EXHIBIT 99.21
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CDEX INC.
THE TECHNOLOGY DEVELOPMENT COMPANY
August 27, 2002
Mr. Frank Arnold
Outside Council for
Loch Harris, Inc.
1807 West Slaughter Lane #200-506
Austin, Texas 78748
RE: ACTIONS WITH RESPECT TO CDEX SHARES
Dear Mr. Arnold:
I am writing in response to the actions recently taken by Loch Harris with
respect to the 48,000,000 shares of CDEX common stock that were issued to Loch
Harris pursuant to the Asset Purchase Agreement, dated August 4, 2001, between
CDEX and Loch Harris, to make clear CDEX's position with respect to those
actions.
You recently faxed to my attention a draft trust agreement developed by
other attorneys, pursuant to which those shares of CDEX common stock would be
transferred to a trust, for eventual distribution to the Loch Harris
stockholders. While we had not researched the issue, we were not opposed, in
principle, to the idea of using a trust or some similar mechanism to assure the
safekeeping of those shares of CDEX common stock, pending their legal
distribution to the Loch Harris shareholders. However, from our discussions we
both agreed that the draft trust agreement had serious deficiencies that
required remedying. For example, the draft trust agreement stated that voting
rights with respect to the shares of CDEX common stock would shift to the
trustees upon transfer of shares to the trust. This would be in direct violation
of the Asset Purchase Agreement, which states that the voting rights of those
shares are to remain with the CDEX Board of Directors until distribution to the
Loch Harris shareholders or until it is determined that such distribution is
"legally impossible or economically impractical." Under the Asset Purchase
Agreement, even after such a determination is made, voting rights with respect
to the shares of CDEX common stock are to remain with the CDEX Board of
Directors until the shares are "transferred or assigned to parties not
controlled in any fashion by Loch or its Officers or Directors." With these and
other deficiencies in mind, we asked our attorneys to prepare, on an expedited
basis, a revised draft trust agreement, a copy of which was sent to you via
e-mail on August 20, 2002.
After expediting delivery of the draft trust agreement to you, in parallel
we also had our attorneys look at the securities law implications of
transferring the shares of CDEX common stock to a trust in the manner
contemplated by Loch Harris. After such review, we were advised that a transfer
of the shares of CDEX common stock to a trust in such a manner would appear to
constitute an unregistered transfer of such shares, in violation of federal
securities laws. We promptly called you to inform you of those concerns, leaving
voice mail messages starting Thursday, August 22, and finally discussing the
concerns with you on Monday, August 26. We are formally documenting our actions
in this letter.
Obviously, if utilizing such an approach would violate applicable law, CDEX
is opposed to it. Please keep in mind that CDEX is entitled to refuse transfer
of record ownership of shares of CDEX stock when such transfer would be legally
flawed, such as in violation of applicable securities laws. For example, CDEX
would refuse any transfer of record ownership of those 48,000,000 shares of CDEX
common stock other than in strict conformity with the Asset Purchase Agreement
(which has the expressed intent of distribution of those shares on a pro-rata
basis to Loch Harris shareholders) and applicable laws and regulations.
Accordingly, we request that you disregard the draft trust agreement that we
sent to you and closely examine this issue from a federal securities law
perspective. If, after such review, Loch Harris determines that there is no
legal impediment to utilizing the trust approach and provides a written Legal
Opinion from qualified securities counsel to that affect, CDEX will consider
such opinion in fulfilling our obligations in relation to the transfer of
ownership rights.
While we have already alerted you to the content of this letter, we are
sending this letter by express mail with an expedited copy provided by e-mail.
Further, we are willing to provide reasonable assistance in creating a
satisfactory result for all the parties, within the bounds of strict compliance
with applicable law. Please do not hesitate to contact me at CDEX's offices to
further discuss these matters.
Sincerely,
Malcolm H. Phillips, Jr.
President and Chief Executive Officer
1700 Rockville Pike, Suite 400, Rockville, MD 20852
www.cdex-inc.com
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