IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
 
TIMOTHY & THOMAS LLC,
an Illinois limited liability company,
 
Plaintiff,
 
Case No.  06 C 1813
 
 
v.
 
VIRAL GENETICS, INC., a Delaware
corporation, and HAIG KELEDJIAN, an
individual and citizen of California,
 
Defendants.
 
Honorable Blanche M. Manning

Magistrate Judge Michael T. Mason
 
VIRAL GENETICS, INC.,
 
Counterclaim Plaintiff,
 
 
JURY TRIAL DEMANDED
 
v.
 
TIMOTHY & THOMAS LLC, TIMOTHY
WRIGHT, THOMAS LITTLE and JOHN and
JANE DOES 1 through 10,
 
Counterclaim Defendants.
 
 

 
DEFENDANTS’ AMENDED ANSWER TO
PLAINTIFF’S AMENDED COMPLAINT AND
COUNTERCLAIM PLAINTIFF’S AMENDED COUNTERCLAIMS

Defendant and Counterclaim Plaintiff Viral Genetics, Inc. (“VGI”) and Defendant
Haig Keledjian (“Keledjian”) (collectively, “Defendants”), by their attorneys,
Baker & McKenzie LLP, as and for their Amended Answer to the Amended Complaint
dated December 12, 2006 (the “Amended Complaint”) and VGI’s Amended
Counterclaims against Counterclaim Defendants Timothy & Thomas LLC (“T&T”),
Timothy Wright (“Wright”), Thomas Little (“Little”) and John and Jane Does 1
through 10 (collectively, “Counterclaim Defendants”), hereby state as follows:

                 

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1.           Defendants deny each and every allegation contained in Paragraph 1
of the Amended Complaint, except admit that VGI owns the international patent
rights to an investigational drug which is being studied for the potential
treatment of Human Immunodeficiency Virus (“HIV”) and the related condition of
Acquired Immunodeficiency Syndrome (“Aids”), and that VGI and T&T entered into a
Distribution Management Agreement (the “Distribution Management
Agreement”).  The Court is respectfully referred to the Distribution Management
Agreement for the terms thereof.
2.           Defendants deny each and every allegation contained in Paragraph 2
of the Amended Complaint, except admit that, previously, VGI had granted certain
distribution rights in certain African countries to VGI’s investigational drug
to another company; however, such distribution rights were no longer in force or
effect at the time of execution of the Distribution Management Agreement with
Plaintiff.
Section of the Amended Complaint Entitled
“The Parties”
3.           Defendants deny knowledge and information sufficient to form a
belief as to the truth of the allegations contained in Paragraph 3 of the
Amended Complaint.
4.           Defendants admit the allegations contained in Paragraph 4 of the
Amended Complaint.
5.           Defendants admit the allegations contained in Paragraph 5 of the
Amended Complaint.

    

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Section of the Amended Complaint Entitled
“Jurisdiction and Venue”
6.           Defendants admit the allegations contained in Paragraph 6 of the
Amended Complaint.
7.           Defendants deny each and every allegation contained in Paragraph 7
of the Amended Complaint.
Section of the Amended Complaint Entitled
“Factual Background”
8.           Defendants deny each and every allegation contained in Paragraph 8
of the Amended Complaint, except admit that VGI has made certain public
securities filings and respectfully refers the Court thereto for the contents
thereof.
9.           Defendants deny each and every allegation contained in Paragraph 9
of the Amended Complaint, except admit that VGI has made certain public
securities filings and respectfully refers the Court thereto for the contents
thereof.
10.           Defendants deny each and every allegation contained in Paragraph
10 of the Amended Complaint, except admit that a Phase III clinical trial of the
safety and efficacy of VGV-1 has been conducted in the Republic of South Africa.
Section of the Amended Complaint Entitled
“The Invention Of TNP Technology”
11.           Defendants deny each and every allegation contained in Paragraph
11 of the Amended Complaint, except admit that Harry P. Zhabilov Sr. died in
May, 2002 and that he was one of the inventors of the use of Thymus Nuclear
Protein (“TNP”) as a treatment for HIV/AIDS, which is the subject of more than
one patent application in the United States and/or worldwide.
12.           Defendants deny each and every allegation contained in Paragraph
12 of the Amended Complaint, except admit that three continuation-in-part
applications relating to the original patent application were filed with the
USPTO.

    

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13.           Defendants deny each and every allegation contained in Paragraph
13 of the Amended Complaint, except admit that a patent application was filed in
the Republic of South Africa with respect to the same invention described in the
original United States patent application.
14.           Defendants admit the allegations contained in Paragraph 14 of the
Amended Complaint.
15.           Defendants admit the allegations contained in Paragraph 15 of the
Amended Complaint.
16.           Defendants deny each and every allegation contained in Paragraph
13 of the Amended Complaint, except admit that Tomson USA Ltd. (“Tomson”) is no
longer a corporation in good standing in the State of Nevada.
Section of the Amended Complaint Entitled
“The Relationship Between VGI and T&T”
17.           Defendants deny each and every allegation contained in Paragraph
17 of the Amended Complaint, except admit that Keledjian, Little and Wright met
at the Ritz Carlton Hotel and Gibson’s Steak House in Chicago, Illinois on or
about September 30, 2003.
18.           Defendants deny each and every allegation contained in Paragraph
18 of the Amended Complaint.
19.           Defendants deny each and every allegation contained in Paragraph
19 of the Amended Complaint, except admit that Little advanced $200,000 pursuant
to a convertible debenture.

    

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20.           Defendants deny each and every allegation contained in Paragraph
20 of the Amended Complaint.
21.           Defendants deny knowledge or information sufficient to form a
belief as to the truth of the allegations contained in Paragraph 21 of the
Amended Complaint, except admit that, as part of the process for approval to
conduct a Phase III clinical trial in South Africa, VGI submitted documentation,
including an “Investigator’s Drug Brochure.”
22.           Defendants deny each and every allegation contained in Paragraph
22 of the Amended Complaint, except admit that Keledjian, Little and Wright met
at the Ritz Carlton Hotel in Chicago, Illinois on or about April 11, 2004, and
that the three of them met in the dining room and at the Atrium Lounge.
23.           Defendants deny each and every allegation contained in Paragraph
23 of the Amended Complaint.
24.           Defendants deny each and every allegation contained in Paragraph
24 of the Amended Complaint, except admit that VGI and T&T entered into an
agreement entitled “Africa Agreement between VGI and TT” dated May 21, 2004
(“Africa Agreement”) and respectfully refers the Court to the Africa Agreement
for the terms thereof.
25.           Defendants deny each and every allegation contained in Paragraph
25 of the Amended Complaint.
26.           Defendants deny each and every allegation contained in Paragraph
26 of the Amended Complaint.
27.           Defendants deny each and every allegation contained in Paragraph
27 of the Amended Complaint.

    

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28.           Defendants deny each and every allegation contained in Paragraph
28 of the Amended Complaint, except admit that VGI and T&T entered into the
Distribution Management Agreement, and respectfully refers the Court to the
Distribution Management Agreement for the terms thereof.
29.           Defendants deny each and every allegation contained in Paragraph
29 of the Amended Complaint, and respectfully refer the Court to the
Distribution Management Agreement for the terms thereof.
30.           Defendants deny each and every allegation contained in Paragraph
30 of the Amended Complaint.
Section of the Amended Complaint Entitled
“Performance Under The Agreement”
31.           Defendants deny knowledge or information sufficient to form a
belief as to the truth of the allegations contained in Paragraph 31 of the
Amended Complaint, except deny that T&T has performed all of its obligations
under the Distribution Management Agreement.
32.           Defendants deny each and every allegation contained in Paragraph
32 of the Amended Complaint.
Section of the Amended Complaint Entitled
“VGI's Misrepresentations”
33.           Defendants deny each and every allegation contained in Paragraph
33 of the Amended Complaint.
34.           Defendants deny each and every allegation contained in Paragraph
34 of the Amended Complaint, except admit that VGI obtained its rights from
Therapeutic Genetic, Inc. (“TGI”), and that TGI and VGI were merged.

