Exhibit 4.2
NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.
COMMON STOCK PURCHASE WARRANT
To Purchase __________ Shares of Common Stock of
ELECTRONIC SENSOR TECHNOLOGY, INC.
THIS COMMON STOCK PURCHASE WARRANT (the "Warrant") certifies
that, for value received, _____________ (the "Holder"), is entitled, upon the
terms and subject to the limitations on exercise and the conditions hereinafter
set forth, at any time on or after the date hereof (the "Initial Exercise Date")
and on or prior to the close of business on the fifth anniversary of the Initial
Exercise Date (the "Termination Date") but not thereafter, to subscribe for and
purchase from Electronic Sensor Technology, Inc., a Nevada corporation (the
"Company"), up to ______ shares (the "Warrant Shares") of Common Stock, par
value $.001 per share, of the Company (the "Common Stock"). The purchase price
of one share of Common Stock under this Warrant shall be equal to the Exercise
Price, as defined in Section 2(b).
Section 1. Definitions. Capitalized terms used and not otherwise
defined herein shall have the meanings set forth in that certain Securities
Purchase Agreement (the "Purchase Agreement"), dated December __, 2005, among
the Company and the purchasers signatory thereto.
Section 2. Exercise.
a) Exercise of Warrant. Exercise of the purchase rights
represented by this Warrant may be made, in whole or in part, at any
time or times on or after the Initial Exercise Date and on or before the
Termination Date by delivery to the Company of a duly executed facsimile
copy of the Notice of Exercise Form annexed hereto (or such other office
or agency of the Company as it may designate by notice in writing to the
registered Holder at the address of such Holder appearing on the books
of the Company);
provided, however, within 5 Trading Days of the date said Notice of
Exercise is delivered to the Company, if this Warrant is exercised in
full, the Holder shall have surrendered this Warrant to the Company and
the Company shall have received payment of the aggregate Exercise Price
of the shares thereby purchased by wire transfer or cashier's check
drawn on a United States bank. Notwithstanding anything herein to the
contrary, the Holder shall not be required to physically surrender this
Warrant to the Company until the Holder has purchased all of the Warrant
Shares available hereunder and the Warrant has been exercised in full.
Partial exercises of this Warrant resulting in purchases of a portion of
the total number of Warrant Shares available hereunder shall have the
effect of lowering the outstanding number of Warrant Shares purchasable
hereunder in an amount equal to the applicable number of Warrant Shares
purchased. The Holder and the Company shall maintain records showing the
number of Warrant Shares purchased and the date of such purchases. The
Company shall deliver any objection to any Notice of Exercise Form
within 1 Business Day of receipt of such notice. In the event of any
dispute or discrepancy, the records of the Holder shall be controlling
and determinative in the absence of manifest error. The Holder and any
assignee, by acceptance of this Warrant, acknowledge and agree that, by
reason of the provisions of this paragraph, following the purchase of a
portion of the Warrant Shares hereunder, the number of Warrant Shares
available for purchase hereunder at any given time may be less than the
amount stated on the face hereof.
b) Exercise Price. The exercise price of the Common Stock
under this Warrant shall be $0.4761, subject to adjustment hereunder
(the "Exercise Price").
c) Cashless Exercise. If at any time after one year from
the date of issuance of this Warrant there is no effective Registration
Statement registering, or no current prospectus available for, the
resale of the Warrant Shares by the Holder, then this Warrant may also
be exercised at such time by means of a "cashless exercise" in which the
Holder shall be entitled to receive a certificate for the number of
Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by
(A), where:
(A) = the VWAP on the Trading Day immediately preceding the
date of such election;
(B) = the Exercise Price of this Warrant, as adjusted; and
(X) = the number of Warrant Shares issuable upon exercise
of this Warrant in accordance with the terms of this
Warrant by means of a cash exercise rather than a
cashless exercise.
Notwithstanding anything herein to the contrary, unless the
Company provides the Holder written notice, setting forth the
forthcoming Termination Date, at least 10 Trading Days prior to the
Termination Date, then, on the Termination Date, this Warrant shall be
automatically exercised via cashless exercise pursuant to this
Section 2(c).
