Schedule 13D
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
13D
Under
the Securities Exchange Act of 1934
Kronos
Advanced Technologies, Inc.
|
(Name
of Issuer)
|
Common
Stock, $0.001 Par Value Per Share
|
(Title
of Class of Securities)
|
Sands
Brothers Venture Capital LLC
90
Park Avenue, 31st Floor
New
York, NY 10016
212-697-5200
|
(Name,
Address and Telephone Number of Person Authorized to Receive Notices
and
Communications)
|
June
19, 2007
|
(Date
of Event which Requires Filing of this
Statement)
|
If
the filing person has previously filed a statement on Schedule 13G to report
the
acquisition that is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following
box
o.
The
information required on the remainder of this cover page shall not be deemed
to
be “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934
(“Act”) or otherwise subject to the liabilities of that section of the Act but
shall be subject to all other provisions of the Act (however, see the
Notes).
SCHEDULE
13D
1
|
NAME
OF REPORTING PERSON
I.R.S.
IDENTIFICATION NO. OF ABOVE PERSON
SANDS
BROTHERS VENTURE CAPITAL LLC
|
2
|
CHECK
THE APPROPRIATE BOX IF A MEMBER OF A GROUP
|
(a)
ý
(b)
¨
|
3
|
SEC
USE ONLY
|
4
|
SOURCE
OF FUNDS
WC
|
5
|
CHECK
BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS
2(d)
or 2(e)
|
o
|
6
|
CITIZENSHIP
OR PLACE OF ORGANIZATION
NEW
YORK
|
NUMBER
OF
SHARES
BENEFICIALLY
OWNED
BY
EACH
REPORTING
PERSON
WITH
|
7
|
SOLE
VOTING POWER
|
8
|
SHARED
VOTING POWER
0(1)
|
9
|
SOLE
DISPOSITIVE POWER
|
10
|
SHARED
DISPOSITIVE POWER
0(1)
|
11
|
AGGREGATE
AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
0(1)
|
12
|
CHECK
BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES
|
x
|
13
|
PERCENT
OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0%
|
14
|
TYPE
OF REPORTING PERSON
OO
|
CUSIP
No. 50105X106
1
|
NAME
OF REPORTING PERSON
I.R.S.
IDENTIFICATION NO. OF ABOVE PERSON
SANDS
BROTHERS VENTURE CAPITAL II LLC
|
2
|
CHECK
THE APPROPRIATE BOX IF A MEMBER OF A GROUP
|
(a)
ý
(b)
¨
|
3
|
SEC
USE ONLY
|
4
|
SOURCE
OF FUNDS
WC
|
5
|
CHECK
BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS
2(d)
or 2(e)
|
o
|
6
|
CITIZENSHIP
OR PLACE OF ORGANIZATION
NEW
YORK
|
NUMBER
OF
SHARES
BENEFICIALLY
OWNED
BY
EACH
REPORTING
PERSON
WITH
|
7
|
SOLE
VOTING POWER
|
8
|
SHARED
VOTING POWER
0(1)
|
9
|
SOLE
DISPOSITIVE POWER
|
10
|
SHARED
DISPOSITIVE POWER
0(1)
|
11
|
AGGREGATE
AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
0(1)
|
12
|
CHECK
BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES
|
x
|
13
|
PERCENT
OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0%
|
14
|
TYPE
OF REPORTING PERSON
OO
|
1
|
NAME
OF REPORTING PERSON
I.R.S.
IDENTIFICATION NO. OF ABOVE PERSON
SANDS
BROTHERS VENTURE CAPITAL III LLC
|
2
|
CHECK
THE APPROPRIATE BOX IF A MEMBER OF A GROUP
|
(a)
ý
(b)
¨
|
3
|
SEC
USE ONLY
|
4
|
SOURCE
OF FUNDS
WC
|
5
|
CHECK
BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS
2(d)
or 2(e)
|
o
|
6
|
CITIZENSHIP
OR PLACE OF ORGANIZATION
NEW
YORK
|
NUMBER
OF
SHARES
BENEFICIALLY
OWNED
BY
EACH
REPORTING
PERSON
WITH
|
7
|
SOLE
VOTING POWER
|
8
|
SHARED
VOTING POWER
0(1)
|
9
|
SOLE
DISPOSITIVE POWER
|
10
|
SHARED
DISPOSITIVE POWER
0(1)
|
11
|
AGGREGATE
AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
0(1)
|
12
|
CHECK
BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES
|
x
|
13
|
PERCENT
OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0%
|
14
|
TYPE
OF REPORTING PERSON
OO
|
1
|
NAME
OF REPORTING PERSON
I.R.S.