   

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35.           Defendants deny each and every allegation contained in Paragraph
35 of the Amended Complaint, except admit that TGI and Tomson entered into an
assignment agreement.
36.           Defendants deny each and every allegation contained in Paragraph
36 of the Amended Complaint.
37.           Defendants deny each and every allegation contained in Paragraph
37 of the Amended Complaint.
38.           Defendants deny each and every allegation contained in Paragraph
38 of the Amended Complaint.
39.           Defendants deny each and every allegation contained in Paragraph
39 of the Amended Complaint.
40.           Defendants deny each and every allegation contained in Paragraph
40 of the Amended Complaint, except admit that VGI entered into a limited
distribution agreement with MTB Ltd. (Zambia) (“MTB Zambia”) on February 4,
2000, and that said agreement expired/was terminated  prior to the time VGI
entered into any agreements with Plaintiff.
41.           Defendants deny each and every allegation contained in Paragraph
41 of the Amended Complaint.
42.           Defendants deny each and every allegation contained in Paragraph
42 of the Amended Complaint.

    

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RESPONSES TO COUNT I OF THE AMENDED COMPLAINT
(“Breach of Contract Against VGI”)
43.           Defendants repeat and restate each and every response to the
paragraphs referred to in Paragraph 43 of the Amended Complaint with the same
force and effect as if fully set forth herein.
44.           Defendants state that Paragraph 44 of the Amended Complaint
contains legal assertions and conclusions to which no response is required.  To
the extent a response is required, Defendants deny each and every allegation
contained in Paragraph 44 of the Amended Complaint.
45.           Defendants deny each and every allegation contained in Paragraph
45 of the Amended Complaint.
46.           Defendants deny each and every allegation contained in Paragraph
46 of the Amended Complaint.
47.           Defendants deny each and every allegation contained in Paragraph
47 of the Amended Complaint.
RESPONSES TO COUNT II OF THE AMENDED COMPLAINT
 (“Fraud Against VGI and Keledjian”)
48.           Defendants repeat and restate each and every response to the
paragraphs referred to in Paragraph 48 of the Amended Complaint with the same
force and effect as if fully set forth herein.
49.           Defendants deny each and every allegation contained in paragraph
49 of the Amended Complaint.
50.           Defendants deny each and every allegation contained in Paragraph
50 of the Amended Complaint.

    

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51.           Defendants deny each and every allegation contained in Paragraph
51 of the Amended Complaint.
52.           Defendants deny each and every allegation contained in Paragraph
52 of the Amended Complaint.
RESPONSES TO COUNT III OF THE AMENDED COMPLAINT
 (“Declaratory Judgment”)
53.           Defendants repeat and restate each and every response to the
paragraphs referred to in Paragraph 53 of the Amended Complaint with the same
force and effect as if fully set forth herein.
54.           Defendants deny each and every allegation contained in Paragraph
54 of the Amended Complaint, except admit that VGI owned the intellectual
property and patent based rights to TNP in the Republic of South Africa (and
elsewhere), and that VGI and T&T entered into the Distribution Management
Agreement.
55.           Defendants deny each and every allegation contained in Paragraph
55 of the Amended Complaint.
56.           Defendants state that Paragraph 56 of the Amended Complaint
contains legal assertions to which no response is required.  To the extent a
response is required, Defendants deny each and every allegation contained in
Paragraph 56 of the Amended Complaint.
AFFIRMATIVE DEFENSES
As separate affirmative defenses to the Amended Complaint, Defendants allege as
follows:

    

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As and for a First Affirmative Defense
57.           Defendants hereby incorporate their answers, denials and responses
to each and every allegation contained in paragraphs 1 through 56 as if fully
set forth herein.  Defendants additionally incorporate the allegations and
averments contained in VGI’s Amended Counterclaims as if fully set forth herein.
58.           Plaintiff has no ownership interests in any of Defendants’
intellectual property.  Plaintiff was not party to any of the transfers of
patents based on TNP technology, and thus may not collaterally attack the
validity of such transfers.  Any injury allegedly suffered by Plaintiff was not
caused by an allegedly defective transfer of patents from Tomson to
TGI.  Accordingly, Plaintiff’s Amended Complaint fails to state claims upon
which relief may be granted for its first, second and third causes of action
because Plaintiff has no standing to bring this action.
As and for a Second Affirmative Defense
59.           Defendants hereby incorporate their answers, denials and responses
to each and every allegation contained in paragraphs 1 through 56 as if fully
set forth herein.  Defendants additionally incorporate the allegations and
averments contained in VGI’s Amended Counterclaims as if fully set forth herein.
60.           Timothy Wright sat on VGI’s Board of Directors until shortly
before VGI and T&T signed the Distribution Management Agreement.  T&T conducted
full due diligence, including inquiries about VGI’s ownership of

    

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patents in TNP based drugs, of which Wright was fully informed and aware.  T&T
thus had full knowledge of the status and chain of title regarding VGI’s
ownership of the patents for TNP based drugs when T&T signed the Distribution
Management Agreement.
61.           T&T knew about VGI’s agreements with MTB Zambia and Mebory & K
Enterprises (Pvt.) Ltd. (“Mebory”) at the time T&T entered the Distribution
Management Agreement.  In fact, VGI introduced T&T to Borislav Boynoff, who is a
principal of both MTB Zambia and Mebory, and T&T thus had the opportunity to
question Boynoff and/or resolve any concerns at that time.  T&T further knew the
status of VGI’s agreements with MTB Zambia and Mebory at that time.  In fact,
VGI, at T&T’s request, agreed to give T&T a broad indemnification, which covers
any dispute that would arise due to VGI’s former agreements with MTB Zambia and
Mebory.  Despite having full and actual knowledge of all the facts contained in
its Amended Complaint at the time T&T signed the Distribution Management
Agreement, T&T is now claiming VGI committed fraud, which actions constitute bad
faith on the part of T&T.  T&T’s sole intent in initiating this lawsuit is to
extract economic concessions from VGI.  T&T has threatened in the past that,
unless VGI grants certain concessions, which are unrelated to the allegations in
its Amended Complaint, then T&T will institute legal action to economically
punish VGI.  All of Plaintiff’s claims are thus barred by the doctrine of
unclean hands.

    

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As and for a Third Affirmative Defense
62.           Defendants hereby incorporate their answers, denials and responses
to each and every allegation contained in paragraphs 1 through 56 as if fully
set forth herein.  Defendants additionally incorporate the allegations and
averments contained in VGI’s Amended Counterclaims as if fully set forth herein.
63.           Plaintiff incurred and has continued to incur unauthorized
expenses contrary to the terms of the Distribution Management Agreement, and
Plaintiff has failed to substantiate its expenses as necessary, despite repeated
requests to do so.  Plaintiff, though under a duty to do so, has thus failed and
neglected to reasonably mitigate its alleged damages, to account to VGI and,
therefore, cannot recover against. Defendants, whether as alleged, or otherwise
under Count I of the Amended Complaint.
As and for a Fourth Affirmative Defense
64.           Defendants hereby incorporate their answers, denials and responses
to each and every allegation contained in paragraphs 1 through 56 as if fully
set forth herein.  Defendants additionally incorporate the allegations and
averments contained in VGI’s Amended Counterclaims as if fully set forth herein.
65.           Plaintiff’s claims are barred, in whole or in part, by the
doctrines of laches, waiver and estoppel.

    

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As and for a Fifth Affirmative Defense
66.           Defendants hereby incorporate their answers, denials and responses
to each and every allegation contained in paragraphs 1 through 56 as if fully
set forth herein.  Defendants additionally incorporate the allegations and
averments contained in VGI’s Amended Counterclaims as if fully set forth herein.
67.           T&T has limited discretion under the Distribution Management
Agreement to incur costs to conduct the First-Stage Clinical
Trials.  Nonetheless, T&T has sought reimbursement from VGI for costs and
expenses that were not necessary to conduct the First-Stage Clinical Trials and
has refused to provide VGI with documentation that would demonstrate its claimed
expenses are legitimate and authorized.  T&T has also incurred numerous costs
that violate the Distribution Management Agreement and has abused its authority
to make expenditures under that agreement.  Count I of Plaintiff’s Amended
Complaint is thus barred, in whole or in part, by virtue of Plaintiff’s breach
of the implied covenant of good faith and fair dealing.
As and for a Sixth Affirmative Defense
68.           Defendants hereby incorporate their answers, denials and responses
to each and every allegation contained in paragraphs 1 through 56 as if fully
set forth herein.  Defendants additionally incorporate the allegations and
averments contained in VGI’s Amended Counterclaims as if fully set forth herein.
69.           On or about March 31, 2006, VGI paid T&T $465,111.28 in

    

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consideration for services T&T performed under the Distribution Management
Agreement.  VGI paid this sum to T&T after negotiating with T&T regarding
amounts due under the Distribution Management Agreement.  Both parties intended
this amount to fully satisfy the balance due to T&T under the Distribution
Management Agreement.  Accordingly, Plaintiff has suffered no damages.
As and for a Seventh Affirmative Defense
70.           Defendants hereby incorporate their answers, denials and responses
to each and every allegation contained in paragraphs 1 through 56 as if fully
set forth herein.  Defendants additionally incorporate the allegations and
averments contained in VGI’s Amended Counterclaims as if fully set forth herein.
71.           Plaintiff’s claims are barred by accord and satisfaction.
As and for an Eighth Affirmative Defense
72.           Nevada Revised Statute § 78.585 provides the statute of
limitations applicable to Plaintiff’s claims based on the allegedly defective
transfers between Tomson and TGI.  It bars all such claims.
As and for a Ninth Affirmative Defense
73.           Plaintiff’s claims contained in the Amended Complaint are barred
because Plaintiff engaged in fraud.
As and for a Tenth Affirmative Defense
74.           Defendants reserve the right to raise additional affirmative
defenses and to supplement those asserted herein upon discovery of further
information regarding the claims asserted in the Amended Complaint.

