11. Bankruptcy
On September 4, 2012, the United States Bankruptcy Court for the District of Arizona, Judge James Marlar, signed the Order Confirming CDEX' Chapter 11 Plan of Reorganization (“Plan”) as prepared by CDEX' attorney, Eric Slocum Sparks. The effect of the Order is to create a new contract between CDEX and its creditors as set forth in the Plan. The following outlines the resolution of the claims to the Company under the Plan. In fiscal year 2013, the Company issued 41,295,142 shares and warrants to purchase 39,685,549 shares under the Plan in settlement of its obligations.
Reverse Stock Split: At the time of filing, outstanding shares in CDEX total approximately 110,000,000. Current outstanding shares in CDEX will undergo a 1 for 10 Reverse Stock Split, which will bring the amount of outstanding shares to approximately 11,000,000. As part of the Plan, CDEX will implement the 1 for 10 Reverse Stock Split of the Old CDEX Common Stock, such that each 10 shares shall, following the Reverse Stock Split (and subject to adjustment for fractional entitlements), be consolidated into one (1) share of New Common Stock. The aggregate fractional share interests of each holder of Old CDEX Common Stock shall be rounded up to the nearest whole number. On the Effective Date or as soon as practicable thereafter, the Reorganized Debtor expects to apply to have the New Common Stock listed on the Over the Counter Stock Exchange (“OTC”) or, if Reorganized Debtor is unable to have the New Common Stock listed on the OTC, other national securities exchange. All existing warrants to purchase shares of Old CDEX Common Stock will be extinguished upon consummation of the Plan. The financial statements reflect the reverse stock split as if it occurred retroactively.
Classification, CDEX’ Plan divides claims against CDEX into multiple separate classes that are in accordance with the Bankruptcy Code. Unless otherwise expressly stated in the Plan, distributions to holders of allowed claims are in full satisfaction of their allowed claims. All claims against the Debtor arising prior to confirmation will be discharged by performance of the Plan on the Effective Date to the extent that such claims are dischargeable under the Bankruptcy Code. For the purposes of the Plan, claims are classified and treated as follows:
Class One - Administrative Claims.
> Class One consists of all claims for the cost of administration of CDEX’ bankruptcy estate. Included in this class are all claims for administrative expenses entitled to priority under Bankruptcy Code §507(A)(1), such as professional fees and costs, as approved by the Bankruptcy Court of the attorneys, accountants, and other professional persons employed by CDEX, and all actual and necessary expenses of operating CDEX’ business pursuant to Bankruptcy Code §503(b), including without limitation, all fees charged against CDEX’ business pursuant to Chapter 123 of Title 28, United States Code. Debtor believes claims in this class may exceed $150,000.00.
> Treatment: The Plan provides for the payment in cash, in full, of all allowed Administrative Claims on the later of the Effective Date or the date upon which such Claims become Allowed Claims, or as otherwise ordered by the Bankruptcy Court. Class One claims will be paid from assets of the estate. As of October 31, 2012, there were Class One claims totaling approximately $132,000.
Class Two - Claims of Governmental Units
> Class Two claims consist of all allowed claims of the United States Internal Revenue Service (“IRS”) and/or State of Arizona, Department of Revenue (“DOR”) and/or the Department of Economic Security (“DES”), City of Tucson or other government agency which are entitled to priority pursuant to Section 507(a)(8) of the Bankruptcy Code except ad valorem taxes. Debtor is aware of a proof of claim filed by Internal Revenue in this class in the amount of $594.72.
> Treatment: Each holder of a Class Two allowed claim shall retain its lien or claim, in accordance with Section 1129 of the Bankruptcy Code. The claim shall bear simple interest at a fixed rate equal to that rate which would be required to be paid as of the Effective Date under Section 6621 and/or 6622 of the Internal Revenue Code, or such other interest rate as the Bankruptcy Court determines is sufficient to confer upon the tax claim a value as of the Effective Date equal to the principal amount of such claim. The allowed claim shall be payable in two equal monthly installments of principal, along with accrued interest. The first payment shall commence on the first day of the month immediately following the month of the Effective Date. The claim is subject to prepayment at any time without penalty or premium and shall have such other terms as required by law.
Class Three - Employee Priority Claims
> Class Three consists of allowed claims arising under Bankruptcy Code Section 507(a)(3) and (4) including claims for accrued vacation, sick days, holidays and wages earned by employees of CDEX within 90 days before the filing of the bankruptcy petition. Debtor estimates claims in this class at $23,000.
> Treatment: The Plan provides that each and every holder of a Class Three Allowed Claim shall receive shares of stock on account of its claim. Each allowed claim will be divided by .05 in order to obtain a share value exchange of its claim and the claimant will receive that amount of shares of stock plus an equal number of warrants for future purchase at an exercise price of $0.10 effective for five years after the date of issuance. Any liens held by the Class Three creditors shall be null and void and removed as of the Effective Date. CDEX estimates that Class Three Creditors will receive approximately 458,000 shares of New Common Stock and 458,000 warrants.
Class Four - Unsecured Claims of Senior 10% Noteholders
> Class Four consists of allowed unsecured claims of the holders of 10% Senior Convertible Notes. Debtor estimates claims in this class at $2,773,000.
