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The Poison Pill

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

Almost immediately, the court files began filling with claims and counterclaims.

Kalin shared his personal apprehensions about Prefer with the court, making an ominous reference to a cache of firearms. "Randy bragged to me during an initial meeting in San Diego that he was not a person to be 'messed with' and described how, when feeling taken advantage of while living on Long Island, he went into Harlem with one of the guns from his extensive gun collection and made sure he wasn't taken advantage of again."

While the possibility that Prefer was packing heat worried Kalin and his partners, their greater concern was corporate sabotage.

Telling Leland Anderson, the district court judge assigned to the case, that he feared Prefer would stop at nothing to ruin the company, Kalin asked for an injunction forbidding Prefer from destroying the software. "I have very serious concerns that if the Pharmnetrx property is left in Randy Prefer's hands, he will take steps to destroy, hide or transfer the property in an effort to sabotage Pharmnetrx," Kalin said.

Company co-founder Schwartz went even further, describing a conversation he'd had with Prefer just after he was forced out of the company. "He told me that he intends to move forward with developing and marketing the Intelli-Script product without us," Schwartz told the judge. "Randy stated this intent by saying to me that he will cut all of us out of the deal and that we would fail without him.

"He said that he has the encryption software and will not let us have it," Schwartz continued. "He also said that he would destroy the software leaving us unable to market the product, that the product and idea was his, and that he would die before he would give it to anybody. Randy ended this conversation by telling me he would deny saying any of this. These remarks concern me, because Randy owns an extensive firearms collection, which he keeps at his home."

Schwartz has been deeply distressed by the company blowup, says a former colleague, and blames himself for bringing other investors into the venture. "Mitch felt responsible for things Randy did," she says. "He suffered the most of all. He spent two years on this, and it was devastating for Mitch, financially and emotionally." (Schwartz did not return Westword's calls.)

Even after he was ousted, according to court documents, Prefer continued to contact investors, claiming the company's executives were conspiring to rob him of his software.

So Kalin and the remaining partners asked the judge for a temporary restraining order that would prevent Prefer from contacting Pharmnetrx investors, clients or employees and from making any public statements about the company. They also asked Anderson to issue an order of possession that would allow the sheriff to seize the software stored at Prefer's house.

In granting the company's request, Anderson found that Prefer had surrendered his ownership rights to the software when the firm incorporated and took on investors. He noted that Prefer drew a salary from Pharmnetrx while working on the software and did not hold a patent. He also cited the involvement of programmers from DRT, who worked with Prefer in developing the software under contract with Pharmnetrx, and said the resulting program was a "new creation" that went well beyond Prefer's initial effort.

And Anderson went further. He noted that criminal charges were pending against Prefer because of his arrest at King Soopers, after which King Soopers "refused to allow Mr. Prefer to interact with their company concerning the installation or beta-testing of the software product."

The judge also pointed out that Prefer had been cited by the Federal Trade Commission in 1995 for his involvement in an alleged scam that the government said "likely has caused millions of dollars in consumer injury." Prefer had been an executive with Panoramic Multimedia, a Littleton-based venture that sold computer-software distributorships for as much as $39,000. But while the company told investors they would have exclusive rights to sell a line of high-quality CD-ROMS through retail stores, the FTC said the company actually sent them boxes filled with next-to-worthless "samples, free software, or disks labeled 'not for resale.'"

As a result of Prefer's history with Panoramic, in February 1996 the FTC succeeded in getting the federal courts to forbid Prefer from ever again becoming involved with franchise or distributorship ventures. Prefer's involvement with Pharmnetrx, however, didn't violate that mandate, says an FTC spokesman.

The dueling lawsuits are scheduled to go to trial in early 1999. "So far," Kalin says, "the courts have ruled in our favor every step of the way." But those rulings came too late to save Pharmnetrx, he adds.

From the start the company had been in a race with several other firms around the country that had the same idea and were working just as furiously to bring a product to market. Several of Pharmnetrx's competitors are preparing to launch Internet-based services soon, Kalin says. The first company to do so stands to make millions. But it won't be Pharmnetrx.

Their venture was always a gamble, says Kalin, and the uproar over the lawsuit frightened away potential investors and cost the company crucial momentum. "The company hasn't operated since last summer," he adds. "By the time you would get the product ready to go, it was tied up in litigation. There's always a risk in start-up companies. Now we've all moved on."

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