    

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VGI’S AMENDED COUNTERCLAIMS
75.           Counterclaim Plaintiff VGI hereby alleges and complains against
Counterclaim Defendants T&T, Timothy Wright, Thomas Little and John and Jane
Does 1 through 10 as follows:
76.           This case involves a fraud perpetuated by the Counterclaim
Defendants against VGI.
77.           VGI seeks damages and punitive damages arising out of fraud,
conspiracy to commit fraud and other unlawful conduct in connection with
Counterclaim Defendants’ scheme to induce VGI to enter into certain agreements
and to provide information and authority to Counterclaim Defendants to conduct
clinical test trials and seek regulatory approval for VGI’s patented
immune-based therapies for HIV and AIDS on the continent of Africa, as part of a
well-orchestrated, sophisticated, and bad faith conspiracy to destroy VGI and
take over VGI’s very valuable and promising technology for Counterclaim
Defendants’ own benefit.
78.           Counterclaim Defendants’ actions also constitute breach of
contracts, breach of fiduciary duties, unfair business practices and
interference with contract.
THE PARTIES
79.           VGI is a Delaware corporation with its principal place of business
in Azusa, California.
80.           Keledjian is a citizen and resident of California who is the
President and Chief Executive and Financial Officer of VGI.
81.           Upon information and belief, T&T is an Illinois limited liability
company with its principal place of business in Chicago, Illinois.

    

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82.           Upon information and belief, Wright is a citizen and resident of
Illinois, and is a former director of VGI and a current member of T&T.
83.           Upon information and belief, Little is a citizen and resident of
Illinois, and is a member of T&T.
84.           Upon information and belief, “John and Jane Does 1 through 10” are
individuals who acted jointly with Counterclaim Defendants and/or as their
agents in connection with the wrongs perpetrated on VGI, and who are, therefore,
jointly and severally liable with Counterclaim Defendants to VGI.  The
individuals are herein named as John and Jane Does because insufficient
information as to their identity has been obtained by VGI.  Upon discovery of
the identity of any of the individuals herein named as John and Jane Does, VGI
shall take appropriate action to identify them and serve them as named
counterclaim defendants in this action.
JURISDICTION AND VENUE
85.           The Court has original jurisdiction over the subject matter of the
Amended Counterclaims pursuant to 28 U.S.C. § 1332 because the matter in
controversy exceeds $75,000, exclusive of interest and costs, and is between
citizens of different states.  The Court also has supplemental jurisdiction
pursuant to 28 U.S.C. § 1367 because the Amended Counterclaims are part of the
same case or controversy contained in the Amended Complaint.
86.           Venue properly lies in the United States District Court for the
Northern District of Illinois under 28 U.S.C. § 1391 because a substantial part
of the events and/or omissions giving rise to the Amended Counterclaims asserted
herein occurred in this District.

    

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FACTUAL BACKGROUND
A.           VGI and the Development of VGV-1
87.           VGI is a biotechnology company engaged in the discovery and
development of immune-based therapies for HIV and AIDS based on its
investigative drug compounds containing its patented Thymus Nuclear Protein
compound (“TNP”).
88.           VGI holds several patents relating to TNP and is engaged in the
development and manufacture of certain pharmaceutical products based on TNP
which are intended for the treatment of HIV and AIDS, including, without
limitation, an investigational pharmaceutical product called “VGV-1.”  In human
clinical trials, VGV-1 has shown tremendous promise as an effective treatment
for HIV and AIDS.
89.           TNP proteins were originally studied as a means of early detection
of certain cancers.  In a series of early pilot studies, it was learned that if
the protein was introduced to an HIV-positive patient’s system along with
adjuvant, over time an immuno-precipitation reaction gradually reappeared that
was similar to an HIV-negative patient’s reaction.  This was the genesis of
understanding the therapeutic potential of TNP and led directly to clinical
development of VGV-1.
90.           One of the early researchers of the use of TNP for HIV/AIDS
treatment, was Dr. Harry Zhabilov Sr. (“Dr. Zhabilov Sr.”).  Dr. Zhabilov Sr.
was a licensed medical doctor and scientist in Bulgaria prior to emigrating to
the United States.  As a consequence of his research, Dr. Zhabilov Sr. was one
of the inventors of TNP and VGV-1.  He was also a founder of VGI.
91.           During the early development of TNP and VGV-1 as a treatment for

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HIV/AIDS, Dr. Zhabilov Sr. personally conducted the processes by which TNP was
extracted from the thymus tissue for such research.  Dr. Zhabilov Sr. kept his
proprietary process for TNP extraction to himself.  As set forth below, towards
the end of his life (Dr. Zhabilov Sr. died in 2003), Dr. Zhabilov Sr. apparently
taught his proprietary extraction methods to his son, Harry Zhabilov, Jr.
(“Zhabilov Jr.”), a former employee, Director and shareholder of VGI, and urged
VGI and Keledjian to hire Zhabilov Jr. to take the position as chief scientific
officer previously occupied by Dr. Zhabilov Sr. himself.
92.           As early as 1999, VGI initiated efforts to bring its research and
investigative pharmaceutical compounds to Africa for research, testing and
approval.  The reason that VGI targeted Africa was the epidemic-level presence
of HIV and AIDS among the population, particularly in the southern part of the
continent, where it was hoped that VGV-1’s promising treatment could greatly
benefit the dire situation.  South Africa has been reported as having the
highest prevalence of HIV and AIDS in the world.
93.           Although VGI made efforts to bring TNP and VGV-1 to Africa in the
late 1990’s, such early efforts were not successful.
94.           Then, as a result of continued research and promising results, in
early 2003, VGI renewed its efforts to perform clinical trials and to obtain
regulatory approvals in Africa generally, and in South Africa in particular.
B.           The Relationship between Zhabilov Jr. and VGI
95.           After the death in May 2003 of Dr. Zhabilov Sr., and because
Zhabilov Jr. now was the only person with knowledge of the processes developed
by his late father for extracting TNP from thymus tissue, on or about June 1,
2003, VGI executed an Employment Agreement with Zhabilov Jr. (the “Zhabilov
Employment Agreement”).

    

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96.           The Zhabilov Employment Agreement provides that VGI employed
Zhabilov Jr. to serve as executive vice president of research and development of
VGI.
97.           The Zhabilov Employment Agreement contained a “Reasonable Best
Efforts” clause pursuant to which Zhabilov Jr. agreed “that he [would] at all
times faithfully, industriously, and to the reasonable best of his ability,
experience, and talents, perform all of the duties that may be required of and
from him pursuant to the express and explicit terms hereof.”
98.           The Zhabilov Employment Agreement also included a
“Non-Solicitation” clause which stated the following, in relevant part:
Except as provided in paragraph 14 below, during the period of this Agreement,
and for an additional period after termination or expiration of this Agreement
of one year, Employee agrees that he will not, directly or indirectly … solicit
any person, governmental entity or agency, firm or business that was a supplier,
customer or client of [VGI] or any subsidiary of [VGI] at any time during the
two year period prior to the date of termination or expiration of this Agreement
with respect to any product or technology developed, under development, or
contemplated for development by [VGI] prior to or as of the date of termination
or expiration.
99.           The Zhabilov Employment Agreement additionally included a
“Non-Disclosure of Information” clause which stated that Zhabilov Jr. agreed to
the following, in relevant part:
(a)           During the period of this Agreement, and the period following
termination or expiration of this agreement, [Zhabilov Jr.] will not, directly
or indirectly:
 
(i)           use for his own benefit or give to any person not authorized by
[VGI] to receive or use such information, except for the sole benefit of [VGI],
any marketing plans, results, or product marketing information, which are
proprietary to [VGI];
 

    

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(ii)           use for his own benefit or give to any person not authorized by
[VGI] to receive it, any plans or specifications, scientific know-how, formulas,
technical data or information, clinical study protocols or data, patient or
biologic information, customer lists, data, study, table, report or the like
owned by [VGI], or any copy thereof; or
 
(iii)           use for his own benefit or give to any persons not authorized by
[VGI] to receive it any information that is not generally known to anyone other
than [VGI], or that is designated by [VGI] as “Limited”, “Private”, or
“Confidential”, or similarly designated.
 
