Helius, Inc., another
investment decision behind which Mr. Noorda was the driving force.
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12. Mr. Noorda, formerly the president of Novell, Inc., has long been regarded as one
of Utah's preeminent businessmen. Mr. Noorda was born on June 19, 1924, and is currently
80 years old. As a consequence of age and associated health issues, Mr. Noorda has
not participated
in
day-to-day management of Canopy's affairs since at least 1998.
13. Mrs. Noorda was born on December 26, 1923 and is currently 81 years old.
Although Mrs. Noorda has been a member of Canopy's Board of Directors since Canopy's
formation, prior to 1998, Mrs. Noorda relied in great part on Mr. Noorda's business
experience and judgment in most matters relating to Canopy's management.
14. Canopy hired Yarro on or about April 14, 1995. After being trained by Mr.
Noorda, Yarro became Canopy's President, Chief Executive Officer, and a member of its
Board of Directors in 1998.
15. As the Noordas aged, Yarro assumed primary responsibility for managing
Canopy's affairs, both in his capacity as an officer and a director, and the Noordas
increasingly relied on and deferred to Yarro's counsel and
advice in all matters relating to Canopy.
16. By 1998, if not earlier, Yarro dominated and controlled the Noordas in
their capacity as officers and directors of Canopy, through the force of his own will and the
close personal relationships he had established with them. The Noordas considered Yarro to
be a close, personal friend,
believed his business judgment to be reliable and trustworthy, and relied on his counsel and
advice -- often presented to them at their own home -- with respect to the management of
Canopy's affairs.
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17. Based on their trust and confidence in Yarro and their belief that Yarro would act
in Canopy's best interests, the Noorda's delegated to Yarro full responsibility for the
management of Canopy's affairs.
18. As set forth more fully below, Yarro, aided and abetted by Christensen and Mott,
took advantage of the Noordas' trust and confidence by implementing excessive and unfair
incentive and equity compensation packages for themselves and Canopy's other employees
and by ceding undue control of Canopy to its employees. Through these actions Defendants
breached their duties to Canopy and its shareholders.
A. The Incentive Compensation Plan.
19. On September 30, 1998, without Board review or approval, Yarro
implemented an Incentive Bonus Plan Agreement for Canopy "to reward certain key
employees of [Canopy]," including Yarro (the "Incentive Plan"). On information and belief,
Christensen drafted or participated in drafting the Incentive Plan, and Yarro executed it in his
individual capacity and purportedly on behalf of Canopy.
20. The Incentive Plan contains the following significant provisions:
(a) "The Plan shall be administered by the Board." (Incentive Plan, ¶ 3.)
(b) Bonuses for eligible employees are determined "at such time as any of the
Included Companies [set forth on Exhibit B, which is subject to amendment by the Board at
any time] is sold or the investment of [Canopy] in any of the Included Companies is
exchanged for cash and/or
readily tradable marketable securities (the 'Triggering Event")." (Id.
¶ 5.)
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(c) "The total amount to be paid as a bonus . . . upon each Triggering Event shall be five
percent (5%) of the total amount of sales proceeds on the sale or exchange of the Included
Company, less the total amount of investment plus debt that NFT and/or any affiliate of NFT
has in the Included Company." (Id.)
(d) The bonus amount is to be allocated among employees "based on the Board's
determination of the Employee's involvement, effort and contribution to the success of the
lncluded Company for which the sale or exchange has occurred," with an initial
recommendation to be made by Canopy's President, subject to review, approval and
modification by Canopy's Board of Directors. (Id. ¶ 6.)
B. Early Incentive Plan Payments.
21. On Yarro's advice, Canopy hired Mott as its Vice President-Finance, Chief
Financial Officer and Treasurer on May 3, 1999.
22. In August 1999, without Board review or approval, Yarro and Mott caused
Canopy to distribute 5% of the net proceeds of a Triggering Event relating to the Portfolio Company
Vinca, Inc. ("Vinca") to five Canopy employees, including Yarro and Mott. The bonus pool
from the Vinca sale totaled approximately $2.1 million. Yarro alone received approximately
$1.47 million of the bonus amount, and Mott, whom Canopy
had hired only a few
months earlier, received approximately $42,000.00.
23. In 1999 or early 2000, Caldera, then a Portfolio Company, settled a significant
antitrust lawsuit it had filed against Microsoft Corporation.
24. On or about February 25, 2000, without Board review or approval, Yarro and Mott
caused Canopy to distribute a portion of the Caldera settlement proceeds to six Canopy
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employees, including Yarro and Mott, even though the Caldera settlement was not a
Triggering Event as that term is defined in the Incentive Plan. The bonus pool from the
Caldera settlement totaled approximately $7.6 million, and Yarro caused himself to be paid
approximately $6.75 million of that amount. Mott received approximately $227,000.00.
