SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) of the
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported):
June 19, 2007
Kronos Advanced Technologies, Inc.
(Exact Name of Registrant as Specified in Charter)
Nevada 000-30191 87-0440410
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
464 Common Street, Suite 301, Belmont, Massachusetts 02478
(Address of principal executive offices) (Zip code)
(617) 993-9965
Registrant's telephone number, including area code
Not Applicable
(Former Name or Former Address, If Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT
On June 19, 2007 (the "Closing Date"), Kronos Advanced Technologies,
Inc. (the "Company") entered into a Funding Agreement (the `Funding Agreement")
with a group of lenders that include: (a) Sands Brothers Venture Capital LLC, a
New York limited liability company, Sands Brothers Venture Capital II LLC, a New
York limited liability company, Sands Brothers Venture Capital III LLC, a New
York limited liability company and Sands Brothers Venture Capital IV LLC, a New
York limited liability company (collectively, "Sands"); (b) Critical Capital
Growth Fund, L.P., a Delaware limited partnership and a debenture licensed U.S.
small business investment company ("CCGF"); (c) Airworks Funding LLLP, a Georgia
limited liability limited partnership ("AirWorks") and (d) RS Properties I LLC,
a Delaware limited liability company ("RSP", and together with Sands, CCGF and
AirWorks, the "Lenders") pursuant to which the Lenders agreed to loan to the
Company up to Eighteen Million One Hundred Fifty-Nine Thousand U.S. Dollars
(US$18,159,000.00) in the form of three (3) secured convertible promissory notes
(collectively, the "Notes" and each, a "Note"). Specifically, the Company issued
a Note to Sands and CCGF (the "SCCGF Note") in the principal amount of up to
Eight Hundred Fifty-Nine Thousand U.S. Dollars (US$859,000.00), a Note to
AirWorks in the principal amount of Ten Million Eight Hundred Twenty Thousand
U.S. Dollars (US$10,820,000.00) and a Note to RSP in the principal amount of up
to Six Million Four Hundred Eighty Thousand U.S. Dollars (US$6,480,000.00).
The first installment of the loan was funded by Sands and CCGF (the
SCCGF Note) on the Closing Date in the principal amount of Eight Hundred
Fifty-Nine Thousand U.S. Dollars (US$859,000.00), by RSP in the principal amount
of Nine Hundred Twenty Thousand U.S. Dollars (US$920,000.00) and by AirWorks in
the principal amount of Two Million Four Hundred Eighty Thousand U.S. Dollars
(US$2,480,000.00) for a total initial advance amount equal to Four Million Two
Hundred Fifty-Nine Thousand U.S. Dollars (US$4,259,000.00) (the "Initial
Amount"). Any other installments of the loan, totaling in the aggregate up to
Thirteen Million Nine Hundred Thousand U.S. Dollars (US$13,900,000.00), may be
advanced by AirWorks, up to Eight Million Three Hundred Forty Thousand U.S.
Dollars (US$8,340,000.00) and by RSP, up to Five Million Five Hundred Sixty
Thousand U.S. Dollars (US$5,560,000.00), in whole or in part, at any time prior
to the Maturity Date (as defined in the Funding Agreement) in the sole
discretion of AirWorks and RSP, even if not requested by the Company, and if so
advanced, the Company shall be obligated to accept such amount. After the
payment in full of all amounts due under an outstanding convertible debenture
issued to Cornell Capital Partners, L.P. and under a settlement agreement
obligation to HoMedics including, and the expenses of the transaction, the
remainder of the Initial Amount will be used for working capital purposes. An
investment banking firm was retained by the Board of Directors of the Company
(the "Board") prior to the Closing Date to render an opinion as to whether the
loan transaction was fair to the Company and its stockholders. On June 19, 2007,
such investment banking firm delivered its opinion to the Board stating that the
transaction was indeed fair to the Company and its stockholders from a financial
point of view.
The loan is secured by all of the Company's assets as evidenced by a
Security Agreement and a Patent Security Agreement, copies of which have been
provided herewith. The Notes are convertible into shares of the Company's common
stock, par value $0.001 per share ("Common Stock") at a conversion price of
$0.0028 per share, subject to certain adjustments as set forth in the Notes.