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d) Xxxxxx's Restrictions. The Company shall not effect any
exercise of this Warrant, and a Holder shall not have the right to
exercise any portion of this Warrant, pursuant to Section 2(c) or
otherwise, to the extent that after giving effect to such issuance after
exercise, such Holder (together with such Holder's Affiliates, and any
other person or entity acting as a group together with such Holder or
any of such Holder's affiliates), as set forth on the applicable Notice
of Exercise, would beneficially own in excess of the Beneficial
Ownership Limitation (as defined below). For purposes of the foregoing
sentence, the number of shares of Common Stock beneficially owned by
such Holder and its Affiliates shall include the number of shares of
Common Stock issuable upon exercise of this Warrant with respect to
which the determination of such sentence is being made, but shall
exclude the number of shares of Common Stock which would be issuable
upon (A) exercise of the remaining, nonexercised portion of this Warrant
beneficially owned by such Holder or any of its Affiliates and (B)
exercise or conversion of the unexercised or nonconverted portion of any
other securities of the Company (including, without limitation, any
other Debentures or Warrants) subject to a limitation on conversion or
exercise analogous to the limitation contained herein beneficially owned
by such Holder or any of its Affiliates. Except as set forth in the
preceding sentence, for purposes of this Section 2(d), beneficial
ownership shall be calculated in accordance with Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder, it
being acknowledged by a Holder that the Company is not representing to
such Holder that such calculation is in compliance with Section 13(d) of
the Exchange Act and such Holder is solely responsible for any schedules
required to be filed in accordance therewith. To the extent that the
limitation contained in this Section 2(d) applies, the determination of
whether this Warrant is exercisable (in relation to other securities
owned by such Holder) and of which a portion of this Warrant is
exercisable shall be in the sole discretion of a Holder, and the
submission of a Notice of Exercise shall be deemed to be each Holder's
determination of whether this Warrant is exercisable (in relation to
other securities owned by such Holder) and of which portion of this
Warrant is exercisable, in each case subject to such aggregate
percentage limitation, and the Company shall have no obligation to
verify or confirm the accuracy of such determination. In addition, a
determination as to any group status as contemplated above shall be
determined in accordance with Section 13(d) of the Exchange Act and the
rules and regulations promulgated thereunder. For purposes of this
Section 2(d), in determining the number of outstanding shares of Common
Stock, a Holder may rely on the number of outstanding shares of Common
Stock as reflected in (x) the Company's most recent Form 10-QSB or Form
10-KSB, as the case may be, (y) a more recent public announcement by the
Company or (z) any other notice by the Company or the Company's Transfer
Agent setting forth the number of shares of Common Stock outstanding.
Upon the written or oral request of a Holder, the Company shall within
two Trading Days confirm orally and in writing to such Holder the number
of shares of Common Stock then outstanding. In any case, the number of
outstanding shares of Common Stock shall be determined after giving
effect to the conversion or exercise of securities of the Company,
including this Warrant, by such Holder or its affiliates since the date
as of which such number of outstanding shares of Common Stock was
reported. The "Beneficial Ownership Limitation" shall be 4.99% of the
number of shares of the Common Stock outstanding immediately after
giving effect to the issuance of shares of Common Stock issuable upon
exercise of this Warrant. The Beneficial Ownership Limitation provisions
of this Section 2(d) may be waived by such Xxxxxx, at the election of
such Holder, upon not less than 61 days'
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prior notice to the Company to change the Beneficial Ownership
Limitation to 9.99% of the number of shares of the Common Stock
outstanding immediately after giving effect to the issuance of shares of
Common Stock upon exercise of this Warrant, and the provisions of this
Section 2(d) shall continue to apply. Upon such a change by a Holder of
the Beneficial Ownership Limitation from such 4.99% limitation to such
9.99% limitation, the Beneficial Ownership Limitation may not be waived
by such Holder. The provisions of this paragraph shall be implemented in
a manner otherwise than in strict conformity with the terms of this
Section 2(d) to correct this paragraph (or any portion hereof) which may
be defective or inconsistent with the intended Beneficial Ownership
Limitation herein contained or to make changes or supplements necessary
or desirable to properly give effect to such limitation. The limitations
contained in this paragraph shall apply to a successor holder of this
Warrant.
e) Mechanics of Exercise.
i. Authorization of Warrant Shares. The
Company covenants that all Warrant Shares which may be
issued upon the exercise of the purchase rights
represented by this Warrant will, upon exercise of the
purchase rights represented by this Warrant, be duly
authorized, validly issued, fully paid and nonassessable
and free from all taxes, liens and charges in respect of
the issue thereof (other than taxes in respect of any
transfer occurring contemporaneously with such issue).
ii. Delivery of Certificates Upon Exercise.
