JOHN BABISH'S DEFENSE: PART II
3. Lee Henderson 's Affidavit
30. I have reviewed the affidavit submitted by Lee A. Henderson
in support of plaintiff's motion for a preliminary injunction. I
strongly dispute many of the "facts" that Dr. Henderson alleges. I
also dispute the assertion that Dr. Henderson is a "disinterested
party" as stated in plaintiff's memorandum of law at page 3. I
believe that Dr. Henderson and his company currently have a
substantial financial relationship with Paracelsian, the details of
which I do not know.
31. I did meet with Dr. Henderson in January 1997. His office
was downstairs from Paracelsian's, and through his published
papers and his prior work I was familiar with his technology for
studying viral diseases. Indeed, I admired his work as a scientist. He
suggested that his company Viral Therapeutics, Inc., might be a
worthwhile joint venture partner with Paracelsian. During those
discussions we did not talk in any detail about the size or cost of a
possible joint venture.
32. Dr. Henderson did present a proposed joint venture
agreement to me in or about February 1997. Submitted as Exhibit I
is a copy produced by Paracelsian to my counsel on May 8, 1997,
which appears to be a copy of what Dr. Henderson gave me in
February. When I left Paracelsian, I did not take a copy of that
proposal. The Paracelsian copy has Dr. Henderson's note to me to
"Please take a look & get back to me." That is exactly what I did.
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33. When I reviewed the proposal I noted that Dr. Henderson
wanted Paracelsian to pay his company $45,000 (see 3b of the
proposal attached to the Henderson affidavit), plus a discovery fee
and royalty in an amount to be negotiated ( 3c), plus share the
substantial costs that would be entailed in pursing the screening to a
point where the results might be useful.
34. I told Dr. Henderson that his proposal would be far too
expensive for Paracelsian and that the proposal would never get
through the Board of Directors. I did not tell him that I would
"deliver the [proposal] promptly to Mr. Keith Rhodes."
35. The Henderson affidavit states ( 4) that he received no
response to his proposal. Quite the contrary, when I told him that
his proposal was too costly, I suggested that he should come back
with a more modest proposal. I told him that I had authority as an
officer of Paracelsian to spend up to $5,000 without board
approval, and I said that if he brought back a proposal along those
lines, I could turn it around very quickly. Dr. Henderson's original
proposal would involve studies for HIV, hepatitis and herpes.
Paracelsian has never been involved in research concerning hepatitis
and herpes, nor did the company have any plans that in any way
involved those viruses. As an executive of Paracelsian, I did not
believe (and I still do not believe) that the company should spend its
scarce resources trying to get involved in investigating two new
viruses that had nothing to do with the company's ongoing research
or marketing plans. I told Dr. Henderson that any new proposal
should be limited to HIV, which had been a focus of study for the
company.
36. On or about February 25, 1997, Dr. Henderson in fact did
give me a revised proposal, the total cost of which was $5,000. I
attach copies (again, produced to my counsel by Paracelsian) as
Exhibit J. The proposal involved only HIV. I promptly approved
the proposal, and Dr. Henderson's company in fact conducted the
study. This second proposal was for two series of tests
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on 500 additional extracts at a cost of $5.00 per extract per series,
for a total of $5,000. I assume the results of VTI's work are at
Paracelsian. On March 4, 1997 I signed a check for $5,000 payable
to VTI, for this project. A copy of the check (again obtained from
Paracelsian for this motion) is attached as Exhibit K. Thus, Dr.
Henderson's affidavit is inaccurate in saying that he had no response
to his proposal between his February 1997 delivery to me of his
first proposal and my resignation on March 19th.
37. On the day I resigned, I did stop by Dr. Henderson's office
(which, as noted above, was just downstairs from Paracelsian's). I
viewed Dr. Henderson as a kindred spirit-- he, like me, had been an
academician and had started a company to try to commercialize
academic research. I told Dr. Henderson that I had resigned, but
that Colin Campbell (a Paracelsian director at the time) was going
to talk to the other board members to see if they could find a way
to bring me back into the company. I told Dr. Henderson that I
wasn't really interested in going back as the only executive scientist.
I told him that I might be willing to go back part time, and I said
that maybe he and I could split the position. I told him that my
current salary was $160,000 per year but that I thought the Board
might increase that to $220,000 if they wanted to bring me back,
and I said that if we split the position he could make at least
$80,000. I told him that I didn't know what the Board would do
and that I wasn't in a position to make any firm offer. The idea that
I discussed with Dr. Henderson was a simple job-sharing
arrangement in which we would both be part-time Paracelsian
employees.
