Document:

EX-10.1

 

Exhibit 10.1

AMENDMENT

TO

EMPLOYMENT AGREEMENT AND RELEASE

     AMENDMENT, made this 6th day of September 2006, to that certain employment agreement dated
September 12, 2005 (the “Employment Agreement”), by and between Arrow Electronics, Inc., a New York
corporation with its principal operating office at 50 Marcus Drive, Melville, New York 11747
(“Arrow”), and Edward Coleman, residing at 1829 Hidden Point Road, Annapolis, MD 21409
(“Executive”).

RECITALS

     WHEREAS, Executive is currently employed by Arrow as Senior Vice President and President of
Arrow’s Enterprise Computing Solutions. In that connection Arrow and Executive entered into the
Employment Agreement, which sets forth the principal terms and conditions of Executive’s employment
with Arrow. Among those terms and conditions is the continued employment of Executive in
accordance with the terms of the Employment Agreement;

     WHEREAS, Executive has advised Arrow that he wishes to resign his position with Arrow
effective September 7, 2006;

     WHEREAS, Arrow is prepared to waive the notice requirement under the Employment Agreement and
accept the Executive’s resignation on the terms set out herein; and

     WHEREAS, The parties wish to amend the Employment Agreement to establish the terms concerning
the termination of Executive’s employment with Arrow and to resolve any and all claims in
connection therewith.

     NOW, THEREFORE, for $1 and other good and valuable consideration, and in consideration for the
mutual promises and agreements set forth below, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:

     1. Resignation. Effective September 7, 2006, Executive has resigned from his
employment with Arrow and all corporate officer positions that he holds in any of Arrow’s
subsidiaries or affiliates (the “Resignation Date”). Arrow acknowledges and agrees that any notice
requirements set forth in the Employment Agreement are hereby waived, and the parties acknowledge
that for all purposes under the Employment Agreement, the “Employment Period” shall be deemed to
have ended on the Resignation Date.

     2. Provisions Survive. It is understood that the termination of Executive’s
employment with Arrow shall not relieve Executive of any continuing obligations imposed upon
Executive in the Employment Agreement, (including, without limitation, its provisions with respect
to the survival of covenants, the severability or modification of its terms by a court of competent
jurisdiction, non-compete, no hiring or solicitation, choice of laws, and trade secrets and
non-disclosure thereof). Unless specifically defined in this Amendment, terms defined in the
Employment Agreement and used herein shall have the meaning ascribed to them in the Employment
Agreement.

     3. No Detrimental Communications. Executive agrees that he will not disclose or cause
to be disclosed any negative, adverse or derogatory comments or

 

 

information about Arrow, about any product or service provided by Arrow, or about Arrow’s
prospects for the future. Furthermore, Executive represents that he has made no such communication
to any public official, to any person associated with the media, or to any other person or entity.
Executive acknowledges that Arrow relies upon this representation in agreeing to enter into this
Agreement. Arrow’s Executive Committee and officers will not make any disparaging or negative
statement against Executive. Nothing in this Section will be construed to prevent the parties from
giving truthful testimony in response to direct questions asked pursuant to a lawful subpoena or
other legal process during any legal proceeding involving the Executive or Arrow.

     4. Executive Release. In consideration of all of the foregoing provisions, Executive
hereby releases Arrow and its agents and employees from and against any and all claims (statutory,
contractual or otherwise) arising out of his employment or the termination thereof or any
discrimination in connection therewith and for any further additional payments of any kind or
nature whatsoever except as expressly set forth herein. Without limiting the foregoing, Executive
hereby releases Arrow from any claim under the Age Discrimination in Employment Act and any other
similar law. Nothing contained herein shall be construed as preventing Executive from providing
information to or making a claim with any governmental agency to the extent permitted or required
by law. This release shall, however, constitute an absolute bar to the recovery of any damages or
additional compensation, consideration or relief of any kind or nature whatsoever arising out of or
in connection with such claim. The exceptions to the release set forth in this paragraph shall be
any benefits to which Executive may be entitled under any Arrow Executive stock or benefit program
and pursuant to the terms thereof and Executive’s rights to enforce this Amendment.