Certificates for shares purchased hereunder shall be
transmitted by the transfer agent of the Company to the
Holder by crediting the account of the Holder's prime
broker with the Depository Trust Company through its
Deposit Withdrawal Agent Commission ("DWAC") system if
the Company is a participant in such system, and
otherwise by physical delivery to the address specified
by the Holder in the Notice of Exercise within 3 Trading
Days from the delivery to the Company of the Notice of
Exercise Form, surrender of this Warrant (if required)
and payment of the aggregate Exercise Price as set forth
above ("Warrant Share Delivery Date"). This Warrant
shall be deemed to have been exercised on the date the
Exercise Price is received by the Company. The Warrant
Shares shall be deemed to have been issued, and Holder
or any other person so designated to be named therein
shall be deemed to have become a holder of record of
such shares for all purposes, as of the date the Warrant
has been exercised by payment to the Company of the
Exercise Price and all taxes required to be paid by the
Holder, if any, pursuant to Section 2(e)(vii) prior to
the issuance of such shares, have been paid.
iii. Delivery of New Warrants Upon Exercise.
If this Warrant shall have been exercised in part, the
Company shall, at the request of a Holder and upon
surrender of this Warrant certificate, at the time of
delivery of the certificate or certificates representing
Warrant Shares, deliver to Holder a new Warrant
evidencing the rights of Holder to purchase the
unpurchased Warrant Shares called for by this Warrant,
which new Warrant shall in all other respects be
identical with this Warrant.
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iv. Rescission Rights. If the Company fails
to cause its transfer agent to transmit to the Holder a
certificate or certificates representing the Warrant
Shares pursuant to this Section 2(e)(iv) by the Warrant
Share Delivery Date, then the Holder will have the right
to rescind such exercise.
v. Compensation for Buy-In on Failure to
Timely Deliver Certificates Upon Exercise. In addition
to any other rights available to the Holder, if the
Company fails to cause its transfer agent to transmit to
the Holder a certificate or certificates representing
the Warrant Shares pursuant to an exercise on or before
the Warrant Share Delivery Date, and if after such date
the Holder is required by its broker to purchase (in an
open market transaction or otherwise) shares of Common
Stock to deliver in satisfaction of a sale by the Holder
of the Warrant Shares which the Holder anticipated
receiving upon such exercise (a "Buy-In"), then the
Company shall (1) pay in cash to the Holder the amount
by which (x) the Holder's total purchase price
(including brokerage commissions, if any) for the shares
of Common Stock so purchased exceeds (y) the amount
obtained by multiplying (A) the number of Warrant Shares
that the Company was required to deliver to the Holder
in connection with the exercise at issue times (B) the
price at which the sell order giving rise to such
purchase obligation was executed, and (2) at the option
of the Holder, either reinstate the portion of the
Warrant and equivalent number of Warrant Shares for
which such exercise was not honored or deliver to the
Holder the number of shares of Common Stock that would
have been issued had the Company timely complied with
its exercise and delivery obligations hereunder. For
example, if the Holder purchases Common Stock having a
total purchase price of $11,000 to cover a Buy-In with
respect to an attempted exercise of shares of Common
Stock with an aggregate sale price giving rise to such
purchase obligation of $10,000, under clause (1) of the
immediately preceding sentence the Company shall be
required to pay the Holder $1,000. The Holder shall
provide the Company written notice indicating the
amounts payable to the Holder in respect of the Buy-In,
together with applicable confirmations and other
evidence reasonably requested by the Company. Nothing
herein shall limit a Holder's right to pursue any other
remedies available to it hereunder, at law or in equity
including, without limitation, a decree of specific
performance and/or injunctive relief with respect to the
Company's failure to timely deliver certificates
representing shares of Common Stock upon exercise of the
Warrant as required pursuant to the terms hereof.
vi. No Fractional Shares or Scrip. No
fractional shares or scrip representing fractional
shares shall be issued upon the exercise of this
Warrant.
