Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant
On
August 8, 2022, Legacy Education Alliance, Inc. (the “Company”) borrowed $100,000 (the “Loan”) from ABCImpact
I, LLC, a Delaware limited liability company (the “Lender”), evidenced by a 10% Convertible Debenture (the “Debenture”).
Pursuant to the Debenture, the Lender has the option to loan up to an additional $4,750,000 to the Company.
The
Lender is a recently-formed entity in which an affiliate of Barry Kostiner, the Company’s Chief Executive Officer and sole director,
has a non-controlling passive interest. The Lender previously loaned an aggregate of $150,000 to the Company pursuant to convertible
debentures substantially similar to the Debenture.
The
maturity date of the Debenture is the earlier of 12 months from the issue date and the date of a Liquidity Event (as defined in the Debenture),
and is the date upon which the principal and interest shall be due and payable. The Debenture bears interest at a fixed rate of 10% per
annum. Any overdue accrued and unpaid interest shall entail a late fee at an interest rate equal to the lesser of 18% per annum or the
maximum rate permitted by applicable law, which shall accrue daily from the date such interest is due through and including the date
of actual payment in full.
The
Company intends to use the net proceeds from the Loan for general corporate purposes and working capital.
The
then outstanding and unpaid principal and interest shall be converted into shares of Company common stock and an equal number of common
stock purchase warrants (the “Warrant”) at the option of the Lender, at a conversion price per share of $0.05, subject to
adjustment (including pursuant to certain dilutive issuances) pursuant to the terms of the Debenture. The Debenture is subject to a beneficial
ownership limitation of 4.99% (or 9.99% in the Lender’s discretion).
The
Company may not prepay the Note without the prior written consent of the Lender.
The
Note contains customary events of default for a transaction such as the Loan. If any event of default occurs, the outstanding principal
amount under the Debenture, plus accrued but unpaid interest, liquidated damages and other amounts owing through the date of acceleration,
shall become, at the Lender’s election, immediately due and payable in cash at the Mandatory Default Amount. “Mandatory Default
Amount” means the sum of (a) the greater of (i) the outstanding principal amount of the Debenture, plus all accrued and unpaid
interest, divided by the conversion price on the date the Mandatory Default Amount is either (A) demanded or otherwise due or (B) paid
in full, whichever has a lower conversion price, multiplied by the VWAP (as defined in the Debenture) on the date the Mandatory Default
Amount is either (x) demanded or otherwise due or (y) paid in full, whichever has a higher VWAP, or (ii) 130% of the outstanding principal
amount of the Debenture, plus 100% of accrued and unpaid interest hereon, and (b) all other amounts, costs, expenses and liquidated damages
due in respect of the Debenture.
The
Warrant has an exercise price per share of $0.05, subject to adjustment (including pursuant to certain dilutive issuances) pursuant to
the terms of the Warrant. The exercise period of the Warrant is for five years from the issue date.
The
exercise of the Warrant is subject to a beneficial ownership limitation of 4.99% (or 9.99%) of the number of shares of common stock outstanding
immediately after giving effect to such exercise.
The
shares underlying the Debenture and the Warrants have “piggy-back” registration rights afforded to them.
The
foregoing is a brief description of the Debenture and the Warrant, and is qualified in its entirety by reference to the full text of
the Debenture and the Warrant, copies of which are included as Exhibit 10.1 to this Current Report on Form 8-K, each of which are incorporated
herein by reference.