FILED PURSUANT TO RULE NO. 424(b)(3)
REGISTRATION NO. 333-124167
SUPPLEMENT TO PROSPECTUS
DATED DECEMBER 18, 2006
KRONOS ADVANCED TECHNOLOGIES, INC.
UP TO 164,848,371 SHARES OF COMMON STOCK
Attached hereto and hereby made part of the prospectus is the Company's
Current Report on Form 8-K, as filed with the U.S. Securities and Exchange
Commission on December 15, 2006. Prospective investors in our common stock
should carefully read this document prior to making any investment decision.
__________________________
You should only rely on the information provided in the prospectus,
this prospectus supplement or any additional supplement. We have not authorized
anyone else to provide you with different information. The common stock is not
being offered in any state where the offer is not permitted. You should not
assume that the information in the prospectus or this prospectus supplement or
any additional supplement is accurate as of any date other than the date on the
front of those documents.
__________________________
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of the prospectus or this prospectus supplement. Any
representation to the contrary is a criminal offense.
__________________________
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS DECEMBER 18, 2006
MI-225032 v1 0434180-0201
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): December 13, 2006
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 December 13, 2006 (the "Transaction Date"), Kronos Advanced
Technologies, Inc., a Nevada corporation (the "Company") issued to Cornell
Capital Partners, LP ("Cornell") a convertible debenture (the "Debenture") in
the principal amount of One Million Six Hundred Forty-Five Thousand Four Hundred
Seventy-Six Dollars ($1,645,476) in satisfaction of the outstanding principal
balance and accrued interest under that certain Promissory Note, issued by the
Company to Cornell on June 22, 2005, in the principal amount of One Million Five
Hundred Fifteen Thousand Dollars ($1,515,000) (the "Note").
The Debenture is due on or before June 13, 2007 (the "Maturity Date"), and
interest shall accrue on the outstanding principal balance thereof at an annual
rate equal to twelve percent (12%). Interest shall be paid by the Company in
cash or in shares of common stock of the Company, par value $0.001 per share
("Common Stock") and such shares of Common Stock shall be valued at the Closing
Bid Price (as such term is defined in the Debenture) on the trading day
immediately prior to the date paid at the option of the Company. The Company
shall at all time reserve and keep available out of its authorized and unissued
shares of Common Stock (taking into account the adjustments and restrictions set
forth therein), solely for the purpose of issuance upon conversion of the
Debenture and payment of interest on the Debenture, not less than such number of
shares of Common Stock as shall be issuable upon the conversion of the
outstanding principal amount of the Debenture and payment of interest
thereunder.
The Company at its option shall have the right to redeem a portion or all
amounts outstanding under the Debenture prior to the Maturity Date by providing
five (5) business days prior written notice to the holder of its intention to
make a redemption (the "Redemption Notice Period") setting forth the amount of
principal it desires to redeem. After receipt of the redemption notice, the
holder has through the end of the Redemption Notice Period to elect to convert a
portion of the Debenture, up to and not exceeding an amount of shares of
restricted Common Stock that after giving affect to such conversion, the holder,
together with any affiliates, would beneficially own 4.99% of the number of
shares of Common Stock outstanding immediately after giving effect to such
conversion. On the sixth (6th) business day after the redemption notice, the
Company must deliver to holder the redemption amount with respect to the
principal amount redeemed after giving effect to any conversions during the
Redemption Notice Period. It is an event of default under the Debenture if the
Company does not timely make the redemption payment and the conversion
limitation described above will no longer apply.
The Debenture is convertible into unregistered shares of Common Stock at
the option of the holder, in whole or in part at any time and from time to time
subject to certain limitations set forth therein. The number of shares of Common
Stock issuable upon conversion equals the quotient obtained by dividing (x) the
outstanding amount of the Debenture to be converted by (y) $0.0075 per share,
which such price may be adjusted pursuant to the terms of the Debenture.
The Company shall not effect any conversions under the Debenture and the
holder shall not have the right to convert any portion of the Debenture or
receive shares of restricted Common Stock as payment of interest or principal
thereunder to the extend that, after giving effect to such conversion or receipt
of such interest or principal payment, the holder, together with any affiliate
thereof, would beneficially own in excess of 4.99% of the number of shares of
Common Stock outstanding immediately after giving effect to such conversion or
receipt of shares as payment of interest.
A copy of the Debenture is attached hereto as Exhibit 10.1.
ITEM 3.02 UNREGISTERED SALES OF EQUITY SECURITIES
See Item 1.01 Above.
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
(d) Exhibit No. Description:
Exhibit Description Location
Exhibit 10.1 Convertible Debenture, dated Provided
December 13, 2006, issued by the herewith
Company to Cornell Capital Partners, LP
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: December 15, 2006 KRONOS ADVANCED TECHNOLOGIES, INC.
By: /s/ Daniel R. Dwight
---------------------
Name: Daniel R. Dwight
Title: President, Chief Executive Officer
and Director
Dated: December 13, 2006
NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS
DEBENTURE IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES
AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE
IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
No. KNOS-3-1 $1,645,476
KRONOS ADVANCED TECHNOLOGIES, INC.
