On December 17, 2004, the regularly scheduled board meeting for the Canopy Group was anything but regular. Since then, two multi-million dollar lawsuits were filed, the mental competency of a legendary businessman was called into question and two people surrounding the case committed suicide — all elements that make for a compelling tragedy rather than the conventional report of an executive change at a venture capital firm.

Ray Noorda, a revered Utah businessman known worldwide as the father of network computing, left his post at Novell in 1995 to start the Canopy Group as an investment vehicle for high-risk technology start-ups and a way of generating revenue to help fund his charitable endeavors. In 1996, Noorda placed Ralph J. Yarro III, then 31 years old — who had worked with Noorda at Novell — at the helm of Canopy. In December 2004, Canopy was worth about $300 million, and owned 32 percent of the software company the SCO Group, a former portfolio company that made world headlines when it filed a still-pending lawsuit against IBM for $5 billion, claiming that IBM placed SCO’s code into free operating system Linux. Canopy also provided an umbrella to start-ups Fat Pipe, Altiris, Vintela, and MyFamily.com among others.

At 10 a.m. on December 17, 2004, the Canopy Group board of directors — Ray Noorda, his wife Lewena “Tye” Noorda, and Ralph Yarro — met for their usual board meeting, but the meeting proceeded unexpectedly: Yarro was told to meet at an off-site location about 15 minutes from his office in Lindon.

Yarro arrived alone and was met by Anthony Kaye and Brandon Tidwell, attorneys from the Salt Lake firm Ballard Spahr Andrews & Ingersoll, who said they represented Ray and Tye  Noorda and the Canopy Group. The Noordas, along with their daughter, Val Kreidel, and James Stewart, another attorney from Ballard Spahr, were at a different location.

Via speakerphone, apparently reading from a script, Mrs. Noorda terminated President/CEO Yarro, CFO Darcy Mott and legal counsel Brent Christensen as officers of Canopy, and elected William Mustard as Canopy’s new president and CEO. According to Yarro, Ray seconded the motion — after more than one request for a “second,” long pauses after each request, and after they believed Ray was directed as to what to say.

Yarro said he turned to the attorney at his side and said, “He’s not even there, is he?” alluding to what he believed was the diminished mental capacity of Ray Noorda, who suffers from Alzheimer’s disease and is now living at an assisted living facility in Provo.

According to minutes from the meeting, Yarro also expressed concern that he was without legal representation, and then voted against adoption of the resolutions. 

After being fired, Yarro said he was handed documents that alleged that he siphoned upward of $19 million from Canopy. The suit also accused Yarro of improperly acquiring stock and options estimated to be worth more than $143 million. 

Yarro said the allegations “blew him away” and made him feel “devastated and betrayed.”

“I did what a loyal servant would have done,” said Yarro about his leadership at Canopy. “I would have done anything for the Noordas; I served them for 10 years. I loved them; I loved Canopy.”

Yarro claimed the terminations were illegal because Ray Noorda was incompetent and unaware of what he was doing when he participated in firing the executives. Yarro, Mott and Christensen also claimed that their terminations were in violation of a shareholder agreement. (The Canopy board — Ray and Tye Noorda and Yarro — was formed in November 2000, a time when all agree Ray Noorda was still competent. The three agreed to hold equal directorships of Canopy, and that in the event of a death or incapacity of either of the Noordas, the remaining one of the two would appoint one director, Yarro would appoint one director, and those two directors would mutually agree on the appointment of the third director.)

The three ousted executives responded to their dismissal by suing the Noorda Family Trust (comprising Ray and Tye Noorda and Terry Peterson, the Noorda’s personal investment advisor), seeking more than $100 million and for the return of their positions at Canopy.

Yarro said that what happened during that meeting ran counter to how Ray dealt with past dismissals. “If Ray would have been in his full capacity, he would have called me and said, ‘Ralph, we have a big problem,’” said Yarro. Further, if the Noordas would have approached Yarro with the desire for him to leave, Yarro said he “would have gone without a fight.” Attorneys for the Noorda Family Trust (NFT) maintain that Ray Noorda was not incompetent on December 17.