     5. Arrow Release. As a material inducement for Executive to enter into this Amendment
to the Employment Agreement, Arrow hereby releases Executive from and against any and all claims
relating to any matters of any kind, whether presently known or unknown, suspected or unsuspected,
that Arrow may possess arising from any actions or inactions in relation to the Executive’s duties
performed at the company on or before the date of this Amendment including, without limitation, any
and all claims relating to or arising from Executive’s employment relationship with Arrow and the
termination of that relationship; PROVIDED that such released claims shall not include any claims
(i) to enforce Arrow’s rights hereunder, or with respect to the Employment Agreement, or (ii) in
connection with any fraud, willful misconduct, gross negligence or criminal act on the part of the
Executive.

     6. Cooperation. The Executive shall make himself available to Arrow following the
Resignation Date to assist Arrow, at mutually convenient times and places, with respect to pending
and future litigations, arbitrations, governmental investigations or other dispute resolutions
relating to matters that arose during the Executive’s employment with Arrow; provided, in each
case, such cooperation shall not apply to any litigations, arbitrations, governmental
investigations or other dispute resolutions in which Executive and Arrow are, or could reasonably
be expected to become, adverse parties.

     7. Directors and Officers Insurance Coverage and Indemnification. As a material
inducement for Executive to enter into this Amendment to the Employment Agreement, Arrow agrees
that Executive shall continue receive the same coverage under Arrow’s Directors and Officers
Insurance (“D&O”) policy with respect to matters arising out of his services performed at Arrow,
as is now in effect and as may be in effect from time-to-time hereafter and that the amount of such
coverage shall be no less

2

 

than that afforded to any director or executive officer of Arrow under Arrow’s current D&O
policy or under any commercially reasonable successor D&O policy or professional liability coverage
as Arrow may from time-to-time hereafter acquire. In addition, Arrow shall indemnify and hold
Executive harmless to the fullest extent provided by its Articles of Incorporation and By-laws as
they exist on the date hereof with regards to actions or inactions in relation to the Executive’s
duties performed at Arrow on or before the date of this Amendment.

     8. No Other Severance, Payments Or Benefits. Except as otherwise expressly provided
herein, Executive hereby acknowledges and agrees that he is not entitled to any other compensation
or benefits from Arrow in connection with his resignation of employment or otherwise and that,
except as expressly set forth herein or in your Employment Agreement, Executive is not entitled to
any severance or similar benefits under any plan, program, policy or arrangement, whether formal or
informal, written or unwritten.

     9. Rescission/Advice of Counsel. Executive acknowledges that Arrow advised him to
consult with an attorney prior to signing this release; advised him that he had twenty-one (21)
days in which to consider whether he should sign this release. Executive agrees that any
modifications, material or otherwise, made to this Agreement do not restart or affect in any manner
the original twenty-one (21) day consideration period. Executive further acknowledges that Arrow
has advised him that if he signed this release, he would be given seven (7) days following the date
on which he signed the release to revoke it and that the release would not be effective until after
this seven-day period had lapsed. Therefore, no payments called for by Arrow herein shall be made
until the expiration of such revocation period.

     IN WITNESS WHEREOF, the parties have executed this Amendment to Employment Agreement and
Release as of the day and year first above written.

	 	 	 	 	 
	 	ARROW ELECTRONICS, INC.	 
	 	 	 
	 	By:  	/s/ Peter S. Brown
 	 
	 	 	Peter S. Brown 	 
	 	 	Senior Vice President and General Counsel 	 
	 

      

	 	 	 	 	 
	 	THE EXECUTIVE

 	 
	 	/s/ Edward Coleman
 	 
	 	Edward Coleman 	 
	 	 	 
	 

3FORBEARANCE AND AMENDMENT AGREEMENT

     THIS FORBEARANCE AND AMENDMENT AGREEMENT (this "Agreement"), dated as of
September 7, 2006 among Electronic Sensor Technology, Inc., a Nevada corporation
(the "Company"), Midsummer Investment, Ltd. ("Midsummer") and Islandia L.P.
("Islandia") (each of Midsummer and Islandia, including its successors and
assigns, also referred to as a "Holder" and collectively the "Holders"). The
Holders are the holders of the Company's 8% Convertible Debentures due December
7, 2009 (the "Debentures") issued pursuant to that certain Securities Purchase
Agreement, dated December 7, 2005, by and among the Company and the Holders (the
"Purchase Agreement"), and those certain common stock purchase warrants issued
pursuant to the Purchase Agreement (the "Warrants"). Capitalized terms used
herein and not otherwise defined herein that are defined in the Securities
Purchase Agreement shall have the same meaning herein as therein defined.