Convertible Debenture
Due: June 13, 2007
This Convertible Debenture (the "Debenture") is issued by KRONOS ADVANCED
TECHNOLOGIES, INC., a Nevada corporation (the "Company"), to CORNELL CAPITAL
PARTNERS, LP (the "Holder"), pursuant to that certain Letter Agreement (the
"Letter Agreement") dated December 13, 2008.
WHEREAS, the Company has issued to the Holder, and the Holder has purchased
from the Company a Promissory Note on June 22, 2005 for a purchase price of
$2,000,000 (the "Initial Securities"). The Holder paid the entire purchase price
for the Initial Securities on June 22, 2005.
As of the date hereof, the outstanding principal balance on the Initial
Securities equals $1,515,000 plus accrued and unpaid interest of $130,476 for a
total of $1,645,476.
This Debenture shall be acquired by the Holder from the Company for a
consideration consisting solely of the Initial Securities surrendered for
conversion and shall be deemed to have been acquired at the same time as the
respective date on which the Holder acquired each of the Initial Securities.
FOR VALUE RECEIVED, the Company hereby promises to pay to the Holder or its
successors and assigns the principal sum of One Million Six Hundred Forty Five
Thousand Four Hundred Seventy Six Dollars $1,645,476 together with accrued but
unpaid interest on or before June 11, 2007 (the "Maturity Date") in accordance
with the following terms:
Section 1. General Terms
Interest. Interest shall accrue on the outstanding principal balance hereof
at an annual rate equal to twelve percent (12%). Interest shall be calculated on
the basis of a 365-day year and the actual number of days elapsed, to the extent
permitted by applicable law. Interest hereunder shall be paid on the Maturity
Date (or sooner as provided herein) to the Holder or its assignee in whose name
this Debenture is registered on the records of the Company regarding
registration and transfers of Debentures in cash or in Common Stock (valued at
the Closing Bid Price on the Trading Day immediately prior to the date paid) at
the option of the Company.
Section 2. Events of Default.
(a) An "Event of Default", wherever used herein, means any one of the
following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment, decree
or order of any court, or any order, rule or regulation of any administrative or
governmental body):
(i) Any default in the payment of the principal of, interest on or other
charges in respect of this Debenture, free of any claim of subordination, as and
when the same shall become due and payable whether upon an Optional Redemption
(as defined in Section 3(a)), the Maturity Date, by acceleration, or otherwise;
(ii) The Company or any subsidiary of the Company shall commence, or there
shall be commenced against the Company or any subsidiary of the Company under
any applicable bankruptcy or insolvency laws as now or hereafter in effect or
any successor thereto, or the Company or any subsidiary of the Company commences
any other proceeding under any reorganization, arrangement, adjustment of debt,
relief of debtors, dissolution, insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to the Company or any
subsidiary of the Company or there is commenced against the Company or any
subsidiary of the Company any such bankruptcy, insolvency or other proceeding
which remains undismissed for a period of 61 days; or the Company or any
subsidiary of the Company is adjudicated insolvent or bankrupt; or any order of
relief or other order approving any such case or proceeding is entered; or the
Company or any subsidiary of the Company suffers any appointment of any
custodian, private or court appointed receiver or the like for it or any
substantial part of its property which continues undischarged or unstayed for a
period of sixty one (61) days; or the Company or any subsidiary of the Company
makes a general assignment for the benefit of creditors; or the Company, shall
state that it is unable to pay, its debts generally as they become due; or the
Company or any subsidiary of the Company shall call a meeting of its creditors
with a view to arranging a composition, adjustment or restructuring of its
debts; or the Company or any subsidiary of the Company shall by any act or
failure to act expressly indicate its consent to, approval of or acquiescence in
any of the foregoing; or any corporate or other action is taken by the Company
or any subsidiary of the Company for the purpose of effecting any of the
foregoing;
(iii) The Common Stock shall cease to be quoted for trading or listing for
trading on any of (a) the American Stock Exchange, (b) New York Stock Exchange,
(c) the Nasdaq National Market, (d) the Nasdaq Capital Market, or (e) the OTC
Bulletin Board ("OTC") (each, a "Primary Market") and shall not again be quoted
or listed for trading on any Primary Market within five (5) Trading Days of such
delisting;
(iv) The Company or any subsidiary of the Company shall be a party to any
Change of Control Transaction (as defined in Section 6);
(v) The Company shall fail for any reason to deliver Common Stock
certificates to a Holder prior to the fifth (5th) Trading Day after a Conversion
Date, or the Company shall provide notice to the Holder, including by way of
public announcement, at any time, of its intention not to comply with requests
for conversions in accordance with the terms hereof;
(vi) The Company shall fail for any reason to deliver the payment in cash
pursuant to a Buy-In (as defined herein) within three (3) days after notice is
claimed delivered hereunder;
(vii) The Company shall fail to observe or perform any other covenant,
agreement or warranty contained in, or otherwise commit any breach or default of
any provision of this Debenture (except as may be covered by Section 2(a)(i)
through 2(a)(ix) hereof) or any Transaction Document (as defined in Section 6)
which is not cured with in the time prescribed;
(b) During the time that any portion of this Debenture is outstanding, if
any Event of Default has occurred, the full principal amount of this Debenture,
together with interest and other amounts owing in respect thereof, to the date
of acceleration shall become at the Holder's election, immediately due and
payable in cash, provided however, the Holder may request (but shall have no
obligation to request) payment of such amounts in Common Stock of the Company.
