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Canopy's Motion to Remove Yarro As Director and Memo - as text
Sunday, February 27 2005 @ 08:40 AM EST

Here's Canopy's Motion to Remove Ralph J. Yarro III As Director [PDF] and the supporting Memorandum [PDF], which we commented on earlier, as text, thanks to fudisbad and Loïc.

The salient paragraph is number 8, where they acknowledge that Raymond Noorda is, in fact, apparently suffering from Alzheimer's disease:

"8. 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, including the apparent onset of Alzheimer's disease, Mr. Noorda has not participated in the day-to-day management of Canopy's affairs since at least 1998."

So that is now admitted. What isn't clear is the degree of impairment so far or what his capacity was on December 17, 2004, or back in 1998-2001, when the events that star in this motion took place.

Paragraph 65 is pertinent to the subpoenaes and validate my interpretation of what they are after:

"65. Following Defendants' terminations, one valued Canopy employee has died and five others have terminated their own employment. Despite Defendants' inflammatory and baseless accusations, those employees who have terminated their own employment have done so voluntarily or, on information and belief, under Defendants' influence. For instance, Defendants allege that "key and valuable Canopy employees have terminated, or are considering terminating, their employment with Canopy." (Complaint in Yarro Action, ¶ 114.) Defendants would not know this absent having contacted these employees. Should discovery reveal, as suspected, that Yarro has interfered with Canopy's employee relationships, such conduct would be in violation of his ongoing fiduciary duty of loyalty to Canopy as a director and provide an additional basis for his removal. (Mustard Aff. at 21-22.)"

See, you have to be very, very careful what you say to lawyers. They pick up on the tiniest detail and will use it against you. It's their job.

The other significant issue raised in these very serious charges is that Canopy and the Noordas accuse Yarro of implementing, back in 1998, around the time that Mr. Noorda was no longer involved in day to day affairs, an Incentive Bonus plan, "without Board review or approval" so as to "reward certain key employees" such as Yarro. They believe it was Christensen who "drafted or participated in drafting" the plan, and Yarro "executed it in his individual capacity and purportedly on behalf of Canopy."

Then, when Caldera, then a Portfolio Company, settled the antitrust lawsuit against Microsoft, they say, in paragraph 20, Yarro, again without Board review or approval, distributed the settlement proceeds to six employees, including himself, his take being, they say, $6.75 million of the total amount of $7.6 million.

Then, again in 2000, and again, they say, without Board review or approval, they distributed double the percentage of the proceeds of a Triggering Event (defined in the Incentive Bonus Plan), with a couple more millions going to Yarro. In both the Altiris deal and the Traxess sale, Yarro is alleged to have been the only one to sign the Bonus Distribution documents, and they attach the documents as evidence. It's the phrase "without Board review or approval" that Yarro will have to counter, if he wishes to keep that money. He'll have to try to find some corporate documents to validate his actions, and with something like this, there would normally be some writing to verify that the Board did review and approve. Corporations don't just do major things without the Board and/or the shareholders getting to decide whether or not to do it. And all that activity is supposed to be memorialized as a writing. When corporations act like they are one and the same as the individual who benefitted from a transaction, things start to get serious.

We saw in the Stock Option Agreement that Yarro, who they again accuse of acting on his own and without review and approval by the Board, gave himself a fully-vested 20-year option to purchase 10,000 Class A voting shares and 9,990,000 Class B shares, so as to receive options allowing him to acquire 40% of the company's Class A and Class B shares. In this document, we find out how much that transaction was worth. He granted himself options at $5 per share when the strike price was $19.27, for a total transaction value of $143 million. Nice work if you can get it, as they say. Or should I say, Nice work if you can get away with it?

There is another whole category of allegations, namely that Yarro more or less took advantage of the Noordas, getting them to sign things based on his recommendation and their trust. For example, here's the terse description of the Shareholder Agreement in paragraph 33: "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, which it is not." All three defendants are accused of advising the Noordas to sign things that were not in their or Canopy's best interest. It a serious allegation to lay at the feet of Mr. Christensen, because he is a lawyer. There are rules for lawyers.

Those allegations of improper and undue influence will be harder to prove, because how do you establish if Mr. Noorda was incapacitated back then or not? Yes, the agreements seem ridiculous on their face, but if all of the Board members signed off, it's a harder issue. If the signatures are valid, absent some evidence otherwise, then the question is, how do you prove that Mr. and Mrs. Noorda were fooled, as opposed to intending to give their business away, in the face of all reason? If the latter, next you have to demonstrate that it was unequivocably not in Canopy's interest, which, frankly, doesn't seem all that impossible to do, from my reading. As the motion argues, "an interested director bears the burden of proving that his or her compensation is entirely fair to the corporation." And they state:

"Because Yarro has dominated and controlled Canopy's Board since at least 1998, he cannot escape having to prove that the manner in which he improperly enriched himself and others was entirely fair to Canopy. A shareholder is a 'controlling shareholder' if a majority of the board does not exercise independent business judgment and follows the will of that shareholder."

In short, they are accusing him of making out like a bandit, and now he has the burden of showing that it was in the best interests of the company that he did so. True, he didn't have a controlling share, but he so dominated the Noordas, they allege, that he was a "controlling shareholder". If the Noordas weren't given all the facts, or were given misinformation, their "ratification" of corporation actions are suspect. If, on the other hand, the Noordas acted on purpose to give away the store, then the Noordas are technically in a position where Canopy should go after *them*. Alternatively, if the diagnosis of Alzheimer's was, say, prior to 1998 and there was some level of incapacity, why didn't anyone replace Mr. Noorda on the Board? They had a fiduciary duty to do so, both Yarro and Mrs. Noorda, and the lawyer had a duty to so advise them, I'd think, if he wasn't able to function. Of course, that isn't established yet.

Paragraph 28(e) says that the employees have a grace period of three months from termination to exercise any options outstanding if they are terminated or leave without cause; if terminated for cause, they only get one month, all of which the motion calls "excessive" amounts of time. 28(f) explains the Cashless Exercise, whereby an employee who leaves or ceases to work for Canopy for any reason but cause could pay " the options exercise price and all applicable withholding taxes by receiving a reduced number of shares." Once a year, employees could ask Canopy to buy their shares back. The motion mocks the purported purpose of the plan. If it was to retain the services of the employees, why give them options that vest immediately?

I must say, the benefits of working at Canopy were so lavishly liberal, it must have been a horrible work environment if they had to go to such lengths to retain the services of their secretaries, paralegals, etc. Yes, I'm joking.

Near the end of the document, they point out that even though the three defendants were terminated for cause on December 17th, the simple fact is that they were at-will employees, so Canopy didn't even need a reason to terminate them. Being an at-will employee means you can't argue that it was unfair that you were terminated. It doesn't matter. The only issue for an at-will employee like Yarro would be whether the two board members had capacity to act. I can't help but puzzle over why he didn't think to contract with Canopy/the Noordas and get an iron-clad employment contract, while he was at it, composing documents right and left. It has cost him now.

Canopy and the Noordas seek, among other things:

(1) an order removing Yarro as a director of Canopy pursuant to Utah Code Ann. § 16-10a-809;

(2) a judgment declaring that Defendants' stock option agreements are null and void, that all stock and cash compensation acquired 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;

(3) 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 them in constructive trust for Canopy and that Defendants are under an equitable duty to return and convey such property to Canopy;

(4) a judgment declaring that Defendants' purported rights under the Shareholder Agreement are void, terminated, and rescinded; and

(5) a judgment awarding actual, special, consequential, and punitive damages as appropriate.