                             Preliminary Statement:

     A.   Events of Default have occurred under Sections 8(a) of the Debentures,
including but not limited to, Events of Default occurring as a result of the
Company's failure to cause the Registration Statement to be declared effective
within 180 days of the Closing Date and failure to pay accrued and unpaid
liquidated damages on a timely basis (collectively, the "Existing Defaults").

     B.   Subject to the terms and conditions set forth herein, Holders have
agreed (i) to forbear from exercising the available rights and remedies arising
as a result of the Existing Defaults until February 28, 2007 (the "Available
Remedies"), and (ii) other than the adjustments provided for hereunder, to
forbear from exercising their right to an adjustment to the exercise price of
the Warrants pursuant to Section 3(h) of the Warrants until February 28, 2007.

     C.   In negotiating this Agreement with the Holders, the Company believes
it has acted in good faith and in the best interest of all of the shareholders
of the Company and the Holders.

     NOW, THEREFORE, the parties to this Agreement, for adequate and sufficient
consideration, the receipt of which is hereby acknowledged, do hereby agree as
follows:

     1.   Forbearance by Holders.

          (a)  The Company hereby acknowledges the current and continuing
     existence of the Existing Defaults. Subject to the terms and provisions of
     this Agreement, until the earlier of (i) February 28, 2007 and (ii) the
     date, if any, upon which the Company breaches any other obligation to the
     Holders under the Transaction Documents or this Agreement not otherwise
     subject to this Agreement (the "Forbearance Termination Date"), the
     Holders, severally and not jointly, agree to forbear from exercising the
     Available Remedies and any rights and remedies that will be available to
     the Holders solely as a result of the Company's failure to cause the
     Registration Statement to be declared effective within 180 days of the
     Closing Date and failure to pay accrued and unpaid liquidated damages prior
     to the date hereof.
<PAGE>

          (b)  Forbearance of Warrant Adjustments. The Company hereby
     acknowledges the reduction, and continued reduction, of the Exercise Price
     pursuant to Section 3(h) of the Warrants on account of the Company's
     failure to secure the effectiveness of the Registration Statement. Subject
     to the terms and provisions of this Agreement, until the Forbearance
     Termination Date, the Holders, severally and not jointly, agree to a
     standstill of the automatic $0.03 per 30-day reduction of the Exercise
     Price of the Warrants set forth in Section 3(h) of the Warrants; provided,
     however, that after the Forbearance Termination Date any such adjustment
     that would have otherwise occurred if not for the standstill shall be
     immediately and retroactively applied to the Exercise Price of the Warrant.

          (c)  Forbearance Only. This Agreement constitutes a forbearance only
     and does not and shall not constitute a waiver by Holders of any Event of
     Default, a cumulative and accrued adjustment to the Exercise Price of the
     Warrants pursuant to Section 3(h) of the Warrants or, except as
     specifically provided herein, an amendment or modification of the Purchase
     Agreements or any other Transaction Documents. Except to the extent of the
     forbearance contained in Sections 1(a) and 1(b) of this Agreement, each
     Holder reserves all of its rights, remedies, powers and privileges under
     the Purchase Agreement, the Debentures and Transaction Documents and
     otherwise with respect to any existing or future Events of Default (other
     than an Existing Default prior to the Forbearance Termination Date) and
     after the Forbearance Termination Date, the Existing Defaults and the
     cumulative and accrued reduction in the Exercise Price of the Warrants that
     would have occurred if not for this Agreement. Except as expressly set
     forth in this Agreement, no waiver, consent, agreement, amendment, renewal,
     extension, modification, standstill, release or understanding of any kind
     or nature whatsoever shall be binding on Holders unless and until one or
     more counterparts of a document in writing specifically affirming the same
     has been executed by Holders. No failure or delay by Holders with respect
     to exercising any right, remedy, power or privilege under the Purchase
     Agreement, the Transaction Documents or otherwise shall operate as a waiver
     thereof or any acquiescence therein.

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<PAGE>

     2.   Reduction in Conversion Price. Effective immediately and forevermore,
the Conversion Price of the Debentures is hereby reduced to equal $0.40, subject
to further adjustment therein. Such adjustment is automatic upon the execution
of this Agreement by the Company and promptly upon request by a Holder and
surrender of the Debenture certificate to the Company, the Company shall deliver
to the Holder a replacement Debenture certificate evidencing such reduced
Conversion Price.

