Allegations of Insider Trading Denied by Prime’s Chairman

Prime Computer chairman David J. Dunn, responding to allegations of insider trading, has denied any wrongdoing in his purchase of nearly $1 million in Prime stock a week before MAI Basic Four Inc. launched a hostile tender offer for his firm.

MAI, a Tustin computer maker, alleged Wednesday in a federal court lawsuit in Massachusetts that Dunn and his Idanta Partners investment fund bought the stock on Nov. 7 and 8 after he had knowledge of MAI’s intention to pursue a business combination with Prime. Prime did not publicly disclose “the true basis and reason” for his purchase, according to the complaint filed in Massachusetts.

In a telephone interview Thursday, Dunn refuted the charges as “an exercise in slander” by MAI and its chairman, Bennett S. LeBow.

“Neither I nor the firm (Idanta Partners) bought the stock thinking we would make money on a takeover, and we didn’t believe we had any inside information,” Dunn said.

LeBow informed Prime’s Joe M. Henson, then president of the firm, on Sept. 19 that he was interested in a “friendly” deal but was “prepared to move ahead in any case,” according to documents filed with the Securities and Exchange Commission. On Nov. 15 MAI launched its $20-a-share, or $970-million, offer for the Natick, Mass., minicomputer maker.

Assertion of Knowledge

MAI said Dunn had knowledge of LeBow’s overture before it was publicly disclosed, and traded on that information.

Dunn, a La Jolla investor, said he learned of LeBow’s overture in a brief telephone conversation on Sept. 20 with Henson.

“Henson expressed the belief that there would be no offer, and I believed him,” Dunn said. “It was his opinion that this was not a serious offer. The conversation lasted less than 2 minutes. It was our belief that that was the end of LeBow. You don’t expect a company the size of MAI to come in with a $1-billion offer for Prime.”

Prime, with 1987 revenue of $960.9 million, is more than three times the size of MAI.

Dunn noted that the purchases were disclosed by Prime in a required filing with the SEC in late November. That filing shows that Dunn and Idanta Partners bought 64,700 shares at prices ranging between $14.81 and $15.06.

Although Dunn said he believed that a takeover was unlikely, he and other Prime directors on Oct. 4 nevertheless approved a stockholders-rights plan and an employee-protection plan that would be triggered in the event of a takeover or change of control in the company. Such plans are often implemented to deter a hostile takeover.

Dunn said, however, that his decision to purchase Prime shares in November was made because he thought Prime’s stock was undervalued and would make a good investment.

Idanta Partners tried to buy 200,000 shares of Prime stock, Dunn said, but was unable to complete the purchase before the MAI offer was made.

Aware of Rule

When he bought the Prime stock, Dunn said he was aware of the SEC rule that prohibits company insiders from retaining the profit from stock purchases and sales made within a 6-month period.

“I didn’t have any inside information,” Dunn said. “And if I had some, it (the SEC rule) would have stopped me because I couldn’t have made any money. . . . We know what the rules are and we are expected to abide by them.”

Under federal securities laws, directors, officers, key employees and others with access to non-public or inside information are prohibited from trading stock on their knowledge. The law is intended to prevent insiders from using such information to profit on stock trades.

EVENTS SURROUNDING DUNN’S PURCHASE OF PRIME COMPUTER STOCK

Sept. 19: MAI Basic Four Chairman Bennett S. LeBow meets with former Prime Computer President Joe M. Henson to discuss the possibility of a business combination of the two firms.

Sept. 20: Henson informs Prime’s directors about the LeBow meeting.

Oct. 4: Prime announces that it has adopted a stockholders-rights plan and an employee protection plan that would be triggered in the event of a takeover.

Oct. 5: Henson telephones LeBow and tells him that Prime is not interested in a merger of the two firms.

Nov. 7: Prime Chairman David J. Dunn and Idanta Partners purchase 20,000 shares of Prime stock for $14.81 per share.

Nov. 8: Dunn and Idanta purchase 44,700 shares of Prime for $15.06 per share.

Nov. 15: MAI announces a $20-a-share, or $970 million, tender offer for Prime.