38. Contrary to Dr. Henderson's affidavit, I never said that I
was going to start a new company so that any renewed relationship
with Paracelsian would be through a new company (see Henderson
Aff 5h). I never said that I was going to buy back Paracelsian
stock if the price dropped ( Sc). I never said that I expected the
price to drop as a result of my resignation ( 5b)(and in fact
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the price did not drop). I never said that I had sold my stock before
my resignation and put the money away "to allow [me] to purchase
a controlling interest in the company" ( 5d). I did tell him that
because I had sold some of my stock I was not under any
immediate financial pressure to jump into another job.
39. I told Dr. Henderson that I was considering going back to
Cornell and that I was thinking about starting a new company to do
some consulting. At no time during any conversation with Dr.
Henderson did I ever suggest to him that I wanted to acquire
control of Paracelsian or that if I could not I would do business
through a new company ( 5j). I never said that I was planning to
hire away any Paracelsian employees ( 5k). I may have told him
that I had spoken with Xinfang Ma and the other scientists to tell
them of my resignation and that if Paracelsian laid any of them off
(a prospect that I considered likely given the disarray in the
company), I would do whatever I could to help them find new jobs.
I recall the conversation with Xinfang Ma and the other scientists,
but I do not recall whether I told Dr. Henderson about that
conversation.
40. I never told Dr. Henderson that my meeting with him was
secret or that the discussion should be kept "just between us" (
Sm). As noted above, I did tell him that my comments about
possibly splitting the executive scientist job was not an official offer
and that I wasn't speaking for the company or Board. I told him I
didn't know what the Board was going to do.
41 I did meet a second time in early April with Dr. Henderson.
After trading phone calls over a couple of days, I stopped by his
office to tell him that the Board had decided not to make any offer
to try to bring me back into the company. During this brief meeting,
I told him that I had been in contact with Cornell about possibly
doing some teaching. We got to discussing Cornell's ongoing
efforts to catalogue rain forest plants in South America, but I do
not remember how we got onto that
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subject. In any case, I told him that if he had any interest in doing
research on South American plants, I might be able to introduce
him to some of the people from that Cornell project. He said he
might be interested and I told him I could make some phone calls.
The meeting ended by both of us agreeing to keep in touch but
without any formal notion of any specific plan for the future.
42. Paracelsian had never been involved in South American
plants; the sole focus of the company was on traditional Chinese
medicine -- plants used in China for medicinal purposes. The
company's 1995 annual report (the last report available -- plaintiff's
current management has not yet mailed the 1996 annual report to
shareholders) describes the company's activities thus:
The Company continues to improve its Screening Technology in
order to increase its efficiency in the identification of favorable
effects of chemical compounds. ... The compounds utilized by the
Company are derived from its inventory of over 2,800 extracts of
herbs used in traditional Chinese medicine ("TCM"). Since October
1994, the Company has screened approximately 700 extracts from
this inventory. (Page 2 of 1995 Form 10-KSB, included in annual
report.)
See Exhibit A.
43. The 1995 annual report states (at 25):
"In the second quarter of fiscal 1995, the Company commenced
research into Indian sourced herbs and their medicinal benefits
with an objective of supplementing the extracts from China. During
the fourth quarter of fiscal 1995, the Company completed this
research. The Company issued 200,000 shares of its common stock
as full payment to the consultants in connection with this research
and recognized a fourth quarter, non-cash research expense of
$375,000. This expense is not expected to recur after fiscal 1995
since this research was completed without discovering any
compounds with promising therapeutic effects."
Prior to early 1996, when I first saw the original 1995 annual
report, I had heard nothing about any research into "Indian sourced
herbs," either in my capacity as Chief Scientist, a Board member, or
a member of the Office of the Chief Executive. I still have never
seen any report on any such
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research, and I do not know what scientists supposedly conducted
the research. Certainly there were never any Indian herb extracts at
Paracelsian at any time while I was at the company.
44. Because Paracelsian was focussed solely on traditional
Chinese medicines and had never been involved with plants from
any other region (exclusive of the supposed Indian plants, which I
now believe to be fictitious, despite the annual report), I saw no
conflict whatsoever in mentioning to Dr. Henderson that I might be
able to put him in contact with people involved in South American
plants.
4 Allegations as to Theft of Company Property or Proprietary
Information
45. After founding Paracelsian, I took a leave of absence from
my position at Cornell University. When I cleaned out my Cornell
office, I took all of my accumulated textbooks, lecture notes, old
grant applications, dissertations from my advisees, two wooden
boxes of slides, copies of published papers, my Cornell research
projects, and other academic papers to my office at Paracelsian. At
all times thereafter, I kept all of my Cornell papers in my
Paracelsian office. With rare exceptions, none of those papers were
even remotely relevant to my work at Paracelsian, but it was a
convenient place to keep them. When I left Paracelsian's employ, I
packed all of those papers into storage boxes and took them home.