25. On or about February 25, 2000, without Board review or approval, Yarro and Mott
caused Canopy to distribute 10% of the proceeds of a Triggering Event relating to the
Portfolio Company KeyLabs, even though the Incentive Plan by its own terms provides for a
bonus pool of 5%. The bonus pool from the KeyLabs transaction totaled approximately $3.4
million. Yarro alone received approximately $2.9 million and Mott received $205,320.
C. The Recapitalization & Equity Compensation Plans.
26. Commencing in 2000, Defendants advised the Noordas to adopt an equity
compensation plan that would provide employees an opportunity to acquire an equity interest
in Canopy as a purported incentive to remain in Canopy's service. To do so, Defendants
advised, required a significant modification of Canopy's capitalization structure.
27. Based on Defendants' advice, on November 3, 2000, the Noordas voted the Trust's
shares in favor of Canopy's adoption of Amended and Restated Articles of Incorporation
authorizing Canopy to issue up to 25,000,000 shares of common stock, with 25,000 shares of
such stock designated as Class A Common Stock and 24,975,000 shares designated as Class
B Common Stock (the "Amended Articles"). In connection with Defendants' recapitalization
scheme, the Trust's 10,000,000 shares of stock -- Canopy's only outstanding shares at the time --
were converted into 10,000 shares of Class A Common Stock and 9,990,000 Shares of Class
B Common Stock.
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28. On information and belief, Christensen, in his capacity as legal counsel to
Canopy, prepared documentation necessary to effectuate the recapitalization, including all
necessary consent resolutions, the Articles of Restatement of the Articles of Incorporation of
The Canopy Group,
and the Amended Articles. At the time, the Noordas' trust
and confidence in Defendants led them to believe the recapitalization plan was in Canopy's
and the Trust's best interests.
29. Pursuant to Canopy's Amended Articles:
(a) Class A shares have one vote on each matter to be voted on by Canopy's shareholders.
(Amended Articles at 1.)
(b) Upon liquidation, dissolution or winding up of Canopy, whether voluntary or
involuntary, "the holders of Class A Common Stock shall be entitled to equal distributions of
the net assets of the Corporation . . .
(Id. at 2.)
(c) The relative rights, privileges and limitations of the Class A shares
and Class B shares "shall be in all respects identical, share for share, except that the voting
power for the election of directors and other matters coming to a vote before the shareholders
of the corporation, shall be vested exclusively" in the holders of the Class A shares until the
earlier of October 31, 2020 or the occurrence of a "Liquidation Event," defined to include "any
liquidation, dissolution or winding up of the Corporation." (Id.)
30. On November 7, 2000, immediately after the recapitalization and based on
Defendants' advice, Canopy adopted an equity compensation plan entitled The Canopy
Group, Inc. 2000 Stock Option Plan (the "Equity Plan"). Under the Equity Plan, employees
became
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eligible to receive "twenty year non-qualified stock options to purchases shares of
[Canopy's] Class A Voting Common Stock and Class B Nonvoting Common Stock."
31. Christensen, in his capacity as legal counsel to Canopy, prepared and
filed documentation relating to the Equity Plan and, along with Yarro and Mott,
advised the Noordas that its adoption was in Canopy's best interests. At the time, the
Noordas' trust and confidence in Defendants, particularly
led them to believe the Equity Plan was in Canopy's best interests.
32. The Equity Plan provides for excessive compensation and, on its
face, is unfair to Canopy and the Trust. The most egregious aspects of the plan and the
options issued under it are as follows:
(a) Despite the plan's purported purpose to provide employees with an incentive to
remain in service, it allows for options that vest immediately. (Equity Plan, Art. 2(I)(B).)
(b) It provides for the issuance of options that do not terminate until October 31, 2020.
(Id.)
(c) It provides for issuance of options with discounted exercise prices, i.e.,
exercise prices "less than the Fair Market Value per share on the Option grant date . .
. .
(Id. at Art. 2(I)(a)(i).)
(d) It provides for issuance of Class A options with a tax protection
payment clause that requires Canopy to pay a cash bonus to the Optionee (as that
term is defined in the Equity Plan) "in approximately the amount of the state and federal
income taxes payable with respect to the ordinary taxable compensation income deemed
received
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as a result of the exercise of such option plus the receipt of the tax protection payment
itself." (Id. at Art. 2(II)(A).)