IDENTIFICATION NO. OF ABOVE PERSON
SANDS
BROTHERS VENTURE CAPITAL IV LLC
|
2
|
CHECK
THE APPROPRIATE BOX IF A MEMBER OF A GROUP
|
(a)
ý
(b)
¨
|
3
|
SEC
USE ONLY
|
4
|
SOURCE
OF FUNDS
WC
|
5
|
CHECK
BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS
2(d)
or 2(e)
|
o
|
6
|
CITIZENSHIP
OR PLACE OF ORGANIZATION
UNITED
STATES
|
NUMBER
OF
SHARES
BENEFICIALLY
OWNED
BY
EACH
REPORTING
PERSON
WITH
|
7
|
SOLE
VOTING POWER
|
8
|
SHARED
VOTING POWER
0(1)
|
9
|
SOLE
DISPOSITIVE POWER
|
10
|
SHARED
DISPOSITIVE POWER
0(1)
|
11
|
AGGREGATE
AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
0(1)
|
12
|
CHECK
BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES
|
x
|
13
|
PERCENT
OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0%
|
14
|
TYPE
OF REPORTING PERSON
OO
|
1
|
NAME
OF REPORTING PERSON
I.R.S.
IDENTIFICATION NO. OF ABOVE PERSON
CRITICAL
CAPITAL GROWTH FUND, L.P.
|
2
|
CHECK
THE APPROPRIATE BOX IF A MEMBER OF A GROUP
|
(a)
ý
(b)
¨
|
3
|
SEC
USE ONLY
|
4
|
SOURCE
OF FUNDS
WC
|
5
|
CHECK
BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS
2(d)
or 2(e)
|
o
|
6
|
CITIZENSHIP
OR PLACE OF ORGANIZATION
UNITED
STATES
|
NUMBER
OF
SHARES
BENEFICIALLY
OWNED
BY
EACH
REPORTING
PERSON
WITH
|
7
|
SOLE
VOTING POWER
|
8
|
SHARED
VOTING POWER
0(1)
|
9
|
SOLE
DISPOSITIVE POWER
|
10
|
SHARED
DISPOSITIVE POWER
0(1)
|
11
|
AGGREGATE
AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
0(1)
|
12
|
CHECK
BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES
|
x
|
13
|
PERCENT
OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0%
|
14
|
TYPE
OF REPORTING PERSON
PN
|
1
|
NAME
OF REPORTING PERSON
I.R.S.
IDENTIFICATION NO. OF ABOVE PERSON
CHARLES
L. ROBINSON
|
2
|
CHECK
THE APPROPRIATE BOX IF A MEMBER OF A GROUP
|
(a)
ý
(b)
¨
|
3
|
SEC
USE ONLY
|
4
|
SOURCE
OF FUNDS
WC
|
5
|
CHECK
BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS
2(d)
or 2(e)
|
o
|
6
|
CITIZENSHIP
OR PLACE OF ORGANIZATION
UNITED
STATES
|
NUMBER
OF
SHARES
BENEFICIALLY
OWNED
BY
EACH
REPORTING
PERSON
WITH
|
7
|
SOLE
VOTING POWER
|
8
|
SHARED
VOTING POWER
0(1)
|
9
|
SOLE
DISPOSITIVE POWER
|
10
|
SHARED
DISPOSITIVE POWER
0(1)
|
11
|
AGGREGATE
AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
0(1)
|
12
|
CHECK
BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES
|
x
|
13
|
PERCENT
OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0%
|
14
|
TYPE
OF REPORTING PERSON
IN
|
1
|
NAME
OF REPORTING PERSON
I.R.S.
