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)
|
|
Reinaldo
Pascual
Paul,
Hastings, Janofsky & Walker LLP
600
Peachtree Street
Suite
2400
Atlanta,
GA 30308
(404)
815-2400
|
|
(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
AIRWORKS
FUNDING LLLP
|
|
2
|
CHECK
THE APPROPRIATE BOX IF A MEMBER OF A GROUP
|
(a)
ý
(b)
¨
|
|
3
|
SEC
USE ONLY
|
|
4
|
SOURCE
OF FUNDS
OO
|
|
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
STATE
OF GEORGIA
|
|
NUMBER
OF
SHARES
BENEFICIALLY
OWNED
BY
EACH
REPORTING
PERSON
WITH
|
7
|
SOLE
VOTING POWER
885,714,285(1)
|
|
8
|
SHARED
VOTING POWER
|
|
9
|
SOLE
DISPOSITIVE POWER
885,714,285(1)
|
|
10
|
SHARED
DISPOSITIVE POWER
|
|
11
|
AGGREGATE
AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
885,714,285(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)
79%
|
|
14
|
TYPE
OF REPORTING PERSON
PN
|
CUSIP No. 50105X106
|
1
|
NAME
OF REPORTING PERSON
I.R.S.
IDENTIFICATION NO. OF ABOVE PERSON
COMPASS
PARTNERS, LLC
|
|
2
|
CHECK
THE APPROPRIATE BOX IF A MEMBER OF A GROUP
|
(a)
ý
(b)
¨
|
|
3
|
SEC
USE ONLY
|
|
4
|
SOURCE
OF FUNDS
OO
|
|
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
STATE
OF NEW YORK
|
|
NUMBER
OF
SHARES
BENEFICIALLY
OWNED
BY
EACH
REPORTING
PERSON
WITH
|
7
|
SOLE
VOTING POWER
885,714,285(1)
|
|
8
|
SHARED
VOTING POWER
|
|
9
|
SOLE
DISPOSITIVE POWER
885,714,285(1)
|
|
10
|
SHARED
DISPOSITIVE POWER
|
|
11
|
AGGREGATE
AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
885,714,285(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)
79%
|
|
14
|
TYPE
OF REPORTING PERSON
OO
|
CUSIP No. 50105X106
|
1
|
NAME
OF REPORTING PERSON
I.R.S.
IDENTIFICATION NO. OF ABOVE PERSON
RICHARD
PERLMAN
|
|
2
|
CHECK
THE APPROPRIATE BOX IF A MEMBER OF A GROUP
|
(a)
ý
(b)
¨
|
|
3
|
SEC
USE ONLY
|
|
4
|
SOURCE
OF FUNDS
|
|
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
885,714,285(1)
|
|
8
|
SHARED
VOTING POWER
25,341,343(2)
|
|
9
|
SOLE
DISPOSITIVE POWER
885,714,285(1)
|
|
10
|
SHARED
DISPOSITIVE POWER
|
|
11
|
AGGREGATE
AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
911,055,628(1)
(2)
|
|
12
|
CHECK
BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES
|
x
|
|
13
|
PERCENT
OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
79%
|
|
14
|
TYPE
OF REPORTING PERSON
IN
|
CUSIP No. 50105X106
_______________________
(1) Includes
885,714,285 shares of Common Stock issuable upon conversion of the $2,480,000
current principal balance of the $10,820,000 Secured Convertible Promissory
Note
due June 19, 2010 which was issued to AirWorks Funding LLLP on June 19, 2007,
but excludes up to 2,978,571,428 shares of Common Stock which may become
issuable if such convertible note is funded in full.
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 Funding LLLP 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, AirWorks Funding LLLP may be deemed to
be
part of a group with RS Properties and the Critical Capital Entities (as defined
below) pursuant to the terms of the Lender Voting Agreement and the L etter
Agreement described below. The Reporting Persons expressly disclaim beneficial
ownership of shares of Common Stock issuable to RS Properties and the Critical
Capital Entities 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.
(2) Includes
(a) the right to vote, for limited purposes in accordance with those certain
voting and support agreements dated June 19, 2007, an aggregate of 8,590,696
shares of Common Stock owned by Messrs. Dwight, McDermott, Tusing,
Krichtafovitch, Sun and Gumbinner pursuant to a proxy granted to Mr. Perlman
as
of June 19, 2007 and (c) the right to vote, for limited purposes in accordance
with those certain voting and support agreements dated June 19, 2007, an
aggregate of 16,750,647 shares of Common Stock issuable upon exercise of stock
options owned by Messrs. Dwight, McDermott, Segal, Tusing and Krichtafovitch.
The Reporting Persons expressly disclaim beneficial ownership of shares of
Common Stock owned by or issuable to Messrs. Dwight, McDermott, Segal, Tusing,
Krichtafovitch, Sun and Gumbinner.
CUSIP No. 50105X106
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)-(c)
and (f) This Statement is being filed jointly by the following (the “Reporting
Persons”)
AirWorks
Funding LLLP, a Georgia limited liability limited partnership
(“AirWorks”)
655
Madison Avenue
23rd
Floor
New
York, New York 10021
AirWorks
is a newly-formed limited liability limited partnership whose sole business
purpose is to invest in the secured convertible promissory note issued by the
Issuer and to acquire, own, hold, maintain and otherwise deal with the shares
of
the Issuer.