(e) Terminated employees are permitted an excessive period of time to exercise
their options. For example, if an Optionee ceases to remain in "Service" (broadly
defined to include service to Canopy or any subsidiary "in the capacity of an Employee, a
non-employee member of the board of directors or a consultant") for any reason other than
cause, disability or death, the Optionee shall have "a period beginning on the date of
cessation of Service and ending on the later of (1) the date that is three (3) months following
the date of such cessation of Service, or (2) the last day of the next February following the
date of such cessation of Service, during which [he or she] may exercise each outstanding
vested Option held by such Optionee." (Id. at Art. 2(I)(C)(i).) Even if an Optionee is terminated for
cause, such Optionee has one month following the date of cessation of Service services to
exercise each outstanding vested option held by
Optionee. (Id.)
(f) Until Class B shares are registered and a public market exists for them,
"each Class B option shall include the right to elect a 'Cashless Exercise' with respect to Options
whose termination date is accelerated by reason of the Optionee's cessation of Service for any
reason other than for Cause." A Cashless Exercise may only be made in the month of
February of each year. An Optionee who elects a Cashless Exercise pays the options exercise
price and all applicable withholding taxes by receiving a reduced number of
shares. (Id.
at Art. 2(I)(H).)
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(g) Each option includes a limited resale right under which an Optionee may elect to sell to
Canopy any shares of common stock purchased by the exercise of the option or any
previously exercised option. This resale right can be exercised at any time during
the month of February
through the year 2020, but terminates upon the Optionee's
termination for cause, and terminates the February following termination for any
reason other than cause. The resale right for each calendar year may be exercised "with
respect to a number of
shares equal to 5% of the sum of (1)
the total number of shares of Common Stock that the Optionee has previously
purchased by the exercise of Options; and (2) the total number of shares of Common Stock
then subject to outstanding options held by the Optionee; provided, however, that the
Optionee may also exercise the Resale Right with respect
to any shares of Common Stock for which the Optionee had, but did not exercise, a
Resale Right in a prior calendar year." (Id. at Art. 2(II)(B).)
33. On November
7, 2000, the same day
Canopy adopted the Equity Plan, Yarro executed a Stock Option Agreement,
personally and purportedly on behalf of Canopy, granting himself a fully-vested twenty-
year option to purchase 10,000 Class A voting shares at $5.00 per share. Yarro also
executed a second Stock Option
Agreement, personally and purportedly on behalf of Canopy, granting himself a fully-vested
twenty-year option to purchase 9,990,000 Class B shares at $5.00 per share. At the time, the
$5.00 strike price of Yarro's options was $14.27 below Canopy's then net value per share of $19.27.
In other words, Yarro caused himself to receive options allowing him to immediately acquire 40% of
Canopy's
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authorized Class A and B shares at a fraction of their value. At the time, the transaction
was worth approximately $14.27 million to Yarro.
34. Yarro also executed stock option agreements purportedly granting Mott fully vested
options to acquire 500 Class A shares and 499,500 Class B shares at $7.00 per share, worth, at the
time, approximately $6.14 million to Mott.
35. In addition to wrongfully enriching himself and Mott, Yarro also executed
stock option agreements purporting to grant options on Class A and B shares to various other Canopy
employees at strike prices ranging from $5.00 to $19.00 per share, each of which were
excessive and constituted waste of corporate assets. Moreover, the grant to Yarro, Mott and
Canopy's other employees of options allowing them to acquire in excess of 10,000 Class A
voting shares, as detailed below, enabled Yarro, Mott and Canopy's employees to acquire a
majority of Canopy's Class A voting shares:
Employee
Number & Class -
Exercise Price -
Vesting
Ralph Yarro -
10,000 Class A -
$5.00 -
100%
Yarro - 9,990,000 Class B -
$5.00 -
100%
Darcy Mott -
500 Class A -
$7.00 -
100%
Mott - 49,500 Class B -
$7.00 -
100%
[redacted] -
25 Class A -
$5.00 -
100%
Barbara Jackson - 24,975 - Class B -
$5.00 -
100%
Joyce Wiley -
300 Class A -
$5.00 -
100%
Wiley -299,700 Class B -
$5.00 - 100%
Rob Penrose -
150 Class A -
$5.00 -
100%
Penrose - 149,850 Class B -
$5.00 -
100%
Boyd Worthington -
120 Class A -
$19.00 -
25% starting 2/8/01
Worthington - 119,880 Class B -
$19.00 - 25% starting 2/8/01
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Jan Newman - 150 Class A -
$19.00 -
25% starting 2/8/01
Newman - 149,850 Class B - $19.00 - 25% starting 2/8/01
Dan Baker -
110 Class A -
$19.00 -
25% starting 2/8/01
Baker - 109,890 Class B -
$19.00 -
25% starting 2/8/01
Frankie Gibson - 35 Class A -
$19.00 -
25% starting 2/8/01
Gibson - 34,965 Class B -
$19.00 -
25% starting 2/8/01
D. The Shareholder Agreement.
36. On or about November 8, 2000, on the advice of Defendants, the Trust,
Yarro, and Canopy entered into a Shareholder Agreement (the "Shareholder Agreement")
pursuant to which the parties, including all future Canopy shareholders, purportedly agreed
as follows:
(a) That for so long as they are willing and able to serve as directors, the Noordas and shall
be elected directors of Canopy. (Shareholder Agreement §1(a).)