IDENTIFICATION NO. OF ABOVE PERSON
SCOTT
BAILY
|
2
|
CHECK
THE APPROPRIATE BOX IF A MEMBER OF A GROUP
|
(a)
ý
(b)
¨
|
3
|
SEC
USE ONLY
|
4
|
SOURCE
OF FUNDS
WC
|
5
|
CHECK
BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS
2(d)
or 2(e)
|
o
|
6
|
CITIZENSHIP
OR PLACE OF ORGANIZATION
UNITED
STATES
|
NUMBER
OF
SHARES
BENEFICIALLY
OWNED
BY
EACH
REPORTING
PERSON
WITH
|
7
|
SOLE
VOTING POWER
|
8
|
SHARED
VOTING POWER
0(1)
|
9
|
SOLE
DISPOSITIVE POWER
|
10
|
SHARED
DISPOSITIVE POWER
0(1)
|
11
|
AGGREGATE
AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
0(1)
|
12
|
CHECK
BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES
|
x
|
13
|
PERCENT
OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0%
|
14
|
TYPE
OF REPORTING PERSON
IN
|
_______________________
(1) Excludes
306,785,714 shares of Common Stock which may become issuable in certain
circumstances upon conversion of the $859,000 Secured Convertible Promissory
Note due December 31, 2007 which was issued to Sands Brothers Venture Capital,
LLC, Sands Brothers Venture Capital II LLC, Sands Brothers Venture Capital
III
LLC, Sands Brothers Venture Capital IV LLC and Critical Capital Growth Fund,
L.P. on June 19, 2007.
This
Schedule 13D has been prepared taking into account that, as described in Items
3, 4 and 5 below, pursuant to the Lender Voting Agreement (as defined below)
and
the Letter Agreement (as defined below), AirWorks (as defined below) and RS
Properties (as defined below) have agreed to convert a sufficient principal
amount of their respective Notes (as defined below) to secure voting control
of
the Issuer and will subsequently vote to approve an amendment to the Issuer’s
articles of incorporation to increase the authorized share capital of the Issuer
to allow the Lenders (as defined below) to convert the entire principal amounts
advanced under the Notes into shares of Common Stock of the
Issuer.
As
described in Items 3, 4 and 5 below, the Critical Capital Entities (as defined
below) may be deemed to be part of a group with RS Properties and AirWorks
pursuant to the terms of the Lender Voting Agreement and the Letter Agreement
described below. The Reporting Persons expressly disclaim beneficial ownership
of shares of Common Stock issuable to RS Properties and AirWorks upon conversion
of the Notes (as defined below). Such shares of Common Stock are not included
in
the amounts specified by the Reporting Persons above.
Item
1. Security
and Issuer.
The
title of the class of equity securities to which this statement relates is
Common Stock, par value $0.001 each
(“Common Stock”) of Kronos Advanced Technologies, Inc., a Nevada corporation
(the “Issuer”). The principal executive office of the Issuer is located at 494
Common Street, Suite 301, Belmont, MA 02478.
Item
2. Identity
and Background.
(a)
This Statement is being filed jointly by (i) Sands Brothers Venture Capital,
LLC
(“SB I”), (ii) Sands Brothers Venture Capital II LLC (“SB II”), (iii) Sands
Brothers Venture Capital III LLC (“SB III”), (iv) Sands Brothers Venture Capital
IV LLC (“SB IV”), (v) Critical Capital Growth Fund, L.P. (“Critical Capital” and
together with SB I, SB II, SB III, SB IV and Critical Capital, the “Critical
Capital Entities”) and Messrs. Charles L. Robinson, President of Critical
Capital Corporation, a Delaware Corporation that is the managing general partner
of Critical Capital, and Scott Baily, Chief Operating Officer of each of SB
I,
SB II, SB III and SB IV. Collectively, Messrs. Robinson and Baily, Critical
Capital, SB I, SB II, SB III and SBs IV are referred to herein as the “Reporting
Persons”.