Furthermore, in addition to any other remedies, the Holder shall have the right
(but not the obligation) to convert this Debenture at any time after (x) an
Event of Default or (y) the Maturity Date at the Conversion Price then
in-effect. The Holder need not provide and the Company hereby waives any
presentment, demand, protest or other notice of any kind, and the Holder may
immediately and without expiration of any grace period enforce any and all of
its rights and remedies hereunder and all other remedies available to it under
applicable law. Such declaration may be rescinded and annulled by Holder at any
time prior to payment hereunder. No such rescission or annulment shall affect
any subsequent Event of Default or impair any right consequent thereon. Except
with respect to the limitation set forth in Section 4(b)(i) hereof upon an Event
of Default, notwithstanding any other provision of this Debenture or any
Transaction Document, the Holder shall have no obligation to comply with or
adhere to any limitations, if any, on the conversion of this Debenture or the
sale of the Underlying Shares.
Section 3. Redemptions.
(a) Company's Optional Cash Redemption. The Company at its option shall
have the right to redeem ("Optional Redemption") a portion or all amounts
outstanding under this Debenture prior to the Maturity Date by providing five
(5) business days (the "Redemption Notice Period") prior written notice to the
Holder of its intention to make a redemption (the "Redemption Notice") setting
forth the amount of principal it desires to redeem. After receipt of the
Redemption Notice the Holder shall have through the end of the Redemption Notice
Period to elect to convert a portion of this Debenture, up to and not exceeding
an amount of shares of Common Stock that after giving effect to such conversion,
the Holder, together with any affiliate thereof, would beneficially own (as in
accordance with Section 13(d) of the Exchange Act and the rules promulgated
thereunder) 4.99% of the number of shares of Common Stock outstanding
immediately after giving effect to such conversion. On the sixth (6th) business
day after the Redemption Notice ("Redemption Payment Due Date"), the Company
shall deliver to the Holder the redemption amount with respect to the principal
amount redeemed after giving effect to conversions effected during the five (5)
business day period. It shall be considered an event of default hereunder if the
Company does not timely make such redemption payment on the Redemption Payment
Due Date and the conversion limitation set forth herein shall no longer apply.
Section 4. Conversion.
(a) Conversion at Option of Holder.
(i) This Debenture shall be convertible into shares of Common Stock at the
option of the Holder, in whole or in part at any time and from time to time,
after the Original Issue Date (as defined in Section 6) (subject to the
limitations on conversion set forth in Section 4(b) hereof). The number of
shares of Common Stock issuable upon a conversion hereunder equals the quotient
obtained by dividing (x) the outstanding amount of this Debenture to be
converted by (y) the Conversion Price (as defined in Section 4(c)(i)). The
Company shall deliver Common Stock certificates to the Holder prior to the Fifth
(5th) Trading Day after a Conversion Date.
(ii) Notwithstanding anything to the contrary contained herein, if on any
Conversion Date: (1) the number of shares of Common Stock at the time
authorized, unissued and unreserved for all purposes, or held as treasury stock,
is insufficient to pay principal and interest hereunder in shares of Common
Stock; (2) the Common Stock is not listed or quoted for trading on the a Primary
Market; or (3) the Company has failed to timely satisfy a conversion; then, at
the option of the Holder, the Company, in lieu of delivering shares of Common
Stock pursuant to Section 4(a)(i), shall deliver, within three (3) Trading Days
of each applicable Conversion Date, an amount in cash equal to the product of
the outstanding principal amount to be converted divided by the applicable
Conversion Price, and multiplied by the highest Closing Bid Price of the stock
from date of the conversion notice till the date that such cash payment is made.
Further, if the Company shall not have delivered any cash due in respect of
conversion of this Debenture by the fifth (5th) Trading Day after the Conversion
Date, the Holder may, by notice to the Company, require the Company to issue
shares of Common Stock pursuant to Section 4(c), except that for such purpose
the Conversion Price applicable thereto shall be the lesser of the Conversion
Price on the Conversion Date and the Conversion Price on the date of such Holder
demand. Any such shares will be subject to the provisions of this Section.
(iii) The Holder shall effect conversions by delivering to the Company a
completed notice in the form attached hereto as Exhibit A (a "Conversion
Notice"). The date on which a Conversion Notice is delivered is the "Conversion
Date." Unless the Holder is converting the entire principal amount outstanding
under this Debenture, the Holder is not required to physically surrender this
Debenture to the Company in order to effect conversions. Conversions hereunder
shall have the effect of lowering the outstanding principal amount of this
Debenture plus all accrued and unpaid interest or such principal amount in an
amount equal to the applicable conversion. The Holder and the Company shall
maintain records showing the principal amount converted and the date of such
conversions.
(b) Certain Conversion Restrictions.