100.           The Recitals to the Zhabilov Employment Agreement also state that
“[VGI] desires to provide for the employment of [Zhabilov Jr.], to clearly set
forth the relationship between the parties, and to restrict [Zhabilov Jr.] from
using certain confidential information and from competing with [VGI] in the
future.”
101.           The Zhabilov Employment Agreement expired on or about May 31,
2006.
C.           The Relationship Between Wright and VGI
102.           As part of its renewed efforts to bring TNP and VGV-1 to Africa
in 2003, VGI sought out additional consulting and financial assistance.
103.           At this time, VGI was working with Don Kelly (“Kelly”), a
Canadian citizen whose son was born HIV positive, to develop distribution of
VGV-1 in Africa.  Kelly owned a license to the rights to VGV-1 and TNP in Africa
at the time which was later terminated
104.           In early 2003, VGI was introduced to Richard Dent (“Dent”), a
former football player for the National Football League’s Chicago Bears.  Dent,
in turn, introduced VGI and Kelly to his then-attorney, Wright.
105.           Wright, who, upon information and belief, was a practicing
attorney in the State of Illinois, claimed, among other things, to have
widespread political and financial contacts in South Africa.
106.           On or around April 8, 2003, VGI retained Wright as a “legal
consultant” pursuant to a Consulting Engagement (the “Consulting Engagement”).

      

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107.           The Consulting Engagement required Wright to, among other things:
(a)           Advise VGI “concerning various legal matters;”
(b)           Advise VGI “with respect to its efforts to increase the depth and
visibility of its executive management;”
(c)           Advise VGI “with respect to its efforts to expand its Board of
Directors to include members with the appropriate scientific background,
experience and credentials;”
(d)           Advise VGI “officers and directors in connection with the
evaluation and origination of potential financing alternatives;”
(e)           Advise VGI “in connection with the development of a public
relations strategy, contact with media and celebrity personnel, and
relationships with humanitarian foundations or other groups;”
(f)           Advise VGI “in connection with the identification and development
of its strategic goals;” and
(g)           Advise VGI “in connection with the identification and
establishment of relationships with potential strategic partners.”
108.           The Consulting Engagement required VGI to “make its personnel and
documentation available for inspection, evaluation, and due diligence by
[Wright] … [and to] cause its directors, officers and professional advisers to
furnish information and copies of documents to, and to otherwise cooperate with,
[Wright] in connection with [Wright]’s due diligence activities.”  Furthermore,
VGI was to furnish Wright with “information and data concerning [VGI] that
[Wright] deems reasonably necessary to the performance of [his] functions.”

    

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109.           In turn, “[e]xcept as agreed to by [VGI], or required by law, all
information concerning [VGI] which is not publicly available will be kept
confidential by [Wright].”
110.           The Consulting Engagement expressly provided that “[t]he
representations, warranties, and agreements of the parties contained in this
Agreement will remain operative and in full force and effect and will survive
any termination of this Agreement.”
111.           At around this same time, through Wright’s influence and
representations, Wright was made a member of the Board of Directors in or around
September, 2003, at which time the Consulting Engagement was terminated.
112.           From September 2003 until June 30, 2004, Wright was a member of
the Board of Directors of VGI.
113.           At all times from April 2003 until June 30, 2004 (at the time
that the Distribution Management Agreement was being executed), as a consultant,
then as a Director of VGI, and finally as a principal of Viral Genetics South
Africa (Pty) Ltd. (as set forth below), Wright had complete access to VGI’s
pre-clinical and clinical data and results regarding VGV-1, as well as
information regarding VGI’s financial, business and manufacturing operations,
including non-public confidential and proprietary information.
114.           In 2003, in addition to the fact that VGI had hired Wright as its
legal advisor, Kelly hired Wright to assist Kelly in obtaining approvals in
South Africa for a Phase III clinical trial of VGV-1 and in obtaining the
necessary financing to do so.

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Ultimately, the Medical Control Council (“MCC”) of South Africa approved a Phase
III clinical trial of VGV-1.  Kelly paid all of the expenses associated with
obtaining approval from the MCC.  However, Kelly could not raise the necessary
funding to actually perform the Phase III clinical trial itself.
D.           The Relationship between T&T and VGI
115.           In about June 2003, Keledjian, Kelly and Wright traveled to
Africa to advance the development of VGV-1 in Africa.  During this trip, they
met with various business and political leaders in attempts to obtain both
financing and the necessary approvals for the clinical trials and ultimately,
the distribution of VGV-1.  Among others, the group met with political leaders
in South Africa and Botswana, and with the Mine Workers Union.
116.           It was at this time that Wright introduced Keledjian and Kelly to
Little, who was supposedly vacationing in South Africa with his family.  Little
was a principal of Brandenburg Industrial Services Company, believed to be one
of the United States’ largest demolition companies.  Notwithstanding his claim
of being on vacation, Little spent several days with the Viral group, during
which he became increasingly interested in the VGV-1 project.
117.           During this trip to Africa, Wright began to advise VGI against
accepting much of the assistance (both financial and otherwise) being offered by
the groups and companies they were meeting with in Africa.  For example, Wright
counseled against accepting assistance proffered by AngloGold Ashanti (one of
the leading gold producers in the world, headquartered in South Africa) to
provide patients and monitors for the clinical trial, citing unspecified
“political reasons.”  Likewise, Wright opposed accepting

    

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assistance from the South African Mine Workers Union, again claiming “political
reasons,” including an assertion that the African National Conference was at
odds with the Union.  In South Africa, Wright counseled against hiring Virtus
(Pty) Ltd., a contract research organization headquartered in Cape Town, on
racial grounds.
118.           Upon information and belief, it was at or prior to this time that
Wright and Little developed their plan to misappropriate the business of VGI for
their own benefit.
119.           Upon information and belief, Wright, in concert with Little,
began systematically to misuse the trust confided in him by VGI to isolate VGI
from individuals (including Kelly), companies, government officials and private
groups who would or might offer assistance to VGI, in order to obtain control
over the options available to VGI with a view of leaving VGI with only one
option: T&T.
120.           Shortly after these meetings in Africa, Wright arranged for VGI
and Keledjian to meet with Little in Chicago, Illinois.  Upon information and
belief, Wright had shared his knowledge of VGI’s confidential and proprietary
information and financial, business and manufacturing operations with Little.
121.           The meeting occurred on or about September 30, 2003.  Upon
information and belief, Wright and Little sought to establish themselves as the
only reasonably available option for VGI to obtain financing, creating greater
and greater dependence by VGI on Wright and Little (and T&T) so that they could
ultimately force VGI into such dire financial conditions that T&T could easily
misappropriate VGI’s assets for close to nothing.
122.           Shortly after the meeting in Chicago, Little agreed to invest
$200,000 in VGI in the form of a convertible debenture.
123.           Thereafter, as part of its efforts in South Africa, VGI
established Viral Genetics South Africa (Pty) Ltd. (“VGSA”), for the purpose of
performing the Phase III clinical trial and for promoting and distributing VGV-1
in South Africa.