I wonder if they are taking steps to remove Mr. Yarro from Angel Partners now? With the Noordas so elderly, that seems like an urgent task from the perspective of Mr. Mustard, who defends his role and leadership in this motion. As for the employees who expressed that Canopy couldn't make it without them, the motion says Mr. Mustard has hired replacements at a compensation level "commensurate with their experience and skills, in contrast to the wasteful compensation levels set by prior management."

The statutory basis for one cause of action in the complaint is Utah Code Ann. Section 16-10a-809(1):

"In their Fourth Cause of Action, Canopy and the Trust seek an order removing Yarro as a director of Canopy. Under the Utah Revised Business Corporation Act, the "district court of the county in this state where a corporation's principal office . . . is located may remove a director in a proceeding commenced" by the corporation or a shareholder holding at least 10 percent of the outstanding shares of any class if the court determines that "(a) the director engaged in fraudulent or dishonest conduct or gross abuse of authority or discretion with respect to the corporation; and (b) removal is in the best interest of the corporation." Utah Code Aim. § 16- 10a-809(1)."

You can find the statute here. Note that there is a hearing requested, for March 8, so we will get to hear the whole story, live and in all its gruesome details.

This is another of the paper documents that Frank Sorenson personally picked up for us and scanned. Thank you, Frank, so much. When there is nothing left of SCO but an old blues song, we'll have to throw a party for Frank, to thank him and all the other heros of this saga for the steady, reliable, nonstop efforts, not only, in Frank's case, in writing technical papers and doing research and providing me with technical advice behind the scenes, but being willing to do the lowlier tasks too, like picking up documents from the courts and scanning them in for hours. We'll have a virtual party, at least. How many people can you fit on one chat session anyhow?

: )

*************************************

David B. Watkiss, Esq. (#3401)
Anthony C. Kaye, Esq. (#8611)
James W. Stewart, Esq. (#3959)
Boyd L. Rogers, Esq. (#10095)
Craig H. Howe, Esq. (#7552)
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.


MOTION TO REMOVE RALPH J.
YARRO III AS DIRECTOR

Civil No. 050400245

Honorable Anthony W. Schofield

HEARING REQUESTED


Pursuant to Utah Code Ann. § 16-10a-809, Plaintiffs, The Canopy Group, Inc. ("Canopy"), and Raymond J. Noorda and Lewena Noorda, as Trustees of the Noorda Family Trust (the "Noordas"), through their counsel, hereby move for an order removing Ralph J. Yarro

1

III as a director of Canopy. This Motion is supported by the accompanying Memorandum in Support of Motion to Remove Ralph J. Yarro III as Director and the Affidavit of William Mustard, dated January 30, 2005, which was filed on or about January 31, 2005, in the related action, Ralph J. Yarro III et al. v. Val Noorda Kreidel et al., Fourth Judicial District Court, Utah County, State of Utah, Civil No. 050400205 (the "Yarro Action"). For the reasons set forth in the supporting Memorandum, Canopy and the Noordas respectfully request that the Court enter an order granting this Motion and removing Yarro as a director of Canopy.

Concurrently with the filing of this Motion, Plaintiffs are filing a Motion requesting the Court to consolidate this action with the Yarro Action. Pursuant to Rule 42 of the Utah Rules of Civil Procedure, the Motion to Consolidate has been filed in the earlier-filed Yarro Action. An evidentiary hearing has been set in the Yarro Action commencing on March 8, 2005, to consider the Motion for Preliminary Injunction filed by Ralph J. Yarro, Darcy G. Mott, and Brent D. Christensen in that case. Canopy and the Noordas respectfully request that the Court set this Motion for an evidentiary hearing to be held concurrently with the evidentiary hearing presently scheduled for March 8-11, 2005, in the Yarro Action.

DATED this 14th day of February 2005.

___[signature]___
David B. Watkiss, Esq.
Anthony C. Kaye, Esq.
James W. Stewart, Esq.
Boyd L. Rogers, Esq.
Craig H. Howe, Esq.
BALLARD SPAHR ANDREWS & INGERSOLL, LLP
Attorneys for Plaintiffs

2

CERTIFICATE OF SERVICE

I hereby certify that a true and correct of copy of the foregoing
MOTION TO REMOVE RALPH J. YARRO III AS DIRECTOR was served on the following this 14th day of February 2005, in the manner set forth below:

Via Hand Delivery:

Stanley J. Preston, Esq.
Michael R. Carlston, Esq.
Maralyn M. Reger, Esq.
Bryan M. Scott, Esq.
SNOW CHRISTENSEN AND MARTINEAU
[address]
Attorneys for Plaintiffs

Via First Class Mail, Postage Prepaid:

Jeffrey S. Facter, Esq.
SHEARMAN & STERLING LLP
[address]

Blake D. Miller, Esq.
MILLER & GUYMON, P.C.
[address]

Blaine J. Benard, Esq.
Eric G. Maxfield, Esq.
HOLME ROBERTS & OWEN, LLP
[address]

__[signature]____


**************************

David B. Watkiss, Esq. (#3401)
Anthony C. Kaye, Esq. (#8611)
James W. Stewart, Esq. (#3959)
Boyd L. Rogers, Esq. (#10095)
Craig H. Howe, Esq. (#7552)
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
NOORDA FAMILY TRUST,

Plaintiffs,

vs.

RALPH J. YARRO III, an individual,
DARCY G. MOTT, an individual, and
BRENT D. CHRISTENSEN, an individual,

Defendants.


MEMORANDUM IN SUPPORT OF of the MOTION TO REMOVE RALPH J.
YARRO III AS DIRECTOR

Civil No. 050400245

Honorable Anthony W. Schofield


TABLE OF CONTENTS

Page

INTRODUCTION . . . . . . . . . . . . . iv


STATEMENT OF FACTS . . . . . . . . . . . . . . . . . . . . . . v
A. Background . . . . . . . . . . . . . . . . . . . . . . v
B. The Incentive Compensation Plan . . . . . . . . . . . . . . . . . . . . viii
C. Early Incentive Plan Payments . . . . . . . . . . . . . . . . . . . . . . ix
D. The Recapitalization & Equity Compensation Plans . . . . . . . . . . . . x
E. The Shareholder Agreement . . . . . . . . . . . . . . . . . . . . . . xvi
F. Subsequent Distributions of Incentive and Equity Compensation . . . . xviii
G. Compensation From Exercise of Resale Rights . . . . . . . . . . . . . . . . xxii
H. Summary of Excessive Cash Compensation Taken By Plaintiffs . . . . xxiii

ARGUMENT . . . . . . . . . . . . . . . . . . . . . . 1
1. THIS COURT SHOULD REMOVE YARRO AS A DIRECTOR OF
CANOPY BECAUSE HE HAS ENGAGED IN FRAUDULENT OR
DISHONEST CONDUCT AND HAS GROSSLY ABUSED HIS
AUTHORITY AND DISCRETION AS A DIRECTOR . . . . . . . . . . . . . . . . . . . . . 1
A. This Court Has Statutory Authority Under Utah Code Ann. § 16-10a-809 to
Remove Yarro As a Director
. . . . . . . . . . . . . . . . . . 1