Furthermore, the Notes shall accrue interest at a rate equal to twelve percent
(12%) per annum. With respect to the SCCGF Note, interest shall be paid monthly
starting July 1, 2007 and the principal becomes due and payable on December 31,
2007. Such amount under the SCCGF Note is also convertible into Common Stock at
the option of the holder thereof at a conversion price of $0.0028 per share only
if the SCCGF Note is not paid in full by December 31, 2007. With respect to all
other amounts under the Notes (excluding the SCCGF Note), interest shall be paid
quarterly starting January 1, 2008 and principal becomes due and payable on June
19, 2010, unless earlier converted at the option of the respective holders
thereof. Assuming that the Company makes all payments when due under the SCCGF
Note, that the maximum loan amount is advanced under the Funding Agreement (and
the related Notes) and that the Lenders convert the entire amount of the loan
into Common Stock at the noted conversion price above, the Lenders would own
approximately ninety three and three tenths percent (93.3%) of the Company's
total equity on a fully diluted, as converted basis.
The Funding Agreement provides the Lenders the right to designate a
majority of the members of the Board. Such right has not yet been exercised. The
Funding Agreement also contains usual and customary representations and
warranties and covenants that prohibit the Company from undertaking certain
actions without the consent of AirWorks.
Contemporaneously with the execution and delivery of the Funding
Agreement, the Company and the Lenders executed and delivered a Registration
Rights Agreement (the "RRA") pursuant to which the Company shall provide, under
the Securities Act of 1933, as amended and the rules and regulations promulgated
thereunder and applicable state securities laws, certain registration rights to
the Lenders with respect to the registrable securities thereunder. A copy of the
RRA has been filed herewith.
2
Also in connection with the Funding Agreement, several Company option
and warrant holders delivered standstill letter agreements pursuant to which
such holders, under specifies conditions, agreed not to exercise their options
or warrants before December 31, 2007. Several stockholders of the Company also
entered into voting agreements with the Lenders, copies of which are filed
herewith. The effect of such standstill letter and voting agreements, combined
with the conversion into Common Stock of a sufficient amount of the Initial
Amount is that the Lenders would have voting control of the Company. Copies of
the standstill letter agreements have also been filed herewith.
ITEM 3.02 UNREGISTERED SALES OF EQUITY SECURITIES
See Item 1.01 above.
ITEM 5.02 DEPARTURE OF DIRECTORS OR CERTAIN OFFICERS; ELECTION OF DIRECTORS;
APPOINTMENT OF CERTAIN OFFICERS; COMPENSATORY ARRANGEMENTS OF CERTAIN
OFFICERS
On June 15, 2007, the Board approved a new employee stock incentive
plan (the "Plan") which authorizes the issuance of up to one hundred million
(100,000,000) shares of Common Stock. The Board authorized the Company to grant
an aggregate seventy-nine million seven hundred thousand (79,700,000) options,
consisting of (i) sixty million seven hundred eighty-nine three hundred
fifty-three (60,789,353) new options to employees and directors as of the
Closing Date and (ii) eighteen million nine hundred ten thousand six hundred
forty-seven (18,910,647) options to employees of the Company as of the Closing
Date to replace the same number of canceled options previously granted to
employees of the Company (pending such employees agreement to cancel such prior
options). Mr. Dan Dwight, the Company's Chief Executive Officer, Mr. Richard
Tusing, the Company's Chief Operating Officer, Dr. Igor Krichtafovitch, the
Company's Chief Technology Officer, and Mr. Karl Winkler, the Company's Vice
President of Engineering and Product Development, were granted 26,000,000,
15,000,000, 17,800,000 and 8,300,000 options under the Plan, respectively,
16,538,688 of which replaced previously issued and cancelled options. The new
option grants have a term of 10 years. Two-thirds of each grant vests
immediately and one-third of each grant vests on the first anniversary of the
Closing Date. A copy of the Plan has been filed herewith.
ITEM 8.01 OTHER EVENTS
On June 20, 2007, the Company issued a press release with respect to
the Funding Agreement and the option grants described above, substantially in
the form provided herewith.