     3.   Reduction in Exercise Price. Effective immediately and forevermore,
the Exercise Price of the Warrants is hereby reduced to equal $0.43, subject to
further adjustment therein, subject to Section 1(b) above. Such adjustment is
automatic upon the execution of this Agreement by the Company and promptly upon
request by a Holder and surrender of its Warrant certificate to the Company, the
Company shall deliver to the Holder a replacement Warrant certificate evidencing
such reduced Exercise Price.

     4.   Appointment of Directors; Creation of Committee.

          (a)  Within 14 days of the date hereof, the Company shall have
     appointed (or caused its board of directors to appoint) one Person selected
     by Midsummer (together with any successor appointed below, the "Midsummer
     Designee"), at Midsummer's sole discretion, as a member of the Company's
     board of directors. In addition, within 14 days of the date hereof,
     Midsummer will nominate an additional Person to serve as an independent
     director subject to the approval of a majority of the directors of the
     Board; provided that the board may only reject a nominee in good faith and
     with cause pursuant to a written explanation to Midsummer (unless the
     Midsummer Designee participated in such decision) and provided further that
     Midsummer shall have the right to nominate a new nominee at every meeting
     of the board of directors for approval hereunder until such a nominee is
     approved (the "Midsummer Nominee"). Until such time as Midsummer (i)
     determines that it no longer wishes to control such appointment and/or
     nomination or (ii) ceases to beneficially own (ignoring for such purposes
     any conversion or exercise caps or limitations) at least 5 million shares
     (subject to adjustment for reverse and forward stock splits and the like)
     of the Company's common stock on a fully diluted and fully converted or
     exercised basis, the Company shall use reasonable best efforts to nominate,
     solicit proxies and recommend that shareholders vote in favor of the
     Midsummer Designee and/or the Midsummer Nominee, each as a director, or
     their respective replacement directors, as selected by Midsummer, in
     Midsummer's sole discretion, for re-election as directors of the Company at
     each annual meeting or special meeting of the shareholders of the Company
     at which the election of directors is a matter to be acted upon. The
     Company shall take all further actions reasonably necessary to satisfy the
     covenants herein. The Company shall not increase the number of directors to
     more than 9 members, including the two directors appointed/nominated by
     Midsummer, without the consent of Midsummer.

          (b)  The parties agree that planning for the succession of sound
     management is important to all shareholders of the Company and the Holders.
     As soon as practicable following the appointment of the Midsummer Designee
     as a director but in no event later than 30 days from the date hereof, the
     board of directors of the Company shall create a special committee of 3
     board members comprised of one director chosen by Midsummer,

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<PAGE>

     one independent director and one appointee of the founding shareholders for
     the purpose of searching for and hiring a chief operating officer ("COO")
     of the Company (the "Search Committee"). In identifying a candidate, the
     Search Committee shall search for a candidate with the potential to become
     the chief executive officer of the Company ("CEO"), as well as serving
     immediately as COO. Upon the selection by the Search Committee, such
     candidate shall be presented to the full board of directors for its
     consideration. If the board approves of such candidate, the Company shall
     promptly hire such candidate for the position of COO of the Company on an
     interim and trial basis for up to 3 months. At the end of such interim
     period, the board of directors shall meet to decide whether the board
     believes that such candidate should be promoted to CEO or released. If the
     board of directors determines that such candidate should not be promoted to
     CEO, the Search Committee shall immediately commence another search for a
     Person with potential to become the CEO of the Company. The Company shall
     use its reasonable best efforts to assist the Search Committee in the
     discharge of the duties of the Search Committee.

     5.   Conditions Precedent. Notwithstanding any contrary provisions,
Section 1 above shall not be effective unless and until:

          (a)  the representations and warranties in this Agreement are true and
     correct as of the date hereof; and

          (b)  no Event of Default (other than the Existing Defaults) shall have
     occurred and be continuing and no event or condition shall have occurred,
     that with the giving of notice or lapse of time or both would be an Event
     of Default (except for the Existing Defaults).