B. Yarro's Self-Dealing and Wasteful Compensation Plans Must be Reviewed
Under an "Entire Fairness" Standard
. . . . . . . . . . . . . . . . . . . . . . 1
C. Yarro's Improper and Dishonest Conduct Requires His Removal From
Canopy's Board
. . . . . . . . . . . . . . . . . . . . . . 6
II. YARRO'S REMOVAL IS IN THE BEST INTEREST OF CANOPY . . . . . . . . . . . . . 8
CONCLUSION . . . . . . . . . . . . . . . . . . . . . . 9

i

TABLE OF AUTHORITIES

FEDERAL CASES

In re Mi-Lor Corp ., 348 F.3d 294 (1st Cir. 2003) . . . . . . . 10

Resolution Trust Co. v. Dean , 854 F. Supp. 626 (D. Ariz. 1994). . . . . . . 4, 16

STATE CASES

Aronson v. Lewis , 473 A.2d 805 (Del. 1984) . . . . . . . 6

C & Y Corp. v. General Biometrics, Inc ., 896 P.2d 47 (Utah Ct. App. 1995) . . . . . . . 2

Kahn v. Tremont Corp ., 694 A.2d 422 (Del. 1997) . . . . . . . 8, 10

Lewis v. Vogelstein , 699 A.2d 327 (Del. Ch. 1997) . . . . . . . 10

In Re Maxxam Inc ., 659 A.2d 760 (Del. Ch. 1995) . . . . . . . 8

Merritt v. Colonial Foods, Inc ., 505 A.2d 757 (Del. Ch. 1986) . . . . . . . 8

Odyssey Partners, L.P. v. Fleming Companies, Inc ., 735 A.2d 386 (Del. Ch. 1999) . . . . . . . 6

Solomon, TRV v. Armstrong , 747 A.2d 1098 (Del. Ch. 1999) . . . . . . . 8

Stroud v. Grace , 606 A.2d 75 (Del. 1992) . . . . . . . 10

Telxon Corp. v. Meyerson , 802 A.2d 257 (Del. 2002) . . . . . . . 4, 6

ii

In re Walt Disney Company Derivative Litigation , 825 A.2d 275 (Del. Ch. 2003) . . . . . . . 4, 6

STATUTES

Utah Code Ann. § 16-10a-809 . . . . . . . 2

iii

Plaintiffs, The Canopy Group, Inc. ("Canopy"), and Raymond J. Noorda and Lewena Noorda, as Trustees of the Noorda Family Trust (the "Noordas"), through their counsel, respectfully submit this Memorandum in support of their Motion, pursuant to Utah Code Ann. § 16-10a-809, for an order removing Ralph J. Yarro III ("Yarro") from Canopy's Board of Directors.

INTRODUCTION

By this Motion, Canopy and the Noordas seek Yarro's removal from Canopy's Board of Directors for fraudulent and dishonest conduct and gross abuse of authority and discretion. Through a series of self-dealing and wasteful transactions, Yarro, aided and abetted by defendants Darcy G. Mott and Brent D. Christensen, wrongfully enriched himself and others at the expense of Canopy and the Noorda Family Trust, its majority shareholder. Although the precise amount of damages suffered by virtue of Yarro 's conduct is not yet known, the evidence will show at least $20 million has been misappropriated. The evidence will also show Yarro improperly acquired an option pursuant to which he may allegedly acquire forty percent of the company's non-voting shares. As a consequence of his conduct, Yarro's employment as Canopy's President and Chief Executive Officer was terminated for cause on December 17, 2004.

Pursuant to its statutory authority under the Utah Revised Business Corporation Act, Utah Code Ann. § 16-10a-809, this Court should now enter an order removing Yarro from Canopy's board. Because Yarro's wrongful actions have cost Canopy millions of dollars, most of which he received, his removal as a director is in the company's best interest.

iv

STATEMENT OF FACTS

A. Background

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. The Noordas, who are husband and wife, are residents of Utah County, Utah. The Noordas settled the Noorda Family Trust pursuant to a Declaration of Trust dated October 8, 1980, as subsequently amended (the "Trust"), 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 remainder of the Trust's assets, is a private non-operating foundation whose purpose is to provide grants to charitable organizations.

4. Yarro is an individual residing in Utah County, Utah, and 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. Yarro's employment with Canopy was at-will. (See Bylaws of NFT Ventures, Inc. ("Bylaws"), Section 6.03, a copy of

v

which is attached to the Affidavit of William Mustard dated January 30, 2005 ("Mustard Aff."), as Exhibit B, filed in the Yarro Action, as defined hereafter.)

5. 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.

6. 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").

7. 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 brought 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.

8. 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, including the apparent onset of Alzheimer's disease, Mr. Noorda has not participated in the day-to-day management of Canopy's affairs since at least 1998.

vi

9. 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.

10. 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.

11. 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.

12. 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.

13. Based on their trust and confidence in Yarro and their belief that Yarro would act in Canopy's best interests, the Noordas delegated to Yarro full responsibility for the management of Canopy's affairs.

14. As set forth more fully below, Yarro, aided and abetted by co-defendants, Brent D. Christensen ("Christensen") and Darcy G. Mott ("Mott") (collectively, "Defendants"), took

vii

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.

B. The Incentive Compensation Plan.

15. 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. (A copy of the Incentive Plan is attached to the Mustard Aff. as Exhibit G.)

16. 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.)

(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

viii

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 Included 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.)

C. Early Incentive Plan Payments.

17. On Yarro's advice, Canopy hired Mott as its Vice President-Finance, Chief Financial Officer, and Treasurer on May 3, 1999.

18. 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.

19. In 1999 or early 2000, Caldera, then a Portfolio Company, settled a significant antitrust lawsuit it had filed against Microsoft Corporation.

20. 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 employees, including Yarro and Mott, even though the Caldera settlement was not a Triggering

ix

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.

21. 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.

D. The Recapitalization & Equity Compensation Plans.

22. 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.

23. 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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24. 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, Inc., 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.

25. 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.)

26. 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." (A copy of the Equity Plan is attached to the Mustard Aff. as Exhibit H.)

27. 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 Yarro, led them to believe the Equity Plan was in Canopy's best interests.

28. 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

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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 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 such 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

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the options exercise price and all applicable withholding taxes by receiving a reduced number of shares. (Id. at Art. 2(I)(H).)

(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).)

29. 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

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to receive options allowing him to immediately acquire 40% of Canopy's authorized Class A and B shares at a fraction of their value. At the time, the transaction was worth approximately $143 million to Yarro. (Copies of the foregoing Stock Option Agreements are attached to the Mustard Aff. as Exhibits H and I.)

30. 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.

31. 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%
9,990,000 Class B$5.00 100%

Darcy Mott 500 Class A $7.00 100%
49,500 Class B $7.00 100%

Barbara Jackson25 Class A $5.00 100%
24,975 Class B $5.00 100%

Joyce Wiley 300 Class A $5.00 100%
299,700 Class B $5.00 100%

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Rob Penrose 150 Class A $5.00 100%
149,850 B $5.00 100%

Boyd Worthington120 Class A $19.00 25% starting 2/8/01
119,880 Class B $19.00 25% starting 2/8/01

Jan Newman 150 Class A $19.00 25% starting 2/8/01
149,850 Class B $19.00 25% starting 2/8/01

Dan Baker 110 Class A $19.00 25% starting 2/8/01
109,890 Class B $19.00 25% starting 2/8/01

Frankie Gibson 35 Class A $19.00 25% starting 2/8/01
34,965 Class B $19.00 25% starting 2/8/01

E. The Shareholder Agreement.

32. On or about November 8, 2000, on the advice of Defendants, the Trust, Yam), and Canopy entered into a Shareholder Agreement (the "Shareholder Agreement," a copy of which is attached to the Mustard Aff. as Exhibit J) 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 Yarro 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.

