Babish's response to the Ammended Complaint
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF NEW YORK
__________________________________________
PARACELSIAN, INC., a Delaware VERIFIED ANSWER
Corporation, and COUNTERCLAIMS
Plaintiff,
97-CV-604 (RSP) (GJD)
v.
JOHN G. BABISH,
Defendant.
__________________________________________
Defendant John G. Babish, by his attorneys, True, Walsh &
Miller, LLP, in answer to the
Amended Complaint herein:
1. Admits the allegations contained in paragraphs 3, 4, 5, 6, 8, 11, 20, 21, 24, 25, 26, 40, 41, 42, 43, 53, 66, 67, 69, and 96 of the Amended Complaint.
2. Denies each and every allegation set forth in paragraphs
1, 2, 12, 13, 14, 16, 17, 18, 19, 22, 23, 27, 28, 32, 35, 36, 37, 38,
44, 45, 46, 47, 48, 49, 50, 51, 54, 55, 56, 57, 58, 59, 60, 61, 62,
63, 64, 70, 71, 72, 73, 74, 75, 78, 79, 80, 83, 87, 88, 89, 90, 91, 92, 97, 98, 99, 100, 104, 105, and 106 of the Amended Complaint.
3. Denies the allegations set forth in paragraph 7 of the
Amended Complaint, except admits that Paracelsian is a
corporation that specializes in the identification and testing of
extracts derived from various herbs and other plants used
traditionally as Chinese medicines and that research and
operating costs currently exceed revenues.
4. Denies the allegations set forth in paragraph 9 of the
Amended Complaint, except admits that Paracelsian had financial
losses during the period when Dr. Babish was Chief Executive
Officer and avers that the losses were an anticipated stage of the
company's development.
5. Denies the allegations set forth in paragraph 10 of the
Amended Complaint, except admits that the company hired Keith
A. Rhodes as President and Chief Executive Officer.
6. Denies the allegations set forth in paragraph 15 of the
Amended Complaint, except denies knowledge or information
sufficient to form a belief as to the allegations concerning events
following Dr. Babish's resignation.
7. Denies the allegations set forth in paragraph 29 of the
Amended Complaint, except admits that the price of Paracelsian
stock has remained below the average price realized by Babish on
the sales of his stock made in January and February 1997, and
that the price of Paracelsian stock has dropped to $0.58 per share
on occasion, since Babish's resignation.
8. The statements set forth in paragraphs 30, 34, and 77 of
the Amended Complaint are propositions of law, rather than
statements of fact, as to which no response is required.
9. Denies the allegations set forth in paragraph 31 of the
Amended Complaint, except admits that defendant signed an
employment agreement and refers to the agreement for a full and
accurate statement of its terms.
10. Denies the allegations set forth in paragraphs 82, 84
and 85 of the Amended Complaint, except admits that the parties
entered into a Confidentiality Agreement dated October 12, 1992,
and refers to the agreement for a full and complete statement of its
terms.
11. Admits the allegations set forth in paragraph 86 of the
Amended Complaint and refers to the agreement for a full and
complete statement of its terms.
12. Denies the allegations set forth in paragraphs 94 and 95 of the Amended Complaint, except admits that Paracelsian
possessed some trade secrets and that some of those trade
secrets were known to Babish during the course of his
employment.
13. Denies the allegations set forth in paragraph 102 of the Amended Complaint, except admits that during the course of his
employment, Babish had access to some business records, trade
secrets, research notes, patent searches, computer data and
information and other intellectual property.
14. Denies the allegations set forth in paragraph 103 of the Amended Complaint, except admits that some of the property
described in paragraph 102 belongs solely to Paracelsian.
FIRST AFFIRMATIVE DEFENSE
15. The Amended Complaint fails to state a claim upon which
relief can be granted with respect to the Second Cause of Action in
that it fails to aver what business or commerce defendant
is alleged to have conducted in violation of the Lanham Act.
SECOND AFFIRMATIVE DEFENSE
16. The Amended Complaint fails to state a claim upon
which relief can be granted in the Third Cause of Action in that (a)
it fails to allege scienter as required by the applicable statutes, and
(b) the only "material information" on the basis of which stock
trades were allegedly made (Mr. Babish's alleged "undisclosed
intent to resign") is not "insider" information under 15 U.S.C.
78j(b) and C.F.R. 240.10b-5.
THIRD AFFIRMATIVE DEFENSE
17. To the extent plaintiff's federal question causes of action are dismissed, this Court lacks jurisdiction over the pendent state law claims.
COUNTERCLAIM
18. On November 18, 1994, plaintiff issued to defendant
certificate no. 001-JGB representing 375,300 Redeemable
Warrants, which entitled defendant to purchase a like number of
shares of plaintiff's common stock on the terms set forth in the
Warrant Certificate.
19. The issuance of the Redeemable Warrants to Dr.
Babish was supported by adequate consideration.
20. The Redeemable Warrants represented by the
certificate were not registered with the Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended.
21. Because the Redeemable Warrants issued to Dr.
Babish were not registered, the warrants were not freely tradable
on any securities exchange.
22. Plaintiff had issued other Redeemable Warrants that
were duly registered and freely tradable.
23. The registered Redeemable Warrants were and still are
traded publicly, and they have a market value that fluctuates.
24. The warrant certificate issued to Dr. Babish provides
that "The Company has covenanted and agreed that it will file a
registration statement and will use its best efforts to cause the
same to become effective and to keep such registration statement
current while any of the Warrants are outstanding."
25. Plaintiff did not file any registration statement for the Redeemable Warrants issued to Dr. Babish.
26. Dr. Babish has demanded that plaintiff file a registration statement.
27. Plaintiff has still not filed any registration statement with
respect to the Redeemable Warrants issued to Dr. Babish.
28. Plaintiff has breached its obligations under the warrant certificate.
29. Had plaintiff registered the Redeemable Warrants, they
would have had a high value of $1,829,587.50.
30. At the time Dr. Babish demanded in writing that the
Redeemable Warrants be registered, they had a value of
approximately $375,000.
31. Plaintiff is therefore liable to defendant for the value of the 375,300 Redeemable Warrants as of and after the date by
which plaintiff with reasonable diligence could have had a
registration statement duly filed and made effective, such amount
to be determined at trial to be between $375,000 and
$1,829,587.50.
WHEREFORE, defendant hereby prays for the following
relief:
A. An order dismissing the Amended Complaint in its
entirety;
B. Judgment on behalf of defendant in an amount to be
determined at trial of between $375,000.00 and $1,829,587.50 on
his Counterclaim;
C. Such other and further relief as the Court deems
appropriate, including costs and disbursements.
Dated: Ithaca, New York
May 30, 1997
TRUE, WALSH & MILLER, LLP
Attorneys for Defendant
By:___________________________
John Moss Hinchcliff
Bar Roll No.: 501246
101 North Tioga Street
Ithaca, New York 14850
(607)273-4200
VERIFICATION
STATE OF NEW YORK )
) ss:
COUNTY OF TOMPKINS )
JOHN G. BABISH, being duly sworn, deposes and says that
deponent is the defendant named in the within matter. Deponent
has read the within Verified Answer and Counterclaims and knows
the contents thereof; that the same is true to deponent's own
knowledge, except as to the matters therein stated to be alleged
upon information and belief, and that as to such matters, deponent
believes them to be true.
_________________________________
JOHN G. BABISH
Sworn to before me on
May 30, 1997
_____________________________
NOTARY PUBLIC
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