     6.   Representations and Warranties of the Company. The Company hereby
makes to each Holder the following representations and warranties:

          i.   Authorization; Enforcement. The Company has the requisite
     corporate power and authority to enter into and to consummate the
     transactions contemplated by this Agreement and otherwise to carry out its
     obligations hereunder. The execution and delivery of this Agreement by the
     Company and the consummation by it of the transactions contemplated hereby
     have been duly authorized by all necessary action on the part of the
     Company and no further action is required by the Company, its board of
     directors or its stockholders in connection therewith other than in
     connection with the Required Approvals. This Agreement has been duly
     executed by the Company and, when delivered in accordance with the terms
     hereof will constitute the valid and binding obligation of the Company
     enforceable against the Company in accordance with its terms except (i) as
     limited by general equitable principles and applicable bankruptcy,
     insolvency, reorganization, moratorium and other laws of general
     application affecting enforcement of creditors' rights generally, (ii) as
     limited by laws relating to the availability of specific performance,
     injunctive relief or other equitable remedies and (iii) insofar as
     indemnification and contribution provisions may be limited by applicable
     law.

                                       4
<PAGE>

          ii.  No Conflicts. The execution, delivery and performance of this
     Agreement by the Company and the consummation by the Company of the
     transactions contemplated hereby do not and will not: (i) conflict with or
     violate any provision of the Company's or any Subsidiary's certificate or
     articles of incorporation, bylaws or other organizational or charter
     documents, or (ii) conflict with, or constitute a default (or an event that
     with notice or lapse of time or both would become a default) under, result
     in the creation of any Lien (except as contemplated by the Security
     Documents) upon any of the properties or assets of the Company or any
     Subsidiary, or give to others any rights of termination, amendment,
     acceleration or cancellation (with or without notice, lapse of time or
     both) of, any material agreement, credit facility, debt or other material
     instrument (evidencing a Company or Subsidiary debt or otherwise) or other
     material understanding to which the Company or any Subsidiary is a party or
     by which any property or asset of the Company or any Subsidiary is bound or
     affected, or (iii) subject to the Required Approvals, conflict with or
     result in a violation of any law, rule, regulation, order, judgment,
     injunction, decree or other restriction of any court or governmental
     authority to which the Company or a Subsidiary is subject (including
     federal and state securities laws and regulations), or by which any
     property or asset of the Company or a Subsidiary is bound or affected;
     except in the case of each of clauses (ii) and (iii), such as could not
     have or reasonably be expected to result in a Material Adverse Effect.

          iii. Affirmation of Prior Representations and Warranties. Except as
     set forth under the corresponding section of the disclosure schedules
     attached to the Purchase Agreements and except as set forth on Schedule 5
     attached hereto, all representations and warranties of the Company
     contained in the Purchase Agreement were true and correct when made and
     remain true and correct as of the date hereof, as though made at and as of
     the date hereof. Except as set forth herein or on Schedule 5(iii) attached
     hereto, the Company has performed all of the covenants of the Company
     contained in the applicable Transaction Documents to be performed by the
     Company through the date hereof.

          iv.  Other Events of Defaults. As of the date of this Agreement, to
     the knowledge of the Company, no Event of Default (other than the Existing
     Default) exists.

     7.   Representations and Warranties of the Holders. Each Holder hereby, for
itself and for no other Holder, represents and warrants as of the date hereof
to the Company as follows:

          i.   Authority. The execution, delivery and performance by such Holder
     of the transactions contemplated by this Agreement have been duly
     authorized by all necessary corporate or similar action on the part of such
     Holder. This Agreement has been duly executed by such Holder, and when
     delivered by such Holder in accordance with the terms hereof, will
     constitute the valid and legally binding obligation of such Holder,
     enforceable against it in accordance with its terms, except (i) as limited
     by general equitable principles and applicable bankruptcy, insolvency,
     reorganization, moratorium and other laws of general application affecting
     enforcement of creditors' rights generally, (ii) as limited by laws
     relating to the availability of specific performance, injunctive relief or
     other equitable remedies and (iii) insofar as indemnification and
     contribution provisions may be limited by applicable law.

                                       5
<PAGE>

          ii.  Affirmation of Prior Representations and Warranties. Such Holder
     hereby represents and warrants to the Company that its representations and
     warranties listed in Section 3.2 of the applicable Purchase Agreement are
     true and correct as of the date hereof.