> Treatment: The Plan provides that each and every holder of a Class Four Allowed Claim shall receive shares of stock on account of its claim. Each allowed claim will be divided by .15 in order to obtain a share value exchange of the claim and the claimant will receive that amount of shares of stock plus an equal number of warrants for future purchase at an exercise price of $0.30 effective for five years after the date of issuance. Any liens held by the Class Four creditors shall be null and void and removed as of the Effective Date. CDEX estimates that Class Four Creditors will receive approximately 18,484,000 shares of New Common Stock and 18,484,000 warrants.
Class Five - Unsecured Claims of Non-Interest Noteholders
> Class Five consists of allowed unsecured claims of the holders of Non-Interest Notes. Debtor estimates claims in this class at $15,000.
> Treatment: The Plan provides that each and every holder of a Class Five Allowed Claim shall receive shares of stock on account of its claim. Each allowed claim will be divided by .25 in order to obtain a share value exchange of the claim. Any liens held by the Class Five creditors shall be null and void and removed as of the Effective Date. CDEX estimates that Class Five Creditors will receive approximately 59,000 shares of New Common Stock.
Class Six - Unsecured Deferred Compensation Claims
> Class Six consists of allowed unsecured deferred compensation claims. CDEX estimates claims in this class at $258,000.
> Treatment: The Plan provides that each and every holder of a Class Six Allowed Claim shall receive shares of stock on account of its claim. Each allowed claim will be divided by .05 in order to obtain a share value exchange of the claim and the claimant will receive that amount of shares of stock plus an equal number of warrants for future purchase at an exercise price of $0.10 effective for five years after the date of issuance. Any liens held by the Class Six creditors shall be null and void and removed as of the Effective Date. CDEX estimates that Class Six Creditors will receive approximately 5,167,000 shares of New Common Stock and 5,167,000 warrants.
Class Seven - Unsecured Claims of George Cohen
> Class Seven consists of the allowed unsecured claims of George Cohen for past due convertible notes. Debtor estimates claims in this class at $46,000.
> Treatment: The Plan provides that each and every holder of a Class Seven Allowed Claim shall receive shares on account of its claim. Each allowed claim will be divided by .15 in order to obtain a share value exchange of the claim and the claimant will receive that amount of shares of stock plus an equal number of warrants for future purchase at an exercise price of $0.30 effective for five years after the date of issuance. Any liens held by the Class Seven creditor shall be null and void and removed as of the Effective Date. CDEX estimates that Class Seven Creditors will receive approximately 307,000 shares of New Common Stock and 307,000 warrants.
Class Eight - Unsecured Trade Claims
> Class Eight consists of the allowed unsecured claims of trade creditors. Debtor estimates claims in this class at $308,000.
> Treatment: The Plan provides that each and every holder of a Class Eight Allowed Claim shall receive shares on account of their claim. Each allowed claim will be divided by .25 in order to obtain a share value exchange of the claim. Any liens held by the Class Eight creditors shall be null and void and removed as of the Effective Date. CDEX estimates that Class Eight Creditors will receive approximately 1,230,000 shares of New Common Stock.
Class Nine - Client Deposits
> Class Nine consists of the allowed unsecured claims of Dr. Jason Terrell and Governor Juan F. Louis Hospital & Medical Center for deposits for the purchase of company products. Debtor estimates claims in this class at $57,000.
> Treatment: The Plan provides that each and every holder of a Class Nine Allowed Claim shall receive shares on account of its claim. Each allowed claim will be divided by .05 in order to obtain a share value exchange of the claim and the claimant will receive that amount of shares of stock plus an equal number of warrants for future purchase at an exercise price of $0.10 effective for five years after the date of issuance. Any liens held by the Class Nine creditor shall be null and void and removed as of the Effective Date. CDEX estimates that Class Nine Creditors will receive approximately 1,140,000 shares of New Common Stock and 1,140,000 warrants.
Class Ten - Contingent, Unliquidated and Disputed Claims.
> Class Ten consists of all contingent, unliquidated and disputed claims.
> Treatment: Class Ten creditors shall receive no distribution under the Plan. As of October 31, 2012, there are no claimants that fall within this Classification.
Class Eleven - Interest of Equity Holders.
> Class Eleven consists of the equity interest holders of CDEX.
> Treatment: The equity holders in Debtor shall be allowed to retain their current percentage of interest or a percentage thereof subject to the Reverse Stock Split as set forth in the Plan. CDEX estimates that Class Eleven Equity Holders will receive approximately 11,000,000 shares of New Common Stock.
Class Twelve - Claims of Participating Investors.
> Class Twelve consists of the claims of participating investors.
> Treatment: Unless participating investors contribute substantial capital required to fund this Plan they will receive no percentage of the equity interest of CDEX and no distribution under the Plan. Participating investors will receive common stock at the rate of one share for every $0.05 invested and one warrant for every share of stock purchased. Each warrant will have a $0.10 exercise price and be effective for five years after the date of issuance. As of October 31, 2012, $700,000 of Participating Investors fell within this Classification.
Four debt holders, representing liabilities of $42,872, opted out of receiving stock and warrants under the bankruptcy plan.
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