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As to any fraction of a share which Holder would
otherwise be entitled to purchase upon such exercise,
the Company shall pay a cash adjustment in respect of
such final fraction in an amount equal to such fraction
multiplied by the Exercise Price.
vii. Charges, Taxes and Expenses. Issuance of
certificates for Warrant Shares shall be made without
charge to the Holder for any issue or transfer tax or
other incidental expense in respect of the issuance of
such certificate, all of which taxes and expenses shall
be paid by the Company, and such certificates shall be
issued in the name of the Holder or in such name or
names as may be directed by the Holder; provided,
however, that in the event certificates for Warrant
Shares are to be issued in a name other than the name of
the Holder, this Warrant when surrendered for exercise
shall be accompanied by the Assignment Form attached
hereto duly executed by the Holder; and the Company may
require, as a condition thereto, the payment of a sum
sufficient to reimburse it for any transfer tax
incidental thereto.
viii. Closing of Books. The Company will not
close its stockholder books or records in any manner
which prevents the timely exercise of this Warrant,
pursuant to the terms hereof.
Section 3. Certain Adjustments.
a) Stock Dividends and Splits. If the Company, at any time
while this Warrant is outstanding: (A) pays a stock dividend or
otherwise make a distribution or distributions on shares of its Common
Stock or any other equity or equity equivalent securities payable in
shares of Common Stock (which, for avoidance of doubt, shall not include
any shares of Common Stock issued by the Company pursuant to this
Warrant), (B) subdivides outstanding shares of Common Stock into a
larger number of shares, (C) combines (including by way of reverse stock
split) outstanding shares of Common Stock into a smaller number of
shares, or (D) issues by reclassification of shares of the Common Stock
any shares of capital stock of the Company, then in each case the
Exercise Price shall be multiplied by a fraction of which the numerator
shall be the number of shares of Common Stock (excluding treasury
shares, if any) outstanding immediately before such event and of which
the denominator shall be the number of shares of Common Stock
outstanding immediately after such event and the number of shares
issuable upon exercise of this Warrant shall be proportionately
adjusted. Any adjustment made pursuant to this Section 3(a) shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall
become effective immediately after the effective date in the case of a
subdivision, combination or re-classification.
b) Subsequent Equity Sales. If the Company or any
Subsidiary thereof, as applicable, at any time while this Warrant is
outstanding, shall offer, sell, grant any option to purchase or offer,
sell or grant any right to reprice its securities, or otherwise dispose
of or issue (or announce any offer, sale, grant or any option to
purchase or other
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disposition) any Common Stock or Common Stock Equivalents entitling any
Person to acquire shares of Common Stock, at an effective price per
share less than the then Exercise Price (such lower price, the "Base
Share Price" and such issuances collectively, a "Dilutive Issuance"), as
adjusted hereunder (if the holder of the Common Stock or Common Stock
Equivalents so issued shall at any time, whether by operation of
purchase price adjustments, reset provisions, floating conversion,
exercise or exchange prices or otherwise, or due to warrants, options or
rights per share which is issued in connection with such issuance, be
entitled to receive shares of Common Stock at an effective price per
share which is less than the Exercise Price, such issuance shall be
deemed to have occurred for less than the Exercise Price on such date of
the Dilutive Issuance), then the Exercise Price shall be reduced and
only reduced to equal the Base Share Price and the number of Warrant
Shares issuable hereunder shall be increased such that the aggregate
Exercise Price payable hereunder, after taking into account the decrease
in the Exercise Price, shall be equal to the aggregate Exercise Price
prior to such adjustment. Such adjustment shall be made whenever such
Common Stock or Common Stock Equivalents are issued. Notwithstanding the
foregoing, no adjustments shall be made under this Section 3(b) in
respect of an Exempt Issuance. The Company shall notify the Holder in
writing, no later than the Trading Day following the issuance of any
Common Stock or Common Stock Equivalents subject to this section,
indicating therein the applicable issuance price, or of applicable reset
price, exchange price, conversion price and other pricing terms (such
notice the "Dilutive Issuance Notice"). For purposes of clarification,
whether or not the Company provides a Dilutive Issuance Notice pursuant
to this Section 3(b), upon the occurrence of any Dilutive Issuance,
after the date of such Dilutive Issuance the Holder is entitled to
receive a number of Warrant Shares based upon the Base Share Price
regardless of whether the Holder accurately refers to the Base Share
Price in the Notice of Exercise.