(b) That consent of all of the shareholders holding Class A stock is required for the
following matters:
(i) A "Liquidation Event,"as defined in the Amended Articles.
(ii) Amendment, modification or restatement of the Amended Articles,
or entry into any voting or management agreement inconsistent with the Shareholder
Agreement.
(iii) Entry into any transaction with any shareholder or any person
or entity that is an affiliate of or has a significant relationship with a shareholder,
other than on an arms' length basis.
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(iv) An increase or decrease in the size of the Board of Directors or any other
action that "adversely affects the rights of any of the Shareholders set forth in this
Agreement." (Id at § 2(b).)
(c)
That directors may not be removed except as provided in Utah
Code Ann. §16-10a-809, as amended. (Id. at §3.)
(d)
That "any person who serves as a director of [Canopy] will be
obligated as a fiduciary
to [Canopy] and its shareholders, as is more specifically provided
by Utah Code Section §16-10a-840(1)." (Id. at §4.)
(e) That the Shareholder Agreement shall terminate upon agreement of the
shareholders or the last to die of the Noordas. (Id. at §7.)
37. Christensen, in his capacity as legal counsel to Canopy, participated in
drafting the Shareholder Agreement and, along with Yarro and Mott, advised that its
adoption was in Canopy's and the Trust's best interests. At the time, the Noordas' trust and
confidence in Defendants,
particularly Yarro, led them to believe the Shareholder Agreement was in Canopy's and the Trust's best interests.
38. Pursuant to a Stock Purchase Agreement executed by Yarro personally
and on purportedly on behalf of Canopy on November 17, 2000, Yarro exercised his Class
A stock options and acquired 10,000 shares of Class A voting stock, an amount equivalent
to that held by the Trust.
E. Subsequent Distributions of Incentive and Equity Compensation.
39. On or around December 1, 2000, Yarro executed stock option agreements granting
options on Class A and B shares to Gerald Garbe with a strike price of $18, as follows:
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Employee
Number & Class -
Exercise Price -
Vesting
Gerald Garbe - 52 Class A - $18.00 - 25% starting 12/01/01
Garbe - 51,948 Class B - $18.00 - 25% starting 12/01/01
40. In December 2000, without Board review or approval, Yarro caused Canopy to
distribute 5% of Canopy's gain on the value of a merger involving the Portfolio Company Utah Health
Informatics, or approximately $23,749, to ten Canopy employees, including himself and Mott.
Yarro alone received $10,687 of the bonus amount, and Mott received $5,225.
41. On Yarro's advice, Canopy hired Christensen as its Vice President-Legal, Corporate
Counsel, and Assistant Secretary and Treasurer on or about January 16, 2001.
42. At the time of Christensen's employment, Yarro and Christensen executed stock option
agreements pursuant to which Christensen purportedly acquired fully-vested twenty-year
options to purchase 150 Class A voting shares and 149,850 Class B shares at $10.00 per
share. The $10.00 strike price was approximately $9.00 below Canopy's then net value per share
of approximately $19.00, making the transaction worth approximately $1.35 million to
Christensen. At the same time, Christensen acquired twenty-year options to purchase 300
Class A voting shares and 299,700 Class B shares at $18.00 per share, vesting 25% per year
starting in 2002.
Yarro also executed stock option agreements purporting to grant options on Class A
and B shares to Canopy employee Darla Newbold, all as summarized below:
Employee
Number & Class -
Exercise Price -
Vesting
Brent Christensen - 150 Class A - $10.00 -- 100%
Christensen - 149,850 Class B - $10.00 -- 100%
Christensen- 300 Class A - $18.00 -- 25% starting 1/16/02
Christensen - 299,700 Class B - $18.00 -- 25% starting 1/16/02
Darla Newbold - 45 Class A - $18.00 -- 25% starting 1/16/02
Newbold 44,955 Class B -
$18.00 -- 25% starting 1/16/02
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The foregoing equity compensation was excessive, unfair to Canopy, and constituted
waste of corporate assets.