Critical
Capital is a Delaware Limited Partnership that operates as a debenture licensed
U.S. Small Business Investment Company. Critical Capital, L.P., a Delaware
Limited Partnership, is the General Partner of Critical Capital. Critical
Capital Corporation, a Delaware Corporation, is the managing general partner
of
Critical Capital, L.P.
Critical
Capital Corporation’s officers and directors are: Charles L. Robinson, President
and Steven B. Sands, Chairman. Steven B. Sands owns all shares of Critical
Capital Corporation stock.
Critical
Capital Corporation has vested Mr. Robinson with sole dispositive and sole
voting power for Critical Capital as to such shares of the Issuer
proportionately held by Critical Capital.
Mr.
Robinson may be deemed to be the indirect beneficial owner of the shares of
the
Issuer’s common stock reported herein that are proportionately owned by Critical
Capital. Mr. Robinson disclaims beneficial ownership of such shares
proportionately and respectively held by the Reporting Persons, except to the
extent of Mr. Robinson’s pecuniary interests therein, if any.
Each
of SB I, SB II, SB III and SB IV is a New York limited liability company. SB
Venture Capital Management LLC, SB Venture Capital Management II LLC, SB Venture
Capital Management III LLC and SB Venture Capital Management IV LLC, each a
New
York limited liability company, are the member managers of SB I, SB II, SB
III
and SB IV, respectively.
Each
of SB Venture Capital Management LLC, SB Venture Capital Management II LLC,
SB
Venture Capital Management III LLC and SB Venture Capital Management IV LLC
is
owned by trusts for the benefit of members of the families of Steven B. Sands
and Martin S. Sands. Neither Steven B. Sands nor Martin S. Sands serves as
a
trustee of or exercises control over these trusts. Messrs. Steven B. Sands
and
Martin S. Sands are each managers of each of SB Venture Capital Management
LLC,
SB Venture Capital Management II LLC, SB Venture Capital Management III LLC
and
SB Venture Capital Management IV LLC.
Each
of SB Venture Capital Management LLC, SB Venture Capital Management II LLC,
SB
Venture Capital Management III LLC and SB Venture Capital Management IV LLC.
has
vested Mr. Scott Baily, the Chief Operating Officer of each of SB I, SB II,
SB
III and SB IV with sole dispositive and sole voting power for each of SB I,
SB
II, SB III and SB IV, respectively, as to such shares of the Issuer
proportionately and respectively held by SB I, SB II, SB III and SB
IV.
Because
of his management position with Sands I, Sands II, Sands III and Sands IV,
Mr.
Scott Baily may be deemed to be the indirect beneficial owner of the shares
of
the Issuer's common stock reported herein that are proportionately owned by
Sands I, Sands II, Sands III and Sands IV, respectively. Mr. Scott Baily
disclaims beneficial ownership of such shares proportionately and respectively
held by the Reporting Persons, except to the extent of Messrs. Robinson’s
pecuniary interests therein, if any.
(b)
The address of each of the Reporting Persons is 90 Park Avenue, 31st Floor,
New
York, New York 10016.
(c)
The principal business of each of Critical Capital, SB I, SB II, SB III and
SB
IV is that of a private investment entity engaged in the purchase and sale
of
securities.
(d)
and (e) None of the Reporting Persons has, during the last five years, been
(a)
convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors), or (b) a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction as a result of which he or it
is
or was subject to a judgment, decree or final order enjoining future violations
of, or prohibiting or mandating activities subject to, federal or state
securities laws or finding any violation with respect to such laws.
Item
3. Source
and Amount of Funds or Other Consideration.
On
July 19, 2007, pursuant to a Funding Agreement (the “Funding Agreement”), among
the Issuer, AirWorks Funding LLLP (“AirWorks”), the Critical Capital Entities
and RS Properties I LLC (“RS Properties”, and collectively with AirWorks and the
Critical Capital Entities, the “Lenders”), the Issuer issued a $859,000 Secured
Convertible Promissory Note due December 31, 2007 (the “Critical Capital Note”)
to the Critical Capital Entities, the outstanding principal amount of which
is
convertible in certain circumstances into an aggregate of up to 306,785,714
shares of the Issuer’s Common Stock at the initial conversion price of $.0028
per share. On July 19, 2007, the Critical Capital Entities made its advance
under the Funding Agreement and the Critical Capital Note in the amount of
$859,000. Since the Issuer currently is only authorized to issue 500 million
shares of Common Stock and as of May 18, 2007, 242,342,803 shares of Common
Stock were issued and outstanding (according to filings made by the Issuer
with
the Securities and Exchange Commission), the Critical Capital Entities will
not
be able to convert the entire current outstanding principal amount of the
Critical Capital Note, if applicable, until such time as the Issuer increases
its authorized share capital to authorize additional shares of Common Stock.