Compass
Partners, L.L.C. (“Compass”)
655
Madison Avenue
23rd
Floor
New
York, New York 10021
Compass
is a limited liability company whose business purpose is to act as the General
Partner of AirWorks. Compass controls AirWorks through its role as General
Partner of AirWorks.
Richard
Perlman, an individual citizen of the United States
c/o
AirWorks Funding LLP
655
Madison Avenue
23rd
Floor
New
York, New York 10021
Mr.
Perlman’s present principal occupation is Chairman of the Board of TurboChef
Technologies, Inc. Mr. Perlman also is the President and controlling member
of
Compass.
(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.
CUSIP No. 50105X106
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, Sands Brothers Venture Capital, LLC (“SBVC I”), Sands
Brothers Venture Capital II LLC (“SBVC II”), Sands Brothers Venture Capital III
LLC (“SBVC III”), Sands Brothers Venture Capital IV LLC (“SBVC IV”), Critical
Capital Growth Fund, L.P. (“Critical Capital” and together with SBVC I, SBVC II,
SBVC III and SBVC IV, 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 $10,820,000 Secured Convertible
Promissory Note due June 19, 2010 (the “AirWorks Note”) to AirWorks, the
outstanding principal amount of which is convertible into an aggregate of up
to
3,864,285,714 shares of the Issuer’s Common Stock at the initial conversion
price of $.0028 per share. On July 19, 2007, AirWorks made its first advance
under the Funding Agreement and the AirWorks Note in the amount of $2,480,000,
which is convertible into 885,714,285 shares of Common Stock. 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), AirWorks will not be able to convert the entire current outstanding
principal amount of the AirWorks Note 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. Assuming that AirWorks funds
the full principal amount of the AirWorks Note and converts such full principal
amount, the AirWorks Note will be convertible into 3,864,285,714 shares of
Common Stock. The source of funds used for the AirWorks Note was capital
contributions from the funds of the General Partner and limited partners of
AirWorks. None of the funds used in connection with the issuance of the AirWorks
Note were borrowed by AirWorks.
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. In addition, on June 19, 2007, each
of
the Securityholders granted Mr. Perlman a proxy to vote the Issuer’s securities
owned by each of them in accordance with the Securityholder Voting
Agreements.
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 the AirWorks Note, a
$859,000 Secured Convertible Promissory Note due December 31, 2007 to the
Critical Capital Entities (the “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.
CUSIP
No. 50105X106
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.
CUSIP
No. 50105X106
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.
As
described in Item 3 above, on June 19, 2007, the Issuer entered into the
Securityholder Voting Agreements with the Securityholders. 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,
the Securityholders granted Mr. Perlman a proxy (the “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.
CUSIP No. 50105X106
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, none of the Reporting Persons have a 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.
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.
Each
of AirWorks and Compass may be deemed to beneficially own 885,714,285 shares
of
Common Stock, representing 79% 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).
Mr. Perlman may be deemed to beneficially own 911,055,628 shares of Common
Stock, representing 79% 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).
Such shares of Common Stock beneficially owned by the Reporting Persons include
(a) 885,714,285 shares of Common Stock issuable upon conversion of $2,480,000
principal amount of the AirWorks Note, but excludes up to 2,978,571,428
additional shares of Common Stock which may become issuable if the AirWorks
Note
is funded in full, (b) in respect of Mr. Perlman, the right to vote, for limited
purposes in accordance with the Securityholder Voting Agreements, an aggregate
of 8,590,696 shares of Common Stock owned by Messrs. Dwight, McDermott, Tusing,
Krichtafovitch, Poster, Sun and Gumbinner pursuant to a proxy granted to Mr.
Perlman as of June 19, 2007 and (c) in respect of Mr. Perlman, the right to
vote, for limited purposes in accordance with the Securityholder Voting
Agreements, an aggregate of 16,750,647 shares of Common Stock issuable upon
exercise of stock options owned by Messrs. Dwight, McDermott, Segal, Tusing,
Krichtafovitch and Poster.
CUSIP
No. 50105X106
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 the Critical Capital Entities.
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.
Pursuant
to, and to the extent set forth in, the Lender Voting Agreement, it could be
alleged that AirWorks shares voting power with respect to the shares of Common
Stock beneficially owned by RS Properties or the Critical Capital Entities.
To
the knowledge of AirWorks and based on documents publicly filed by RS Properties
and the Critical Capital Entities, Exhibit 15 sets forth certain information
with respect to RS Properties and the Critical Capital Entities, which is
incorporated herein by reference. To the knowledge of AirWorks and based on
documents publicly filed by RS Properties and the Critical Capital Entities,
during the last five years, neither RS Properties nor any of the Critical
Capital Entities has been: (i) convicted in a criminal proceeding (excluding
traffic violations or similar misdemeanors), or (ii) a party to a civil
proceeding of a judicial or administrative body of competent jurisdiction and
as
a result of such proceeding was or is 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.
(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 RS Properties and the Critical Capital
Entities
|
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
| |
AIRWORKS
FUNDING LLLP
By:
Compass Partners, L.L.C., its General Partner
By:_/s/
Richard Perlman__________
Name:
Richard Perlman
Title:
President
COMPASS
PARTNERS, L.L.C.
By:
_/s/
Richard Perlman__________
Name:
Richard Perlman
Title:
President
RICHARD
PERLMAN
_/s/
Richard Perlman__________
|