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The Poison Pill

An internet venture goes bust, leaving some of Colorado's biggest business names with a major headache.

"King Soopers was the group we were going to do our clinical trial with," says one source who worked closely with the company. "I don't know what it is about Randy's personality that makes him do these things. He shoplifted $200 worth of pharmacy products, putting it in his briefcase. They had it on videotape."

Prefer was two hours late to work the next morning--the day Pharmnetrx was holding a strategic planning retreat. "He failed to have distributed a written report to share with Pharmnetrx's members, staff and advisors concerning the Internet strategies important to the company's strategies," Kalin noted in an affidavit.

But Prefer says his troubles started earlier, just after Kalin joined the company. In the middle of May 1997, Prefer claims, he was called to a meeting with Kalin, Curtiss-Lusher and Schwartz and told, "You rub us the wrong way." After that, according to Prefer's complaint, his former partners "began a series of negative behaviors which were intended to remove Mr. Prefer from the company he started and to steal his software programming."

Among other things, Prefer says, the Pharmnetrx executives illegally obtained his credit report--which they say showed that he had taken out fifty credit cards and charged all of them to the limit.

The filings of the Pharmnetrx executives tell a different story. In their lawsuit, they allege that Prefer engaged in a vengeful campaign to destroy the company he'd helped found, going so far as to tell the company's investors they should ask for their money back and requesting meetings with Pharmnetrx's potential clients. They also claim that Prefer's credit history reflected a reckless attitude toward money that caused them concern and that they began to suspect he might have misused company funds.

As for Prefer's claim that they conspired to steal his software, the Pharmnetrx executives insist that the software is the property of the company.

In an affidavit filed with the court, Kalin says that during the spring of 1997 he was becoming increasingly concerned over Prefer's ability to meet crucial deadlines in the development of the software. At the same time, he adds, Prefer was becoming antagonistic toward Schwartz and began pressuring Kalin to fire his original partner.

After Prefer's arrest, King Soopers officials told the firm they wouldn't have anything to do with him. At that point, Kalin reportedly told Prefer he should focus on developing the software and leave the firm's other business to his partners. "Phil said, 'Randy, why don't you just concentrate on the software?'" says a source close to the company. Prefer, says the source, "wouldn't hear of it."

"I proposed that both Randy and Mitch make certain changes in their roles that I thought were required in order to continue developing Pharmnetrx to achieve its business objectives," Kalin told the court. "Following that meeting, Randy immediately began calling investors, potential investors, business partners, customers and employees, spreading misinformation--including that he had fired me and furloughed all the other staff."

Prefer falsely claimed to have majority ownership of the company, said Kalin, and even used the title of president and CEO. At the time, Prefer actually owned 30 percent of Pharmnetrx, Schwartz owned 30 percent, and the rest was divided among the investors, including CEO Kalin.

On June 1, 1997, Prefer sent a letter to every Pharmnetrx investor, with the bold-type heading "Do Not Believe That Everything Is OK Because It Is Not!" In that letter, Prefer told investors they had a right to ask for their money back from the company and described the mid-May meeting with Kalin.

"The real reason for this obviously pre-meditated meeting was to inform me that they no longer needed me, the founder!" he wrote. "You know, Randy Prefer, the guy who made this huge opportunity possible. I'm the person who gave birth to an idea, designed that vision, produced the actual working product, and I should let you all know that I individually OWN all of the rights to my software program, until such time as I deem that an equitable situation exists."

In the letter, Prefer claimed his colleagues had intentionally set out to steal the software he had developed, taking advantage of his exhaustion from trying to meet deadlines on the project. "Like a fool, I worked for about six months, 24 hours a day, to complete a 2-year software project," he wrote. "So when I was totally worn down, stressed out and sick, they had their perfect time to attack."

Prefer vowed that he would "fight to eternity" and asked investors what they would do if someone tried to take away their first-born child. "Would you just stand by and let them take your child, or would you fight back?"

He concluded the letter by asking each investor to sign an attached proxy ballot so Prefer could vote their shares.

On June 5, 1997, Pharmnetrx held a special meeting. Randy Prefer was there, along with his lawyer.

By majority vote, the members of Pharmnetrx voted to appoint Schwartz and Kalin the new managers. They also voted to terminate Prefer's employment and directed him to return all of Pharmnetrx's property to its attorney.

Six days later, Prefer filed suit against his former colleagues. In what had to be a wild race, they beat him to the courthouse by nine minutes, filing their own suit for unspecified punitive damages.

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