As
described in Item 4, pursuant to the Lender Voting Agreement and the Letter
Agreement, AirWorks and RS Properties have agreed to convert a sufficient
principal amount of their respective Notes to secure voting control of the
Issuer and will subsequently vote to approve an amendment to the Issuer’s
articles of incorporation to increase the authorized share capital of the Issuer
to allow the Lenders to convert the entire principal amounts advanced under
the
Notes into shares of Common Stock of the Issuer. The source of funds used for
the Critical Capital Note was the working capital of the Critical Capital
Entities. None of the funds used in connection with the issuance of the Critical
Capital Note were borrowed by the Critical Capital Entities.
CUSIP
No. 50105X106
See
Item 4 below for more information.
Item
4. Purpose
of Transaction.
Funding
Agreement and Secured Convertible Promissory Notes
Pursuant
to the Funding Agreement, the Lenders agreed to loan the Issuer up to an
aggregate of $18,159,000 (the “Loan”), evidenced by a $10,820,000 Secured
Convertible Promissory Note due June 19, 2010 to AirWorks (the “AirWorks Note”),
Critical Capital Note and a $6,480,000 Secured Convertible Promissory Note
due
June 19, 2010 to RS Properties (the “RS Note” and together with the AirWorks
Note and the Critical Capital Note, the “Notes”). The first installment of the
Loan, totaling $4,259,000, was advanced to the Issuer in the following amounts:
AirWorks advanced $2,480,000, the Critical Capital Entities advanced $859,000
and RS Properties advanced $920,000. Pursuant to the Funding Agreement, AirWorks
may advance up to an additional $8,340,000 under the AirWorks Note and RS
Properties may advance up to an additional $5,560,000 under the RS Note, at
any
time, and from time to time, prior to the maturity date of such notes, in the
sole discretion of AirWorks and RS Properties, respectively.
Pursuant
to the terms of the Notes, based on the amounts advanced in the first
installment of the Loan, (1) the AirWorks Note is convertible into 885,714,285
shares of Common Stock, (2) the Critical Capital Note is convertible into
306,785,714 shares of Common Stock upon the occurrence of certain events
described below and (3) the RS Note is convertible into 328,571,428 shares
of
Common Stock, in each case, based on the initial conversion price of the Notes
(which is subject to adjustment under certain specified circumstances). Assuming
the full amount of the Notes are funded and the entire aggregate principal
amount of the Notes is converted, (1) the AirWorks Note will be convertible
into
up to 3,864,285,714 shares of Common Stock, (2) the Critical Capital Note will
be convertible into up to 306,785,714 shares of Common Stock and (3) the RS
Note
will be convertible into up to 2,314,285,714 shares of Common Stock, in each
case, based on the initial conversion price of the Notes (which is subject
to
adjustment under certain specified circumstances). The AirWorks Note and the
RS
Note are convertible at any time, in whole or in part, and the Critical Capital
Note is only convertible in the event that all principal and accrued interest
is
not paid in full to the Critical Capital Entities on or prior to the maturity
date of the Critical Capital Note. Each of the Notes bear interest, in arrears,
at a rate of 12% per annum, payable in cash with respect to the AirWorks and
RS
Note commencing on January 1, 2008 and payable in cash with respect to the
Critical Capital Note commencing on July 1, 2007. All outstanding principal
and
accrued interest under the Critical Capital Note is due and payable on December
31, 2007. All outstanding principal and accrued interest on the AirWorks Note
and the RS Note is due and payable on June 19, 2010. In addition, pursuant
to
the Notes, the Lenders have been granted certain preemptive rights in the event
the Issuer proposes to issue or sell any shares of Common Stock or any rights
or
options to purchase shares of Common Stock. Each of the Notes contains
additional terms and conditions, including events of default, that are generally
consistent with securities of this kind.