43. On or about February 28, 2002, without Board review or approval,
Defendants caused Canopy to distribute 10% of the proceeds of a Triggering Event relating
to the Portfolio Company Altiris, ("Altiris") to twelve Canopy employees, even though the
Incentive Plan, by its own terms provides for a bonus pool equal of 5%. The bonus pool totaled
approximately $1.15 million. Yarro alone received $503,317, Mott received approximately 152,000
and Christensen received $135,128.
44. On April 19, 2002, on the advice of Defendants, Canopy repriced the exercise
price of all outstanding options with an exercise price of $18.00 or higher to $13.00, at a time
when Canopy's net value per share was approximately $14.13.
45. At approximately the same time, Yarro executed stock option agreements
purporting to grant options on Class A and B shares to Canopy employee Allan Smart with a strike
price of $13.00, as follows:
Employee
Number & Class -
Exercise Price -
Vesting
Allan Smart -
90 Class A Shares -
$13.00 -
25% starting 1/3/03
Smart- 89,910 Class B -
$13.00 -
25% starting 1/3/03
46. On November 21, 2002, on Defendants' advice, Canopy repriced the exercise
price of all outstanding options with an exercise of $8.00 or higher to $8.00, at a time when
Canopy's net value per share was approximately $12.00.
47. At approximately the same time, Yarro executed stock option
agreements
purporting to grant options on Class A and B shares to Canopy employee Mark Cusick
with a strike price of $8.00, as follows:
17
Employee
Number & Class -
Exercise Price -
Vesting
Mark Cusick -
150 Class A -
$8.00 -
25% starting 7/1/02
Cusick - 149,850 Class B -
$8.00 -
25% starting 7/1/02
48. On or about August 26, 2002, without Board review or approval, Defendants
caused Canopy to distribute 10% of the proceeds of a Triggering Event relating to the Portfolio
Company Traxxes to fourteen Canopy employees, even though the Plan, by its own terms,
provided for a bonus pool of 5%. The bonus pool totaled $708,242. Yarro alone received
$283,296, Mott received $100,216, and Christensen received $100,216.
49. On or about November 21, 2002, on Defendants' advice, Canopy adopted a
resolution stating that "the officers and directors of the Corporation shall be entitled to
indemnification to the maximum extent allowed by Utah law."
50. On or about December 2, 2002, without Board review or approval.
Defendants caused Canopy to distribute 10% of the proceeds of another Triggering
Event relating to Altiris to thirteen Canopy employees, even though the Incentive Plan,
by its own terms, provided
for a bonus pool of 5%. The bonus pool totaled approximately $1.03 million. Yarro alone
received $516,844, Mott received $134,379, Christensen received $132,312.
51. On or about April 4, 2003, without Board review or approval, Defendants
caused Canopy to distribute 10% of the proceeds of yet another Triggering Event relating to
to Altiris to thirteen Canopy employees, even though the Incentive Plan, by its own terms, provided
for a bonus pool of 5%. The bonus pool totaled approximately $317,246. Yarro alone received
approximately $151,834, Mott received $41,242, and Christensen received $40,607.
52. On or about June 3, 2003, without Board review or approval, Defendants caused Canopy to
distribute 10% of the proceeds of another Triggering Event relating to Altiris
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to thirteen
Canopy employees, even though the Incentive Plan, by its own terms, provided for a
bonus pool of 5%. This time the bonus pool totaled approximately $2.4 million. Yarro alone
received approximately $1.08 million, Mott received $301,004,
and Christensen received $296,373.
53. On or about August 20, 2003, without Board review or approval,
Defendants caused Canopy to distribute 10% of the proceeds of another Triggering Event
relating to Altiris,
even though the Incentive Plan, by its own terms, provided for a bonus pool of 5%. This time
the bonus pool totaled approximately $3.37 million. Yarro alone received approximately $1.58
million, Mott received $472,082, and Christensen received $446,792.
F. Compensation From Exercise of Resale Rights.
54. Between 2000 and the present, Yarro acquired $4,236,670 in
compensation from Canopy by exercising options to acquire Class B shares and reselling
those shares to Canopy pursuant to the resale provisions in Article 2, Section II
of the Equity Plan.
55. From 2000 to the present, Mott acquired
$881,731 in compensation from Canopy by exercising options to acquire Class B shares and reselling those
shares to Canopy pursuant to the resale provisions in Article 2, Section II,
of the Equity Plan.
56. From 2001 to the present, Christensen acquired
$607,941 in compensation from Canopy by exercising options to acquire Class B shares and
reselling those shares to Canopy pursuant to the resale provisions in Article 2, Section II,
of the Equity Plan.