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(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.

(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.)

33. 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, which it is not.

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34. Pursuant to a Stock Purchase Agreement executed by Yarro personally and 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.

F. Subsequent Distributions of Incentive and Equity Compensation.

35. 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:

Employee -- Number & Class -- Exercise Price -- Vesting

Gerald Garbe 52 Class A $18.00 25% starting 12/01/01
51,948 Class B $18.00 25% starting 12/01/01

36. 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.

37. 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. 38. 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

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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%
-- 149,850 Class B $10.00 100%
-- 300 Class A $18.00 25% starting 1/16/02
-- 299,700 Class B $18.00 25% starting 1/16/02

Darla Newbold 45 Class A $18.00 25% starting 1/16/02
-- 44,955 Class B $18.00 25% starting 1/16/02

The foregoing equity compensation was excessive, unfair to Canopy, and constituted waste of corporate assets.

39. On or about February 28, 2002, without Board review or approval, Plaintiffs caused Canopy to distribute 10% of the proceeds of a Triggering Event relating to the Portfolio Company Altiris, Inc. ("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. (See Altiris Bonus Distribution, signed only by Yarro on February 28, 2002, a copy of which is attached to the Mustard Aff. as Exhibit K.)

40. On April 19, 2002, on the advice of Defendants, Canopy re-priced 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.

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41. 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
-- 89,910 Class B $13.00 25% starting 1/3/03

42. 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.

43. 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:

Employee -- Number & Class -- Exercise Price -- Vesting

Mark Cusick -- 150 Class A -- $8.00 -- 25% starting 7/1/02
-- 149,850 Class B -- $8.00 -- 25% starting 7/1/02

44. 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 Incentive 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. (See Traxess Bonus Distribution, signed by Yarro on August 26, 2002, a copy of which is attached to the Mustard Aff. as Exhibit L.)

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45. 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."

46. 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, and Christensen received $132,312. (See Altirus Bonus Distribution signed only by Yarro on December 2, 2002, a copy of which is attached to the Mustard Aff. as Exhibit M.)

47. 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 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. (See Altiris Bonus Distribution signed only by Yarro on April 7, 2002, a copy of which is attached to the Mustard Aff. as Exhibit N.)

48. 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 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

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received approximately $1.08 million, Mott received $301,004, and Christensen received $296,373. (See Altiris Bonus Distribution signed only by Yarro on June 3, 2003, a copy of which is attached to the Mustard Aff. as Exhibit O.)

49. 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. (See Altiris Bonus Distribution signed by Yarro on August 20, 2003, a copy of which is attached to the Mustard Aff. as Exhibit P.)

G. Compensation From Exercise of Resale Rights.

50. 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.

51. From 2000 to the present, Mott acquired $881,733 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.

52. 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.

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53. 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 and reselling those shares to Canopy pursuant to the resale provisions in Article 2, Section II, of the Equity Plan.

54. By allowing Canopy's employees to exercise resale rights under the Equity Plan, Defendants wasted corporate assets.

H. Summary of Excessive Cash Compensation Taken By Plaintiffs.

55. 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.

56. Between 1999 and 2004, Mott took a total of at least $2,557,727 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 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 $1S0,000 per year, or compensation received by Mott directly from Portfolio Companies.

57. 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

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acquired pursuant to the Equity Plan. Such amount does not include the value of options and stock improperly acquired by Christensen pursuant to the Equity Plan. Nor does it include amounts received by Christensen from Canopy as base compensation and annual bonuses, which totaled approximately $165,000 to $173,000 per year, or compensation received by Christensen directly from Portfolio Companies.

58. Plaintiffs estimate the value of their purported options exceeds $100 million. (Complaint in Yarro Action (as defined hereafter), ¶ 66.)

59. Under Defendants' control, Canopy has never distributed a dividend to the Trust.

60. Mrs. Noorda has never been paid for her services as an officer and director of Canopy.

61. 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.

62. In consequence of the foregoing conduct, the Noordas noticed a meeting of Canopy's board of directors for December 17, 2004. At that meeting, which was duly held as noticed, with the Noordas attending telephonically as permitted by the Bylaws, the Noordas proposed and voted in favor of 3 separate corporate resolutions terminating Defendants' employment with Canopy for cause. Since Defendants were at-will employees of Canopy, their employment was equally susceptible to termination without cause. (Copies of the Notice and Minutes of the December 17, 2004 board meeting are attached to the Mustard Aff. as Exhibits D and E)

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63. At the same meeting, the Noordas proposed and voted in favor of a corporate resolution retaining William Mustard as Canopy's Chief Executive Officer. Mustard is a seasoned and highly experienced business and financial executive who is well qualified to lead Canopy. (Mustard Aff. at 6-9 (A copy of Mustard's resume is attached as Exhibit A to the Mustard Aff.).)

64. Since his retention, Mustard has managed Canopy's day-to-day affairs exercising his own independent business judgment. Mustard was not hired by Val Noorda Kreidel ("Kreidel"), the Noordas' daughter, or Terry Peterson ("Peterson"), their financial advisor, has no prior relationship with these individuals, and is not part of any conspiracy to operate Canopy for their benefit. To the contrary, Mustard is operating Canopy for the benefit of its shareholders, including the Trust. (Mustard Aff. at 20.)

65. Following Defendants' terminations, one valued Canopy employee has died and five others have terminated their own employment. Despite Defendants' inflammatory and baseless accusations, those employees who have terminated their own employment have done so voluntarily or, on information and belief, under Defendants' influence. For instance, Defendants allege that "key and valuable Canopy employees have terminated, or are considering terminating, their employment with Canopy." (Complaint in Yarro Action, ¶ 114.) Defendants would not know this absent having contacted these employees. Should discovery reveal, as suspected, that Yarro has interfered with Canopy's employee relationships, such conduct would be in violation of his ongoing fiduciary duty of loyalty to Canopy as a director and provide an additional basis for his removal. (Mustard Aff. at 21-22.)

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66. In any event, under Mustard's control, Canopy, a small holding company with minimal staffing needs, is in the process of retaining replacement employees at compensation levels commensurate with their experience and skills, in contrast to the wasteful compensation levels set by prior management. (Mustard Aff. at 24.)

67. On Friday, January 21, 2005, Defendants filed an action against Canopy, the Noordas, Val Noorda Kreidel, and Terry Peterson, whom Defendants erroneously and without basis allege are part of a conspiracy to appropriate Canopy's assets for their own benefit. That action is captioned Ralph J. Yarro, III v. Val Noorda Kreidel et al., Fourth Judicial District Court, Utah County, State of Utah, Case No. 050400205 (the "Yarro Action"). In point of fact, it is Angel Partner's, Inc., a non-profit organization, that stands to acquire the Trust's interest in Canopy upon the Noordas' death.

68. The following Tuesday, on January 25, 2005, Canopy and the Noordas instituted this action, contending that Defendants' conduct described above constitutes, among other things, (1) breach of the fiduciary duty of loyalty owed by Defendants to Canopy and the Trust; (2) conversion; (3) breach of the Incentive Plan and the covenant of good faith and fair dealing implied therein; (4) breach of Defendants' purported option agreements and the covenant of good faith and fair dealing implied therein; and (5) breach of the Shareholder Agreement and the covenant of good faith and fair dealing implied therein.