Pursuant
to the Funding Agreement, the Issuer has agreed to take all actions necessary
to
ensure that AirWorks and RS Properties have the right to designate a majority
of
the members of the board of directors of the Issuer, including increasing the
number of members of the issuer’s board of directors.
The
Issuer’s obligations under the Notes are secured by substantially all of the
assets of the Issuer and its subsidiary Kronos Air Technologies, Inc., pursuant
to a Security Agreement dated June 19, 2007.
In
connection with the Funding Agreement, the Lenders entered into an Intercreditor
Agreement with certain existing creditors of the Issuer (the “Existing
Creditors”) whereby the Existing Creditors agreed to subordinate their security
interest to that of the Lenders. In addition, the Lenders also entered into
an
Intercreditor Agreement whereby AirWorks and RS Properties agreed to subordinate
their security interest to that of the Critical Capital Entities.
Voting
and Support Agreements
On
June 19, 2007, the Issuer, AirWorks, the Critical Capital Entities and RS
Properties entered into a Voting and Support Agreement (the “Lender Voting
Agreement”) pursuant to which the Lenders agreed to vote the shares of Common
Stock entitled to vote on the following matters in the following manner: (1)
in
favor of a slate of directors to serve on the Company’s board of directors as
proposed by AirWorks and RS Properties, (2) in favor or adjusting the size
of
the Issuer’s board of directors such that upon the election of the slate of
directors proposed by AirWorks and RS Properties, such directors hold a majority
of the seats on the Issuer’s board of directors, (3) in favor of approving an
amendment to the Issuer’s articles of incorporation to increase the Issuer’s
authorized common stock to a number of shares necessary to allow the Lenders
to
convert the entire principal amount of the Notes into share of common stock
of
the Company, (4) in favor of approving the reincorporation of the Company in
Delaware, (5) in favor of a reverse stock split proposed by AirWorks or the
Issuer’s board of directors and (6) against any action or transaction that may
reasonably be expected to impede, interfere with, delay, postpone or attempt
to
discourage the consummation of any of the foregoing. The expiration of the
Lender Voting Agreement is the earlier of (a) the date on which the matters
set
forth in (1)-(5) above have been approved by the stockholders of the Issuer and
(b) August 1, 2008.
Additionally,
on June 19, 2007, the Issuer entered into Voting and Support Agreements (the
“Securityholder Voting Agreements”) with Messrs. Dwight, McDermott, Segal,
Tusing, Krichtafovitch, Poster, Sun and Gumbinner (collectively, the
“Securityholders”) pursuant to which the Securityholders agreed to vote the
Issuer’s securities owned by them on certain specified matters in accordance
with the Securityholder Voting Agreement. The terms and expiration date of
the
Securityholder Voting Agreements are substantially similar to those of the
Lender Voting Agreement. In addition, on June 19, 2007, each of the
Securityholders granted Mr. Perlman, the President of Compass Partners, L.L.P.,
the general partner of AirWorks, a proxy to vote the Issuer’s securities owned
by each of them in accordance with the Securityholder Voting
Agreements.
Letter
Agreement
On
June 19, 2007, AirWorks and RS Properties entered into a letter agreement (the
“Letter Agreement”) pursuant to which the parties agreed (1) that any advances
made to the Issuer pursuant to the Funding Agreement and the AirWorks Note
and
RS Note, respectively, at a subsequent closing, will be made 60% by AirWorks
and
40% by RS Properties, (2) that following the closing of the Funding Agreement,
AirWorks and RS Properties will secure more than 50% of the voting control
of
the Issuer with AirWorks converting such portion of the AirWorks Note as is
necessary to represent 60% of such controlling position and RS Properties
converting such portion of the RS Note as is necessary to represent 40% of
such
controlling position, (3) to enter into the Lender Voting Agreement and (4)
to
make certain adjustments to the percentage of additional advances required
to be
made by AirWorks and RS Note if certain specified events occurred. This Schedule
13D has been prepared taking into account that, pursuant to the terms of the
Letter Agreement, AirWorks and RS Properties, will have voting control of the
Issuer once the above actions have been taken and will vote their respective
shares of Common Stock in accordance with the terms of the Lender Voting
Agreement.