c) Pro Rata Distributions. If the Company, at any time
prior to the Termination Date, shall distribute to all holders of Common
Stock (and not to Holders of the Warrants) evidences of its indebtedness
or assets (including cash and cash dividends) or rights or warrants to
subscribe for or purchase any security other than the Common Stock
(which shall be subject to Section 3(b)), then in each such case the
Exercise Price shall be adjusted by multiplying the Exercise Price in
effect immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution by a fraction of
which the denominator shall be the VWAP determined as of the record date
mentioned above, and of which the numerator shall be such VWAP on such
record date less the then per share fair market value at such record
date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of the Common Stock as
determined by the Board of Directors in good faith. In either case the
adjustments shall be described in a statement provided to the Holder of
the portion of assets or evidences of indebtedness so distributed or
such subscription rights applicable to one share of Common Stock. Such
adjustment shall be made whenever any such distribution is made and
shall become effective immediately after the record date mentioned
above.
d) Fundamental Transaction. If, at any time while this
Warrant is outstanding, (A) the Company effects any merger or
consolidation of the Company with
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or into another Person, (B) the Company effects any sale of all or
substantially all of its assets in one or a series of related
transactions, (C) any tender offer or exchange offer (whether by the
Company or another Person) is completed pursuant to which holders of
Common Stock are permitted to tender or exchange their shares for other
securities, cash or property, or (D) the Company effects any
reclassification of the Common Stock or any compulsory share exchange
pursuant to which the Common Stock is effectively converted into or
exchanged for other securities, cash or property (in any such case, a
"Fundamental Transaction"), then, upon any subsequent exercise of this
Warrant, the Holder shall have the right to receive, for each Warrant
Share that would have been issuable upon such exercise immediately prior
to the occurrence of such Fundamental Transaction, at the option of the
Holder, (a) upon exercise of this Warrant, the number of shares of
Common Stock of the successor or acquiring corporation or of the
Company, if it is the surviving corporation, and any additional
consideration (the "Alternate Consideration") receivable upon or as a
result of such reorganization, reclassification, merger, consolidation
or disposition of assets by a Holder of the number of shares of Common
Stock for which this Warrant is exercisable immediately prior to such
event or (b) if the Company is acquired in an all cash transaction, cash
equal to the value of this Warrant as determined in accordance with the
Black-Scholes option pricing formula. For purposes of any such exercise,
the determination of the Exercise Price shall be appropriately adjusted
to apply to such Alternate Consideration based on the amount of
Alternate Consideration issuable in respect of one share of Common Stock
in such Fundamental Transaction, and the Company shall apportion the
Exercise Price among the Alternate Consideration in a reasonable manner
reflecting the relative value of any different components of the
Alternate Consideration. If holders of Common Stock are given any choice
as to the securities, cash or property to be received in a Fundamental
Transaction, then the Holder shall be given the same choice as to the
Alternate Consideration it receives upon any exercise of this Warrant
following such Fundamental Transaction. To the extent necessary to
effectuate the foregoing provisions, any successor to the Company or
surviving entity in such Fundamental Transaction shall issue to the
Holder a new warrant consistent with the foregoing provisions and
evidencing the Holder's right to exercise such warrant into Alternate
Consideration. The terms of any agreement pursuant to which a
Fundamental Transaction is effected shall include terms requiring any
such successor or surviving entity to comply with the provisions of this
Section 3(d) and insuring that this Warrant (or any such replacement
security) will be similarly adjusted upon any subsequent transaction
analogous to a Fundamental Transaction.
e) Calculations. All calculations under this Section 3
shall be made to the nearest cent or the nearest 1/100th of a share, as
the case may be. For purposes of this Section 3, the number of shares of
Common Stock deemed to be issued and outstanding as of a given date
shall be the sum of the number of shares of Common Stock (excluding
treasury shares, if any) issued and outstanding.
f) Voluntary Adjustment By Company. The Company may at any
time during the term of this Warrant reduce the then current Exercise
Price to any amount and for any period of time deemed appropriate by the
Board of Directors of the Company.
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g) Notice to Holders.
i. Adjustment to Exercise Price. Whenever
the Exercise Price is adjusted pursuant to this Section
3, the Company shall promptly mail to each Holder a
notice setting forth the Exercise Price after such
adjustment and setting forth a brief statement of the
facts requiring such adjustment. If the Company issues a
variable rate security, despite the prohibition thereon
in the Purchase Agreement, the Company shall be deemed
to have issued Common Stock or Common Stock Equivalents
at the lowest possible conversion or exercise price at
which such securities may be converted or exercised in
the case of a Variable Rate Transaction (as defined in
the Purchase Agreement).