69. By their Complaint, Canopy and the Noordas seek, among other things: (1) an order removing Yarro as a director of Canopy pursuant to Utah Code Ann. § 16-10a-809; (2) a judgment declaring that Defendants' stock option agreements are null and void, that all stock and

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cash compensation acquired 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; (3) 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 them in constructive trust for Canopy and that Defendants are under an equitable duty to return and convey such property to Canopy; (4) a judgment declaring that Defendants' purported rights under the Shareholder Agreement are void, terminated, and rescinded; and (5) a judgment awarding actual, special, consequential, and punitive damages as appropriate.

70. Concurrently with the filing of this Motion, Canopy, the Noordas, and Mustard are filing a Motion requesting the Court to consolidate this action with the Yarro Action. In addition, Canopy and the Noordas request that the Court hear the evidence and arguments on this Motion at the hearing set to begin on March 8, 2005, on the Motion for Preliminary Injunction filed by Yarro, Mott, and Christensen in the Yarro Action.

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ARGUMENT

I. THIS COURT SHOULD REMOVE YARRO AS A DIRECTOR OF CANOPY
BECAUSE HE HAS ENGAGED IN FRAUDULENT OR DISHONEST CONDUCT
AND HAS GROSSLY ABUSED HIS AUTHORITY AND DISCRETION AS A
DIRECTOR.

A. This Court Has Statutory Authority Under Utah Code Ann. § 16-10a-809(1) to Remove Yarro As a Director.

In their Fourth Cause of Action, Canopy and the Trust seek an order removing Yarro as a director of Canopy. Under the Utah Revised Business Corporation Act, the "district court of the county in this state where a corporation's principal office . . . is located may remove a director in a proceeding commenced" by the corporation or a shareholder holding at least 10 percent of the outstanding shares of any class if the court determines that "(a) the director engaged in fraudulent or dishonest conduct or gross abuse of authority or discretion with respect to the corporation; and (b) removal is in the best interest of the corporation." Utah Code Aim. § 16- 10a-809(1). In addition, the Court may "bar the director from reelection for a period prescribed by the Court." Id. § 16-10a-809(2). The purpose of section 16-10a-809 is "to permit the prompt and efficient elimination of dishonest directors." Rev. Model Bus. Corp. Act. § 8.09 official cmt. Thus, the Court has the statutory authority in this action, which has been brought by Canopy and the Noordas, to promptly enter an order removing Yarro as a director.

B. Yarro's Self-Dealing and Wasteful Compensation Plans Must Be Reviewed Under an "Entire Fairness" Standard.

Corporate directors have a fiduciary duty of loyalty to act, at all times, in the best interests of the corporation and its shareholders, unhampered by any personal pecuniary gain. C & Y Corp. v. General Biometrics, Inc., 896 P.2d 47, 54-55 (Utah Ct. App. 1995). With respect to director compensation, an interested director bears the burden of proving that his or her

1

compensation is entirely fair to the corporation. Telxon Corp. v. Meyerson, 802 A.2d 257, 265 (Del. 2002); see also Resolution Trust Co. v. Dean, 854 F. Supp. 626, 645 (D. Ariz. 1994) ("Allegations of excessive executive compensation implicate a director's duty of loyalty to the corporation."). The reasonableness of a director's compensation involves "consideration of the services rendered, time devoted to the company, difficulties involved, responsibilities assumed, corporate earnings, and other relevant facts and circumstances." Dean, 854 F. Supp. at 645. In Telxon Corp., the Delaware Supreme Court recognized as follows:

Like any other interested transaction, directorial self-compensation decisions lie outside the business judgment rule's presumptive protection, so that, where properly challenged, the receipt of self- determined benefits is subject to an affirmative showing that the compensation arrangements are fair to the corporation.

802 A.2d at 265. Telxon was a derivative action brought by shareholders of a corporation who alleged that the directors of the corporation had breached their duty of loyalty by granting themselves excessive compensation. Id. at 258-65. Specifically, the directors were paid some $90,000 per year as salaries, and were also paid separate amounts for attending board meetings and for "consultation fees." Id. The trial court dismissed the shareholders' "compensation claims," reasoning that no facts had been produced showing the compensation was excessive. Id. at 265. The Delaware Supreme Court reversed the dismissal, holding that the trial court had improperly imposed the burden on the shareholders to prove the compensation was unreasonable.Id. Thus, the Telxon court recognized that in a situation involving directorial self-compensation, the interested directors have the burden of demonstrating the fairness of their compensation. Id.; see also In re Walt Disney Company Derivative Litigation, 825 A.2d 275, 291 (Del. Ch. 2003) (holding that allegation that president acquired compensation package with

2

"enormous financial benefits" through negotiations with the chief executive officer that were not arms-length states claim for breach of the fiduciary duty of loyalty; self compensation decisions must affirmatively be shown to be fair to the corporation). 1

Because Yarro has dominated and controlled Canopy's Board since at least 1998, he cannot escape having to prove that the manner in which he improperly enriched himself and others was entirely fair to Canopy. A shareholder is a "controlling shareholder" if a majority of the board does not exercise independent business judgment and follows the will of that shareholder. Telxon, 802 A.2d at 264; Odyssey Partners, L.P. v. Fleming Companies, Inc., 735 A.2d 386, 407 (Del. Ch. 1999); Aronson v. Lewis, 473 A.2d 805, 815 (Del. 1984). Here, the evidence will show Yarro dominated Canopy's Board through the force of his own will and the close, personal relationships he had established with the Noordas, both of whom believed him to be reliable and trustworthy. See, e.g., Telxon, 802 A.2d at 265 (control present where it was "clear that the other [d]irectors respected [the controlling shareholder's] business acumen and often relied on his counsel"). That Yarro does not own a majority of Canopy's shares is irrelevant. Control is present where a shareholder has "exercise[ed] actual control" over the

3

company's business affairs, as is readily apparent here. In Re Maxxam Inc., 659 A.2d 760, 771 (Del. Ch. 1995).

"[I]n a challenged transaction involving self-dealing by a controlling shareholder, the substantive legal standard is that of entire fairness, with the burden of persuasion resting upon the defendants."Kahn v. Tremont Corp., 694 A.2d 422, 428 (Del. 1997). Stated another way:

[W]henever a controlling shareholder sets out to exercise his power to set the terms of such a [self-dealing] transaction and compel its effectuation, he assumes a new and significant responsibility: the burden of establishing to an independent body, whether a court in litigation, an independent committee of the board . . . , or disinterested ratifying shareholders on full and complete information that the transaction is fully fair.

Merritt v. Colonial Foods, Inc., 505 A.2d 757, 764 (Del. Ch. 1986). Thus, if a controlling shareholder is present and effectuates a self-dealing transaction, he unquestionably assumes the burden of demonstrating the fairness of that transaction.

Moreover, the presence of a controlling stockholder negates the effect of shareholder ratification, which is the basic premise of Yarro's defense. See, e.g., Solomon, TRV v. Armstrong, 747 A.2d 1098, 1117 n.59 (Del. Ch. 1999) (a seemingly valid stockholder vote may be invalidated by demonstrating that shareholders were wrongfully led to vote in favor of the transaction for some reason other than its merits). Any transaction between a corporation and a controlling shareholder is subject to total fairness review. The only effect of an effective shareholder ratification is to shift the burden from the controlling shareholder to the plaintiffs to demonstrate the unfairness of the disputed transaction. Id. at 1116-17; see also Kahn v. Tremont Corp., 694 A.2d 422, 428 (Del. 1997) ("Regardless of where the burden lies, when a controlling shareholder stands on both sides of a transaction the conduct of the parties will be viewed under

4

the more exacting standard of entire fairness as opposed to the more deferential business judgment standard."). However, no burden-shifting occurs if it is shown the ratifications in question were not made by independent directors based on their independent business judgment. Id. Thus, even where shareholders are alleged to have ratified self-dealing transactions, if the presence of a controlling shareholder has clouded the judgment of those shareholders, the burden will remain on the controlling shareholder to demonstrate the entire fairness of the transaction.

