Viral Genetics, Inc. Interim Report
On December 29, 2010 the Company entered into a binding Release and Settlement
Agreement (the “Settlement”) with Timothy and Thomas, LLC (“T&T”), and its
principals, Thomas J. Little and Timothy W. Wright, III. Haig Keledjian, our President
and a principal stockholder of the Company, was also party to the agreement. The
Settlement, which is effective as of October 19, 2010, was filed with and approved by
United States District Court for the Northern District of Illinois. The Settlement itself is
subject to a confidentiality ruling by the court.
As a result of the Settlement, T&T’s complaint (as amended) against the Company and
Haig Keledjian, and our counter-complaint (as amended) against T&T and its principals,
were dismissed without admission of liability by any party, effectively ending the
litigation that began in March 2006.
As part of the Settlement, we terminated the Distribution Management Agreement (the
“DMA”) between us and T&T, effectively reacquiring the rights to develop and market
HIV/AIDS products in Africa. The DMA had granted these rights to T&T for a period of
twenty years. In consideration for the termination of the DMA, we agreed to pay to T&T
over the course of three years a total of $1,900,000 as follows: $1,000,000 by November
1, 2011; $450,000 by November 1, 2012; and $450,000 by November 1, 2013. These
installments are secured by and will be paid under a Convertible Debenture (the
“Debenture”).
Under the Debenture and subject to certain terms and conditions, at our option we can
elect to make these installment payments in cash or in shares of common stock. The
conversion price for a payment in shares is equal to the 20-trading day volume-weighted
average closing price of the shares for the period ending the day prior to each installment
due date, not to exceed $0.15. Further, if the Company’s common shares trade at or
above $0.20, the option to receive payment in shares or cash shall be at T&T’s discretion.
We may also prepay all or any part of the Debenture in cash or stock at any time without
penalty, provided that we can only prepay in stock under certain terms and conditions
including that the shares are either registered for resale or may be sold under an
exemption from registration. We can also direct T&T to assign all or any part of the
Debenture to a third party for cash at any time. The Debenture ranks junior in security to
the note held by Best Investments, Inc. (controlled by Haig Keledjian, our President), but
will rank senior to any subsequent debt issued by the Company. Unpaid principal and
interest under the Debenture is accelerated under certain terms and conditions.
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