(i) The Company shall not effect any conversions of this Debenture and the
Holder shall not have the right to convert any portion of this Debenture or
receive shares of Common Stock as payment of interest or principal hereunder to
the extent that after giving effect to such conversion or receipt of such
interest or principal payment, the Holder, together with any affiliate thereof,
would beneficially own (as determined in accordance with Section 13(d) of the
Exchange Act and the rules promulgated thereunder) in excess of 4.99% of the
number of shares of Common Stock outstanding immediately after giving effect to
such conversion or receipt of shares as payment of interest. Since the Holder
will not be obligated to report to the Company the number of shares of Common
Stock it may hold at the time of a conversion hereunder, unless the conversion
at issue would result in the issuance of shares of Common Stock in excess of
4.99% of the then outstanding shares of Common Stock without regard to any other
shares which may be beneficially owned by the Holder or an affiliate thereof,
the Holder shall have the authority and obligation to determine whether the
restriction contained in this Section will limit any particular conversion
hereunder and to the extent that the Holder determines that the limitation
contained in this Section applies, the determination of which portion of the
principal amount of this Debenture is convertible shall be the responsibility
and obligation of the Holder. If the Holder has delivered a Conversion Notice
for a interest or principal amount of this Debenture that, without regard to any
other shares that the Holder or its affiliates may beneficially own, would
result in the issuance in excess of the permitted amount hereunder, the Company
shall notify the Holder of this fact and shall honor the conversion for the
maximum interest or principal amount permitted to be converted on such
Conversion Date in accordance with the periods described in Section 4(a)(i) and,
any principal amount tendered for conversion in excess of the permitted amount
hereunder shall remain outstanding under this Debenture. The provisions of this
Section may be waived by a Holder (but only as to itself and not to any other
Holder) upon not less than 65 days prior notice to the Company. Other Holders
shall be unaffected by any such waiver.
(c) Conversion Price and Adjustments to Conversion Price.
(i) The conversion price in effect on any Conversion Date shall be equal to
$0.0075 per share (the "Conversion Price"). The Conversion Price may be adjusted
pursuant to the terms of this Debenture.
(ii) If the Company, at any time while this Debenture is outstanding, shall
(a) pay a stock dividend or otherwise make a distribution or distributions on
shares of its Common Stock or any other equity or equity equivalent securities
payable in shares of Common Stock, (b) subdivide outstanding shares of Common
Stock into a larger number of shares, (c) combine (including by way of reverse
stock split) outstanding shares of Common Stock into a smaller number of shares,
or (d) issue by reclassification of shares of the Common Stock any shares of
capital stock of the Company, then the Conversion Price shall be multiplied by a
fraction of which the numerator shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding before such event and of which
the denominator shall be the number of shares of Common Stock outstanding after
such event. Any adjustment made pursuant to this Section shall become effective
immediately after the record date for the determination of stockholders entitled
to receive such dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision, combination or
re-classification.
(iii) If the Company, at any time while this Debenture is outstanding,
shall issue rights, options or warrants to all holders of Common Stock (and not
to the Holder) entitling them to subscribe for or purchase shares of Common
Stock at a price per share less than the Conversion Price except to officers,
employees and directors of the Company, then the Conversion Price shall be
multiplied by a fraction, of which the denominator shall be the number of shares
of the Common Stock (excluding treasury shares, if any) outstanding on the date
of issuance of such rights or warrants (plus the number of additional shares of
Common Stock offered for subscription or purchase), and of which the numerator
shall be the number of shares of the Common Stock (excluding treasury shares, if
any) outstanding on the date of issuance of such rights or warrants, plus the
number of shares which the aggregate offering price of the total number of
shares so offered would purchase at the Conversion Price. Such adjustment shall
be made whenever such rights or warrants are issued, and shall become effective
immediately after the record date for the determination of stockholders entitled
to receive such rights, options or warrants. However, upon the expiration of any
such right, option or warrant to purchase shares of the Common Stock the
issuance of which resulted in an adjustment in the Conversion Price pursuant to
this Section, if any such right, option or warrant shall expire and shall not
have been exercised, the Conversion Price shall immediately upon such expiration
be recomputed and effective immediately upon such expiration be increased to the
price which it would have been (but reflecting any other adjustments in the
Conversion Price made pursuant to the provisions of this Section after the
issuance of such rights or warrants) had the adjustment of the Conversion Price
made upon the issuance of such rights, options or warrants been made on the
basis of offering for subscription or purchase only that number of shares of the
Common Stock actually purchased upon the exercise of such rights, options or
warrants actually exercised.
(iv) If the Company or any subsidiary thereof, as applicable, at any time
while this Debenture is outstanding, shall issue shares of Common Stock or
rights, warrants, options or other securities or debt that are convertible into
or exchangeable for shares of Common Stock ("Common Stock Equivalents")
entitling any Person to acquire shares of Common Stock, at a price per share
less than the Conversion Price (if the holder of the Common Stock or Common
Stock Equivalent so issued shall at any time, whether by operation of purchase
price adjustments, reset provisions, floating conversion, exercise or exchange
prices or otherwise, or due to warrants, options or rights per share which is
issued in connection with such issuance, be entitled to receive shares of Common
Stock at a price per share which is less than the Conversion Price, such
issuance shall be deemed to have occurred for less than the Conversion Price),
then, at the sole option of the Holder, the Conversion Price shall be adjusted
to mirror the conversion, exchange or purchase price for such Common Stock or
Common Stock Equivalents (including any reset provisions thereof) at issue. Such
adjustment shall be made whenever such Common Stock or Common Stock Equivalents
are issued. The Company shall notify the Holder in writing, no later than one
(1) business day following the issuance of any Common Stock or Common Stock
Equivalent subject to this Section, indicating therein the applicable issuance
price, or of applicable reset price, exchange price, conversion price and other
pricing terms. No adjustment under this Section shall be made as a result of
issuances of Excluded Securities.