57. From 2000 to the present, employees other than Defendants acquired a
total of $1,655,712
in compensation from Canopy by exercising options to acquire Class B shares
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and reselling those shares to Canopy pursuant to the resale provisions in Article 2, Section II,
of the Equity Plan.
58. By allowing Canopy's employees to exercise resale rights under the
Plan, Defendants wasted corporate assets.
G. Summary of Excessive Cash Compensation Taken By Defendants
59. Between 1999 and 2004, Yarro took a total of at least $19,535,602 in excessive cash
compensation pursuant to the Incentive Plan and exercises of resale rights acquired pursuant
to the Equity Plan. This amount does not include the value of options and stock improperly
acquired by Yarro pursuant to the Equity Plan. Nor does it include amounts received by
Yarro from Canopy as base compensation and annual bonuses, which totaled approximately
$275,000 to $300,000
per year, or compensation received by Yarro directly from Portfolio Companies.
60. Between 1999 and 2004, Mott took a total of at least $2,557,727 in
excessive cash compensation
pursuant to the Incentive
Plan
exercises of resale rights acquired pursuant to the Equity Plan. This amount does not
include the value of options and stock improperly acquired by Mott pursuant to the Equity
Plan. Nor does it include amounts received by Mott from Canopy as base compensation
and annual bonuses, which totaled approximately $115,000 to $180,000 per year, or
compensation received by Mott directly from Portfolio Companies.
61. Between 2001 and 2004, Christensen took a total of at least $1,759,370
in excessive cash compensation pursuant
to the Incentive Plan and the exercise of resale rights acquired pursuant to
the Equity Plan. Such amount does not include the value of options and
20
stock improperly
acquired by Christensen pursuant to the Equity Plan. Nor does it include amounts received by
Christensen from Canopy as base compensation and bonuses, which totaled
approximately $165,000 to $173,000 per year, or compensation received by Christensen
directly from Portfolio Companies.
62.
Defendants estimate the value of their purported options exceeds $100
million.
63.
Under Defendants' control, Canopy has never distributed
a dividend to the
Trust.
64.
Mrs. Noorda has never been paid for her services as an officer and
director
of
Canopy.
65.
Mr. Noorda has received only nominal compensation for
his services as an
officer and director, ranging from $40,000 per year in 2000 to $60,000 per year in
2001, 2002 and 2003.
FIRST CLAIM FOR RELIEF
(Breach of Fiduciary Duty of
Loyalty)
66. Plaintiffs incorporate by reference the allegations above.
67. Defendants each owed a fiduciary duty of loyalty to Plaintiffs.
68. Under this duty, Defendants were obligated to use their ingenuity, influence, and
energy and to employ their resources, to preserve and enhance the property and earning
power of Canopy, even if the interests of Canopy were in conflict with their own personal
interests.
69. By the conduct alleged above, including, without limitation, excessive and unfair
incentive and equity compensation packages for themselves and Canopy's
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other employees and ceding undue control of Canopy to its employees, Defendants
have breached the fiduciary duty of loyalty that they owed to Plaintiffs.
70. As a direct and proximate result of Defendants' wrongful acts, Plaintiffs
suffered and will continue to suffer in an exact amount to be proven at trial.
71. Defendants' breach of the fiduciary duty of loyalty was performed
intentionally, knowingly, and with reckless indifference toward, and a disregard of, the rights
of Plaintiffs, entitling Plaintiffs to an award of punitive damages in an amount to be
determined at
trial.
SECOND CAUSE OF ACTION
(Aiding and Abetting Breach of Fiduciary Duty)
72.
Plaintiffs incorporate by reference the allegations above.
73.
By the foregoing acts, Mott and Christensen aided and abetted Yarro in
breaching his fiduciary duty of loyalty to Plaintiffs.
74. As a direct and proximate result of Mott's and Christensen's wrongful acts,
Plaintiffs have suffered and will continue to suffer damages in an exact amount to be proven
at trial.
75. Defendants' aiding and abetting of Yarro in breaching his fiduciary duty of
loyalty was performed intentionally, knowingly, and with reckless indifference toward, and a
disregard of, the rights of Plaintiffs, entitling Plaintiffs to an award of punitive damages in
an amount to be determined at trial.
THIRD CAUSE OF
ACTION
(Breach of
Fiduciary Duty)
76. Plaintiffs incorporate by reference the allegations above.
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77. Christensen, as Canopy's attorney, owed Canopy the fiduciary duty of undivided
loyalty.
78. By the conduct alleged above, Christensen has breached the fiduciary duty of
loyalty that he owed to Canopy.
79. By the conduct alleged above, Christensen has breached the ethical obligations he
owed to Canopy under Rule 1.8 of the Utah Rules of Professional Conduct.