The NFT responded with a counter suit, claiming the executives were fired for having participated in “wasteful transactions.” In the suit, Yarro is described as a “fraudulent and dishonest” executive who dominated and controlled the aging Noordas by keeping them in the dark about changes in compensation and stock options and awarding himself and others excessive and unfair equity and incentive compensation.

Yarro called the counter claim “revisionary history,” noting that all the compensation plans called into question were developed cooperatively through policies and contractual agreements that were in turn signed by the Noordas. (After reviewing the case, Provo Fourth District Court Judge Anthony Schoefield noted that a number of the documents had the “apparent” approval of Mr. Noorda.)

The Yarro et al lawsuit painted a picture of Val Kreidel, the daughter of Ray and Tye, as one of the driving forces behind the ousting of the executives, claiming that she wanted to gain control of Canopy for her personal benefit. The suit claims she gathered information about the financial reports and ownership structure of Canopy and began formulating a “wrongful scheme” to disparage the executives and to convince her parents to remove them because she discovered she didn’t stand to inherit any of the Canopy money.

David Watkiss, an attorney with Ballard Spahr Andrews & Ingersoll, LLP, who took the Noorda’s case, called these claims “utter fantasy.” He said that Kreidel didn’t stand to inherit anything from Canopy whether the executives had been removed or not.

But these lawsuits didn’t even make it to the point of adjudication; the parties settled outside the courtroom on March 11, 2004. Under the agreement, Yarro, Mott and Christensen received undisclosed sums, and Yarro was given all of Canopy’s shares — nearly five-and-a-half million — of SCO stock, making him that company’s largest shareholder. The settlement required all three to resign from all positions they held with Canopy and Canopy’s portfolio companies.

 Less than a week after attorneys formally announced a settlement, Val Kreidel, the Noorda’s only daughter and a mother of four, died of a self-inflicted gunshot wound at her home in Huntington Beach, Calif.

Kreidel’s brother, Brent Noorda, who formerly worked under Yarro at a Canopy portfolio company, recently made a statement via an email that was posted on the Website Groklaw. Brent Noorda, who verified the statement as his to Digital iQ staff, stated that Kreidel was never the driving force of the lawsuits, and that she did not have an interest in running Canopy, but rather her motive was to help her aging parents during a difficult transition by using her experience as a financial advisor. Brent Noorda agreed with the decision to terminate the three executives and wrote that Canopy is “finally in the hands of a seasoned professional, hired for his qualified background and proven abilities.” Under Mustard, Brent wrote, “Canopy is in the strongest position that it has held in recent years.”

Though the lawsuits are settled, there are still many unanswered questions. Was Ray Noorda incompetent on December 17? What is Canopy’s future under new management?

VC firms in Utah report Canopy is participating in joint funding ventures; under Mustard, Canopy has invested in DirectPointe and Cogito, the latter in partnership with other VCs. (According to Yarro, the DirectPointe and Cogito deals were in the works before Yarro was terminated.)

Mustard did not return phone calls or an email seeking answers regarding the present and future operation of the Canopy Group, and the eventual impact the transition may have on the IT sector in Utah.

Ray Noorda’s Competency

Though the court did not appoint a medical examiner, it did require Mr. Noorda to submit to a “reasonable” medical examination. Judge Schoefield asked what Ray Noorda’s capacity was on December 17, “If he had capacity on that date, the actions of the board removing the three officers must stand . . . If he did not have capacity, the board must fail, as there would be,  at best, a one-to-one agreement.” Yet the judge stated that to go back and prove Noorda’s state of mind after the fact would be difficult.

“What took place on December 17 was not the mind and will of Ray Noorda,” said Stanley J. Preston, an attorney with Snow Christensen & Martineau who led in the case representing Yarro, Mott and Christensen. In an interview prior to the settlement, the firm stated that medical experts they had retained had given their opinion that the progression of Ray Noorda’s mental deterioration was such that they could, “with a great degree of medical certainty,” determine that, on December 17, Ray was incompetent, and thus, the termination of Yarro and defendants was illegal. 