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
(d) Exhibit No. Description:
3
Exhibit Description Location
-------------- -------------------------------------------------------------------- -----------------
Exhibit 3.1 Kronos Advanced Technologies, Inc. 2007 Stock Incentive Plan Provided herewith
Exhibit 9.1 Voting Agreement, dated June 19, 2007 by and between the Company Provided herewith
and Daniel Dwight, James McDermott, Milton Segal, Richard Tusing
and Igor Kruchtafovitch
Exhibit 9.2 Voting Agreement, dated June 19, 2007 by and between the Company Provided herewith
and Richard Sun and Frederic Gumbinner
Exhibit 10.1 Funding Agreement, dated June 19, 2007, by and among the Company Provided herewith
and the Lenders
Exhibit 10.2 Registration Rights Agreement, dated June 19, 2007, by and among Provided herewith
the Company and the Lenders
Exhibit 10.3 Security Agreement, dated June 19, 2007, by and among the Company Provided herewith
and the Lenders
Exhibit 10.4 Patent Security Agreement, dated June 19, 2007, by and among the Provided herewith
Company and the Lenders
Exhibit 10.5 Standstill Letter Agreement, dated June 19, 2007 by and between the Provided herewith
Company and Daniel Dwight
Exhibit 10.6 Standstill Letter Agreement, dated June 19, 2007 by and between the Provided herewith
Company and Richard Tusing
Exhibit 10.7 Standstill Letter Agreement, dated June 19, 2007 by and between the Provided herewith
Company and James McDermott
Exhibit 10.8 Standstill Letter Agreement, dated June 19, 2007 by and between the Provided herewith
Company and Eagle Rock Group LLC
Exhibit 10.9 Standstill Letter Agreement, dated June 19, 2007 by and between the Provided herewith
Company and Milton Segal
Exhibit 10.10 Standstill Letter Agreement, dated June 19, 2007 by and between the Provided herewith
Company and J. Alexander Chriss
Exhibit 10.11 Standstill Letter Agreement, dated June 19, 2007 by and between the Provided herewith
Company and Igor Krichtafovitch
Exhibit 10.12 Standstill Letter Agreement, dated June 19, 2007 by and between the Provided herewith
Company and Karl Winkler
Exhibit 10.13 Standstill Letter Agreement, dated June 19, 2007 by and between the Provided herewith
Company and Maciej Ziomkowski
Exhibit 10.14 Standstill Letter Agreement, dated June 19, 2007 by and between the Provided herewith
Company and Vladimir Gorobets
Exhibit 10.15 Standstill Letter Agreement, dated June 19, 2007 by and between the Provided herewith
Company and Vladimir Bibikov
Exhibit 10.16 Standstill Letter Agreement, dated June 19, 2007 by and between the Provided herewith
Company and Sergey Karpov
Exhibit 10.17 Standstill Letter Agreement, dated June 19, 2007 by and between the Provided herewith
Company and Vladislov Korolyov
Exhibit 10.18 Standstill Letter Agreement, dated June 19, 2007 by and between the Provided herewith
Company and Terence Tam
4
Exhibit 10.19 Standstill Letter Agreement, dated June 19, 2007 by and between the Provided herewith
Company and Jacob Oharah
Exhibit 10.20 Standstill Letter Agreement, dated June 19, 2007 by and between the Provided herewith
Company and Jewell Larsen
Exhibit 10.21 Standstill Letter Agreement, dated June 19, 2007 by and between the Provided herewith
Company and Richard Sun
Exhibit 10.22 Standstill Letter Agreement, dated June 19, 2007 by and between the Provided herewith
Company and Frederic R. Gumbinner
Exhibit 10.23 US$859,000 SCCGF Note, dated June 19, 2007, issued by the Company to Provided herewith
Sands and CCGF
Exhibit 10.24 US$10,820,000 Note, dated June 19, 2007, issued by the Company to Provided herewith
AirWorks
Exhibit 10.25 US$6,480,000 Note, dated June 19, 2007, issued by the Company to RSP Provided herewith
Exhibit 10.26 Proxy, dated June 19, 2007, by and among the Company, Daniel R. Provided herewith
Dwight, James McDermott, Milton Segal, Richard Tusing, Igor
Krichtafovitch, Richard A. Sun and Richard A. Sun, as
attorney-in-fact for Fredric R. Gumbinner
Exhibit 99.1 Press Release Provided herewith
5
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Company has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
Date: June 22, 2007 KRONOS ADVANCED TECHNOLOGIES, INC.
By: /s/ Richard Tusing
----------------------------
Name: Richard Tusing
Title: Chief Operating Officer and
Director