(v) If the Company, at any time while this Debenture is outstanding, shall
distribute to all holders of Common Stock (and not to the Holder) evidences of
its indebtedness or assets or rights or warrants to subscribe for or purchase
any security, then in each such case the Conversion Price at which this
Debenture shall thereafter be convertible shall be determined by multiplying the
Conversion Price in effect immediately prior to the record date fixed for
determination of stockholders entitled to receive such distribution by a
fraction of which the denominator shall be the Closing Bid Price determined as
of the record date mentioned above, and of which the numerator shall be such
Closing Bid Price on such record date less the then fair market value at such
record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of the Common Stock as
determined by the Board of Directors in good faith. In either case the
adjustments shall be described in a statement provided to the Holder of the
portion of assets or evidences of indebtedness so distributed or such
subscription rights applicable to one share of Common Stock. Such adjustment
shall be made whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.
(vi) In case of any reclassification of the Common Stock or any compulsory
share exchange pursuant to which the Common Stock is converted into other
securities, cash or property, the Holder shall have the right thereafter to, at
its option, (A) convert the then outstanding principal amount, together with all
accrued but unpaid interest and any other amounts then owing hereunder in
respect of this Debenture into the shares of stock and other securities, cash
and property receivable upon or deemed to be held by holders of the Common Stock
following such reclassification or share exchange, and the Holder of this
Debenture shall be entitled upon such event to receive such amount of
securities, cash or property as the shares of the Common Stock of the Company
into which the then outstanding principal amount, together with all accrued but
unpaid interest and any other amounts then owing hereunder in respect of this
Debenture could have been converted immediately prior to such reclassification
or share exchange would have been entitled, or (B) require the Company to prepay
the outstanding principal amount of this Debenture, plus all interest and other
amounts due and payable thereon. The entire prepayment price shall be paid in
cash. This provision shall similarly apply to successive reclassifications or
share exchanges.
(vii) Whenever the Conversion Price is adjusted pursuant to Section 4
hereof, the Company shall promptly mail to the Holder a notice setting forth the
Conversion Price after such adjustment and setting forth a brief statement of
the facts requiring such adjustment.
(viii) If (A) the Company shall declare a dividend (or any other
distribution) on the Common Stock; (B) the Company shall declare a special
nonrecurring cash dividend on or a redemption of the Common Stock; (C) the
Company shall authorize the granting to all holders of the Common Stock rights
or warrants to subscribe for or purchase any shares of capital stock of any
class or of any rights; (D) the approval of any stockholders of the Company
shall be required in connection with any reclassification of the Common Stock,
any consolidation or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of the Company, of any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property; or (E) the Company shall authorize the voluntary
or involuntary dissolution, liquidation or winding up of the affairs of the
Company; then, in each case, the Company shall cause to be filed at each office
or agency maintained for the purpose of conversion of this Debenture, and shall
cause to be mailed to the Holder at its last address as it shall appear upon the
stock books of the Company, at least twenty (20) calendar days prior to the
applicable record or effective date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of the Common Stock of record to be entitled to
such dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of the Common Stock
of record shall be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange, provided, that the
failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice. The Holder is entitled to convert this Debenture during the
20-day calendar period commencing the date of such notice to the effective date
of the event triggering such notice.
(ix) In case of any (1) merger or consolidation of the Company or any
subsidiary of the Company with or into another Person, or (2) sale by the
Company or any subsidiary of the Company of more than one-half of the assets of
the Company in one or a series of related transactions, a Holder shall have the
right to (A) exercise any rights under Section 2(b), (B) convert the aggregate
amount of this Debenture then outstanding into the shares of stock and other
securities, cash and property receivable upon or deemed to be held by holders of
Common Stock following such merger, consolidation or sale, and such Holder shall
be entitled upon such event or series of related events to receive such amount
of securities, cash and property as the shares of Common Stock into which such
aggregate principal amount of this Debenture could have been converted
immediately prior to such merger, consolidation or sales would have been
entitled, or (C) in the case of a merger or consolidation, require the surviving
entity to issue to the Holder a convertible Debenture with a principal amount
equal to the aggregate principal amount of this Debenture then held by such
Holder, plus all accrued and unpaid interest and other amounts owing thereon,
which such newly issued convertible Debenture shall have terms identical
(including with respect to conversion) to the terms of this Debenture, and shall
be entitled to all of the rights and privileges of the Holder of this Debenture
set forth herein and the agreements pursuant to which this Debentures were
issued. In the case of clause (C), the conversion price applicable for the newly
issued shares of convertible preferred stock or convertible Debentures shall be
based upon the amount of securities, cash and property that each share of Common
Stock would receive in such transaction and the Conversion Price in effect
immediately prior to the effectiveness or closing date for such transaction. The
terms of any such merger, sale or consolidation shall include such terms so as
to continue to give the Holder the right to receive the securities, cash and
property set forth in this Section upon any conversion or redemption following
such event. This provision shall similarly apply to successive such events.