When asked why he didn’t suggest Ray Noorda be removed from the board when he had reason to believe Noorda was incompetent, Yarro said his high regard for Ray made it difficult for him to consider.

“I didn’t care if he stayed on the board until his dying days. It wasn’t a thought in my mind to remove him from the board,” said Yarro. “Here’s a man who has been a hard-working businessman all his life. I saw how it hurt his feelings to leave the boards of companies,” Yarro said. “I didn’t care if it took us extra time to explain things.”

Early Days

Ray Noorda’s father was a drug store clerk who worked as a janitor at night in Ogden, where the Noorda family was raised. Ray learned to work hard, to be frugal, and possessed an entrepreneurial bent at a very young age.

In the 1980s, Noorda devised a way to connect independent computing stations, allowing them to share printers and files and making him the “father of network computing.” Stories about his tangles with Bill Gates during the computer industry’s halcyon days are legendary.

Ray Noorda, at the time, chairman of Novell, met Yarro when Yarro was recruited to work on Novell’s stealth Corsair project. Yarro was a consultant and graphic designer who specialized in designing gaming software, a field typically years ahead of other software innovations. Bryan Sparks, a Novell employee, approached Yarro because of this expertise.

Noorda wanted the Corsair group to experiment with Linux and create a novel operating system to better manage network access. When Noorda left Novell, Corsair eventually did, too. The programmers took what they could and, backed by Noorda, built a Linux distribution, packaging it in a company called Caldera in 1994. According to the online tech magazine Cyberwire, Noorda founded Caldera to “create an alternative to Microsoft Windows operating system.” Caldera eventually became SCO, a Canopy portfolio company.

It was during the early days of Corsair that Ray and Yarro’s working relationship developed. Yarro said he felt Ray took a special interest in him, becoming a mentor.

The pair developed a good rapport. Yarro recalls once, when he spoke his mind during a Canopy meeting, Noorda reached over the desk, hit him over the head with a pencil, and called him an “idiot.”  “I was not a ‘yes’ man,” said Yarro. “I said it like I saw it. I wasn’t afraid to be contrary.”

Kelly Phillips, who founded Center7 and worked with Yarro and Ray at Canopy, agreed. “Ralph was straight with Ray at a time when most people were afraid to be straight with him; there was some magic there, and some loyalty,” said Phillips.

Yarro and defendants’ claim states that Ray Noorda had told Yarro several times that he did not want to bequeath or devise to his children any interest in Canopy or for them to participate in its management.

“Ray’s mind and will was to pass the gauntlet to me and I would run things,” said Yarro.

Premise of Canopy

In 1980, Ray and Tye Noorda formed the Noorda Family Trust, which evolved into NFT Ventures in 1992. In 1996, Ray Noorda appointed Yarro as president and renamed the company the Canopy Group.

Back then, VC groups were scarce in Utah. Canopy Group became a powerhouse for funding Utah ventures that would not otherwise have been able to get off the ground, according to Greg Butterfield, president and CEO of Altiris. Canopy invested $9 million when Jan Newman founded Altiris in 1998, and the company now is one of Utah’s fastest-growing businesses.

Unlike traditional investors, Canopy acted more like an incubator, investing early and therefore initially owning as much as 50 percent or more of stock in some companies. Todd Stevens of Wasatch Venture Fund said Canopy often took control of companies and managed them. “Canopy was unusual; they were more than just passive investors,” said Stevens. He noted that with strategic investors the rules are different than traditional VCs; the compensation and upside is often negotiable, and some companies offer stock options — depending on growth.

“Ray invested when nobody else would,” said Butterfield. “His perspective was broader than most investors’. He had a vision around technology.”

Kelly Phillips called Canopy a “unique engine in Utah” for betting on ideas. “Most VCs don’t have the skills or latitude to do that,” he said. With few physical assets at the ideas stage of a venture, Canopy saw intellectual property as the Holy Grail. “You create it, you protect it and you defend it,” Yarro recounted as Noorda’s mantra.