Yarro's suggestion that his conduct has been properly ratified will be proven erroneous for an additional, significant reason. In a close corporation, self-dealing transactions can be ratified only by "fully informed shareholder owners" of the corporation. In re Mi-Lor Corp., 348 F.3d 294, 304-05 (1st Cir. 2003) (emphasis added). In other words, the Noordas could not have ratified that which they did not know or fully understand. Lewis v. Vogelstein, 699 A.2d 327, 335 (Del. Ch. 1997) (ratification can be "defective because of incomplete information or coercion").

The standard for proving adequate disclosure is complete candor in disclosing the facts that a reasonable shareholder or director would consider important in making an informed decision to ratify the transaction at issue. Stroud v. Grace, 606 A.2d 75, 85 (Del. 1992). Yarro bears the burden of proof on this issue as well, and, having failed to make adequate disclosures concerning Canopy's Incentive and Equity Plans, he cannot possibly meet it. See In re Walt Disney Derivative Litigation, 731 A.2d 342, 369 (Del. Ch. 1998) (stating that "[t]o obtain this [c]ourt's deference to shareholder ratification, directors and majority shareholders alike must show this [c]ourt that the shareholders possessed all information germane to the transaction at the time they ratified it").

5

C. Yarro's Improper and Dishonest Conduct Requires His Removal From Canopy's Board.

The evidence will show that Yarro has breached his duty of loyalty to Canopy by engaging in numerous gross abuses of his authority as a director. In particular, Yarro wrongfully implemented compensation packages that were not only "unfair" to Canopy, but were patently excessive under any objective standard.

First, without the full review or approval of Canopy's Board, Yarro implemented a self- serving and wasteful Incentive Plan, pursuant to which he alone received payments totaling $15,298,932. (Statement of Facts, ¶¶ 15-16.) Many of these payments did not fall within the terms of the Incentive Plan. For example, Yarro's receipt of $6.75 million in Caldera settlement proceeds did not result from a Triggering Event, and numerous other payments derived from bonus pools totaling 10% of the proceeds of Triggering Events, even though by its own terms, the Incentive Plan provides for bonus pools of only 5%. (Id. ¶¶ 20-21.)

The evidence will further show that in November 2000, based predominantly on Yarro's advice, the Noordas permitted Canopy to adopt the Equity Plan, which, on its face, is excessively rich and unfair to Canopy and the Trust. Although the Equity Plan's purported purpose is to provide employees with an incentive to remain in service, it permitted issuance of immediately vesting options at extremely discounted exercises prices. Options issued under the Equity Plan do not terminate until October 31, 2020, allowing purported Optionees up to 20 years to realize deferrred gains. Each Class A option includes a tax-protection payment clause purportedly requiring Canopy to pay cash bonuses to optionees sufficient to cover all taxes payable on income received as a result of the option's exercise and the tax protection payment itself (Id. ¶¶ 28(a)-(d).)

6

Terminated employees are permitted an excessive period of time to exercise their options - at least three months and up to a year in certain circumstances - and even if an employee is terminated for cause, he or she has one month following the date of cessation of Service (broadly defined to include service in connection with a Portfolio Company) to exercise his or her options. Class B options purportedly 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 cause. An employee who purports to elect a Cashless Exercise pays the exercise price and all applicable withholding taxes by receiving a reduced number of shares. (Id. ¶ ¶ 28(e)-(f.)

Finally, each option includes a purported resale right that may 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., ¶ 28(g); Equity Plan at Art. 2(II)(B).)

Following the implementation of the Equity Plan, Yarro executed stock option agreements that purported to grant options on Class A and B shares to himself, Mott, Christensen, and other Canopy employees at grossly undervalued prices. Yarro caused himself

7

to receive options purportedly allowing him to immediately acquire 40% of Canopy's authorized Class A and B shares at $5.00 per share. At the time, Canopy's net value per share was $19.27, thus making the transaction worth approximately $143 million to Yarro. (Id., ¶ 29.)

In sum, between 1999 and 2004, Yarro took a total of at least $19,535,602 pursuant to the Incentive Plan and exercises of resale rights purportedly acquired pursuant to the Equity Plan. This amount does not include the value of options and stock improperly acquired by Yarro, generous amounts paid to Yarro as base compensation and annual bonuses, or compensation received by Yarro directly from Portfolio Companies. Nor does it included any of the excessive and wasteful compensation paid to Canopy's other officers employees. (Id. ¶ 55.)

Yarro's compensation grossly exceeded the value received by Canopy in exchange. See Dean, 854 F. Supp. at 645. In contrast, Mrs. Noorda has never been paid for her services as an officer or director. Mr. Noorda has received 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. (Statement of Facts, ¶ 56.) Because the evidence will establish that Yarro has engaged in fraudulent and dishonest conduct and has grossly abused his authority and discretion with respect to compensation packages received by himself and others at Canopy, he should be removed as a director.

II. YARRO'S REMOVAL IS IN THE BEST INTEREST OF CANOPY.

As set forth above, Yarro has grossly abused his authority as a director, granting himself and other employees excessive compensation packages that have not been in the best interest of Canopy. Permitting Yarro to continue to serve as a director places him in a position to further dissipate Canopy's assets. Removing Yarro as a director will benefit the financial health of the

8

company by helping to restore rationality and fairness to compensation levels and other financial aspects of the corporation. Thus, Yarro's removal is in Canopy's best interest.

CONCLUSION

Based on the foregoing reasons, Canopy and the Noordas respectfully request that the Court enter an order granting this Motion and removing Yarro as a director of Canopy.

DATED this 14th day of February 2005.

___[signature]___
David B. Watkiss, Esq.
Anthony C. Kaye, Esq.
James W. Stewart, Esq.
Boyd L. Rogers, Esq.
Craig H. Howe, Esq.
BALLARD SPAHR ANDREWS & INGERSOLL, LLP
Attorneys for Plaintiffs


1 Corporate "waste" also gives rise to a breach of duty of loyalty claim. A director breaches the duty of loyalty by intentionally or negligently facilitating the waste or mismanagement of corporate funds or property. American Law Institute, Principles of Corporate Governance: Analysis and Recommendations, § 1.42 (2003). A transaction constitutes waste if it involves an expenditure of corporate funds or a disposition of corporate assets for which no consideration is received and for which there is no rational business purpose. If consideration is received, a transaction constitutes waste if the consideration is so inadequate in value that no person of ordinary sound business judgment would deem it worth that which the corporation has paid. Id.

9

CERTIFICATE OF SERVICE

I hereby certify that a true and correct of copy of the foregoing MEMORANDUM IN SUPPORT OF MOTION TO REMOVE RALPH J. YARRO III AS DIRECTOR was served on the following this 14th day of February 2005, in the manner set forth below:

Via Hand Delivery:

Stanley J. Preston, Esq.
Michael R. Carlston, Esq.
Maralyn M. Reger, Esq.
Bryan M. Scott, Esq.
SNOW CHRISTENSEN AND MARTINEAU
[address]

Via First-Class Mail, Postage Prepaid:

Jeffrey S. Facter, Esq.
SHEARMAN & STERLING LLP
[address]

Blake D. Miller, Esq.
MILLER & GUYMON, P.C.
[address]

Blaine J. Benard, Esq.
Eric G. Maxfield, Esq.
HOLME ROBERTS & OWEN, LLP
[address]

___[signature]____

10


  


Canopy's Motion to Remove Yarro As Director and Memo - as text | 213 comments | Create New Account
Comments belong to whoever posts them. Please notify us of inappropriate comments.
Corrections Here
Authored by: feldegast on Sunday, February 27 2005 @ 09:01 AM EST
so PJ can fiond them

---
IANAL
The above post is (C)Copyright 2005 and released under the Creative Commons
License Attribution-Noncommercial 2.0
P.J. has permission for commercial use

[ Reply to This | # ]

Relevant Off-Topic Posts Here, Please
Authored by: Nick on Sunday, February 27 2005 @ 09:09 AM EST
Try to put links as clickable links, please.