Registration
Rights Agreement
In
connection with the Funding Agreement, the Issuer and the Lenders entered into
a
Registration Rights Agreement dated June 19, 2007. Pursuant to the Registration
Rights Agreement, the Issuer agreed to file a registration statement registering
the Common Stock owned by the Lenders, the Common Stock underlying the Notes
and
any other securities issued or issuable with respect to such securities upon
any
classification, share combination, share division, share dividend, merger
consolidation or similar event (the “Registrable Securities”), upon demand of
the holders of at least 20% of the Registrable Securities. The Issuer is
required to file such registration statement within 45 days (or 90 days if
the
registration statement is on a form other than Form S-3) after notice is give
and to use its reasonable best efforts to cause the registration statement
to
become effective as promptly as practicable. The Issuer is required to keep
such
registration statement effective until the earlier of (1) the date all
Registrable Securities covered by such registration statement have been sold
or
(2) the date on which all of the Registrable Securities may be sold without
restriction pursuant to subsection (k) of Rule 144 of the Securities Act of
1933, as amended. The Registration Rights Agreement also provides the Lenders
with piggy back registration rights with respect to certain offerings of the
Issuer’s securities.
The
foregoing summaries of the Funding Agreement, the Notes, the Security Agreement,
the Intercreditor Agreements, the Lender Voting Agreement, the Securityholder
Voting Agreements, the Proxy, the Letter Agreement and the Registration Rights
Agreement are qualified in their entirety by reference to the copies of such
agreements which are attached hereto as Exhibits 2 through 14, respectively,
and
which are hereby incorporated by this reference.
Except
as set forth herein, the Reporting Person has no present plan or proposal that
relates to or would result in any other action specified in clauses (a) through
(j) of Item 4 of Schedule 13D.
CUSIP
No. 50105X106
Item
5. Interest
in Securities of the Issuer.
(a)
and (b) See Items 7 through 11 and 13 of the cover sheet for each Reporting
Person.
If
the Critical Capital Note becomes convertible into Common Stock, each of the
Reporting Persons may be deemed to beneficially own 306,785,714 shares of Common
Stock, representing 56% of the outstanding shares of Common Stock (based upon
242,342,803 shares of Common Stock as of May 18, 2007, as reported in the
Issuer’s quarterly report on Form 10-QSB for the quarter ended March 31,
2007).
In
addition, by virtue of any of the Lender Voting Agreement and the Letter
Agreement, a “group,” within the meaning of Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), or Rule 13d-5(b)(1)
thereunder, may have been formed that includes, AirWorks, RS Properties and
the
Critical Capital Entities. Such a group including
AirWorks, RS Properties and the Critical Capital Entities would be deemed to
beneficially own, in the aggregate, 1,214,285,713 shares of Common Stock,
representing 83%
of the Common Stock outstanding (based upon 242,342,803 shares of Common Stock
outstanding as of May 18, 2007). Such shares of Common Stock which would be
deemed beneficially owned by such a group includes (1) 328,571,428 shares of
Common Stock issuable upon conversion of the funded portion of the RS Note
and
(2) 885,714,285 shares of Common Stock issuable upon conversion of the funded
portion of the AirWorks Note, but excludes (1) 1,985,714,285 shares of Common
Stock which may become issuable if the RS Note is funded in full, (2)
2,978,571,428 shares of Common Stock which may become issuable if the AirWorks
Note is funded in full and (3) 306,785,714 shares of Common Stock
underlying the Critical Capital Note which is not presently convertible. The
Reporting Persons expressly disclaim beneficial ownership of Common Stock
beneficially owned by RS Properties and AirWorks.