Canopy leveraged services to allow companies to act and look like big companies, letting them attract executive talent and other tangibles critical to growth. Yarro said that Canopy wouldn’t fund something unless it had value for something else; instead of retiring a company that went defunct, for example, the VC would fold pieces of it into another company. “I think this model was wildly successful,” said Yarro. Under his management, Yarro said Canopy had gone from minimal cash and an estimated value of less than $100 million in 1996 to more than $100 million in cash and an estimated value of $300 million in late 2004.

Canopy operated in the aftermath of the dot-com implosion. “During those brutal years, Ralph was a source of funding, he was loyal, he was a long-term investor,” said Richard Nelson, president of the Utah Information Technology Alliance (UITA).

Greg Butterfield noted that Utah’s tech ecosystem has changed so much that Canopy has a “much smaller impact” than it did previously. “Today, if I were to start a company in Utah, I could get money at the drop of a hat, but that wasn’t the case 10 years ago.”

Butterfield said Yarro had rare qualities for an investor. He described some investors as “voyeurs” who watch things happen, but Yarro had active operational experience. “He understood the manager’s perspective. Ralph was a principles-based person, more so than anyone I have ever met. You might not agree with him, but he always did what he thought was right.”

SCO and Canopy

The dueling lawsuits to determine who was the rightful head of Canopy came on the heels of a much larger lawsuit—one that may have hindered Canopy’s ability to raise capital.

SCO, Canopy’s best-known former portfolio company, sued IBM on March 6, 2003, claiming that IBM inserted 800,000 lines of SCO software code into Linux, a free operating system that rivals Microsoft Windows. The battle is still being waged in U.S. District Court and being tried in Utah.

Linux was developed by thousands of people working for free; no one owns it and users don’t pay a dime to use it—unless SCO wins the lawsuit and Linux users are required to pay royalties. If SCO wins its suit against IBM, it could mean a multi-billion dollar windfall to the small software company.

Linux users are part of the “open source” community, a loosely connected group for whom the concept of free software is as sacred as free speech. As an upshot of the lawsuit, many open-source advocates have launched a crusade to vex those behind the lawsuit. In an article in Forbes in 2003, Daniel Lyons describes the open source community as a “rag-tag Linux army dedicated to the destruction of SCO.”

Canopy believed that the animosity directed at SCO by Linux supporters spilled over to the portfolio companies, according to Brad Bertoch, director of the Wayne Brown Institute, a Salt Lake-based non-profit organization that helps entrepreneurs raise venture capital. He and local VCs said the perception existed that animosity made it difficult for Canopy and its companies to attract funding and gain access to markets.  

If the SCO suit had indeed tainted Canopy in the past, in theory Canopy can now freely move forward since its shares in SCO have been given to Yarro. In The Salt Lake Tribune, Bob Mims recently reported the settlement as “cutting the now Mustard-Noorda controlled Canopy from what some saw as a doomed wounded albatross.”

“The good news is that [the settlement] will clean up any issues related to Canopy,” said Bertoch. “The potential bad news is, what if SCO is right?”

March 2004 Canopy Board Meeting

What transpired at the Canopy board meeting in March 2004 is disputed between the parties involved in the now-settled lawsuits, but whatever did occur may have set in motion the executives’ terminations later that year.

According to Yarro et al, the March 2004 meeting was attended by Ray and Tye Noorda and Yarro, along with Terry Peterson, acting as the Noorda’s financial advisor. During the meeting, the suit alleged Tye Noorda expressed concerns about her and her husband’s deteriorating health and said it was difficult for them to continue dealing with Canopy matters. The claim also says that Tye expressed concern that Ray Noorda’s memory made it difficult for him to make decisions. At that time, Yarro said he recommended that the Noordas, if they wished to proceed, engage their own legal counsel and financial advisors and obtain their own valuation of Canopy.