[ Reply to This | # ]

"Apparent onset of Alzheimer's"
Authored by: Anonymous on Sunday, February 27 2005 @ 09:49 AM EST
As someone well acquainted with the effects of Alzheimer's, I can assure you
that the early stages can and do cause exactly the kind of behavioral changes
attributed to Ray Noorda and it could easily take five years from the time that
his judgement was impaired until he could be tentatively diagnosed as having the
disease. The only definitive test is an autopsy. Until that occurs it is
dementia "probably" caused by Alzheimer's. Denial, both on the part
of the victim as well as close friends and relatives, also is common and so it
is no surprise to me no one "attempted to replace him on the Canopy
board", especially if it was thought that Canopy was being well managed by
Yarrow.

I wouldn't expect to hear much at all from Ray Noorda because I suspect that by
now the memory loss and lack of sound judgement would prevent him from being a
good witness on his own behalf. Also, Alzheimer's destroys the most recent
memories first and then works backward destroying the oldest ones last. As a
result Ray will forget who Yarro is long before he forgets how to swear - even
though he won't be sure what the words mean.

[ Reply to This | # ]

How can I get paid like Yarro
Authored by: Anonymous on Sunday, February 27 2005 @ 10:02 AM EST
I like getting paid a lot. Where can I get a job that pays like these
positions.
When Yarro and company have to pay back the cash do they get a tax refund?
Can Yarro and company find an ammended tax return from jail? Does filing
bankruptcy keep Yarro and company from paying back the cash?

[ Reply to This | # ]

Canopy's Motion to Remove Yarro As Director and Memo - as text
Authored by: hsmyers on Sunday, February 27 2005 @ 10:04 AM EST
Number of people in a chat room is a function of the number of them dancing...

[ Reply to This | # ]

since the beneficiary in the end was to be the LDS church
Authored by: Anonymous on Sunday, February 27 2005 @ 10:19 AM EST
could the church go after yarro and co. for conspiracy to defraud the church and
the noordas?

[ Reply to This | # ]

Canopy's Motion to Remove Yarro As Director and Memo - as text
Authored by: John Hasler on Sunday, February 27 2005 @ 11:42 AM EST
> I can't help but puzzle over why he didn't think to
> contract with Canopy/the Noordas and get an iron-clad
> employment contract, while he was at it, composing
> documents right and left.

An employment contract might have forced Canopy to keep on paying his salary,
but I don't think it would have allowed him to keep his position as a corporate
officer: that's a title, not a job. Once he was no longer CEO he would be just
another employee and Mustard could have ordered him to go home and wait for
instructions.

He could have given himself a nice golden parachute, but why bother? He'd be
unlikely to lose control of the company without being relieved of the parachute
as well.

Besides, these guys don't seem to be strong on contingency planning.

[ Reply to This | # ]

Excercising options after seperation
Authored by: tknarr on Sunday, February 27 2005 @ 12:06 PM EST

I don't think they'll get the 3 months after not-for-cause termination declared excessive. That's the normal period in all the options grants I've seen. Even the 1 month after termination for cause doesn't sound unusual.

[ Reply to This | # ]

Why now
Authored by: Anonymous on Sunday, February 27 2005 @ 01:11 PM EST
It seems that the Noordas are being portrayed as innocent, giving and ethical.
If that is so, why did they not file this lawsuit when it became evident that
the SCO lawsuits were an attack on GNU/Linux? Why wait until
it appears that the SCO lawsuits will be a huge financial loss? It seems that
all was fine until it appeared that the only winners would be Yarro and friends.
Will those questions be answered during the Court proceedings?

[ Reply to This | # ]

Canopy pays the tax, someone learned something!
Authored by: Anonymous on Sunday, February 27 2005 @ 01:18 PM EST
[(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 as a result of the exercise of such option plus the
receipt of the tax protection payment itself" (Id. at Art. 2(II)(A).)]

I think it may be important to look at /WHEN/ Robert Bench had been caught for
back taxes, as he was the first to start selling, was this clause crafted by
Yarro /specifically/ because of Mr. Bench's difficulties?

How did Mr. Bench amass that tax debt?

Was it because of options / stock trades / bonuses that Canopy had already given
out?

Was he their plan's guinea pig? test run on him, they forgot a clause of the tax
law, and this agreement was meant to iron those wrinkles in the plan?

I especially like the 'Pay the tax on the money you give me to pay the tax' part
;)


[ Reply to This | # ]

The Seed behind SCO
Authored by: The Mad Hatter r on Sunday, February 27 2005 @ 01:32 PM EST

I'm going to go out on a limb here. This is all speculation, some of which may
be effected by the amount of anti-histamines I've taken over the last two days
(my allergies are driving me nuts).

Many of us have long wondered where the SCO vs IBM lawsuit came from. Originally
it did seem possible that some code might have slipped from Unix to Linux. The
later debunking of the code shown by SCO Group made it clear that while code
could have transfered it was extrememly unlikely, and that SCO(Caldera), a long
time Linux Distributor and contributor to the Kernal would be aware of that.

So why did SCO(Caldera) file a lawsuit? Now as we see the Canopy vs Yarro and
Yarro vs Kreidal suits unfold we have a possible answer.

A "Triggering Event".

Let's look at the timeline:

*****

Back in 2000 SCO(Caldera) bought all or part of the Unix business from old
SCO(Tarantella). The stated aim was to use the expanded channel available to
sell more Linux.

Some time in 2001 or 2002 a decision was made at the board level (probably by
Ralph Yarro III) to change directions. This started a hiring search, and Darl
McBride was hired by SCO(Caldera) in the summer of 2002.

The hiring of Darl was probably to generate a "triggering event" at
SCO(Caldera). We don't know Darl's instructions (if any). I am basing this on
the language in the bonus agreement.

Just after this Darl did an investigation into what made the company the most
money, came up with the answer "UNIX", and started the emphasis the
Unix side. In various media the idea that the Unix IP was valuble began to be
floated.

Near the end of 2002 it was announced that David Boies and his firm had been
hired to help safeguard Caldera's Unix IP (which also served to let investors
know that the Unix IP was valuble). Not long after that the IBM suit was filed,
and Caldera changed names to "The SCO Group".

*****

Why is this important? Because in 1999 Ralph Yarro III was given control of
Canopy. It is alleged in the Canopy vs Yarro filing that Yarro had implemented a
bonus plan, which paid out money to certain employees based on "triggering
events". So setting up an event that would result in a payout could become
very important to him.

At some point in 2002 or early 2003 someone close to the Noordas became
suspicious about what was happening. I suspect it may have been Mr. Peterson as
he has a financial background.

Caldera/SCO had been making increasingly strident statements about their IP, and
how they were determined to defend it. Mr. Noorda would have been aware of the
value (or lack of) of the IP, and would have been able to provide an analysis of
the situation.