ii. Notice to Allow Exercise by Xxxxxx. If
(A) the Company shall declare a dividend (or any other
distribution) on the Common Stock; (B) the Company shall
declare a special nonrecurring cash dividend on or a
redemption of the Common Stock; (C) the Company shall
authorize the granting to all holders of the Common
Stock rights or warrants to subscribe for or purchase
any shares of capital stock of any class or of any
rights; (D) the approval of any stockholders of the
Company shall be required in connection with any
reclassification of the Common Stock, any consolidation
or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of
the Company, of any compulsory share exchange whereby
the Common Stock is converted into other securities,
cash or property; (E) the Company shall authorize the
voluntary or involuntary dissolution, liquidation or
winding up of the affairs of the Company; then, in each
case, the Company shall cause to be mailed to the Holder
at its last address as it shall appear upon the Warrant
Register of the Company, at least 20 calendar days prior
to the applicable record or effective date hereinafter
specified, a notice stating (x) the date on which a
record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a
record is not to be taken, the date as of which the
holders of the Common Stock of record to be entitled to
such dividend, distributions, redemption, rights or
warrants are to be determined or (y) the date on which
such reclassification, consolidation, merger, sale,
transfer or share exchange is expected to become
effective or close, and the date as of which it is
expected that holders of the Common Stock of record
shall be entitled to exchange their shares of the Common
Stock for securities, cash or other property deliverable
upon such reclassification, consolidation, merger, sale,
transfer or share exchange; provided that the failure to
mail such notice or any defect therein or in the mailing
thereof shall not affect the validity of the corporate
action required to be specified in such notice. The
Holder is entitled to exercise this Warrant during the
20-day period commencing on the date of such notice to
the effective date of the event triggering such notice.
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h) Additional Exercise Price Adjustment. In addition to any
other rights the Holder may have hereunder or under applicable law, if a
Registration Statement that includes all Warrant Shares issuable
hereunder is not declared effective by the Commission on or prior to the
six month anniversary of the Initial Exercise Date, the Exercise Price
shall be reduced by $0.03 (subject to adjustment for forward and reverse
stock splits, stock dividends, recapitalizations and the like), and
shall be reduced by an additional $0.03 (subject to adjustment for
forward and reverse stock splits, stock dividends, recapitalizations and
the like) for each thirty day period thereafter until the earlier of the
date a Registration Statement that includes the Warrant Shares is
declared effective by the Commission or the date the Exercise Price is
reduced to $0.001. The adjustments pursuant to this Section 3(h) shall
apply on a daily pro-rata basis for any portion of a 30 day period until
a Registration Statement that includes the Warrant Shares is declared
effective by the Commission.
Section 4. Transfer of Warrant.
a) Transferability. Subject to compliance with any
applicable securities laws and the conditions set forth in Sections 5(a)
and 4(d) hereof and to the provisions of Section 4.1 of the Purchase
Agreement, this Warrant and all rights hereunder are transferable, in
whole or in part (as long as each part if exercised in full by the
holder thereof would entitle such holder to receive not less than 5,000
Warrant Shares), upon surrender of this Warrant at the principal office
of the Company, together with a written assignment of this Warrant
substantially in the form attached hereto duly executed by the Holder or
its agent or attorney and funds sufficient to pay any transfer taxes
payable upon the making of such transfer. Upon such surrender and, if
required, such payment, the Company shall execute and deliver a new
Warrant or Warrants in the name of the assignee or assignees and in the
denomination or denominations specified in such instrument of
assignment, and shall issue to the assignor a new Warrant evidencing the
portion of this Warrant not so assigned, and this Warrant shall promptly
be cancelled. A Warrant, if properly assigned, may be exercised by a new
holder for the purchase of Warrant Shares without having a new Warrant
issued.
b) New Warrants. This Warrant may be divided or combined
with other Warrants upon presentation hereof at the aforesaid office of
the Company, together with a written notice specifying the names and
denominations in which new Warrants are to be issued, signed by the
Holder or its agent or attorney. Subject to compliance with Section
4(a), as to any transfer which may be involved in such division or
combination, the Company shall execute and deliver a new Warrant or
Warrants in exchange for the Warrant or Warrants to be divided or
combined in accordance with such notice.
c) Warrant Register. The Company shall register this
Warrant, upon records to be maintained by the Company for that purpose
(the "Warrant Register"), in the name of the record Holder hereof from
time to time. The Company may deem and treat the registered Holder of
this Warrant as the absolute owner hereof for the purpose of any
exercise hereof or any distribution to the Holder, and for all other
purposes, absent actual notice to the contrary.