     8.   Delivery of Opinion. Concurrently herewith, the Company shall deliver
to the Holders an opinion of outside counsel in form and substance substantially
similar to the opinion delivered to the Holders pursuant the Purchase Agreement
and which opinion shall be reasonably acceptable to the Holders.

     9.   Effect on Transaction Documents. Except as expressly set forth above,
all of the terms and conditions of the Transaction Documents shall continue in
full force and effect after the execution of this Agreement and shall not be in
any way changed, modified or superseded by the terms set forth herein, including
but not limited to, any other obligations the Company may have to the Holders
under the Transaction Documents.

     10.  Release of all Claims. THE COMPANY HEREBY UNCONDITIONALLY RELEASES AND
FOREVER DISCHARGES EACH HOLDER AND ITS RESPECTIVE SUCCESSORS, ASSIGNS, AGENTS,
DIRECTORS, OFFICERS, EMPLOYEES, AFFILIATES, ACCOUNTANTS, CONSULTANTS, ADVISORS
AND ATTORNEYS (COLLECTIVELY, THE "BENEFITED PARTIES") FROM ALL CLAIMS (AS
DEFINED BELOW) AND AGREES TO INDEMNIFY THE BENEFITED PARTIES, AND HOLD THEM
HARMLESS FROM ANY AND ALL CLAIMS, LOSSES, CAUSES OF ACTION, COSTS AND EXPENSES
OF EVERY KIND OR CHARACTER IN CONNECTION WITH THE CLAIMS. AS USED IN THIS
AGREEMENT, THE TERM "CLAIMS" MEANS ANY AND ALL POSSIBLE CLAIMS, DEMANDS,
ACTIONS, CAUSES OF ACTIONS, COSTS, EXPENSES AND LIABILITIES WHATSOEVER, KNOWN OR
UNKNOWN, AT LAW OR IN EQUITY, ORIGINATING IN WHOLE OR IN PART IN CONNECTION WITH
SUCH HOLDERS OBLIGATIONS UNDER THE PURCHASE AGREEMENT, WHICH THE COMPANY, OR ANY
OF ITS AGENTS, EMPLOYEES OR AFFILIATES MAY NOW OR HEREAFTER HAVE OR CLAIM
AGAINST ANY OF THE BENEFITED PARTIES AND IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS
ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAW OR OTHERWISE IN CONNECTION WITH
ANY OF THE TRANSACTION AGREEMENTS, INCLUDING ANY CONTRACTING FOR, CHARGING,
TAKING, RESERVING, COLLECTING OR RECEIVING INTEREST IN EXCESS OF THE MAXIMUM
RATE ON INTEREST CHARGEABLE UNDER APPLICABLE LAW AND ANY LOSS, COST OR DAMAGE,
OF ANY KIND OR CHARACTER, ARISING OUT OF OR IN ANY WAY CONNECTED WITH OR IN ANY
WAY RESULTING FROM THE ACTIONS OR OMISSIONS OF THE BENEFITED PARTIES, INCLUDING
ANY BREACH OF FIDUCIARY DUTY, BREACH OF ANY DUTY OF GOOD FAITH OR FAIR DEALING,
UNDUE INFLUENCE, DURESS, ECONOMIC COERCION, CONFLICT OF INTEREST, NEGLIGENCE,
BAD FAITH, MALPRACTICE, VIOLATIONS . THE COMPANY AGREES THAT NONE OF THE
BENEFITED PARTIES HAS FIDUCIARY OR SIMILAR OBLIGATIONS TO THE COMPANY OR ANY
AGENTS, EMPLOYEES OR AFFILIATES OF THE COMPANY AND THAT THEIR RELATIONSHIPS ARE
STRICTLY THAT OF CREDITOR AND DEBTOR. THIS RELEASE IS ACCEPTED BY HOLDERS
PURSUANT TO

                                       6
<PAGE>

THIS AGREEMENT AND SHALL NOT BE CONSTRUED AS AN ADMISSION OF LIABILITY BY
HOLDERS OR ANY OTHER BENEFITED PARTY.

