Jonathan,
I was rereading your otherwise excellent letter and realized you missed a couple of points:
In addition to the three main failures of the Board that you have listed, I would add failure to keep stockholders informed of material facts that could affect their investment decision. They failed to inform us of Dr. Ip's resignation as Vice President and of the resignation of several Board members, including Colin Campbell. And they failed to mention in their annual report that the company had started a lawsuit against its former Chief Scientist and Founder, John Babish. Lawsuits have the potential to materially affect the bottom line of the company. I believe the PRLN recognizes this because they have a "Legal Proceedings" section on page 22 of their 1996 Annual Report in which they mention the lawsuit by In Vitro Bioanalytic Systems against the company. True, one could argue that this was a lawsuitagainst the company in which the company could have lost a substantial amount of money wheras in the case against Babish, it was the company doing the suing. Since the company did not face the same risk of extensive loss, the argument might go, the Babish lawsuit was less material and therefore did not need to be mentioned in the Annual Report or in its introductory letter (which was written after the suit against Babish was initiated.) This argument would be true if we were talking about a major company like Merck, or even a moderate-sized profitable company. Lawyers fees for such a company would have an insignificant impact on the bottom line. But PRLN is a company without any products and with rapidly dwindling cash reserves. If it doesn't find a source of cash, it's life expectancy will be measured in months, and not years. Lawyers fees are a significant drain of funds for such a weak company and the fact that the company was spending money on them should have been mentioned to the stockholders.
Fellow Threaders, I used to be against the lawsuit. I wanted it lifted so that Babish could tell us what he knew. I still want to hear his side of what happened, but I feel we know enough to make intelligent judgements of just who is responsible for this debacle. I am now beginning to have second thoughts about opposing the lawsuit. The lawsuit may be one of the strongest weapons the shareholders can use in making their case to the SEC that the Directors should be removed and punished. By using the lawsuit we can get two whacks at Rhodes for the price of one. How?
1) By asking the SEC to investigate why the lawsuit wasn't mentioned in the introductory letter to the Annual Report
and
2) By asking the SEC to investigate whether this was a nuisance lawsuit, intended solely to keep John Babish gagged and the stockholder in the dark over what had happened. In other words, was the stockholders' money being used against the interest of the stockholder. I am just some poor schmuck who does rather low level clerical work for a living. I am certainly no legal expert. Yet, I think I have found enough holes in Paracelsian's case to indicate that it is probably without merit. (See Posts 3202 - 3204 and 3206.) If I, a rank amateur, can find flaws in the case's logic, imagine what a professional litigator can do. Lawyers make their living finding weaknesses in arguments. That's what they are trained to do. That's what they have years of practice doing. That's what their lives revolve around. I have no doubt that if I could examine PRLN's case and find holes big enough to drive a car through, then Babish's lawyer will be able to find holes big enough to drive a tank through. And he will have the advantage of gathering information through the discovery process. All I had to work with were public documents. The more information Babish's lawyer can gather, the greater the chances that he will find inconsistencies in PRLN's case, IMO.
Rhodes was very clever in setting up the format for the stockholders meeting. The meeting lasted only about an hour, and no stockholder was given more than two minutes to ask questions or say their piece. I imagine that if a trial is held, Babish's lawyer will not have his hands tied by these restrictions. If Rhodes is put on the stand, he will not be able to duck and weave and dodge the questions. He will not be able to avoid tough follow-up questions. And he will be under oath. He could go to jail for perjury if significant discrepencies are found in his testimony.
So if PRLN wants to charge Babish with stock fraud, then let them. Let the SEC investigate. But let us shareholders ask the SEC to determine whether this is a frivolous lawsuit. Let us ask them if its purpose is to keep us in the dark over what has happened. If an SEC investigator shows up during Rhodes' testimony, things could get very interesting.
I don't know if I will be able to get off of work for the trial, but if I can I would love to go. Of course, I would post my impressions of what had occurred. It would be nice if other Threaders could go and watch the show. We've earned a place in the audience. After all, we have all paid a rather high "admissions fee."
Robin |