(d) Other Provisions.
(i) The Company shall at all times reserve and keep available out of its
authorized Common Stock the full number of shares of Common Stock issuable upon
conversion of all outstanding amounts under this Debenture; and within three (3)
Business Days following the receipt by the Company of a Holder's notice that
such minimum number of Underlying Shares is not so reserved, the Company shall
promptly reserve a sufficient number of shares of Common Stock to comply with
such requirement.
(ii) All calculations under this Section 4 shall be rounded up to the
nearest $0.0001 or whole share.
(iiii) The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued shares of Common Stock solely for
the purpose of issuance upon conversion of this Debenture and payment of
interest on this Debenture, each as herein provided, free from preemptive rights
or any other actual contingent purchase rights of persons other than the Holder,
not less than such number of shares of the Common Stock as shall (subject to any
additional requirements of the Company as to reservation of such shares set
forth in this Debenture or in the Transaction Documents) be issuable (taking
into account the adjustments and restrictions set forth herein) upon the
conversion of the outstanding principal amount of this Debenture and payment of
interest hereunder. The Company covenants that all shares of Common Stock that
shall be so issuable shall, upon issue, be duly and validly authorized, issued
and fully paid and nonassessable.
(iv) Upon a conversion hereunder the Company shall not be required to issue
stock certificates representing fractions of shares of the Common Stock, but may
if otherwise permitted, make a cash payment in respect of any final fraction of
a share based on the Closing Bid Price at such time. If the Company elects not,
or is unable, to make such a cash payment, the Holder shall be entitled to
receive, in lieu of the final fraction of a share, one whole share of Common
Stock.
(v) The issuance of certificates for shares of the Common Stock on
conversion of this Debenture shall be made without charge to the Holder thereof
for any documentary stamp or similar taxes that may be payable in respect of the
issue or delivery of such certificate, provided that the Company shall not be
required to pay any tax that may be payable in respect of any transfer involved
in the issuance and delivery of any such certificate upon conversion in a name
other than that of the Holder of such Debenture so converted and the Company
shall not be required to issue or deliver such certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
(vi) Nothing herein shall limit a Holder's right to pursue actual damages
or declare an Event of Default pursuant to Section 2 herein for the Company 's
failure to deliver certificates representing shares of Common Stock upon
conversion within the period specified herein and such Holder shall have the
right to pursue all remedies available to it at law or in equity including,
without limitation, a decree of specific performance and/or injunctive relief,
in each case without the need to post a bond or provide other security. The
exercise of any such rights shall not prohibit the Holder from seeking to
enforce damages pursuant to any other Section hereof or under applicable law.
(vii) In addition to any other rights available to the Holder, if the
Company fails to deliver to the Holder such certificate or certificates pursuant
to Section 4(a)(i) by the fifth (5th) Trading Day after the Conversion Date, and
if after such fifth (5th) Trading Day the Holder purchases (in an open market
transaction or otherwise) Common Stock to deliver in satisfaction of a sale by
such Holder of the Underlying Shares which the Holder anticipated receiving upon
such conversion (a "Buy-In"), then the Company shall (A) pay in cash to the
Holder (in addition to any remedies available to or elected by the Holder) the
amount by which (x) the Holder's total purchase price (including brokerage
commissions, if any) for the Common Stock so purchased exceeds (y) the product
of (1) the aggregate number of shares of Common Stock that such Holder
anticipated receiving from the conversion at issue multiplied by (2) the market
price of the Common Stock at the time of the sale giving rise to such purchase
obligation and (B) at the option of the Holder, either reissue a Debenture in
the principal amount equal to the principal amount of the attempted conversion
or deliver to the Holder the number of shares of Common Stock that would have
been issued had the Company timely complied with its delivery requirements under
Section 4(a)(i). For example, if the Holder purchases Common Stock having a
total purchase price of $11,000 to cover a Buy-In with respect to an attempted
conversion of Debentures with respect to which the market price of the
Underlying Shares on the date of conversion was a total of $10,000 under clause
(A) of the immediately preceding sentence, the Company shall be required to pay
the Holder $1,000. The Holder shall provide the Company written notice
indicating the amounts payable to the Holder in respect of the Buy-In.
(viii) The Company has made available to the Holder the Company's Form
10-QSB for the quarter ended September 30, 2006, including, without limitation,
the financial statements of the Company contained therein.
Section 5. Notices. Any notices, consents, waivers or other communications
required or permitted to be given under the terms hereof must be in writing and
will be deemed to have been delivered: (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile (provided confirmation of
transmission is mechanically or electronically generated and kept on file by the
sending party); or (iii) one (1) Trading Day after deposit with a nationally
recognized overnight delivery service, in each case properly addressed to the
party to receive the same. The addresses and facsimile numbers for such
communications shall be:
If to the Company, to: Kronos Advanced Technologies, Inc.
