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Canopy is at heart of feud

2 groups sue for control of Novell founder's firm

Published: Thursday, Feb. 10 2005 9:09 a.m. MST

When Novell founder Ray Noorda began The Canopy Group in 1992, he hoped the venture capital firm would help software start-ups in Utah and generate a steady source of funding for the charities to which he gave money.
Noorda, now 80 and said to be suffering from Alzheimer's disease, never imagined Canopy would one day pit his daughter against his hand-picked successor in a bitter feud over control of the $300 million company.
In dueling lawsuits recently filed in 4th District Court in Provo, each side accuses the other of taking advantage of the ailing high-tech wizard to seize control of his millions.
Ralph Yarro, former president and chief executive officer of Lindon-based company, says he and two other top-level executives were illegally fired on Dec. 17 by a group led by Noorda's daughter, Val Noorda Kriedel of Orange County, Calif.
In a countersuit, Kriedel and the new power structure at The Canopy Group charge that Yarro, former chief financial officer Darcy Mott and ex-corporate counsel Brent Christensen took at least $25 million from the company through "a series of self-dealing and wasteful transactions" over the past six years.
The countersuit also alleges that while the three were handsomely paid and compensated through incentives and stock options, Ray Noorda was only paid $60,000 a year and his wife Lewena, who also sat on the company's board of directors, wasn't paid at all.
"What Kriedel and others are saying is that from 1998-2004 Ray (Noorda) was under the influence of a Machiavellian svengali who used his relationship with Ray to take advantage of him and basically steal his money," says Kimball Thompson, a public-relations agent hired by Yarro. "The truth is, Ralph was (Noorda's) hand-picked successor who he loved and trusted. He always wanted him to be an equal partner."
Yarro met Noorda in the early 1990s when he was an employee at Novell. In 1996, two years after Noorda retired as Novell president and CEO, Yarro was tapped to run Canopy.
Canopy's mission was to serve as an "incubator" for high-tech start-up companies, and over the years the firm would invest in dozens of companies, most notably the SCO Group, which made headlines for suing IBM and Linux users for copyright infringement.
Beginning in 2002, Noorda's involvement in Canopy diminished due to his age and declining health, Yarro said in an affidavit, and in March 2004 Yarro began to worry about Noorda's mental capacity. His mentor would sometimes show up to meetings and church functions disheveled and disoriented. He began forgetting to shave and couldn't recall the names of longtime associates.
The lawsuit against Yarro asserts that as Noorda's health worsened he "increasingly relied on and deferred to Yarro's counsel" on all matters relating to Canopy.
It was under these circumstances, the suit against Yarro charges, that Yarro crafted a compensation plan for himself and others in the company that unfairly rewarded them.
"Yarro, aided and abetted by Christensen and Mott, took advantage of Noorda's trust and confidence by implementing excessive and unfair incentive and equity compensation packages," the suit reads. -->
On Dec. 17 Yarro was called to a board meeting, where he was met by two attorneys who told him they represented Mr. and Mrs. Noorda. He was then told that the Noordas were at a separate location, along with their daughter, Val Kriedel, and would participate via speaker phone.
Yarro's affidavit said Mrs. Noorda, "apparently reading from a script," moved for termination of Yarro, Mott and Christensen.
"Following the presentation by Mrs. Noorda, she requested a second," Yarro said in his affidavit. "Her request was met with silence. Following a second request for a a second and a muffled conversation that I could not completely hear, Mr. Noorda seconded the motion. Although, as I said, I was not permitted to hear everything, it sounded to me like Mr. Noorda had to be instructed to second the motion."
"I did not believe that Mr. Noorda understood what he was doing, or that he was mentally able to follow and understand what was occurring."
With two votes to his dissenting one, Yarro was ousted as CEO and replaced by William Mustard, an independent consultant who lives in New York.
Five days later, Mustard allegedly held a meeting with all remaining Canopy employees, during which he instructed them to sign a document and return it. In sworn affidavits from a handful of employees who were there that day, the meeting became tense and confrontational.
After the meeting, several employees were distraught, especially Rob Penrose, Canopy's director of information systems, who was in tears throughout the day and kept repeating that he shouldn't have signed the document, according to several affidavits.
The next day, on Dec. 23, the father of four died of a self-inflicted gunshot wound to the head in his Taylorsville home.
Five other employees have since resigned, reducing the staff to Mustard and three other employees, two of which whom handle "real estate and physical facility matters," according to Yarro.
"In my experience, employee resignations following significant management changes is not uncommon," Mustard said in an affidavit.
He said he is in the process of hiring replacements for those who have left.
"The case is pretty well laid out," said attorney David Watkiss, who is representing Mustard, Kriedel and the Noordas. "It's an abuse of trust on the part of Mr. Yarro and others. It's about the wasting and misappropriation of company funds."
Kimball, speaking for Yarro, said Noorda was aware and approved of the compensation and incentives plan for Canopy employees and that he intended for Yarro to be an equal partner in the firm.
A four-day hearing on the matter in 4th District Court is scheduled to begin March 8 in Judge Anthony Schofield's courtroom.


E-mail: jhyde@desnews.com

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