IN THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

In re: XECHEM, INC., et al., Debtors. ___________________________________ THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS OF XECHEM, INC. AND XECHEM INTERNATIONAL, INC., Plaintiff, v. DR. ROBERT SWIFT AND COSMID CORP. LLC, Defendants.

Chapter 11 Case No.: 08-30512 (JBS) (Jointly Administered) ________________________________ Adv. Pro No.

ADVERSARY COMPLAINT AND COUNTERCLAIM

The Unsecured Committee of Unsecured Creditors of Xechem, Inc. and Xechem

International, Inc. (the “Creditors Committee”), for its adversary complaint against Dr. Robert

Swift (“Dr. Swift”) and Cosmid Corp. LLC (“Cosmid”) and counterclaim to the proof of claim

(Xechem International, Claim No. 45) filed by Dr. Swift, states and alleges as follows:

Background

1. The Creditors Committee was formed by the Office of the United States Trustee in these

above-captioned jointly administered bankruptcy cases. The Creditors Committee is the

plaintiff in this Adversary Proceeding and is suing derivatively on behalf of the Debtors and their

bankruptcy estates. The Creditors Committee is also a party in interest in these cases.

2. Defendant Dr. Swift is an individual resident in the State of Colorado.

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3. Defendant Cosmid is a limited liability company formed under the laws of the State of

Colorado. Cosmid was formed by Dr. Swift on March 13, 2009. Cosmid’s principal street

address in the Colorado state records is 7982 Bayside Drive, Fort Collins, 80528. That is Dr.

Swift’s home address. Dr. Swift is the registered agent for Cosmid.

4. Each of Xechem International, Inc. (“Xechem International”) and Xechem, Inc.

(collectively with Xechem International, the “Debtors”) is incorporated in Illinois.

5. The Debtors were originally founded and run by Dr. Ramesh Pandey. 6. Debtor Xechem International’s primary assets at the relevant times have been (i) a license

from a Nigerian government related entity (the National Institute for Pharmaceutical Research

and Development (“NIPRID”)) related to the sickle cell treatment drug known as NICOSAN (the

“Nicosan License”) and (ii) a related U.S. patent (the “Patent”).

7. Xechem International’s primary business at all relevant times has been selling botanical

based drugs for the treatment of sickle cell disease, including through a wholly owned subsidiary

in Nigeria, Xechem Pharmaceutical Limited (“Xechem Nigeria”).

8. The Nicosan License, the Patent and related research, knowledge and know-how were all

in place and were assets of Xechem International prior to Dr. Swift becoming associated with the

company.

9. In 2007, Dr. Swift became a director of both of the Debtors and also became the principal

officer in charge of running the Debtors.

10. Prior to becoming an officer and director in 2007 of the Debtors, Dr. Swift had no

affiliation with the Debtors.

11. Prior to becoming an officer and director in 2007 of the Debtors, Dr. Swift had no access

to the trade secrets and proprietary information of the Debtors.

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12. Dr. Swift continued to serve as a director and the principal officer of the Debtors through

the filing date of these bankruptcy cases in November 2008.

13 Dr. Swift continued to serve as a director and the principal officer of the Debtors after the

filing of these bankruptcy cases.

14. Dr. Swift appeared telephonically before this Court as the representative of the Debtors.

15. Upon information and belief, Dr. Swift has not delivered any written resignation as an

officer or as a director to Debtors’ counsels.

16. One of the Debtors’ assets upon the filing was the right in the so-called 5 HMF license

and related assets (“5 HMF Assets”).

17. The 5 HMF Assets were sold pursuant to order of this Court. (Xechem, Inc., Dkt. No.

62).

18. Paragraph (4) of the Order approving sale of the 5 HMF Assets provided in relevant part

that “All remaining proceeds after determination and payment of such secured creditors (the

“Net Sales Proceeds”) may be used for authorized Chapter 11 administrative expenses authorized

by statute or further order or for distribution pursuant to a Chapter 11 plan, unless otherwise

ordered by this Court.”

19. The sale proceeds from the 5 HMF Assets were received by the Debtors.

20. There were two parties asserting secured claims against the proceeds of the 5 HMF

Assets.

21. The secured claim of AexRX was resolved by order of this Court (Xechem Dkt. No. 72)

and has been paid in full.

22. The other party, Dr. Swift’s, asserting a secured claim against proceeds of the 5 HMF

Assets has not had a determination of his secured claim against such proceeds.

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23. Upon information and belief and as reflected in the monthly operating reports, it appears

that the Debtors while under the control of Dr. Swift have spent proceeds of the 5 HMF Assets.