Most degenerative brain conditions attack short term memory first - one of my
uncles can talk about my childhood, but doesn't remember I've been married for
nearly 20 years. If the disease has not progressed as far in Mr. Noorda as it
has in my uncle he might be hazy on the last 5 years, but remember his term as
CEO of Novell, and the Unix deal very well.

An investigation would have been started into exactly what was going on at
Canopy and SCO (Yarro is on the board of SCO and had to know what SCO was
planning). This investigation resulted in a couple of questions being asked of
Ralph Yarro at the spring 2004 board of directors meeting, questions that
evidently lead to the decision to remove him, and instructions to him to not
contact the Noordas.

The questions would have set alarm bells ringing for Yarro. The instruction not
to contact the Noordas would also have alarmed him. I ask you to note that it
was around this time that the inflammatory rhetoric from Caldera/SCO seemed to
die down. It was almost as if someone had dropped a wet blanket on an open fire.


Now all of the above is guesswork. I'd love to hear feedback on it and had
intended to write more, but I have laundry to do :(



---
Wayne

telnet hatter.twgs.org

[ Reply to This | # ]

Canopy's Motion to Remove Yarro As Director and Memo - as text
Authored by: geoff lane on Sunday, February 27 2005 @ 01:54 PM EST
Sad as it is to say, Noorda may soon die. When that happens all kinds of thing happen that would have put a spoke into Yarros plans; in fact this possibility may well have caused him to act too obviously and trigger the current situation. Until probate is completed, the financial affairs of Ray Noorda would be frozen, afterwards a large percentage of the money goes to the church.

I can see The Church of Jesus Christ of Latter-day Saints becoming involved soon just to make sure that the terms of the will are executed properly.

One thing I have noticed, all big churches tend to have access to lots of very good lawyers and they are very keen on getting their share from any will.

Of course, there is the matter of the Noorda Family Trust (NFT) According to Findlaw proba te can be avoided in Utah by the use of a family trust. But the terms of the trust can determine where the money goes in a similar manner to a will.

---
Not using the GPL is not a character flaw.

[ Reply to This | # ]

Signatures, initials and witnesses
Authored by: star-dot-h on Sunday, February 27 2005 @ 02:30 PM EST
Reading the PDF documents posted a couple of days ago (shareholders agreement,
articles, options etc) I noticed:

1. One was not signed by Ray Noorda *and* his wife Lawerena, but only his wife
(with a changed title of vice president).

2. None of them were initialed on every page.

I don't live in the USA but in the I live in jurisdiction it is common practice
for signaturies of legal documents to initial every page and initial any changes
made by hand and have a witness come along and sign as well. There are also no
witnesses to the signatures on these documents.

This got me wondering whether the Noordas actually saw the detail of what they
were signing. Those documents are so clearly one sided I wonder how much of them
were read.

What if there were two versions of each agreement, with just the signature pages
the same? How can Yarro and Christensen prove that this is not in fact the case?
If the latter was acting as the leagl counsel then there are no third party
witnesses who can tell us who saw and read what. This seems very slipshot,
particularly when one considers $100s of millions of dollars were at stake.

Maybe there are other copies of the contracts that are initialed completely, but
unless they show up I would be inclined to moot that the signed pages count only
for whatever content is on those actual pages.

---

Free software on every PC on every desk

[ Reply to This | # ]

Canopy's Motion to Remove Yarro As Director and Memo - as text
Authored by: Anonymous on Sunday, February 27 2005 @ 04:13 PM EST
There is something I have been wondering about that might be important to this
case. It was just recently that Yarro was removed. However, it was back in
April last year, as I recall, that Peterson told Yarro that he was to have no
contact with the Noordas.

Once Yarro heard that, he must have realized that the Noordas were on to his
game, and must have further realized that he was eventually going to be thrown
off the board and sued.

That being the case, I wonder if Yarro took steps to try to avoid trouble, like
distroying incriminating documents or scheming with other people? Surely he
must have done something.

[ Reply to This | # ]

question
Authored by: Anonymous on Sunday, February 27 2005 @ 04:22 PM EST
If Yarro did what the Noordas accuse him of, could he be criminally prosecuted
and sent to jail?

[ Reply to This | # ]

Canopy's Motion to Remove Yarro As Director and Memo - as text
Authored by: Anonymous on Sunday, February 27 2005 @ 04:27 PM EST
All of the above is very good but it skirts the fundamental
question of is Yarro and / or the othere related to the
Noordas.

If Yarro is related then this is a family matter involving
inheritance and control of a family owned business after
the founding owner is incompacitated.

Lets assume that it IS NOT a family matter then Yarro
action would appear to be completely illegal.

Lets assume it IS a family matter and that Yarro is a
principal inheritor of the Yarros. In that case the action
which may appear at first glance to be illegal could be
quite legal but then there is the issue of were some of
these actions made for the purpose of inheritance tax
evasion. Recall tax evasion is using illegal not to pay
taxes while tax avodiance is using legal means to not pay
taxes.

[ Reply to This | # ]

Clarify Vesting Schedules
Authored by: rsteinmetz70112 on Sunday, February 27 2005 @ 07:28 PM EST
Are the vesting scedules for the employee options listed anywhere?

As I read the plan it is set on a more or less case by case basis. Assuming that
the 25% vesting is for the initial option, it seem reaonable to assume that the
options vested on an 4 year schedule.

Can someone claify this point for me?

---
Rsteinmetz

"I could be wrong now, but I don't think so."
Randy Newman - The Title Theme from Monk

[ Reply to This | # ]

Should Yarro accept the results of the Dec 17 board meeting?
Authored by: sk43 on Sunday, February 27 2005 @ 09:23 PM EST
Let's play devil's advocate: Yarro should accept the
results of the Dec 17 board meeting. It is likely that his
days at Canopoy are over, so his strategy should be to
retain as much as possible the assets that he acquired
during his tenure. A major contention of Canopy/NFT is that
the stock option plan (the Equity Plan) was egregious and
not in the best interests of Canopy. As described in the
above complaint to remove Yarro as director:

"The Equity Plan provides for excessive compensation and,
on its face, is unfair to Canopy and the Trust."

However, according to Yarro's affidavit that was attached to
his lawsuit to retain his job at Canopy, at the Dec. 17
board of directors meeting the Noordas voted to grant
themselves options on 2973 shares of Class A stock and
2,969,027 shares of Class B stock. Let's presume that this
was indeed the case.

By accepting the results of the Dec. 17 meeting, Yarro
forces the Noordas to acknowledge the legitimacy of the
stock option plan, because the Noordas exercised that plan
when they granted themselves their stock options.
By doing so, Yarro is in a much stronger position to argue
that his own stock options were legitimate and thus that
he is entitled to retain the gains made from them.

What am I missing?

[ Reply to This | # ]

Noorda intentions
Authored by: Paul Shirley on Monday, February 28 2005 @ 05:02 AM EST
A lot of GL speculation starts from an assumption that the Noordas intention was
that Canopy and the portfolio companies would be liquidated on the Noordas
deaths or handed over to the LDS with no control over what the LDS then did. Are
the Noordas really that callous and uncaring for the welfare of their
employees?

Its seems plausible that there would be intent to safeguard the welfare of the
staff and that could have been by giving them part of Canopy. It might be that
Yarro's sin is in being greedy, in taking much more than he was supposed too. If
true it would explain why the Noordas agreed to an apparently insane stock
option plan, the broad strokes were what they expected, they were misled on the
details.

[ Reply to This | # ]

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