80. As a direct and proximate result of Christensen's wrongful acts, Canopy has
suffered and will continue to suffer damages in an exact amount to be proven at trial.
81. Christensen's breach of his fiduciary duty of undivided loyalty to Canopy
was performed intentionally, and with reckless indifference toward, and a disregard of, the
rights of Canopy, entitling Canopy to an award of punitive damages in an amount to be
determined at trial.
FOURTH CAUSE OF ACTION
(Removal of Yarro as a Director Pursuant to Utah
Code Ann. §16-10a-809)
82. Plaintiffs incorporate by reference the allegations above.
83. By the foregoing acts, Yarro has engaged in "fraudulent or dishonest
conduct or gross abuse of authority or discretion with respect to the corporation." Utah Code
Ann.
§16-1Oa-809.
84.
Yarro's removal as a director of Canopy is in the best interests of
Canopy.
85.
Accordingly, Yarro must be removed as a director pursuant to Utah
Code
Ann.
§16-10a-809.
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FIFTH CAUSE OF ACTION
(Constructive Trust)
86. Plaintiffs incorporate by reference the allegations above.
87. By the foregoing acts, Defendants have acquired title to or possession of
Canopy's property, including cash, stock, and options, with actual and/or
constructive
knowledge that such acquisition constituted a breach of their fiduciary duties to Canopy.
88. Accordingly, Defendants have been unjustly enriched and are under an
equitable duty to convey such property to Canopy.
SIXTH CAUSE OF
ACTION
(Conversion)
89. Plaintiffs incorporate by reference the allegations above.
90. By the foregoing acts, Defendants have exercised dominion and control over
Canopy's property in a manner inconsistent with Canopy's rights therein.
91. As a direct and proximate result of Defendants' wrongful acts, Canopy has suffered
and will continue to suffer damages in an exact amount to be proven at trial.
92. Defendants' conversion of Canopy's property was performed
intentionally, knowingly, and with reckless indifference toward, and a disregard of, the
rights of Canopy, entitling
Canopy to an award of punitive damages
in an amount to be determined at trial.
SEVENTH CAUSE OF ACTION
(Breach of Contract -Incentive Plan)
93. Plaintiffs incorporate by reference the allegations above.
94. To the extent the Incentive Plan constitutes a valid and enforceable contract
between Canopy and Defendants, Defendants have breached the Incentive Plan by
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causing themselves to be paid incentive bonuses derived from: (1) the Caldera lawsuit
proceeds, and (2) bonus pools totaling more than 5% of any Triggering Event, as that term is
defined in the Incentive Plan.
95. The foregoing breaches constitute material breaches of Defendants' obligations under the Incentive Plan.
96. As a direct and proximate cause of Defendants' breaches, Canopy has suffered
and will continue to suffer damages.
97. Canopy is therefore entitled to an award of damages in an amount to be proved at
trial.
EIGHTH CAUSE OF ACTION
(Breach of Covenant of Good Faith
and Fair Dealing - Incentive Plan)
98. Plaintiffs incorporate by reference the allegations above.
99. To the extent the Incentive Plan constitutes a valid and enforceable
contract between Canopy and Defendants, Defendants, as parties to that contract, owe
Canopy a duty to act in good faith and deal fairly with Canopy.
100. This duty included a duty on Defendants to
act consistently with the purpose of such contract, principally to
procure Defendants' undivided loyalty to Canopy, and
expectations thereunder.
101. Defendants breached the duty of good
faith and fair dealing implied in the Incentive Plan by,
other things, implementing excessive and unfair incentive compensation payments and
equity compensation packages for themselves and Canopy's other employees, ceding undue
control of Canopy to its employees, and otherwise breaching their fiduciary duty of loyalty
to Canopy.
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102. The foregoing breaches constitute material
breaches of Defendants' obligations under the Incentive Plan.
103. As a direct and proximate result of Defendants' breaches of
the covenant of good faith and fair dealing implied in the
Incentive Plan,
Canopy has suffered and will continue to suffer damages.
104.
Canopy is therefore entitled to an award of damages in an
amount to be proved at trial.
NINTH CAUSE OF ACTION
(Breach of Covenant of Good Faith and Fair Dealing -
Option Agreements)
105. Plaintiffs incorporate by reference the allegations above.
106. To
the extent the option agreements entered into between Canopy and
Defendants constitute valid and enforceable contracts, Defendants, as
parties to those contracts, owe Canopy a duty to act in good faith and
deal fairly with Canopy.
107. This duty included a duty on Defendants to act
consistently with the
purpose of such contracts, principally to procure Defendants' undivided loyalty to Canopy,
and Canopy's expectations thereunder.