24. Virtually all of the proceeds of the 5 HMF Assets have been spent by the Debtors under

the direction and control of Dr. Swift.

25. Most of the proceeds of the 5 HMF Assets were paid to Dr. Swift or Mr. Stephen Burg,

another director who is closely allied with Dr. Swift.

26. Xechem International scheduled its rights under the license related to NICOSAN from

the NIPRID as having a value of approximately $7 million.

27. On January 13, 2009, the Debtors filed a motion to sell the stock of Xechem Nigeria.

(Xechem Dkt. No. 77).

28. In that Motion, the Debtors proposed to appoint Bank PHB as a broker and stated that

“Bank PHB determined that the value of [Xechem Nigeria] . . . is approximately Six Million and

00/100 Dollars.” (Xechem Dkt. No. 77, ¶ 4).

29. Bank PHB was approved as a broker and procedure for bidders conducting due diligence

were approved as well. (Xechem Dkt. No. 106).

30. The Debtors advised the Creditors Committee and this Court that no bids for Xechem

Nigeria were received in March, 2009 as contemplated by the bid procedures.

31. In March, 2009, the Debtors through their counsel indicated they were still hopeful that

bids for Xechem Nigeria would ultimately be received.

32. The Debtors have not advised the Creditors Committee or this Court of any bids for

Xechem Nigeria received thereafter.

33. Dr. Swift filed proof of claim amount number 45-1 asserting a secured claim in the

amount of $146,931.10 which as the sole attachment included a 11/6/08 UCC filing against “All

of Debtors’ Right, Title and Interest in its Contract with Virginia Commonwealth University

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Intellectual Property Foundation, dated November 11, 2004 and First Amended in February,

2008 for the Exclusive License of 5 HMF and all Proceeds Therefrom.” No security agreement

or other supporting documents or facts were attached to that original proof of claim.

34. The Creditors Committee filed an objection to Dr. Swift’s proof of claim. (Xechem Int’l

Dkt. No. 65). Eventually, Dr. Swift filed a response thereto but has never filed a formal

amended proof of claim. (Xechem Int’l Dkt No. 165).

35. In the summer of 2009, the Debtors’ counsel announced to this Court and the Creditors

Committee that it intended to pursue an exit from Chapter 11 based on Xechem Nigeria and a

botanical variant of the Nicosan drug which was being developed under Dr. Swift’s supervision.

36. Upon information and belief, Dr. Swift and his affiliates have filed a patent application

related to a botanical based drug for the treatment of sickle cell disease (the “Swift Competing

Patent Application”). The Creditors Committee has requested a copy of that application from

both Dr. Swift and his patent advisor, Dr. Jain. Cosmid’s website suggests an actual patent has

been issued, but no patent could be found of public record in the patent office.

37. Dr. Jain made himself available for a call with the Creditors Committee but refused to

provide a copy of the Patent Application. The Swift Competing Patent Application is not

publicly available from the patent office, and the Debtors’ counsel states that he does not have a

copy of the application.

38. Upon information and belief, the alternative botanical product that Dr. Swift and his

company are developing would compete with and impair the value of NICOSAN.

39. Upon information, Dr. Swift has retained employees or contractors formerly associated

with the Debtors at Cosmid.

40. Upon information and belief, Dr. Swift has transferred tangible and intangible assets of

the Debtors to Cosmid.

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41. No bankruptcy court approval was sought for any of these activities, nor did Dr. Swift

make any disclosures regarding his activities to the Court.

42. The Creditors Committee sent a derivative demand letter (the “Derivative Demand

Letter”) on August 20, 2009 to counsel for the Debtors. In the Derivative Demand Letter, the

Creditors Committee demanded that “Xechem International, Inc. immediately pursue all

necessary action, including litigation if necessary, to secure all patent and other rights for the

bankruptcy estate and pursue all other available remedies, including costs and damages against

Dr. Swift and is affiliates.”

43. The Debtors never made a formal response to the derivative demand letter.

44. The Creditors Committee then filed a motion to be granted derivative standing which this

Court granted. (Xechem Inc. Dkt. No. 225).

45. Cosmid is focused on a sickle cell drug treatment.

46. Cosmid’s website is www.cosmidcorp.com.

47. Dr. Swift is the first person listed as management on Cosmid’s website, and the website

states that “[p]rior to founding Cosmid, Dr. Swift’s most recent position was Chief Oversight

Officer at Xechem International, a biopharmaceutical company.”

