Cdex, Inc. (fka CDEX)

[Crow3]

Eric Slocum Sparks
Arizona State Bar No. 11726
LAW OFFICES OF ERIC SLOCUM SPARKS, P.C.
110 South Church Avenue #2270
Tucson, Arizona 85701
Telephone [phone]
Facsimile [phone]
[e-mail]
Attorney for Debtor
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF ARIZONA
In re: ))
CDEX INC, ) Case No. 4:12-bk-02402-JMM
))
Chapter 11
)
Debtor. ) REPLY TO OBJECTION OF DEBTOR’S
) FORMER EMPLOYEE JAMES RYLES TO
))
1. DEBTOR’S APPROVAL OF DISCLOSURE
) STATEMENT, and
))
2. DEBTOR’S REQUEST
) FOR ORDER ALLOWING DEBTOR’S USE OF
) MONIES IN THE ORDINARY COURSE OF
) BUSINESS OPERATIONS
____________________________________)
Comes now CDEX, Inc., Debtor, Debtor-in-possession, by and through its undersigned counsel
and files this Reply to Objection of Debtor’s Former Employee, James Ryles, to 1). Objection [Doc. No.
89] to Debtor’s Approval of Disclosure Statement and 2). Debtor’s Motion for Use of Funds in Ordinary
Course of Business [Doc. No. 92]. In support of this reply, Debtor states as follows:
[color=red]1. Debtor filed its voluntary Chapter 11 petition on February 10, 2012.
2. Brain Laird, Esq. filed his application on behalf of Mr. Ryles on February 28, 2012 [Doc.
No. 18] and withdrew his representation due to a conflict with other creditors of Debtor whom he and
or his firm had represented.
3. Debtor filed a motion [Doc. No. 26] to allow Debtor to obtain post-petition financing on
a secured basis and held a hearing on April 2, 2012.
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The Court, at that hearing, denied Debtor’s request for financing on a secured basis and
advised Debtor it could utilize funds on an unsecured basis according to 11 USC §364 (a) for ordinary
course of business.
5. Debtor filed its Disclosure Statement and Plan of Reorganization [Doc. No. 70 and 71]
on May 25, 2012.
6. On June 1, 2012, Attorney Joseph Watson [Doc. No. 77 and 78] filed an appearance for
Mr. Ryles as his new attorney.
7. This counsel called Attorney Watson regarding his client, Mr. Ryles, former Employee
of Debtor. This counsel advised Mr. Watson that Debtor had no objection to proof of claim filed on
behalf of Mr. Ryles. Attorney Watson was to contact this counsel to reach stipulation on same.
8. This counsel placed two additional calls to Attorney Watson regarding his client’s claim
with no verbal response.
9. This counsel received the objections from Mr. Watson referenced herein.
Unsecured Creditor - Former Employee of Debtor
Mr. Ryles was employed at CDEX originally from December 2004 to May 2009 and again from
September 2010 through June 2011. Mr. Ryles’ May 2009 termination was a part of a general reductionin-
force where nine employees (including Mr. Ryles) out of a total of 17 employees were laid off. In June
2011, Mr. Ryles cancelled his consulting agreement with the company. Mr. Ryles’ duties comprised of
mapping boards, soldering and minor repair of existing products for service-related purposes, early stage
prototype configuration and assembly of new products.
After his original layoff, Mr. Ryles filed a complaint for discrimination alleging that the reason
for his termination was his unwillingness to participate in a Bible study that was held at the company
during a lunch hour. That complaint was dismissed in favor of CDEX. Mr. Ryles then was invited by Dr.
Poteet to be included in a collective lawsuit for past wages that previous management neglected to pay
to employees that were laid off. Dr. Poteet provided for most, if not all, of the expense to litigate the
matter and all of the other employees benefitted by Dr. Poteet’s generosity. This included Mr. Ryles.
The group prevailed in arbitration and was awarded attorney’s fees and three times the amount
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of back wages that were not paid to the employees upon termination.
New Management
This was the final and key event that ushered in the new current management of Debtor and a
settlement agreement was made with the group of ex-employees. Attorney, Robert Fee, represented the
employees. Since that time, Attorney Fee has done work for the Debtor.
Mr. Ryles was offered a position with the company. Although other employees, Dr. Poteet, and
Mr. Starzinger agreed to take a 50% reduction in wages until the company was able to get into a positive
cash position, Mr. Ryles actually received an increase in his wages.
Settlement with Debtor
The ex-employees settled with the company, and agreed to be paid their actual back wages in
24 equal payments without any interest, and the settlement award of three times wages was to be
brought into the senior note, under the same provisions that all other collective note holders had.
Public Information
During Mr. Ryles’ time of employment, the company noticed information in various blogs that
discussed events in the company not of public nature, and the Debtor’s science team, Dr. Poteet, and
others, went to great lengths to scan the entire facility for bugs. After Mr. Ryles left the company,
there were no further reported leaks of confidential information. At the time of Mr. Ryles’ second
departure, CDEX was in compliance with its financial obligations to Mr. Ryles and continued to pay
Mr. Ryles regularly and on time for the 24-month non-interest-bearing note on actual back wages.
At the time of filing for relief under Chapter 11, the company had paid down $3,541.61 of the
$5,000.00 initial note due Ryles and had only $1,458.39 remaining. The undisputed amount owed to
Mr. Ryles of $32,920.24 consists of $21,148.00 initial award amount, plus $3,969.45 interest,
$6,344.40 for penalties for default provision, and the remaining $1,458.39 from his non-interest
bearing note.
Mr. Ryles through his new attorney, Mr. Watson, states that Mr. Ryles now does not want
stock in the reorganized company. Debtor does not dispute Mr. Ryles’ claim that he is a creditor of
the debtor.
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Ryles’s objections are not disclosure objections but plan objections.
Products Being Tested
Debtor currently has products being tested by potential clients and believes these products will
be purchased and leased which will generate additional monies for Debtor and can be used to fund
Debtor’s Plan of Reorganization.
Conclusion
Mr. Ryles is an unsecured creditor with a 0.98% pro rata share of all other unsecured
creditors. It is believed that he is attempting to drive the company out of business so that he can take
advantage of company trade secrets. If Mr. Ryles is allowed to succeed in his subterfuge, it will cost
the remaining 99.02% of unsecured creditors their investment and cause irreparable harm to
thousands of investors.
Wherefore, counsel for Debtor moves this Honorable Court to deny the Objections filed by
Mr. Ryles.
DATED: July 13, 2012
LAW OFFICES OF
ERIC SLOCUM SPARKS, P.C.
/s/ Sparks AZBAR #11726
Eric Slocum Sparks
Attorney for Debtor
Copies of the foregoing
mailed _____________ to:
Elizabeth C. Amorosi, Esq.
Asst. U. S. Trustee
United States Trustee
230 N. First Ave. #204
Phoenix, AZ 85003
Robert M. Charles, Jr., Esq.
Lewis and Roca, LLP
One South Church Ave., Suite 700
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