464 Common Street, Suite 301
Belmont, MA 02478
Attention: Daniel R. Dwight
Telephone: (617) 993-9980
Facsimile: (617) 993-9985
With a copy to: Kirkpatrick & Lockhart Nicholson Graham, LLP
201 South Biscayne Boulevard, Suite 2000
Miami, Florida 33131
Attention: Clayton E. Parker, Esquire
Telephone: (305) 539-3306
Facsimile: (305) 358-7095
If to the Holder: Cornell Capital Partners, LP
101 Hudson Street, Suite 3700
Jersey City, NJ 07303
Attention: Mark Angelo
Telephone: (201) 985-8300
With a copy to: David Gonzalez, Esq.
101 Hudson Street - Suite 3700
Jersey City, NJ 07302
Telephone: (201) 985-8300
Facsimile: (201) 985-8266
or at such other address and/or facsimile number and/or to the attention of such
other person as the recipient party has specified by written notice given to
each other party three (3) business days prior to the effectiveness of such
change. Written confirmation of receipt (i) given by the recipient of such
notice, consent, waiver or other communication, (ii) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (iii) provided by a nationally recognized overnight delivery
service, shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.
Section 6. Definitions. For the purposes hereof, the following terms shall
have the following meanings:
"Approved Stock Plan" means a stock option plan that has been approved by
the Board of Directors of the Company prior to the date of the Letter Agreement,
pursuant to which the Company's securities may be issued only to any employee,
officer or director for services provided to the Company.
"Business Day" means any day except Saturday, Sunday and any day which
shall be a federal legal holiday in the United States or a day on which banking
institutions are authorized or required by law or other government action to
close.
"Change of Control Transaction" means the occurrence of (a) an acquisition
after the date hereof by an individual or legal entity or "group" (as described
in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control
(whether through legal or beneficial ownership of capital stock of the Company,
by contract or otherwise) of in excess of fifty percent (50%) of the voting
securities of the Company (except that the acquisition of voting securities by
the Holder shall not constitute a Change of Control Transaction for purposes
hereof), (b) a replacement at one time or over time of more than one-half of the
members of the board of directors of the Company which is not approved by a
majority of those individuals who are members of the board of directors on the
date hereof (or by those individuals who are serving as members of the board of
directors on any date whose nomination to the board of directors was approved by
a majority of the members of the board of directors who are members on the date
hereof), (c) the merger, consolidation or sale of fifty percent (50%) or more of
the assets of the Company or any subsidiary of the Company in one or a series of
related transactions with or into another entity, or (d) the execution by the
Company of an agreement to which the Company is a party or by which it is bound,
providing for any of the events set forth above in (a), (b) or (c).
"Closing Bid Price" means the price per share in the last reported trade of
the Common Stock on a Primary Market or on the exchange which the Common Stock
is then listed as quoted by Bloomberg, LP.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock, par value $.001, of the Company and
stock of any other class into which such shares may hereafter be changed or
reclassified.
"Conversion Date" shall mean the date upon which the Holder gives the
Company notice of their intention to effectuate a conversion of this Debenture
into shares of the Company's Common Stock as outlined herein.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Excluded Securities" means, (a) shares issued or deemed to have been
issued by the Company pursuant to an Approved Stock Plan (b) shares of Common
Stock issued or deemed to be issued by the Company upon the conversion, exchange
or exercise of any right, option, obligation or security outstanding on the date
prior to date of the Letter Agreement, provided that the terms of such right,
option, obligation or security are not amended or otherwise modified on or after
the date of the Letter Agreement, and provided that the conversion price,
exchange price, exercise price or other purchase price is not reduced, adjusted
or otherwise modified and the number of shares of Common Stock issued or
issuable is not increased (whether by operation of, or in accordance with, the
relevant governing documents or otherwise) on or after the date of the Letter
Agreement, and (c) the shares of Common Stock issued or deemed to be issued by
the Company upon conversion of this Debenture.
"Original Issue Date" shall mean the date of the first issuance of this
Debenture regardless of the number of transfers and regardless of the number of
instruments, which may be issued to evidence such Debenture.
"Person" means a corporation, an association, a partnership, organization,
a business, an individual, a government or political subdivision thereof or a
governmental agency.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Trading Day" means a day on which the shares of Common Stock are quoted on
the OTC or quoted or traded on such Primary Market on which the shares of Common
Stock are then quoted or listed; provided, that in the event that the shares of
Common Stock are not listed or quoted, then Trading Day shall mean a Business
Day.
"Transaction Documents" means the Letter Agreement or any other agreement
delivered in connection with the Letter Agreement.
"Underlying Shares" means the shares of Common Stock issuable upon
conversion of this Debenture or as payment of interest in accordance with the
terms hereof.
Section 7. Except as expressly provided herein, no provision of this
Debenture shall alter or impair the obligations of the Company, which are
absolute and unconditional, to pay the principal of and interest on this
Debenture at the time, place, and rate, and in the coin or currency, herein
prescribed. This Debenture is a direct obligation of the Company. This Debenture
ranks pari passu with all other Debentures now or hereafter issued under the
terms set forth herein. As long as this Debenture is outstanding, the Company
shall not and shall cause their subsidiaries not to, without the consent of the
Holder, (i) amend its certificate of incorporation, bylaws or other charter
documents so as to adversely affect any rights of the Holder; (ii) repay,
repurchase or offer to repay, repurchase or otherwise acquire shares of its
Common Stock or other equity securities other than as to the Underlying Shares
to the extent permitted or required under the Transaction Documents; or (iii)
enter into any agreement with respect to any of the foregoing.