108. Defendants breached the duty of good faith and fair dealing implied in the option agreements
by, among other things, implementing excessive and unfair incentive and equity
compensation packages for themselves and Canopy's other employees, ceding undue control
of Canopy to its employees, and otherwise breaching their fiduciary duty of loyalty to
Canopy.
109. The foregoing breaches constitute material breaches of Defendants'
obligations under the option agreements.
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110. As a direct and proximate result of Defendants' breaches of the
covenant of good faith and fair dealing implied in the option agreements, Canopy has
suffered and will continue to suffer damages.
111. Canopy is therefore entitled to termination and rescission of the Defendants'
option agreements and an award of damages in an amount to be proved at trial.
TENTH CAUSE OF ACTION
(Breach of Contract -Shareholder Agreement)
112. Plaintiffs incorporate by reference the allegations above.
113. To the extent the Shareholder Agreement entered into between
Plaintiffs and Defendants constitutes a valid and enforceable contract, Defendants have
breached their obligations under §§2(b)(iii), 2(b)(iv) and
4 of the Shareholder Agreement by implementing excessive and
unfair incentive and equity compensation packages for themselves and Canopy's other
employees, ceding undue control of Canopy to its employees, and otherwise breaching
their fiduciary duty of loyalty to Plaintiffs.
114. The foregoing breaches constitute material
breaches of Defendants' obligations under the Shareholder
Agreement.
115. As a direct and proximate cause of Defendants'
breaches, Plaintiffs have suffered and will continue to suffer
damages.
116. Plaintiffs are therefore entitled to avoid, terminate
and rescind Defendants' purported rights under the Shareholder
Agreement and to an award
of damages in an amount to be proved at trial.
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ELEVENTH CAUSE OF ACTION
(Breach of Covenant of Good Faith and Fair
Dealing -Shareholder Agreement)
117. Plaintiffs incorporate by reference the allegations above.
118. To the extent the Shareholder Agreement entered into between
Plaintiffs and Defendants constitutes a valid and enforceable contract, Defendants, as
parties to that contract, owe Plaintiffs a duty to act in good faith and deal fairly with
Plaintiffs.
119. This duty included a duty on Defendants to act consistently with the
purpose of the Shareholder Agreement, principally to procure Defendants' undivided loyalty
to Plaintiffs.
120. Defendants breached the duty of good faith and fair dealing implied in
the Shareholder Agreement by, among other things, implementing excessive and unfair
incentive and equity compensation packages for themselves and Canopy's other employees,
ceding undue control of Canopy to its employees, and otherwise breaching their fiduciary
duty of loyalty to Plaintiffs.
121. The foregoing breaches constitute material breaches of Defendants'
obligations under the Shareholder Agreement.
122. As a direct and proximate result of Defendants' breaches of the covenant
of good faith and fair dealing implied in the Shareholder Agreement, Plaintiffs have suffered
and will continue to suffer
damages.
123. Plaintiffs are therefore entitled to avoid, and
rescind Defendants' rights under the Shareholder Agreement
and to an award of damages in an amount to be proved at trial.
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124.
Plaintiffs demand a trial by jury on all issues so
triable.
JURY DEMAND
WHEREFORE, Plaintiffs request the following relief:
A. A
judgment awarding Plaintiffs actual, special and
consequential damages in amounts to be proved at
trial;
B. A judgment declaring that Defendants' stock option agreements are null and
void, that all stock and cash compensation
by Defendants pursuant to the Equity Plan must be returned to Canopy, and that all options
acquired by Defendants pursuant to the Equity Plan are terminated and rescinded;
C. A judgment declaring that all cash, stock, options and other property
acquired by Defendants in violation of their fiduciary duty of loyalty to Canopy is being held
by Defendants in constructive trust for Canopy and that Defendants are under an equitable
duty to return and convey such property to Canopy;
D. An order removing Yarro
as a director of Canopy pursuant to Utah Code Ann.§16-10a-809;
E. A judgment declaring that Defendants' purported rights under the
Agreement are void, terminated, and rescinded;
F. A judgment awarding Plaintiffs punitive damages as appropriate; and
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G. A judgment that Plaintiffs recover the costs of suit
herein, including attorney's fees and costs.
DATED
this 24th day of January 2005.
___[signature]___
David B. Watkiss, Esq.
Anthony C. Kaye, Esq.
James W. Stewart, Esq.
Boyd L.
Rogers, Esq.
BALLARD SPAHR ANDREWS & INGERSOLL, LLP
Attorneys for Plaintiffs
Plaintiffs' Addresses:
The Canopy Group
[address]
Mr. Raymond J. Noorda, Trustee
Mrs. Lewena Noorda, Trustee
The Noorda Family Trust
[address]
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