JOHN BABISH'S DEFENSE: PART IV
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF NEW YORK
PARACELSIAN, INC., a Delaware AFFIDAVIT OF
Corporation, ARTHUR A. KOCH, JR.
Plaintiff,
97-CV-604 (RSP) (GJD)
v.
JOHN G. BABISH,
Defendant.
STATE OF DELAWARE )
) ss.:
COUNTY OF CHESTER )
ARTHUR A. KOCH, JR., being duly sworn, says:
1. I am a former Vice President and Chief Financial Officer of
Paracelsian, Inc. I was a member of the Office of Chief Executive,
along with Keith Rhodes and John Babish from approximately
December 1996 until Dr. Babish resigned on March 19, 1997. I
submit this affidavit in connection with Paracelsian's application for
a preliminary injunction against Dr. Babish.
2. Dr. Babish's employment agreement with Paracelsian had
expired in 1994, and the company's 1994 Annual Report (excerpt
submitted as Defendant's Exhibit N) states at page F-12:
"Effective September 30, 1991, the company entered into an
employment agreement with the Vice President [Babish] extending
until September 1994.... The company intends to continue the Vice
President's employment under the previous salary terms until such
time as negotiations for a new agreement are completed."
3. The 1995 Annual Report (Defendant's Exhibit A), which is
dated February 7, 1996, states at 41-42 that "The company is
negotiating the terms of a five-year employment agreement with Dr.
Babish.
4. I became aware that Dr. Babish was unhappy with the
progress of his employment contract negotiations shortly before
Christmas, 1996. Dr. Babish told me that he had "had enough" and
that he thought he might leave the company. I told Dr. Babish that I
was happy to get involved if it might help to move the discussions
forward. Shortly after Christmas, Dr. Babish told me that he had a
few "bullet points" that he wanted the Board to agree to, and that
he wanted me to set up a meeting with the Board for January 3,
1997. I was able to arrange a meeting for January 6, 1997, but the
Board did not agree to Dr. Babish's bullet points. I no longer have a
copy of Dr. Babish's note, and I do not recall precisely what the
bullet points were.
5. During the months from the end of December 1996 through
March 1997, when Dr. Babish resigned, the company had an
"Office of the Chief Executive" consisting of Dr. Babish, Keith
Rhodes (who had been President and Chief Executive Officer) and
me. The three of us met several times during the first quarter of
1997 and during several meetings Dr. Babish commented that the
company had to get serious about his employment contract or else
he'd have no choice but to quit. I do not recall the precise dates of
these meetings, but I am quite sure that by January 21, 1997 (the
date of Dr. Babish's first stock sale), he had stated to me and to Mr.
Rhodes that he would quit if the contract discussions were not
successful.
6. I believed then, and continued to believe until early March,
1997, that the company would in fact come to terms on a new
employment contract with Dr. Babish. My perception was that Dr.
Babish also believed that he and the company would eventually
resolve the issues so that his contract would be renewed.
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7. I learned sometime in early February 1997 that Dr. Babish
had filed with the SEC a Form 144 to sell up to 243,000 shares of
his stock. I spoke with Dr. Babish that day to ask why he was
selling shares. He told me that he needed to raise some cash
because he had some bills to pay. He also stated that he wanted to
send a message to the Board that they really needed to start dealing
with a renewal of his contract, which had expired in 1994. At
approximately 9:00 p.m. on the evening that I learned of the sales, I
spoke with Howard L. Morse, who was Paracelsian's attorney. The
purpose of the discussion was to develop the company's response to
these stock sales before the market opened the following morning.
8. As soon as information on Dr. Babish's stock sales became
public (which happened when the SEC received Dr. Babish's SEC-
mandated disclosure forms), I began to receive telephone calls from
brokers and analysts that were following the company. One of the
calls was from Ronald Folk, but I received several calls from others,
too. These calls were to ask me as a senior executive and Chief
Financial Officer why Dr. Babish was selling shares.
9. In response to these telephone calls, I said that the Company
understood that Dr. Babish was selling stock for two reasons: first,
he had some immediate cash needs that required him to liquidate
approximately 80,000 shares, and second, he was selling shares
because he wanted to get the Board's attention to resolve the
employment agreement. I indicated that Dr. Babish was hopeful
that the terms of a new employment agreement could be resolved
so that he would not need to continue selling his shares.
10. Several of the callers asked me what the nature of the
dispute was concerning the employment agreement. I responded
that the problem as I understood it involved personal matters and
employment issues. I explained that I was not a director and
therefore did not have
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first hand knowledge of the issues.
11. Before Dr. Babish resigned, Mr. Rhodes came to me to say
that Dr. Babish was taking things out of his office. I asked Mr.
Rhodes what he was worried about and said that I would do
whatever he (Mr. Rhodes) wanted me to do. I asked Mr. Rhodes
whether Dr. Babish was taking anything secret, and Mr. Rhodes
said he didn't think so. In response to Mr. Rhodes comments to
me, however, I spoke with Dr. Babish to tell him not to take any
company secrets. Dr. Babish said that he was not taking any of the
company's confidential research or lab work or any other papers
concerning the company's proprietary information. I also asked if it
turned out that the company needed something he had taken if he
would give it back to us, and he said that of course he would.
12. The company's confidential financial information, current
marketing plans, and the like were kept in a locked filing cabinet to
which Mr. Rhodes had the key.
13. I asked Mr. Rhodes why he was concerned about the
materials that Dr. Babish was taking, and he responded that he was
told to be concerned. He did not say who told him to be
concerned, nor did I ask.
Arthur A. Koch, Jr.
Sworn to before me on
May , 1997 |