48. Upon information and belief, Dr. Swift or other representatives of Cosmid have been

making presentations, attending conference and/or publishing papers to promote Cosmid.

49. The Creditors Committee filed Chapter 11 plan based on a new management team.

[Xechem. Inc., Dkt. No. 215].

50. Dr. Swift’s pursuit of a competitor drug to NIPRISAN (NICOSAN) hurts the value of

reorganized Xechem International and is an impediment to finalizing financing for any

reorganization plan including the one proposed by the Creditors Committee.

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Jurisdiction and Venue

51. This Court has jurisdiction over this Adversary Proceeding and Counterclaim and the

matters set forth herein under 28 U.S.C. § 1334.

52. This Adversary Proceeding and Counterclaim are matters within the core jurisdiction of

this Court under 28 U.S.C. § 157.

53. Venue is proper under 28 U.S.C. §§ 1408 and 1409.

Count 1

Breach of Fiduciary Duty by Dr. Swift

54. Plaintiff hereby incorporates by reference the allegations set forth in paragraphs 1 to 53

above.

55. As a director, executive officer and the responsible person for the bankruptcy estates in

these bankruptcy cases, Dr. Swift owed a fiduciary duty to the Debtors and their creditors.

56. This duty included a duty of loyalty to the Debtors and to fully disclose any self-interest

in any transaction to the board of directors of the Debtors and this Court.

57. Dr. Swift breached his fiduciary duty to the Debtors and their creditors.

58. The Debtors and their creditors have been harmed by Dr. Swift’s breach of that fiduciary

duty.

WHEREFORE, Plaintiff seeks an award of damages against Dr. Swift in an amount to be

determined at trial and for costs, interest and attorneys fees as may be permissible by law.

Count 2

Usurpation of Corporate Opportunity by Dr. Swift

59. Plaintiff hereby incorporates by reference the allegations set forth in paragraphs 1 to 58

above.

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60. As a director, executive officer and the responsible person for the bankruptcy estates in

these bankruptcy cases, Dr. Swift owed a fiduciary duty to the Debtors and their creditors.

61. The alternate botanical drug formation which Dr. Swift and Cosmid are developing was

in the Debtors’ line of business.

62. Dr. Swift was under a duty to disclose that opportunity to the bankruptcy estates.

63. Dr. Swift should have disclosed that opportunity to the independent directors on the

board of directors.

64. Dr. Swift should have disclosed that opportunity to this Court.

65. Dr. Swift failed to so disclose.

66. Dr. Swift should have tendered the opportunity to the bankruptcy estates.

67. Dr. Swift failed to so tender the opportunity.

68. The bankruptcy estates had an actual or expected interest in the opportunity.

69. Dr. Swift acknowledged as much by having Debtors’ counsel advise this Court and the

Creditors Committee that an exit proposal for the Debtors’ estates and creditors including this

alternative formulation would be pursued.

70. Dr. Swift’s thereafter taking advantage of the opportunity solely through an entity owned

by him hinders or defeats plan and purposes of the Debtors in carrying on and developing

legitimate business for which they were created.

71. The Debtors and their creditors have been harmed by Dr. Swift’s usurpation of the

Debtors’ corporate opportunity.

WHEREFORE, Plaintiff seeks an award of damages against Dr. Swift in an amount to be

determined at trial and for costs, interest and attorneys fees as may be permissible by law.

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Count 3

Setoff Against Dr. Swift’s Claim

72. Plaintiff hereby incorporates by reference the allegations set forth in paragraphs 1 to 71

above.

73. A bankruptcy estate may setoff any pre or post-petition claim it holds against any pre-

petition or post-petition claim asserted by a party it holds a counterclaim against.

74. The Xechem International bankruptcy estate is entitled to a setoff against Proof of Claim

45 asserted by Dr. Swift under applicable state law.

75. The Xechem International bankruptcy estate is entitled to a setoff against Proof of Claim

45 asserted by Dr. Swift under Section 553 of the Bankruptcy Code.

WHEREFORE, Plaintiff seeks a setoff for the amount of damages against the asserted

amount of Proof of Claim 45, and for costs, interest and attorneys fees as may be permissible by

law.

Count 4

Section 549

76. Plaintiff hereby incorporates by reference the allegations set forth in paragraphs 1 to 75

above.

77. Dr. Swift’s actions constituted a transfer of assets of the bankruptcy estates.

78. The transfers of these assets were not in the ordinary course of the Debtors’ business.

79. No bankruptcy court approval of these transfers of assets was sought or obtained from

this Court.