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d) Transfer Restrictions. If, at the time of the surrender
of this Warrant in connection with any transfer of this Warrant, the
transfer of this Warrant shall not be registered pursuant to an
effective registration statement under the Securities Act and under
applicable state securities or blue sky laws, the Company may require,
as a condition of allowing such transfer (i) that the Holder or
transferee of this Warrant, as the case may be, furnish to the Company a
written opinion of counsel (which opinion shall be in form, substance
and scope customary for opinions of counsel in comparable transactions)
to the effect that such transfer may be made without registration under
the Securities Act and under applicable state securities or blue sky
laws, (ii) that the holder or transferee execute and deliver to the
Company an investment letter in form and substance acceptable to the
Company and (iii) that the transferee be an "accredited investor" as
defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7), or (a)(8) promulgated
under the Securities Act or a qualified institutional buyer as defined
in Rule 144A(a) under the Securities Act.
Section 5. Miscellaneous.
a) Title to Warrant. Prior to the Termination Date and
subject to compliance with applicable laws and Section 4 of this
Warrant, this Warrant and all rights hereunder are transferable, in
whole or in part, at the office or agency of the Company by the Holder
in person or by duly authorized attorney, upon surrender of this Warrant
together with the Assignment Form annexed hereto properly endorsed. The
transferee shall sign an investment letter in form and substance
reasonably satisfactory to the Company.
b) No Rights as Shareholder Until Exercise. This Warrant
does not entitle the Holder to any voting rights or other rights as a
shareholder of the Company prior to the exercise hereof. Upon the
surrender of this Warrant and the payment of the aggregate Exercise
Price (or by means of a cashless exercise), the Warrant Shares so
purchased shall be and be deemed to be issued to such Holder as the
record owner of such shares as of the close of business on the later of
the date of such surrender or payment.
c) Loss, Theft, Destruction or Mutilation of Warrant. The
Company covenants that upon receipt by the Company of evidence
reasonably satisfactory to it of the loss, theft, destruction or
mutilation of this Warrant or any stock certificate relating to the
Warrant Shares, and in case of loss, theft or destruction, of indemnity
or security reasonably satisfactory to it (which, in the case of the
Warrant, shall not include the posting of any bond), and upon surrender
and cancellation of such Warrant or stock certificate, if mutilated, the
Company will make and deliver a new Warrant or stock certificate of like
tenor and dated as of such cancellation, in lieu of such Warrant or
stock certificate.
d) Saturdays, Sundays, Holidays, etc. If the last or
appointed day for the taking of any action or the expiration of any
right required or granted herein shall be a Saturday, Sunday or a legal
holiday, then such action may be taken or such right may be exercised on
the next succeeding day not a Saturday, Sunday or legal holiday.
e) Authorized Shares.
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The Company covenants that during the period the Warrant
is outstanding, it will reserve from its authorized and unissued
Common Stock a sufficient number of shares to provide for the
issuance of the Warrant Shares upon the exercise of any purchase
rights under this Warrant. The Company further covenants that
its issuance of this Warrant shall constitute full authority to
its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for
the Warrant Shares upon the exercise of the purchase rights
under this Warrant. The Company will take all such reasonable
action as may be necessary to assure that such Warrant Shares
may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of the
Trading Market upon which the Common Stock may be listed or
quoted.
Except and to the extent as waived or consented to by
the Holder, the Company shall not by any action, including,
without limitation, amending its certificate of incorporation or
through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms
and in the taking of all such actions as may be necessary or
appropriate to protect the rights of Holder as set forth in this
Warrant against impairment. Without limiting the generality of
the foregoing, the Company will (a) not increase the par value
of any Warrant Shares above the amount payable therefor upon
such exercise immediately prior to such increase in par value,
(b) take all such action as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid
and nonassessable Warrant Shares upon the exercise of this
Warrant, and (c) use commercially reasonable efforts to obtain
all such authorizations, exemptions or consents from any public
regulatory body having jurisdiction thereof as may be necessary
to enable the Company to perform its obligations under this
Warrant.