The Noorda Family Trust reported a different story regarding what happened at that meeting, claiming that the Noordas denied expressing any concerns regarding their health or desire to continue dealing with Canopy matters. They further claimed that the Noordas expressed “frustration and dismay concerning Canopy’s finances, including, specifically, excessive bonuses that [Yarro et al] has caused Canopy to pay to them and other employees.” Also, they claim that after the meeting Mr. Noorda told his wife that it was his desire to terminate Yarro’s employment, and Mrs. Noorda agreed.

In her affidavit, Joyce Wiley, a Canopy secretary who took minutes at the meeting, reported that she had never heard the Noordas criticize Yarro, Mott, or Christensen. She also stated that Ray Noorda had difficulty following the documents that were being discussed and that Yarro “patiently explained” the background of each document, including Canopy’s budget, to both Noordas. “Mr. Noorda made a few comments during the meeting and after awhile it seemed he was not engaged in the discussions at hand,” Wiley stated in her affidavit. 

Irreparable Damage?         

Yarro and his co-defendants claimed that their removal caused “irreparable damage,” both to the portfolio companies and to Canopy itself. “Canopy is being run in the absolute opposite way than Ray would have run it,” said Yarro in an interview.

David Watkiss, one of the Noorda attorneys, disagreed, saying that Canopy is a much more “efficient operation” under Mustard’s management and that under Yarro’s leadership there were a number of “under-employed” people at the company.

According to his affidavit, William Mustard, a consultant with New York-based Smooth Engine who was hired to replace Yarro as the new president and CEO of the Canopy group, suggested that Canopy employees under Yarro’s leadership were paid too much based on their qualifications. “Under my management, Canopy is in the process of retaining replacement employees at compensation levels commensurate with their experience and skills, in stark contrast to the wasteful compensation levels set by prior management,” he wrote. The Noordas claimed that former executives awarded employees a large number of options, with relatively short vesting periods.

Mustard is an economist and accountant who worked for Ernst & Young for 14 years and was a senior executive in the Stenbeck organization. He was also CEO of an investment holding company, Great Universal Incorporated, for nine years. During that time, he acquired or started more than 20 companies and raised money and refinanced debt to fund growth, among other things. He was also CFO of Millicom Inc, an international cellular provider, which was granted one of the first two experimental cellular frequencies in the U.S.

In court, Judge Schoefield did not find a likelihood of irreparable damage and did not reinstate the executives to their positions.

Yarro believed the new management created an environment that led to the exodus of five of the nine remaining employees at Canopy.  In affidavits, the exiting employees stated that Mustard’s behavior was “rude and abrasive, demanding and threatening” and that it created a “hostile” and “intolerable” environment.  One observer outside Canopy recalled thinking there was a federal raid going on during the transition, when guards were placed at the Canopy building’s exits.

In affidavits, employees stated that they attended a December 22 meeting in which they were “bullied” into signing a backdated document in the presence of attorneys. A day later, IT director Rob Penrose died of a self-inflicted gunshot wound in his home, and soon thereafter five of Canopy’s original employees voluntarily resigned.

The NFT denies that it or leadership under Mustard caused any of the other employees to quit. Instead, it says that employees quit voluntarily and/or as a result of the influence and/or encouragement of the ousted executives.

“In my experience, employee resignations following significant management changes are not uncommon,” said Mustard in his affidavit. “None of the employees who have voluntarily left Canopy is irreplaceable.”

The aftermath of that anything-but-regular board meeting at the Canopy Group has been anything but ordinary. Observers of events surrounding the Canopy transition have been both puzzled and saddened. The story carried underpinning of a tragedy: claims of greed, of friends and family exploiting mental frailty, and accusations of deception, abuse of authority and motives inspired by jealousy.

What is Canopy now under under Bill Mustard’s leadership? How will the Canopy portfolio companies and Utah’s IT sector be impacted from the recent change in guard? These questions and others were posed to Mustard, but left unanswered. The tales have been spun, but because of the settlement, any further truth that may have come out in court, will be left to the future.