THE COMPANY ACKNOWLEDGES THAT THE FOREGOING PROVISIONS ARE INTENDED TO RELEASE
HOLDERS FROM LIABILITY AND/OR INDEMNIFY AND HOLD HARMLESS HOLDERS FOR, AMONG
OTHER THINGS, THE ORDINARY NEGLIGENCE OF HOLDERS. THE COMPANY AGREES THAT THE
RELEASE AND/OR INDEMNITY PROVISIONS CONTAINED IN THIS AGREEMENT ARE CAPTIONED TO
CLEARLY IDENTIFY THE RELEASE AND/OR INDEMNITY PROVISIONS AND, THEREFORE, ARE SO
CONSPICUOUS THAT THE COMPANY HAS FAIR NOTICE OF THE EXISTENCE AND CONTENTS OF
SUCH PROVISIONS.

     11.  Amendments and Waivers. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given, unless the same shall be in writing and signed by the Company and each
Holder.

     12.  Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be delivered as set
forth in the Purchase Agreement.

     13.  Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors and permitted assigns of each of the parties
and shall inure to the benefit of each Holder. The Company may not assign
(except by merger) its rights or obligations hereunder without the prior written
consent of all of the Holders of the then-outstanding Securities. Each Holder
may assign their respective rights hereunder in the manner and to the Persons as
permitted under the applicable Purchase Agreement.

     14.  Execution and Counterparts. This Agreement may be executed in two or
more counterparts, all of which when taken together shall be considered one and
the same agreement and shall become effective when counterparts have been signed
by each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission or by e-mail delivery of a ".pdf" format
data file, such signature shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed) with the same
force and effect as if such facsimile or ".pdf" signature page were an original
thereof.

     15.  Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be determined in
accordance with the provisions of the Purchase Agreements.

     16.  Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their commercially reasonable efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that

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<PAGE>

they would have executed the remaining terms, provisions, covenants and
restrictions without including any of such that may be hereafter declared
invalid, illegal, void or unenforceable.

     17.  Headings. The headings in this Agreement are for convenience only, do
not constitute a part of the Agreement and shall not be deemed to limit or
affect any of the provisions hereof.

     18.  Independent Nature of Holders' Obligations and Rights. The obligations
of each Holder hereunder are several and not joint with the obligations of any
other Holders hereunder, and no Holder shall be responsible in any way for the
performance of the obligations of any other Holder hereunder. Nothing contained
herein or in any other agreement or document delivered at any closing, and no
action taken by any Holder pursuant hereto, shall be deemed to constitute the
Holders as a partnership, an association, a joint venture or any other kind of
entity, or create a presumption that the Holders are in any way acting in
concert with respect to such obligations or the transactions contemplated by
this Agreement. Each Holder shall be entitled to protect and enforce its rights,
including without limitation the rights arising out of this Agreement, and it
shall not be necessary for any other Holder to be joined as an additional party
in any proceeding for such purpose.

                            [SIGNATURE PAGE FOLLOWS]

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<PAGE>

     IN WITNESS WHEREOF, the parties hereto have caused this Forbearance and
Amendment Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.

ELECTRONIC SENSOR TECHNOLOGY, INC.                Address for Notice:

                                                  1077 Business Center Circle
                                                  Newbury Park, California 91320
By: /s/ Teong C. Lim
    --------------------------
    Name:  Teong C. Lim
    Title: President and Chief
           Executive Officer

                   [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
                       SIGNATURE PAGE FOR HOLDER FOLLOWS]

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<PAGE>

      [HOLDER SIGNATURE PAGES TO ESNR FORBEARANCE AND AMENDMENT AGREEMENT]

     IN WITNESS WHEREOF, the undersigned have caused this Forbearance and
Amendment Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.

Name of Holder: Midsummer Investment, Ltd.

Signature of Authorized Signatory of Holder: /s/ Michel A. Amsalem

Name of Authorized Signatory: Michel A. Amsalem

Title of Authorized Signatory: Director

Wire Instructions of Holder:

                           [SIGNATURE PAGES CONTINUE]

                                       10
<PAGE>

      [HOLDER SIGNATURE PAGES TO ESNR FORBEARANCE AND AMENDMENT AGREEMENT]

         IN WITNESS WHEREOF, the undersigned have caused this Forbearance and
Amendment Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.

Name of Holder: Islandia, L.P.

Signature of Authorized Signatory of Holder: /s/ Edgar R. Berner

Name of Authorized Signatory: Edgar R. Berner

Title of Authorized Signatory: VP of John Lang, Inc., General Partner

Wire Instructions of Holder:

                           [SIGNATURE PAGES CONTINUE]

                                       11

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