Section 8. This Debenture shall not entitle the Holder to any of the rights
of a stockholder of the Company, including without limitation, the right to
vote, to receive dividends and other distributions, or to receive any notice of,
or to attend, meetings of stockholders or any other proceedings of the Company,
unless and to the extent converted into shares of Common Stock in accordance
with the terms hereof.
Section 9. If this Debenture is mutilated, lost, stolen or destroyed, the
Company shall execute and deliver, in exchange and substitution for and upon
cancellation of the mutilated Debenture, or in lieu of or in substitution for a
lost, stolen or destroyed Debenture, a new Debenture for the principal amount of
this Debenture so mutilated, lost, stolen or destroyed but only upon receipt of
evidence of such loss, theft or destruction of such Debenture, and of the
ownership hereof, and indemnity, if requested, all reasonably satisfactory to
the Company.
Section 10. Intentional Not Used.
Section 11. This Debenture shall be governed by and construed in accordance
with the laws of the State of New Jersey, without giving effect to conflicts of
laws thereof. Each of the parties consents to the jurisdiction of the Superior
Courts of the State of New Jersey sitting in Hudson County, New Jersey and the
U.S. District Court for the District of New Jersey sitting in Newark, New Jersey
in connection with any dispute arising under this Debenture and hereby waives,
to the maximum extent permitted by law, any objection, including any objection
based on forum non conveniens to the bringing of any such proceeding in such
jurisdictions.
Section 12. If the Company fails to strictly comply with the terms of this
Debenture, then the Company shall reimburse the Holder promptly for all
reasonable fees, costs and expenses, including, without limitation, attorneys'
fees and expenses incurred by the Holder in any action in connection with this
Debenture, including, without limitation, those incurred: (i) during any
workout, attempted workout, and/or in connection with the rendering of legal
advice as to the Holder's rights, remedies and obligations, (ii) collecting any
sums which become due to the Holder, (iii) defending or prosecuting any
proceeding or any counterclaim to any proceeding or appeal; or (iv) the
protection, preservation or enforcement of any rights or remedies of the Holder.
Section 13. Any waiver by the Holder of a breach of any provision of this
Debenture shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of this
Debenture. The failure of the Holder to insist upon strict adherence to any term
of this Debenture on one or more occasions shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Debenture. Any waiver must be in writing.
Section 14. If any provision of this Debenture is invalid, illegal or
unenforceable, the balance of this Debenture shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances. If it shall be found
that any interest or other amount deemed interest due hereunder shall violate
applicable laws governing usury, the applicable rate of interest due hereunder
shall automatically be lowered to equal the maximum permitted rate of interest.
The Company covenants (to the extent that it may lawfully do so) that it shall
not at any time insist upon, plead, or in any manner whatsoever claim or take
the benefit or advantage of, any stay, extension or usury law or other law which
would prohibit or forgive the Company from paying all or any portion of the
principal of or interest on this Debenture as contemplated herein, wherever
enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this indenture, and the Company (to the extent
it may lawfully do so) hereby expressly waives all benefits or advantage of any
such law, and covenants that it will not, by resort to any such law, hinder,
delay or impeded the execution of any power herein granted to the Holder, but
will suffer and permit the execution of every such as though no such law has
been enacted.
Section 15. Whenever any payment or other obligation hereunder shall be due
on a day other than a Business Day, such payment shall be made on the next
succeeding Business Day.
Section 16. This Debenture is exchangeable for an equal aggregate principal
amount of Debentures of different authorized denominations, as requested by the
Holder surrendering the same. No service charge will be made for such
registration of transfer or exchange.
Section 17. THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVE THE RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
AGREEMENT OR ANY TRANSACTION DOCUMENT OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES' ACCEPTANCE OF THIS
AGREEMENT.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the Company has caused this Secured Convertible
Debenture to be duly executed by a duly authorized officer as of the date set
forth above.
COMPANY:
KRONOS ADVANCED TECHNOLOGIES, INC.
By: /s/ Daniel R. Dwight
Name: Daniel R. Dwight
Title: President and Chief Executive Officer
EXHIBIT A
CONVERSION NOTICE
(To be executed by the Holder in order to Convert the Debenture)
TO:
The undersigned hereby irrevocably elects to convert $ _____________ of the
principal amount of Debenture No. KNOS-3-1 into Shares of Common Stock of KRONOS
ADVANCED TECHNOLOGIES, INC., according to the conditions stated therein, as of
the Conversion Date written below.
Conversion Date:
-------------------------------------------------------
Amount to be converted:
$-----------------------------------------------
Conversion Price:
$-----------------------------------------------
Number of shares of Common Stock to be
issued: ---------------------------------------------------------------
Amount of Debenture
Unconverted: $-----------------------------------------------
Please issue the shares of Common Stock in the following name and to the
following address: Issue to:
Authorized Signature:
-------------------------
Name:
-------------------------
Title:
-------------------------
Broker DTC Participant Code:
-------------------------
Account Number:
-------------------------