The vast bulk of what I removed from my Paracelsian office was
my old Cornell materials.
46. During my years at Paracelsian I used the company's address
for all of my professional journals. I paid the annual subscriptions
for these journals. When I left the company, I took these journals
home
47. In my office I had also kept computer disk copies of my
presentations, slides, papers submitted to journals, and similar
materials prepared by me over the years. None of this material
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relates to any proprietary research or data of Paracelsian The disks
include an old 5-year financial plan from 1991, which became a
major part of the prospectus at the time the company went public.
That plan is not confidential, having been disclosed in the
prospectus, and in any event it is outdated. The disks may also have
similar materials dating from the period before the company went
public. To the extent that any information on these disks relates to
Paracelsian, the information is duplicated in the company's
computer records. To the best of my knowledge, I do not have any
information that the company does not also have. At the time I left
Paracelsian, I did not retain or remove any computer disks
containing any of the company's current financial information,
marketing plans, customer lists (although the company does not
have any real customers because it does not have a product yet), or
other proprietary information or trade secrets. When my attorney in
this litigation came to my house to inspect these materials, he found
a January 31, 1997 fax relating to East-West Herbs, Ltd., and a
report on an AndoVir clinical trial that was conducted during May
1996 on a dog that had cancer. When I packed up my office at
Paracelsian, I did not realize I had these two items; my attorney
took the originals with him and I did not retain copies of either
item. I do not believe either item has any significant importance as
confidential materials, but they certainly are items that I do not need and did not intend to retain.
48. Shortly before I resigned from Paracelsian, while I was in
the process of packing up my office, I had a conversation with
Keith Rhodes. During that conversation, I told Mr. Rhodes that I
didn't want to take any confidential material, and I specifically
asked him what materials he considered to be proprietary or
confidential. Mr. Rhodes answered that the only information that he
considered "company confidential" was the material kept in the
locked filing cabinet. I have never had a key to that locked cabinet,
and when I left I did not take any papers or copies of any papers
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from that cabinet.
49. A good part of the time I spent packing up and cleaning out
my office at Paracelsian occurred during normal business hours. At
no time when I was busy packing up the many boxes of materials
did Mr. Rhodes or anyone else from the company say anything to
suggest that what I was doing was in any way improper. Arthur
Koch, the company's then-CFO, came to my office after I had
spoken to Mr. Rhodes and asked me if I would be willing to return
to Paracelsian any materials that the company thought it might need
after I had left. I assured him that I would.
50. During my years as Chief Scientist for Paracelsian, I had
frequent meetings with other members of the scientific staff At
those meetings we discussed the progress of their research. I left all
of my lab notebooks from these lab meetings at the company even
though they were not stored in the locked filing cabinet.
5. My Business Activities Since My Resignation From
Paracelsian
51. In the weeks since my resignation on March 19, 1997, I
have conducted no business and have had no earnings. My main
thoughts for making a living are (1) teaching at Cornell as a
member of the adjunct faculty (I resigned my tenured position when
I reached the limits Cornell imposes on leaves of absence, which
occurred before I left Paracelsian); (2) consulting on technology
transfer issues with academicians and start-up companies; (3)
brokering botanicals and therapeutic compounds; and (4) writing.
52. My experience in taking my academic work at Cornell into
the commercial world, including my experience in raising venture
capital and launching an initial public offering, has given me skills
that I believe may be of use to other academicians who are thinking
about trying to commercialize their research results. I believe that
my skills will enable me to earn a living as a
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consultant to such people and to their start-up companies. I
anticipate that my consulting work will not be limited to the
biotechnology industry -- the skills that I propose to offer are not
so much as a pharmacologist and toxicologist but as a scientist who
has "been there, done that" in transferring technology to the
commercial arena. I do not see how such consulting work could
possibly be construed as competitive with Paracelsian.
53. From my experience at Paracelsian I have also learned how
to find suppliers of plants and herb extracts, and I anticipate that I
may be able to profitably act as a broker for such supplies. There
are many biotechnology companies today that are conducting a
great deal of research into plants from all over the world. Although
Paracelsian is focussed exclusively on China, there are potentially
commercial plants from all over the world. Paracelsian never
engaged in research into plants from anywhere except China, and I
therefore am not precluded from brokering plant materials from
other regions of the globe.