      

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124.           On February 27, 2004, the MCC granted final approval to conduct a
multi-center, randomized, double-blind, placebo-controlled human clinical trial
of VGV-1, commonly known as a Phase III Clinical Trial (the “Phase III Clinical
Trial”).  By this time, it was becoming more clear that Kelly would not be able
to fund the Phase III Clinical Trial.
125.           Taking advantage of this situation, on or around April 11, 2004,
Wright and Little met again with Keledjian in Chicago to discuss the financing
of the Phase III Clinical Trial of VGV-1 in South Africa.
126.           Upon information and belief, as part of their plan, Little began
to put pressure on VGI and Keledjian to repay the $200,000 investment in VGI,
knowing that such pressure and the threat of legal action by Little created an
extremely difficult financial situation for VGI during the critical period
leading up to the impending South African Phase III Clinical Trial.
127.           On or around May 14, 2004, even though Wright was still a
Director of VGI, Wright and Little formed T&T, with the stated intention that
T&T would finance the Phase III Clinical Trial of VGV-1 in South Africa, but,
upon information and belief, with the intention that T&T would be used as a
vehicle to carry out their fraudulent plan and conspiracy.
128.           At this time, Wright, Little and T&T began a course of
threatening legal action and a loss of opportunity in South Africa, while at the
same time offering financial

    

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assistance.  Little threatened to sue with respect to the $200,000 investment
while Wright continued to counsel that VGI must move forward immediately with
South Africa or all of Africa would be “lost.”  Based upon this coercion, on or
around May 21, 2004, T&T and VGI entered into an “Africa Agreement Between VGI
and TT” (the “Africa Agreement”) in which the parties agreed that VGI would
assign all of its ownership rights in VGSA to T&T.
129.           Under the Africa Agreement, VGI granted T&T a license to
distribute, and, in limited circumstances, to manufacture VGV-1 for sale and
distribution throughout the continent of Africa.
130.           In exchange for the assignment of the rights in VGSA to T&T and
the license granted to T&T, the parties agreed that Little would assign his
rights under the $200,000 convertible debenture to VGI and that T&T would pay
VGI a sum of $650,000.  Furthermore, Wright relinquished his right to one
million shares of VGI stock, and T&T agreed to allocate $2,000,000 to fund VGSA
activities throughout Africa.  The parties agreed that $1,200,000 of that
$2,000,000 commitment was to be used to fund the Phase III Clinical Trial of
VGV-1 in South Africa.
131.           Following the execution of the Africa Agreement, the parties
anticipated that it would be necessary for further contracts to be executed with
third parties in Africa to facilitate the distribution of VGV-1.
132.           Accordingly, on or around July 1, 2004, VGI and T&T executed a
Distribution Management Agreement (the “Distribution Management Agreement”)
pursuant to which VGI appointed T&T as the exclusive independent agent for VGI
in the management of the distribution of [VGV-1] in [Africa].”

    

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133.           The parties acknowledged that VGI was to “manufacture
pharmaceutical products, which are intended for treatment of HIV and the related
condition known as AIDS, including, without limitation, a product based on
thymus nuclear protein identified as ‘VGV-1’” and that T&T was to “obtain
government approvals, licenses, and authorizations from certain governments of
African nations for distribution of products imported from other countries … and
to manage and secure distribution capabilities in African nations through local
sales channels, affiliated companies based in Africa, or strategic distribution
arrangements with unrelated third parties.”
134.           Under the Distribution Management Agreement, T&T agreed to pay
$1,600,000 to complete the first stage of the Phase III Clinical Trial of VGV-1
in South Africa (the “First Stage Clinical Trials”).  VGI agreed to reimburse
T&T in an amount equal to one half of any costs in excess of $1,600,000 incurred
to complete the First Stage Clinical Trial.
135.           If additional tests, protocols, studies or clinical trials were
required, T&T agreed to “pay all expenses for travel, meals, and lodging” in
connection therewith.
136.           Furthermore, the Distribution Management Agreement provided that
“[i]n the event T&T concludes that it will be expedient or necessary, for the
purpose of selling and distributing [VGV-1] in a significant part of the
Territory, to retain the services of any third party to conduct part of or all
of any future clinical trial services, the Parties hereto agree to share the
cost of such third party services equally.”
E.           Counterclaim Defendants’ Behavior Following the Execution of
theDistribution Management Agreement
 
137.           Almost immediately following the execution of the Distribution
Management Agreement, each of the Counterclaim Defendants acted together in a
well

    

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orchestrated, sophisticated and bad faith conspiracy to effectively to destroy
VGI and take over VGI’s very valuable and promising technology for Counterclaim
Defendants’ own benefit.
138.           Counterclaim Defendants’ “strategy” was clear and specific:
(a)           Set VGI and Keledjian up for a lawsuit based upon false
allegations and assertions which, given its predicted (i.e., created by
Counterclaim Defendants) scarce financial position, VGI and Keledjian would be
unable to contest;
(b)           “Secure T&T position as largest creditor” of VGI;
(c)           “Secure legal representation to pursue bankruptcy in California
venue;”
(d)           “Prepare for VGI[’s forced] bankruptcy;”
(e)           “Impugn [the] efficacy of TNP to deter 3rd party interest in any
VGI assets;”
(f)           “Secure T&T[’s] position to acquire any work product created by
Zhabilov [Jr.] during his tenure with VGI;” and
(g)           “Enter into employment contract with Zhabilov [Jr.];”
139.           Upon information and belief, Counterclaim Defendants also
compelled VGI to expend sums building a U.S.-based manufacturing facility that,
based upon their plan, they knew VGI would never need or use, while at the same
time discouraging potential investors from making investments in VGI.  The plan
was to leave VGI without resources to fight Counterclaim Defendants’ planned
future legal attack and without resources to continue to develop VGV-1 as a
commercial product capable of creating revenue.  The end result, it was hoped
and planned, would be the bankruptcy of VGI with T&T as the largest creditor
able to take any and all assets without cost.

    

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140.           Upon information and belief, each of the Counterclaim Defendants
agreed to and joined in the conspiracy and plan as outlined in these
Counterclaims, and provided substantial assistance to effectuate same.  As a
result, each is jointly and severally liable with the others to VGI for all
damages sustained as a result thereof.
F.           The Sabotage of the Clinical Trial

141.           In March 2004, VGI hired Dr. Ronald Moss to head VGI’s Scientific
Advisory Board. Dr. Moss was the former President of Immune Response
Corporation. Immune Response had, to date, done one of the largest HIV trials in
the world.
142.           Based on Dr. Moss’s advice, Wright started a Scientific Advisory
Board (“SAB”) in South Africa, with Dr. Moss being the initial chairman. Dr.
Moss was compensated by Wright for his work, and, upon information and belief,
Wright was able to use his relationship with Moss to control the direction and
progress of VGV-1 development in South Africa.
143.           In December 2004, Dr. Moss reviewed and advised both Viral and
VGSA on the Phase III Clinical Trial, including, importantly, the “endpoints,”
i.e., the target sought as results for the Phase III Clinical Trial to be
considered “a success.”  Moss wanted to set the primary endpoint on the Phase
III Clinical Trial to be a reduction of viral load within the subjects of>.5
log.
144.           Although Wright at first objected to this primary endpoint, he
made a showing of relenting and “agreed” to take necessary action to set this as
the goal for the Phase III Clinical Trial.  However, after the Phase III
Clinical Trial, Viral only later discovered that Wright had never actually made
the filings necessary to change the stated primary endpoint from>1 log to>.5
log.

    

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145.           Little began making demands that VGI not contact any service
providers or others in South Africa, creating further isolation between VGI and
those doing the Phase III Clinical Trial.
146.           After the Phase III Clinical Trial was completed and T&T/Little
had stopped funding VGSA or the follow up to the trial (the “TNP002 study”) in
early 2006, Wright apparently made certain filings to state the primary endpoint
as>.5 log.  Upon information and belief, Wright and Little did not make the
necessary regulatory filing to set the correct primary endpoint because
Counterclaim Defendants wanted the perception that the Phase III Clinical Trial
had “failed” as part of their plan to bankrupt VGI.  Then, once the filings were
made, Wright accused VGI publicly of “changing the goalposts” such that the
perception was one of failure and manipulating results as it relates to the
supposed initial target.
147.           Wright also failed to have the baseline data collected on a
secondary test that was very important to the registration of this drug.  This
failure, which, upon information and belief, was purposeful, is incredibly
significant – VGI literally lost the data for several hundred thousand of
dollars of studies that could have explained how VGV-1 worked in humans
subjects.  VGI is now redoing much of that work in test tubes at added
expense.  The cost was not only financial.  The loss of significant scientific
clinical data also deprived VGI of information regarding how to improve VGV-1
and regarding what other diseases the drug may treat.
148.           Wright also created such an untenable condition for Dr. Moss,
such that in January 2006, Dr. Moss resigned from VGSA’s SAB.
149.           Upon information and belief, Wright and Little, during the period
when the Phase III Clinical Trial results were finally completed, carried out an
orchestrated and intentional plan to delay the results, knowing this would
significantly hurt Viral – its stock price, its credibility,