Since
the Issuer currently is only authorized to issue 500 million shares of Common
Stock and as of May 18, 2007, 242,342,803 shares of Common Stock were issued
and
outstanding (according to filings made by the Issuer with the Securities and
Exchange Commission), the Lenders will not be able to convert the entire current
outstanding principal amount of the Notes until such time as the Issuer
increases its authorized share capital to authorize additional shares of Common
Stock. As described above, pursuant to the Lender Voting Agreement and the
Letter Agreement, AirWorks and RS Properties have agreed to convert a sufficient
principal amount of the their respective Notes to secure voting control of
the
Issuer and will subsequently vote to approve an amendment to the Issuer’s
articles of incorporation to increase the authorized share capital of the Issuer
to allow the Lenders to convert the entire principal amounts advanced under
the
Notes into shares of Common Stock of the Issuer.
(c)
Except as set forth in Items 3 and 4 above, no transactions in the Common Stock
were effected by the Reporting Persons in the last 60 days.
(d)
and (e) Not applicable.
Item
6. Contracts,
Arrangements, Understandings or Relationships With Respect to Securities of
Issuer.
See
Items 3, 4 and 5 above. Except as set forth in this Schedule 13D, to the best
knowledge of the Reporting Persons, no contracts, arrangements, understandings
or relationships (legal or otherwise) exist among the Reporting Persons and
between the Reporting Persons and any other person with respect to the
securities of the Issuer.
Item
7. Materials
to be Filed as Exhibits.
Exhibit
No.
|
Description
|
1.
|
Consent
and Joint Filing Statement
|
2.
|
Funding
Agreement, dated June 19, 2007 between the Issuer, AirWorks, the
Critical
Capital Entities and RS Properties
|
3.
|
AirWorks
Note, dated June 19, 2007
|
4.
|
Critical
Capital Note, dated June 19, 2007
|
5.
|
RS
Properties Note, dated June 19, 2007
|
6.
|
Security
Agreement, dated June 19, 2007 among the Issuer, AirWorks, the Critical
Capital Entities and RS Properties
|
7.
|
Intercreditor
Agreement, dated June 19, 2007 among AirWorks, the Critical Capital
Entities, RS Properties and certain existing creditors of the
Issuer
|
8.
|
Intercreditor
Agreement, dated June 19, 2007 among AirWorks, the Critical Capital
Entities and RS Properties
|
9.
|
Lender
Voting Agreement, dated June 19, 2007 among the Issuer, AirWorks,
the
Critical Capital Entities and RS Properties
|
10.
|
Securityholder
Voting Agreement, dated June 19, 2007 between the Issuer and the
Securityholders specified therein
|
11.
|
Securityholder
Voting Agreement, dated June 19, 2007 between the Issuer and the
Securityholders specified therein
|
12.
|
Proxy
granted in favor of Mr. Perlman dated June 19, 2007
|
13.
|
Letter
Agreement, dated June 19, 2007 between AirWorks and RS
Properties
|
14.
|
Registration
Rights Agreement, dated June 19, 2007 among the Issuer, AirWorks,
the
Critical Capital Entities and RS Properties
|
15.
|
Information
regarding AirWorks and RS
Properties
|
SIGNATURE
After
reasonable inquiry and to the best of its knowledge and belief, each of the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
Dated:
June 29, 2007
|
SANDS
BROTHERS VENTURE CAPITAL LLC
By:_/s/
Scott Baily________________________
Name:
Scott Baily
Title:
COO
SANDS
BROTHERS VENTURE CAPITAL II LLC
By:_/s/
Scott Baily________________________
Name:
Scott Baily
Title:
COO
SANDS
BROTHERS VENTURE CAPITAL III LLC
By:_/s/
Scott Baily________________________
Name:
Scott Baily
Title:
COO
SANDS
BROTHERS VENTURE CAPITAL IV LLC
By:_/s/
Scott Baily________________________
Name:
Scott Baily
Title:
COO
CRITICAL
CAPITAL GROWTH FUND, L.P.
By:_/s/
Charles L. Robinson________________
Name:
Charles L. Robinson
Title:
Chief Investment Officer
CHARLES
L. ROBINSON
_/s/
Charles L. Robinson__________________
SCOTT
BAILY
_/s/
Scott Baily_________________________
|