54. Because of my specific training and experience as a
pharmacologist and toxicologist, I anticipate that drug companies
and biotechnology companies may also view me as a potentially
valuable consultant. I do not have any current plans to consult with
any particular company, but I do foresee that I may be asked
someday to do such consulting. My understanding of Paracelsian's
business is to develop and market products derived from traditional
Chinese medicines. Because the cost of developing therapeutic
drugs (prescription drugs) is enormous, and because Paracelsian
does not have those resources, I am also of the belief that
Paracelsian's products will be developed as dietary supplements
rather than prescription drugs.
55. I do not have any plans and never have had any plans
to enter into any business competitive with Paracelsian. I have no
desire to continue any work in traditional Chinese medicines,
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and I have no plans to develop any sort of dietary supplement. For
that matter, I also have no plans to do any work on therapeutics.
56. The Confidentiality Agreement (excerpt submitted as
Exhibit L) defines confidential information to mean only
"information proprietary to Paracelsian, designated as confidential
information by Paracelsian, and not generally known by non-
Paracelsian personnel. The restrictive covenant set forth in the
Confidentiality Agreement applies only if a new employer
and I cannot give Paracelsian written reassurance that I will honor
my confidentiality obligations. Since I don't have a new employer
and since I'm not conducting any business as a direct competitor of
Paracelsian, the contract does not require any written assurance.
57. After leaving Paracelsian, my wife and I discussed
incorporating a new business through which both of us could do
consulting work. We discussed possible names and decided to use
"ParaDocs, LLC." My wife and I are both Ph.D.'s and we thought
the name ParaDocs was a nice play on "pair of docs" and paradox.
Sometime after March 19th when I resigned, I programmed that
name into my home fax machine, so that the "fax tag" says
"ParaDocs." I also prepared a fax cover page using that name and I
had some business cards printed up.
58. The name ParaDocs was not in any way related to or
derived from the name "Paracelsian." The company's name came
from Paracelsus, a pharmacologist who lived from 1493 to 1541.
59.When my attorney tried to register the name "ParaDocs" as a
corporation, I was informed that the name was unavailable in New
York State. Submitted as Exhibit M is a copy of the name
reservation rejection, which my lawyers received shortly after May
6, 1997.
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60. I have not conducted any business as ParaDocs, and because
the name is unavailable for incorporation in New York, my wife and
I will select a new name for our new business. I presented a paper
at the symposium on Molecular Toxicology on April 28-30, 1997,
but I was not paid. In the conference materials (submitted before I
learned the name was unavailable) I described myself as "John G.
Babish, Ph.D., Associate and Consultant, Paradocs, LLC." There is
no other description of ParaDocs in the materials.
6. An Injunction Would Cause Me Serious and Immediate Harm
61. The Court entered a temporary restraining order that not
only stopped me from buying any Paracelsian stock (which is what I
had understood the plaintiff to be requesting) but also from selling
any of my remaining stock because I am forbidden to "transfer" any
stock. The TRO also prohibits anyone acting on my behalf from
transferring any stock, and although I do not believe any of the
other shareholders represented by Mr. Hecht (the NYC attorney
who wrote the April 15th letter demanding that the company
investigate Mr. Rhodes illegal conduct) are doing anything on my
behalf, Mr. Hecht has informed me that he does not think he can
really talk to me any more because of the TRO.
62. I still own roughly 50,000 shares of Paracelsian, and as
noted above, I was an officer and director at the time Mr. Rhodes
conducted his unauthorized and illegal share transactions
Consequently, I still have an economic stake in the company, and I
am very much a potential target of a shareholder's derivative suit
based on Mr. Rhodes' activities. The injunction plaintiff seeks
would prevent me from participating in a derivative suit if Mr.
Hecht or his other clients decide to commence one, and it would
prevent me from participating in a proxy contest.
63. Plaintiff's proposed injunction (Exhibit F to the Pinnisi
affidavit) would further prohibit me from engaging in self-
employment or employment by others "in competition with
plaintiff,"
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without in any way specifying what it is that I am not supposed to
do. I have not done any business in competition with plaintiff, nor
do I have any plans to do so in the future, at least insofar as that
business involves anything to do with traditional Chinese medicines.
If plaintiff believes, however, that I am precluded from any business
activities involving plants or herb extracts from other regions of the
globe, then I may not be able to find other work.
64. Finally, there is no need for an injunction to order me to
return plaintiff's property, because I do not have any. Plaintiff's
attorney is welcome to inspect everything I took when I cleaned out
my office. I am still co-authoring several papers and manuscripts
with other Paracelsian scientists, and I had understood that the
company wanted me to continue working on those papers. If they
now want me to stop this cooperative effort, they need only ask.
JOHN G. BABISH
Sworn to before me on
May 11, 1997.
JOHN MOSS HINCHCLIFF
Notary Public State New York
No. 4794203
Qualified in Tompkins County
Commission Expires Mrach 1999 |