    

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and its morale.  Indeed, Wright, Little and T&T resisted the efforts to release
the Phase III Clinical Trial data for months.  Because the Phase III Clinical
Trial was so crucial to the business and future of VGI, the delay in release of
the data caused by Wright, Little and T&T precipitated a drop in the stock price
of VGI.
150.           Indeed, VGI’s large institutional investors actually questioned
whether VGI had conducted the Phase III Clinical Trial at all, causing
significant reputational and financial damage to VGI.
151.           In addition, Wright convened a VGSA Scientific Advisory Board
meeting to discuss the Phase III Clinical Trial results, but, upon information
and belief, Wright intentionally gave false information to VGI regarding the
start time of the meeting in an effort to conduct a Politburo-style rubber
stamping of his agenda without opposition. Wright later prepared minutes of the
meeting in which he created a self-serving document designed to create false
fodder against Keledjian and VGI for a lawsuit.   After the meeting, Wright
tried to force VGI to accept his version of the minutes but VGI
objected.  Thereafter, Wright characterized VGI negatively and ignored most of
VGI’s suggested edits to the minutes in an attempt to falsify the record.
F.           Wright, Little and T&T Co-opt Zhabilov Jr.
152.           In late 2005, before the Phase III Clinical Trial was over, but
after VGI had reviewed the very intriguing blinded data, Little asked for a
closed-door, face to face meeting with Keledjian and Zhabilov Jr..  Little
demanded the manufacturing rights to TNP in Africa and stated that if he did not
receive such rights, he would terminate the Phase III Clinical Trial.  At the
meeting, Little threatened and abused Keledjian and Zhabilov Jr. with personal
lawsuits, bankruptcy, and the destruction of VGI, among other things.

    

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153.           Upon information and belief, at this time, Zhabilov Jr. joined
Wright, Little and T&T in their conspiracy and plot to destroy VGI and take to
themselves VGI’s business, intellectual property and value.
154.           Given the threats and consequences, VGI agreed to negotiate with
Little to attempt to reach a solution to the situation.  Little refused to be
reasonable and to negotiate in good faith.  Discussions continued for over a
month, in which time Little refused to give up on the most basic points.
155.           Ultimately, VGI, having little choice given the pressures brought
to bear by Little and T&T, agreed in principle to an arrangement which was very
favorable to T&T and Little.  Accordingly, a meeting was set up to be conducted
in Denver at which VGI and Little were to finalize a royalty agreement for T&T
with respect to the manufacturing of VGV-1.
156.           However, inexplicably (at the time), Zhabilov Jr. refused to
proceed with any further negotiations.  VGI could not proceed with any further
negotiations regarding a manufacturing arrangement since, as stated above,
Zhabilov Jr. alone possessed knowledge of the process by which TNP is extracted
from the thymus tissue.
157.           VGI has only recently learned (through discovery in this matter)
that Zhabilov Jr. had, as of this time, agreed with Wright, Little and T&T to
bankrupt VGI and to move the intellectual property, as well as his own
employment, to T&T and/or VGSA (both controlled and owned by Wright and
Little).  For this reason, Zhabilov Jr., as an agent of the conspiracy, refused
to allow any agreement to be finalized (as planned).

    

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158.           Around this same time, Wright, Little and T&T were in the process
of offering to and negotiating with Zhabilov Jr. to leave VGI and join T&T
together with all of VGI’s trade secrets and intellectual property as it
concerned VGV-1 and TNP.
159.           Upon information and belief, Zhabilov Jr., with the consent,
advice and assistance of Wright, Little and T&T, and for their mutual benefit,
began sabotaging VGI’s research and development of VGV-1.  Zhabilov Jr. had
meetings with Wright and Little, both in California and in Chicago, in which he
participated in their joint plan and provided to them confidential and
proprietary information about VGI, without VGI’s knowledge or consent (and in
breach of his employment agreement and his fiduciary duties to VGI).
160.           Zhabilov Jr. refused to give information requested and demanded
by VGI for purposes of obtaining the necessary regulatory approval of VGV-1 in
South Africa.  Upon information and belief, this was done at Wright’s, Little’s
and T&T’s direction with a promise by Zhabilov Jr. to give such information
directly to his remaining co-conspirators after they had succeeded in destroying
VGI.
161.           To this end, at least as early as April 2006, Zhabilov Jr. hired
legal counsel to negotiate an “association” with T&T whereby T&T would receive
VGI’s intellectual property regarding TNP and VGV-1 and would employ Zhabilov
Jr.  Little paid the retainer of $10,000 on behalf of Zhabilov Jr.  As of April
24, 2006, Zhabilov Jr. was waiting for the terms T&T would be offering, and was
advised that “[h]opefully, they will be acceptable and [you] can finalize your
arrangements with T&T in a satisfactory manner and you can leave [VGI] with a
minimum of problems.”

    

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G.           Counterclaim Defendants’ Final Push to Bankrupt VGI
162.           As part of their plan, Little and T&T cut off the funding of the
Phase III Clinical Trial around January 2006.  Then, Counterclaim Defendants
shut down operations at VGSA in South Africa in April 2006.  However, upon
information and belief, Little and T&T did continue to fund efforts to hire
Zhabilov Jr., and take TNP and VGV-1 from VGI.
163.           In January 2006, Little and Wright began outlining their
anticipated lawsuit against VGI and Keledjian, including discussions of what
allegations would be made although both knew that the allegations being
discussed were false and without basis.
164.           At the same time, and while all the while negotiating with
Zhabilov Jr. to secure his participation, Wright, Little and T&T outlined their
plan to “[s]ustain VGSA throughout 2006” in order to have a vehicle ready and
able to carry forward the misappropriated business of VGI.
165.           Thereafter, as part of their plan to bankrupt VGI, Counterclaim
Defendants attempted to prevent or frustrate VGI’s attempts to raise sorely
needed capital.  For example, in August 2006, VGI appointed T. Joseph Natale
(who was President of VGI Latin America) to the nascent Executive Task Force:
Reorganization Committee, as co-chair with Zhabilov Jr.  The purpose of the
Committee was to identify and implement a strategic plan for the growth and
reorganization of VGI as a sustainable business entity.  However, Zhabilov Jr.
immediately contacted Natale and began efforts to solicit Natale’s cooperation
with the scheme being perpetrated by Counterclaim Defendants.  Specifically,
Zhabilov Jr. disparaged VGI and Keledjian, and solicited

    

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Natale to “join a new company” with Zhabilov Jr. and Counterclaim Defendants to
exploit TNP’s potential commercial success.  Zhabilov Jr. set up several
conference calls between Natale and Wright in which Wright likewise disparaged
VGI and Keledjian and attempted to solicit Natale’s cooperation.   In addition,
Zhabilov Jr. arranged a meeting between Wright and Natale at Los Angeles
International Airport.  Moreover, Zhabilov Jr. also set up a meeting between
Natale and Little at a restaurant in Santa Monica, California, for the same
purposes.
166.           During this entire time, Zhabilov Jr. urged Natale to keep these
communications confidential and not to tell VGI or Keledjian about the
discussions or about Zhabilov Jr. working with Counterclaim
Defendants.  Zhabilov also urged Natale to form a separate company with him to
take VGI’s intellectual property and assets away from VGI.
167.           At around the same time,  in October 2006, Wright called Monica
Ord, an employee of VGI tasked primarily with raising investments and capital
for VGI, and told Ms. Ord that he (Wright) was in contact with Zhabilov Jr.  He
told her that Keledjian was stealing money from VGI and that if she helped raise
any additional capital for VGI, she would go to jail.  He repeatedly warned her
not to raise any further money for VGI.  He told her Keledjian would be going to
jail as well, and that Little had a “personal vendetta” against Keledjian and
would destroy VGI “no matter what.”
 
FIRST COUNTERCLAIM
 
(Fraud and Conspiracy to Commit Fraud Against All Counterclaim Defendants)
168.           Counterclaim Plaintiff repeats and realleges each and every
allegation of the Amended Counterclaims contained in Paragraphs 1 through 167 as
if fully set forth herein.