80. Upon information and belief, these transfers were not authorized at any meeting of the

Debtors’ board of directors.

81. No value was provided to the bankruptcy estates for the transfer of these assets.

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82. These transfers were conducted by an insider for his own benefit.

83. The bankruptcy estates are entitled to recover these transfers under Section 549 of the

Bankruptcy Code.

WHEREFORE, Plaintiff seeks (i) an award of damages against Dr. Swift in an amount to

be determined at trial, (ii) return of all assets transferred and (iii) costs, interest and attorneys fees

as may be permissible by law.

Count 5

Ultra Vires Act

84. Plaintiff hereby incorporates by reference the allegations set forth in paragraphs 1 to 83

above.

85. As a matter of corporate law, a transfer of substantial assets of a corporation can only

occur with approval of the board of directors after a duly called meeting of the board.

86. Upon information and belief, no such meeting was held with respect to the transfer of the

Debtors assets to Cosmid nor was any such board approval obtained.

87. Therefore, the purported transfer of the assets was an ultra vires act and was void and

ineffective.

WHEREFORE, Plaintiff seeks a determination that all assets of the bankruptcy estates

purported in the possession and control of Cosmid remain with the bankruptcy estates and

Cosmid has no right to possession or control of such assets.

Count 6

Equitable Subordination

88. Plaintiff hereby incorporates by reference the allegations set forth in paragraphs 1 to 87

above.

89. The acts by Dr. Swift were inequitable.

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90. The acts by Dr. Swift have harmed the bankruptcy estates and their creditors.

91. This Court has the power to subordinate claims under Section 510(c) of the Bankruptcy

Code and should do so based on the facts and circumstances present here.

WHEREFORE, Plaintiff seeks a determination that all Proof of Claim 45 is subordinated

below all unsecured claims of these bankruptcy estates.

Count 7

Satisfaction

92. Plaintiff hereby incorporates by reference the allegations set forth in paragraph 1 to 53

above.

93. Dr. Swift has received the bulk of the 5 HMF sale proceeds from payments he authorized

during the case.

94. All such payments constitute partial satisfaction of his asserted secured claim.

95 In any event, his security interest was limited to the 5 HMF Assets and therefore, he

cannot assert a secured claim against any other assets of these bankruptcy estates outside of the

grant clause in his security agreement and UCC filing.

WHEREFORE, Plaintiff seeks a determination that Dr. Swift’s purported secured claim

is satisfied to the extent he has received payment of 5 HMF proceeds and that he cannot assert a

secured claim in other assets of the bankruptcy estates since he was never granted a security

interest in those assets to begin with and never perfected such a security interest.

Count 8

Preference and Strong Arm Powers

96. Plaintiff hereby incorporated by reference the allegations set forth in paragraphs 1 to 53

of this Complaint.

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97. The original UCC filing attached to Dr. Swift’s claim filing was made after the security

interest and purported advance of funds for the benefit of the Debtors.

98. Therefore, the UCC filing was given on behalf of an antecedent debt.

99. The UCC filing would allow Dr. Swift to recover more than unsecured creditors would

receive in a Chapter 7 liquidation.

99. The UCC filing was made within 1 year of this Bankruptcy filing.

100. Dr. Swift was an insider and therefore, the 1 year preference period is applicable.

101. The bankruptcy estates could under their strong arm and avoidance powers avoid any

unperfected or untimely perfected lien.

WHEREFORE, Plaintiff seeks a determination that any purported security interest in the

5 HMF Assets was not timely perfected and is avoidable under Sections 544, 547 and 550 of the

Bankruptcy Code.

Count 9

Alter Ego

102. Plaintiff hereby incorporates by reference paragraphs 1 to 101 of this Complaint.

103. Cosmid is controlled and operated by Dr. Swift for his personal benefit.

104. There is no meaningful distinction between Dr. Swift and Cosmid.

105. Cosmid is an alter ego of Dr. Swift.

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WHEREFORE, Plaintiff seeks a determination that Cosmid is an alter ego of Dr. Swift

and that any relief granted against Dr. Swift hereunder is enforceable against Cosmid and its

purported assets.

Dated: January 12, 2010

SONNENSCHEIN NATH & ROSENTHAL LLP By: /s/ Robert E. Richards Robert E. Richards (ARDC No. 6199138)

233 S. Wacker Drive Suite 7800 Chicago, IL 60606 rrichards@sonnenschein.com Telephone: (312) 876-8000 Facsimile: (312) 876-7934

Counsel to the Official Committee of Unsecured Creditors of Xechem, Inc. and Xechem International, Inc.

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