Before taking any action which would result in an
adjustment in the number of Warrant Shares for which this
Warrant is exercisable or in the Exercise Price, the Company
shall obtain all such authorizations or exemptions thereof, or
consents thereto, as may be necessary from any public regulatory
body or bodies having jurisdiction thereof.
f) Jurisdiction. All questions concerning the construction,
validity, enforcement and interpretation of this Warrant shall be
determined in accordance with the provisions of the Purchase Agreement.
g) Restrictions. The Holder acknowledges that the Warrant
Shares acquired upon the exercise of this Warrant, if not registered,
will have restrictions upon resale imposed by state and federal
securities laws.
h) Nonwaiver and Expenses. No course of dealing or any
delay or failure to exercise any right hereunder on the part of Holder
shall operate as a waiver of such right
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or otherwise prejudice Xxxxxx's rights, powers or remedies,
notwithstanding the fact that all rights hereunder terminate on the
Termination Date. If the Company willfully and knowingly fails to comply
with any provision of this Warrant, which results in any material
damages to the Holder, the Company shall pay to Holder such amounts as
shall be sufficient to cover any costs and expenses including, but not
limited to, reasonable attorneys' fees, including those of appellate
proceedings, incurred by Holder in collecting any amounts due pursuant
hereto or in otherwise enforcing any of its rights, powers or remedies
hereunder.
i) Notices. Any notice, request or other document required
or permitted to be given or delivered to the Holder by the Company shall
be delivered in accordance with the notice provisions of the Purchase
Agreement.
j) Limitation of Liability. No provision hereof, in the
absence of any affirmative action by Holder to exercise this Warrant or
purchase Warrant Shares, and no enumeration herein of the rights or
privileges of Holder, shall give rise to any liability of Holder for the
purchase price of any Common Stock or as a stockholder of the Company,
whether such liability is asserted by the Company or by creditors of the
Company.
k) Remedies. Holder, in addition to being entitled to
exercise all rights granted by law, including recovery of damages, will
be entitled to specific performance of its rights under this Warrant.
The Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of the
provisions of this Warrant and hereby agrees to waive the defense in any
action for specific performance that a remedy at law would be adequate.
l) Successors and Assigns. Subject to applicable securities
laws, this Warrant and the rights and obligations evidenced hereby shall
inure to the benefit of and be binding upon the successors of the
Company and the successors and permitted assigns of Holder. The
provisions of this Warrant are intended to be for the benefit of all
Holders from time to time of this Warrant and shall be enforceable by
any such Holder or holder of Warrant Shares.
m) Amendment. This Warrant may be modified or amended or
the provisions hereof waived with the written consent of the Company and
the Holder.
n) Severability. Wherever possible, each provision of this
Warrant shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Warrant shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provisions or the remaining
provisions of this Warrant.
o) Headings. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed
a part of this Warrant.
********************
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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its officer thereunto duly authorized.
Dated: December ____, 2005
ELECTRONIC SENSOR TECHNOLOGY, INC.
By:
----------------------------
Name:
Title:
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NOTICE OF EXERCISE
TO: ELECTRONIC SENSOR TECHNOLOGY, INC.
(1) The undersigned hereby elects to purchase ________
Warrant Shares of the Company pursuant to the terms of the attached Warrant
(only if exercised in full), and tenders herewith payment of the exercise price
in full, together with all applicable transfer taxes, if any.
(2) Payment shall take the form of (check applicable box):
[ ] in lawful money of the United States; or
[ ] the cancellation of such number of Warrant Shares
as is necessary, in accordance with the formula set
forth in subsection 2(c), to exercise this Warrant with
respect to the maximum number of Warrant Shares
purchasable pursuant to the cashless exercise procedure
set forth in subsection 2(c).
(3) Please issue a certificate or certificates representing
said Warrant Shares in the name of the undersigned or in such other name as is
specified below:
_________________________________________
The Warrant Shares shall be delivered to the following:
_________________________________________
_________________________________________
_________________________________________
(4) Accredited Investor. The undersigned is an "accredited
investor" as defined in Regulation D promulgated under the Securities Act of
1933, as amended.
[SIGNATURE OF HOLDER]
Name of Investing Entity: _____________________________________________________
Signature of Authorized Signatory of Investing Entity: ________________________
Name of Authorized Signatory: _________________________________________________
Title of Authorized Signatory: ________________________________________________
Date: _________________________________________________________________________
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights
evidenced thereby are hereby assigned to
_______________________________________________ whose address is
_______________________________________________________________.
_______________________________________________________________
Dated: ______________, _______
Holder's Signature: ___________________________
Holder's Address: ___________________________
___________________________
Signature Guaranteed: ___________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.
