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INFORMATION TO BE INCLUDED IN THE REPORT
Section 1 - Registrant's Business and Operations
Item 1.01 Entry into a Material Definitive Agreement
On February 22, 2016, Baltia Air Lines, Inc., a New York corporation (the "Company"), and
St. George Investments, LLC, an Utah limited liability company ("Lender"), entered into a
Securities Purchase Agreement for the sale of (i) an unsecured promissory note (the "Note") in
the principal amount of $655,000 and (ii) a warrant (the "Warrant") exercisable for five years for
125,961,538 shares of common stock of the Company. The Company received net
proceeds from the issuance of the Note in the amount of $500,000.
The Note, which is due on August 22, 2016, does not bear interest unless there is an event of
default, in which case the Note will bear a default interest rate of 22% per annum. An event of
default includes non-payment by the Company, the breach by the Company of any representation
or covenant made to the Lender, any regulatory authority taking an action that materially affects
the Company's operations or its ability to pay the Lender, and a default under any material
agreement which affects the business of the Company. The Company has the right to prepay the
Note in the amount of $580,000 for the first 90 days after the date of issuance.
The Company agreed that if it issues convertible securities with a conversion or exercise price
which varies with the market price of the common stock of the Company, the Lender shall have
the right to convert the Note at the conversion price provided in such security. The Company
also agreed with the Lender not to effectuate a change of control, which includes a sale of all or
substantially all of its assets of the Company, a merger, consolidation or significant equity
financing or other capital reorganization of the Company.
So long as the Note remains outstanding, if the Company issues any security with a term more
favorable to the holder of such security or with a term that was not similarly provided to the
Lender, then the Company shall notify the Lender of such additional or more favorable term and
such term, at Lender's option, shall become a part of its securities.
The Company issued to the Lender a five-year warrant to purchase 125,961,538 shares
of Common Stock at an exercise price of $0.01. The Warrant may be exercised on a cashless
basis at any time as determined by the price of the Common Stock on the date two trading days
preceding the exercise.
The Warrant provides the Lender anti-dilution ratchet provisions, including that if Company
issues any security with a price less than the exercise price of the Warrant, then the exercise price
of the Warrant shall be reduced to such price and the number of shares issuable upon exercise of
the Warrant shall be increased to an amount equal to the number of shares which Lender could
purchase at the aggregate exercise price payable immediately prior to such reduction.
Notwithstanding, the increase in the number of shares shall not at any time exceed three times
the number of shares issuable under the Warrant as of the date the Warrant was issued.
Failure of the Company to timely deliver shares of common stock to Lender upon exercise of the
Warrant will result in a payment to Lender of a late charge equal to the greater of (i) $500.00 and
(ii) 2% of the product of (1) the number of shares of common stock not issued to Lender on a
timely basis multiplied by (2) the closing trade price of the common stock. If the Company fails
to deliver any shares to Lender for ninety days, the Lender has the right to stop the accumulation
of the late fees and require the Company to pay a cash amount equal to (i) the total amount of all
fees that have accumulated, plus (ii) the product of the number of shares deliverable on such date
if it were to exercise this Warrant with respect to the remaining number of Shares as of such date
multiplied by the closing trade price of the common stock.
The Company may not issue shares of common stock if the number of shares of common stock
beneficially held by the Lender and its affiliates in the aggregate exceeds 4.99% of the then
outstanding shares of Common Stock. The percentage shall be 9.99% if the market capitalization
of the Company is less than $10 million. The Lender has the right to change or waive this
percentage ownership limitation as to itself but any such waiver will not be effective until the
61st day after delivery thereof. The foregoing 61-day notice requirement is enforceable
The Company is required to reserve three (3) times the number of shares of common stock
necessary to exercise the Warrant in full, but in any event not less than 16,500,000 shares of
Common Stock shall be reserved at all times.
The foregoing descriptions of the Securities Purchase Agreement, the Note and the Warrant and
the transactions contemplated thereby are qualified in their entirety by reference to the full text
of such Agreements, Note and Warrants, copies of which are attached hereto as Exhibit 10.34,
10.35 and 10.36, respectively, and each of which is incorporated herein in its entirety by
reference.
Section 2 - Financial Information
Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance
Sheet Arrangement of a Registrant.
The disclosure set forth above under Item 1.01 (Entry into a Material Definitive Agreement)
above is incorporated by reference into this Item 2.03.
Section 3 - Securities and Trading Markets
Item 3.02 Unregistered Sale of Equity Securities
The information contained above in Item 1.01 is hereby incorporated by reference into this Item
3.02. The issuance and sale by the Company of the Note and Warrant to Lender under the
Securities Purchase Agreement and the issuance of the Note and Warrant were made without
registration under the Securities Act of 1933, as amended (the "Act"), or the securities laws of
the applicable state, in reliance on the exemptions provided by Section 4(2) of the Act and
Regulation D promulgated thereunder, and in reliance on similar exemptions under applicable
state law, based on the offering of such securities to one investor, the lack of any general
solicitation or advertising in connection with such issuance and the representation of such
investor to the Company that it was an accredited investor (as that term is defined in Rule 501(a)
of Regulation D).
Section 8 - Other Events
Item 8.01. Other Events.
The Company had announced on February 17, 2016 that it received notification from the Federal
Aviation Administration stating that the previous notice of proposed denial of will not be
withdrawn since the FAA has taken the position that the Company is not properly or adequately
equipped or to conduct safe operations. The Company intends to request a formal hearing with
the FAA in the allotted time period to appeal such decision. However, if the Company is not
successful in its appeaL management will have to consider alternative options and opportunities.
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