    

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169.           Counterclaim Defendants entered into the numerous agreements set
forth above, to induce VGI to provide Counterclaim Defendants with the authority
and information necessary to develop VGV-1 (and TNP) as an HIV and AIDS
treatment on the continent of Africa.
170.           Upon information and belief, Counterclaim Defendants did not
intend to perform their obligations under these agreements at the time they were
entered into, but instead intended to steal VGI’s business, good will, trade
secrets and intellectual property for their own use and benefit.
171.           In connection therewith, Counterclaim Defendants colluded to and
did make false statements regarding their intent to perform such contracts and
their future performance, all with the specific intent that VGI would rely upon
such representations to its damage and detriment.
172.           Upon information and belief, each of the Counterclaim Defendants
knew or should have known that the representations regarding their current
intent and their future conduct of the business and of the financial assistance
being offered to VGI were false and that VGI would rely upon such
representations to its detriment.
173.           Specifically, Counterclaim Defendants used such representations
to obtain confidential and propriety information about VGI, VGV-1 and TNP, and
to put themselves in a position vis-à-vis VGI such that they could bankrupt and
destroy VGI’s business and misappropriate VGI’s trade secrets, business, good
will and intellectual property for their own benefit.
174.           In reliance on the misrepresentations set forth above, VGI
identified Counterclaim Defendants as their business partners, and provided
authority to act with

    

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respect to the development of VGV-1 in Africa, financial assistance,
confidential and proprietary information and placed in Counterclaim Defendants
trust creating a vulnerability that Counterclaim Defendants have taken advantage
of by unjust means.
175.           All Counterclaim Defendants in association with one another for
the purpose of defrauding VGI constitute an “enterprise,” which enterprise was
engaged in and the activities of which affected interstate commerce beginning at
least in 2004 and continuing through the present.
176.           Each Counterclaim Defendant, individual or entity, was employed
or otherwise associated with the enterprise and, beginning at least in 2004 and
continuing through the present, did conduct or participate, directly or
indirectly, in the conduct of affairs of the enterprise through a pattern of
fraudulent and tortious activity.
177.           Each of the Counterclaim Defendants committed and, in some
instances, aided and abetted the commission, of acts in furtherance of the
fraud.  These predicate acts of each Counterclaim Defendant were related because
they involved the same method of commission, the same sending and receiving
parties and they served the common purpose of inducing the VGI to rely upon the
above-stated representations and take the above-stated action or omissions, to
further the overall scheme to defraud VGI.
178.           As a direct result of VGI’s reasonable reliance on Defendants’
misrepresentations known to each and every Counterclaim Defendant, VGI has
suffered damages caused by each of Counterclaim Defendants in an amount to be
proved at trial, but not less than US$3,500,000, plus interest.
179.           In connection with the activities giving rise to this cause of
action, Counterclaim Defendants acted with malice, insult, intent and knowledge
and with a

    

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wanton disregard of the rights of VGI.  Counterclaim Defendants’
misrepresentations were intentional and willful and wanton.  Accordingly, VGI
should be awarded punitive damages in an amount to be awarded at trial, but not
less than US$10,000,000.
SECOND COUNTERCLAIM
(Breach of Contract Against T&T)
180.           Counterclaim Plaintiff repeats and realleges each and every
allegation of the Amended Counterclaims contained in Paragraphs 1 through 179 as
if fully set forth herein.
181.           The Distribution Management Agreement is a binding and
enforceable contract.
182.           VGI has fully performed, and continues to perform, its
obligations under the Distribution Management Agreement, or is excused from such
performance.
183.           Upon information and belief, T&T has breached the Distribution
Management Agreement by, among other things:
a)           Failing to pay its contracted share of expenses and costs under the
Distribution Management Agreement;
b)           Demanding payment of certain costs and expenses from VGI not
authorized or approved by VGI pursuant to the Distribution Management Agreement.
184.           As a direct and proximate cause of T&T’s aforesaid breaches of
the Distribution Management Agreement, VGI has been damaged in an amount not yet
fully known, but believed to exceed $3,500,000.  VGI is also entitled to
indemnification of all cost and damages suffered as a result of Counterclaim
Defendants’ conduct herein.  In addition, VGI is entitled to its reasonable
attorneys fees as per agreement.

    

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THIRD COUNTERCLAIM
(Breach of Covenant of Good Faith and Fair Dealing Against T&T)
185.           Counterclaim Plaintiff repeats and realleges each and every
allegation of the Amended Counterclaims contained in Paragraphs 1 through 184 as
if fully set forth herein.
186.           The Distribution Management Agreement is a binding and
enforceable contract.
187.           VGI has fully performed, and continues to perform, its
obligations under the Distribution Management Agreement, or is excused from such
performance.
188.           Under the Distribution Management Agreement, T&T owed to VGI an
implied covenant of good faith and fair dealing.  Among other things, T&T was
obligated to refrain from conduct that would result in injuring or infringing on
VGI’s right to receive the benefits of the Distribution Management Agreement.
189.           As a direct and proximate result of T&T’s aforesaid breach of the
covenant of fair dealing, VGI has been damaged in an amount to be proven at
trial, but reasonably believed to exceed $3,500,000.  In addition, VGI is
entitled to its reasonable attorneys fees as per agreement.
FOURTH COUNTERCLAIM
(Breach of Contract Against Wright)
190.           Counterclaim Plaintiff repeats and realleges each and every
allegation of the Amended Counterclaims contained in Paragraphs 1 through 189 as
if fully set forth herein.
191.           The Consulting Engagement was a binding and enforceable contract.
192.           The Consulting Engagement expressly provided that the
representations, warranties, and agreements of the parties contained in the
Consulting Engagement will remain operative and in full force and effect and
will survive any termination of the Consulting Engagement.
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193.           VGI fully performed all its obligations under the Consulting
Engagement.
194.           Upon information and belief, Wright breached the Consulting
Agreement by, among other things, disclosing or causing to be disclosed
confidential, proprietary information of VGI without authorization of VGI to
third parties, and by engaging in the conduct and conspiracy alleged herein.
195.           As a direct and proximate cause of Wright’s aforesaid breaches of
the Consulting Engagement, VGI has been damaged in an amount not yet fully
known, but believed to exceed $3,500,000.
FIFTH COUNTERCLAIM
(Breach of Covenant of Good Faith and Fair Dealing Against Wright)
196.           Counterclaim Plaintiff repeats and realleges each and every
allegation of the Amended Counterclaims contained in Paragraphs 1 through 195 as
if fully set forth herein.
197.           The Consulting Engagement was a binding and enforceable contract
.
198.           The Consulting Engagement expressly provided that the
representations, warranties, and agreements of the parties contained in the
Consulting Engagement will remain operative and in full force and effect and
will survive any termination of the Consulting Engagement.
199.           VGI fully performed all its obligations under the Consulting
Engagement.
200.           Under the Consulting Agreement, Wright owed to VGI an implied
covenant of good faith and fair dealing.  Among other things, Wright was
obligated to refrain from conduct that would result in injuring or infringing on
VGI’s right to receive the benefits of the Consulting Engagement.
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201.           As a direct and proximate result of Wright’s aforesaid breach of
the covenant of fair dealing, VGI has been damaged in an amount to be proven at
trial, but reasonably believed to exceed $3,500,000.
SIXTH COUNTERCLAIM
(Breach of Fiduciary Duty Against Wright)
202.           Counterclaim Plaintiff repeats and realleges each and every
allegation of the Amended Counterclaims contained in Paragraphs 1 through 201 as
if fully set forth herein.
203.           As set forth more fully above, pursuant to the Consulting
Agreement, Wright agreed to provide legal and other consulting services to
VGI.  In addition, from September 2003 until June 2004, Wright was a member of
the Board of Directors of VGI.
204.           During this entire period, a relationship of trust and fidelity
arose between Wright and VGI as a matter of law, giving rise to fiduciary
obligations on the part of Wright in favor of VGI.
205.           Based upon these fiduciary obligations, Wright owed to VGI a duty
of the highest fidelity and good faith.
206.           Based upon his participation in the plan and conspiracy of
Counterclaim Defendants as set forth herein, and based upon Wright’s acts and
omissions, and usurpation of VGI’s corporate business opportunities, Wright
breached his fiduciary obligations to VGI, causing harm to VGI as a direct
result thereof.
207.           As a direct and proximate cause of Wright’s aforesaid breaches of
his fiduciary duties to VGI, VGI has been damaged in an amount not yet fully
known, but believed to exceed $3,500,000.
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208.           The acts giving rise to Wright’s breach of fiduciary duty were
purposeful, willful and wanton, and without regard to the rights of VGI.  As a
result, Wright is also liable to VGI for punitive and exemplary damages in an
amount to be awarded at trial, but not less than $10 million.
SEVENTH COUNTERCLAIM
 (Aiding and Abetting Breach of Fiduciary Duty Against All Counterclaim
Defendants)
 
