Item 1.01 Entry into a Material Definitive Agreement.
Letter of Intent with Halfmoon Bay Enterprises Ltd
On February 26, 2008, Electronic Sensor Technology, Inc. (the "Registrant")
entered into a letter of intent with Halfmoon Bay Enterprises Ltd. ("Halfmoon
Bay"), which provides for an investment of $5.5 million in the Registrant by
Halfmoon Bay, $3.5 million of which will be for the purchase of common stock of
the Registrant, par value $.001 per share ("Common Stock"), and $2.0 million of
which will be in exchange for a 9% convertible debenture to be issued by the
Registrant.
Pursuant to the letter of intent, the Registrant has agreed to issue the Common
Stock to Halfmoon Bay at a price of 90% of the closing price of the Common Stock
on the day preceding the closing of the transactions contemplated by the letter
of intent, or $0.08, whichever is less. The 9% convertible debenture will have a
five (5)-year term, and the conversion rate of the debenture will be at a 20%
premium to the price per share of the Common Stock to be issued to Halfmoon Bay.
The Registrant has agreed to use $3.5 million of the investment by Halfmoon Bay
to extinguish the 8% convertible debentures held by Midsummer Investment Ltd.
("Midsummer") and Islandia, LP ("Islandia"), as further described below. The
investment by Halfmoon Bay is contingent upon extinguishment of the Midsummer
and Islandia 8% convertible debentures.
A copy of the letter of intent is attached hereto as Exhibit 10.1 and
incorporated herein by reference.
Conversion and Termination Agreement with Midsummer Investment Ltd. and
Islandia, LP
On February 26, 2008, the Registrant entered into a Conversion and Termination
Agreement with Midsummer and Islandia, which provides that in exchange for
$3.5 million, Midsummer and Islandia will convert $3.5 million of the principal
amount of their 8% convertible debentures (which are described more fully in the
Registration Statements of the Registrant on Form SB-2 numbers 333-130900 and
333-138977, effective November 11, 2006 and December 21, 2006, respectively, as
amended and supplemented (the "Registration Statements")), together with
interest thereon, at a conversion price of $0.35 per share of Common Stock. Upon
receipt of the foregoing sum and the conversion shares of Common Stock,
Midsummer and Islandia have agreed to cancel the remainder of their 8%
convertible debentures and 50% of the shares of Common Stock underlying warrants
held by Midsummer and Islandia (which are more fully described in the
Registration Statements). With respect to the remaining 6,065,158 shares of
Common Stock underlying the warrants, they will otherwise continue in full force
and effect in accordance with their terms.
Midsummer and Islandia have agreed, until March 31, 2008, to waive all rights
they have to participate in, prohibit, restrict or consent to the investment by
Halfmoon Bay on the terms described above. Provided that the closing of the
transactions contemplated by the Halfmoon Bay letter of intent and the Midsummer
and Islandia Conversion and Termination Agreement takes place prior to March 31,
2008, upon such closing, Sections 4.4, 4.9, 4.13, 4.14, 4.16 and 4.17 of the
Securities Purchase Agreement dated as of December 7, 2005, among the
Registrant, Midsummer and Islandia, will terminate. If such closing does not
take place prior to March 31, 2008, the Conversion and Termination Agreement
will terminate.
A copy of the Conversion and Termination Agreement is attached hereto as Exhibit
10.2 and incorporated herein by reference.
A copy of the press release issued on February 27, 2008 announcing the entry
into the Halfmoon Bay letter of intent and Midsummer and Islandia Conversion and
Termination Agreement is attached hereto as Exhibit 99.1.