Cdex, Inc. (fka CDEX)

[arloco]

I will attempt to post on zoho, but no guarantees.

I believe CDEX should have links to all of the filngs on their website to be available to EVERY shareholder.

Here's Doc 33:

ILENE J. LASHINSKY (#003073)
United States Trustee
District of Arizona
LARRY L. WATSON (CA BAR No. 193531)
Trial Attorney
230 N. First Ave, Suite 204
Phoenix, Arizona 85003
E-mail: [e-mail]
[phone]

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF ARIZONA
In re:
CDEX, INC.,
Debtor


In Proceedings under Chapter 11
Case No. 4:12-bk-02402-JMM
UNITED STATES TRUSTEE’S
OBECTION TO DEBTOR’S
EMERGENCY MOTION FOR
AUTHORITY TO OBTAIN INTERIM
AND LONG-TERM DEBTOR IN
POSSESSION FINANCING
TIME: 1:30 pm
DATE: March 22, 2012
The United States Trustee for the District of Arizona (“U.S. Trustee”) hereby objects to the above captioned debtor’s (“Debtor’s”) Emergency Motion for Authority to Obtain Interim and Long-Term Debtor in Possession Financing (“DIP Motion”) filed on
March 20, 2012 at approximately 3:27 p.m. (MST). (DE. 26).

In its DIP Motion the Debtor is, on less than two days’ notice, requesting authority from this Court to solicit investors to obtain, for starters, $1 million in convertible notes to fund its bankruptcy proceeding and current operations. As it is currently proffered, the DIP Motion violates both 11 U.S.C §364(d) and the Federal Rules of Bankruptcy Procedure, Rule 4001.

In its DIP Motion the Debtor states that it has sought other mechanisms for financing, but provides no listing of the parties contacted. The Debtor further states that it is in need of this financing to properly fund its chapter 11 bankruptcy and develop its plan of reorganization, but it provides no budget to establish the necessity or the use of the financing.

Finally, the Debtor states that it “was advised that no new monies would be loaned to CDEX until after the chapter 11 reorganization was filed.” See DIP Motion at p. 4, lines 15 – 16.

Clearly by this statement and the documents attached as forms to be used for the funding, the Debtor is talking to particular investors. The Debtor must identify the parties with whom it is negotiating the terms of the financing.

Without a budget in place, a proposed interest rate of 12% that must be paid to avoid post-petition default, and the lack of historical financial performance by this Debtor, the U.S. Trustee is concerned that the proposed financing is merely a shield for a
potential “loan to own” scheme by investors\creditors who are lying in wait.

Red flags are further raised, when the Debtor is seeking authority to borrow $1.5 million dollars secured by assets valued at only $425,000.00.

Clearly significant prior investment exists as evidenced by the issuance of over 109 million shares of common stock with 17,000 investors. It appears the assets may be undervalued.

All of this is especially concerning when the Debtor has left it to the U.S Trustee to notify the United States Securities Exchange Commission (“SEC”) of the hearing regarding the proposed offering\financing.

United States Bankruptcy Code (“Bankruptcy Code”) section 364 provides that a trustee or debtor in possession authorized to operate the business may obtain financing in or outside of the ordinary course of business. See 11 U.S.C. § 1107(a)). Bankruptcy Code section 364(a) allows the debtor to obtain unsecured credit and incur unsecured debt in the ordinary course of business, whereas section 364(b) allows the debtor to
obtain unsecured credit and incur unsecured debt outside of the ordinary course of business, only after notice and a hearing. See id. §§ 364(a), (b).

If the debtor is unable to obtain unsecured credit solely based upon the award of an administrative expense under section 503(b)(1), the Bankruptcy Code authorizes the debtor to obtain credit or to incur debt that has priority over administrative expenses of
the kind specified in Bankruptcy Code sections 503(b) or 507(b) (the so-called "super" administrative priority). See id. § 364(c)(1). In addition, after notice and a hearing, the
debtor may obtain credit or incur debt secured by a senior lien on property of the estate, if the debtor in possession is unable to obtain such credit otherwise." See id. § 364(d).

However, a debtor may not obtain approval for extending secured credit unless it first establishes that it is otherwise unable to reasonably obtain unsecured credit, and the credit is necessary for continued operation. See 11 U.S.C. § 364(c); see also, In re
Ames Dep’t Stores, Inc., 115 B.R. 34, 37 (Bankr. S.D.N.Y. 1990); In re Aqua Associates, 123 B.R. 192, 196 (Bankr. E.D. Pa. 1991) (stating that requests for post-petition financing must show the funds are “necessary to preserve the assets of the estate”). Once
established, the court then must consider whether the terms of the proposed financing “would tilt the conduct of the bankruptcy case; prejudice, at an early stage, the powers and rights that the Bankruptcy Code confers for the benefit of all creditors; or leverage the Chapter 11 process by preventing motions by parties-in-interest from being decided on their merits.” In re Ames Dep’t Stores, 115 B.R. at 37, 40-41 (pointing out reservations to an initial DIP financing proposal with no carve out for professional fees from a super-priority lien granted to bank and limitations on relief from the automatic stay, but granting approval to amended plan which allotted $5,000,000 for professional fees); see also In re Tenney Village Co., Inc., 104 B.R. 562, 567-68 (Bankr. N.H. 1989)(denying approval to DIP financing proposal with a super-priority clause that terminated
the agreement if a plan of reorganization was approved over the bank’s objection, allotted only $25,000 for a retainer for services by debtor’s counsel devoted to any claim or defense against the bank, and which gave the bank extensive managerial control over debtor’s business, stating that the plan “would disarm the Debtor of all weapons usable against it for the bankruptcy estate’s benefit . . .”).

In this case the Debtor needs to perform several tasks before it is eligible to seek its proposed financing. At a minimum, the Debtor must:

1. Fully disclose the lenders the Debtor contacted regarding other financing alternatives;

2. Fully disclose the parties with whom the Debtor has negotiated with regarding the issuance of the convertible notes; and

3. Provide a detailed budget establishing the necessity for the funding and the Debtor’s plan to use the financing, including timeframes or trigger points for issuing additional notes, to achieve confirmation of its plan of reorganization.

Once the Debtor has accomplished the foregoing, it must seek a duly noticed hearing regarding the proposed financing pursuant to the Federal Rules of Bankruptcy Procedure, Rule 4001 requiring a 14 day notice period, as well as Local Rule 4001-4 as applicable. This will allow the creditors, the SEC and the U.S. Trustee adequate time to respond as necessary.

RESPECTFULLY SUBMITTED this 21st day of March, 2012.
ILENE J. LASHINSKY
United States Trustee
District of Arizona

/s/ Larry L. Watson
LARRY L.WATSON
Trial Attorney
COPY of the foregoing served via the Court’s ECF system and by email on March 21, 2012 to each of the parties listed below:

Eric Slocum Sparks
Law Offices of Eric Slocum Sparks, P.C.
110 South Church Avenue, #2270
Tucson, AZ 85701
[e-mail]
Attorney for Debtor

United States Securities and Exchange Commission
Pacific Regional Office
5670 Wilshire Boulevard 11th Floor
Los Angeles, CA 90036-3648
Sarah D. Moyed
[e-mail]

Brian A. Laird
Heurlin Sherlock Laird
1636 North Swan Road, Suite 200
Tucson, AZ 85712-4096
[e-mail]

Robert M. Charles, Jr.,
Jeffrey L. Sklar
Lewis and Roca, LLP
One South Church Avenue, Suite 700
Tucson, Arizona 85701-1611
[e-mail]
[e-mail]
Attorneys for Gemini Master Fund, Ltd.