209.           Counterclaim Plaintiff repeats and realleges each and every
allegation of the Amended Counterclaims contained in Paragraphs 1 through 208 as
if fully set forth herein.
210.           As a result of Zhabilov Jr.’s and Wright’s positions and
agreements with VGI, both owed to VGI a fiduciary duty.
211.           Zhabilov Jr. and Wright breached their fiduciary duties to VGI by
misappropriating VGI’s business, goodwill, trade secrets, business opportunities
and intellectual property and by defrauding VGI in collusion with the other
Counterclaim Defendants.
212.           Little and T&T knew or should have known that by engaging in
their joint scheme to defraud, Zhabilov Jr. and Wright would breach their
fiduciary duties to VGI.  Wright knew or should have known that by engaging in
their joint scheme to defraud, Zhabilov Jr. would breach his fiduciary duties to
VGI.
213.           The participation in and acceptance of the benefits of the
fraudulent scheme by Wright, Little and T&T constituted a knowing or reckless
participation by Wright, Little and T&T in Zhabilov Jr.’s, and by Little and T&T
in Wright’s, breach of their fiduciary duties to VGI.
 
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214.           Accordingly, Wright, Little and T&T aided and abetted Zhabilov
Jr.’s and Little and T&T aided and abetted Wright’s breach of fiduciary duty to
VGI.
215.           As a result, VGI has suffered damages in an amount to be proved
at trial, but not less than $3,500,000, plus interest.
216.           Wright’s, Little’s and T&T’s actions were intentional and willful
and wanton.  Accordingly, VGI should be awarded punitive damages in an amount to
be awarded at trial, but not less than $10,000,000.
EIGHTH COUNTERCLAIM
(Tortious Interference With Contract Against All Counterclaim Defendants)
217.           Counterclaim Plaintiff repeats and realleges each and every
allegation of the Amended Counterclaims contained in Paragraphs 1 through 216 as
if fully set forth herein.
218.           The Zhabilov Employment Agreement was a binding and enforceable
contract.
219.           VGI fully performed, and continues to perform, its obligations
under the Zhabilov Employment Agreement.
220.           Upon information and belief, Wright, Little and T&T were aware of
the existence of the Zhabilov Employment Agreement.
221.           Upon information and belief, Wright, Little and T&T intentionally
acted to induce Zhabilov Jr. to breach the Zhabilov Employment Agreement and/or
to disrupt or interfere with the contractual relationship between VGI and
Zhabilov Jr.
222.           Upon information and belief, Zhabilov Jr. breached the Zhabilov
Employment Agreement and/or the contractual relationship between VGI and
Zhabilov was disrupted or interfered with due to Wright’s, Little’s and T&T’s
intentional acts.
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223.           As a direct and proximate cause of Wright’s, Little’s and T&T’s
aforesaid tortious interference with VGI and Zhabilov Jr.’s contractual
relationship, VGI has been damaged in an amount not yet fully known, but
believed to exceed $3,500,000.
NINTH COUNTERCLAIM
 
(Tortious Interference with Prospective Economic Advantage Against All
Counterclaim Defendants)
 
224.           Counterclaim Plaintiff repeats and realleges each and every
allegation of the Amended Counterclaims contained in Paragraphs 1 through 223 as
if fully set forth herein.
225.           VGI and Zhabilov Jr. enjoyed an economic relationship with the
probability of future economic benefit to VGI.
226.           Upon information and belief, Wright, Little and T&T were aware of
the economic relationship between VGI and Zhabilov Jr.
227.           Upon information and belief, Wright, Little and T&T intentionally
acted to disrupt and/or interfere with the economic relationship between VGI and
Zhabilov Jr.
228.           Upon information and belief, but for Wright’s, Little’s and T&T’s
intentional disruption and/or interference with VGI and Zhabilov Jr.’s economic
relationship, there was a probability of future economic benefit to VGI as a
result of the economic relationship.
229.           As a direct and proximate cause of Wright’s, Little’s and T&T’s
aforesaid tortious interference with VGI and Zhabilov Jr.’s economic
relationship, VGI has been damaged in an amount not yet fully known, but
believed to exceed $3,500,000.
TENTH COUNTERCLAIM
(Trade Libel Against All Counterclaim Defendants)
230.           Counterclaim Plaintiff repeats and realleges each and every
allegation of the Amended Counterclaims contained in Paragraphs 1 through 229 as
if fully set forth herein.
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231.           Upon information and belief, Counterclaim Defendants have
published or have caused to be published on the internet through John and Jane
Does 1 through 10, among other places, false and disparaging information of VGI
and Keledjian.
232.            Upon information and belief, Counterclaim Defendants knew these
communications to be false or they were made with reckless disregard of the
truth.
233.           As a direct and proximate cause of Counterclaim Defendants’
aforesaid trade libel, VGI has been damaged in an amount not yet fully known,
but believed to exceed $3,500,000.
ELEVENTH COUNTERCLAIM
(Unfair Business Practices Against All Counterclaim Defendants)
234.           Counterclaim Plaintiffs repeats and realleges each and every
allegation of the Amended Counterclaims contained in Paragraphs 1 through 233 as
if fully set forth herein.
235.           Under California law, unfair competition is any unlawful, unfair
or fraudulent business act or practice.  Cal. Bus. & Prof. Code § 17200, et seq.
236.           The acts and omissions of Counterclaim Defendants complained of
herein constitutes unfair competition and violates California law.
237.           As a direct and proximate cause of Counterclaim Defendants’
aforesaid unfair business practices, VGI has been damaged in an amount not yet
fully known, but believed to exceed $3,500,000.
238.           VGI is also entitled to recover from the Counterclaim Defendants
treble damages and attorneys’ fees by statute.
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WHEREFORE, Defendant and Counterclaim Plaintiff VGI and Defendant Keledjian pray
for the following relief:
(1)           Dismissal of the Amended Complaint in its entirety;
(2)           For damages on the Amended Counterclaims in an amount to be proven
at trial, plus interest and costs;
(3)           Reasonable attorneys’ fees; and
(4)           For such other and further relief as this Court deems just and
proper.
JURY DEMAND

Defendant and Counterclaim Plaintiff Viral Genetics, Inc. and Defendant Haig
Keledjian hereby request a trial by jury on all claims, causes of action,
issues, counterclaims, and affirmative defenses properly triable before a jury.

Dated:    New York, New York
September 18, 2007                                    /s/ Richard A. De
Palma                    
Richard A. De Palma (pro hac vice)
Kathryn M. Ryan (pro hac vice)
Vasilis F.L. Pappas (pro hac vice)
BAKER & McKENZIE LLP
1114 Avenue of the Americas
New York, NY 10036
(212) 626-4100

J. Patrick Herald
Michael C. McCutcheon
BAKER & McKENZIE LLP
One Prudential Plaza, Suite 3500
130 East Randolph Drive
Chicago, IL  60601
(312) 861-8000
Firm I.D. #28

Attorneys for CounterclaimPlaintiff Viral Genetics, Inc. and
Defendant Haig Keledjian

    

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CERTIFICATE OF SERVICE

I, Richard A. De Palma, one of the attorneys for Defendant and Counterclaim
Plaintiff Viral Genetics, Inc. and Defendant Haig Keledjian, do hereby certify
that I have this day caused a true and correct copy of the foregoing Defendants’
Amended Answer to
Plaintiff’s Amended Complaint and Counterclaim Plaintiff’s Amended Counterclaims
to be served upon the following according to ECF Rules in compliance with Fed.
Rule Civ. P. 5(b)(2)(D):
Mark S. Bernstein, Esq.
David M. Wiese, Esq.
Barack Ferrazzano Kirschbaum
Perlman & Nagelberg LLP
333 West Wacker Drive, Suite 2700
Chicago, Illinois 60606
mark.bernstein@bfkpn.com
david.wiese@bfkpn.com

Attorneys for Plaintiff and Counterclaim Defendant
Timothy & Thomas LLC

September 18,
2007                                                                           /s/
Richard A. De Palma               

 

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