ヘリテージグローバルの四半期報告

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-39471

HERITAGE GLOBAL INC.

(Exact name of registrant as specified in its charter)


FLORIDA	59-2291344
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

12625 High Bluff Drive, Suite 305, San Diego, CA 92130

(Address of Principal Executive Offices)

(858) 847-0659
(Registrant’s Telephone Number)

N/A

(Registrant’s Former Name)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Trading Symbol(s) Name of each exchange on which registered

Common stock, $0.01 par value HGBL The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large Accelerated Filer	☐	Accelerated Filer	☐
Non-Accelerated Filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:

As of August 1, 2023, there were 37,145,151 shares of common stock outstanding, $0.01 par value.

TABLE OF CONTENTS


Part I.	Financial Information

Item 1.	Financial Statements	3

	Condensed Consolidated Balance Sheets as of June 30, 2023 (unaudited) and December 31, 2022	3

	Condensed Consolidated Statements of Income for the three and six months ended June 30, 2023 and 2022 (unaudited)	4

	Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2023 and 2022 (unaudited)	5

	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2022 (unaudited)	6

	Notes to Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31

Item 4.	Controls and Procedures	31

Part II.	Other Information

Item 1.	Legal Proceedings	32

Item 1A.	Risk Factors	32

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32

Item 3.	Defaults Upon Senior Securities	32

Item 4.	Mine Safety Disclosures	32

Item 5.	Other Information	32

Item 6.	Exhibits	33

	Signature Page	34

PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements.

HERITAGE GLOBAL INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands of US dollars, except share and per share amounts)



	June 30, 2023			December 31, 2022
ASSETS	(unaudited)
Current assets:
Cash and cash equivalents	$	15,035		$	12,667
Accounts receivable, net		2,912			988
Current portion of notes receivable, net		8,569			4,505
Inventory – equipment		5,049			4,619
Other current assets		988			1,113
Total current assets		32,553			23,892
Non-current portion of notes receivable, net		6,400			4,245
Equity method investments		15,778			13,973
Right-of-use assets		2,856			2,776
Property and equipment, net		1,745			1,571
Intangible assets, net		3,949			4,144
Goodwill		7,446			7,446
Deferred tax assets		9,085			9,449
Other assets		70			64
Total assets	$	79,882		$	67,560

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	6,531		$	8,924
Payables to sellers		8,085			3,188
Current portion of third party debt		1,681			3,411
Current portion of lease liabilities		777			703
Total current liabilities		17,074			16,226
Non-current portion of third party debt		6,382			871
Non-current portion of lease liabilities		2,181			2,164
Total liabilities		25,637			19,261

Stockholders’ equity:
Preferred stock, $10.00 par value, authorized 10,000,000 shares; issued and outstanding 563 and 565 shares of Series N as of June 30, 2023 and December 31, 2022, respectively; with liquidation preference over common stockholders equivalent to $1,000 per share		6			6
Common stock, $0.01 par value, authorized 300,000,000 shares; issued 37,145,151 and 36,932,177 shares as of June 30, 2023 and December 31, 2022, respectively; and outstanding 36,901,683 and 36,688,709 shares as June 30, 2023 and December 31, 2022, respectively		371			369
Additional paid-in capital		294,156			293,589
Accumulated deficit		(239,893	)		(245,270	)
Treasury stock at cost, 243,468 shares as of June 30, 2023 and December 31, 2022		(395	)		(395	)
Total stockholders’ equity		54,245			48,299
Total liabilities and stockholders’ equity	$	79,882		$	67,560

The accompanying notes are an integral part of these condensed consolidated financial statements.

HERITAGE GLOBAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands of US dollars, except share and per share amounts)

(unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Revenues:
Services revenue	$	9,810		$	4,595		$	20,055		$	8,763
Asset sales		3,288			6,470			9,655			11,659
Total revenues		13,098			11,065			29,710			20,422

Operating costs and expenses:
Cost of services revenue		1,807			910			4,147			1,664
Cost of asset sales		1,935			5,631			6,270			9,033
Selling, general and administrative		6,440			4,939			12,740			9,214
Depreciation and amortization		121			133			241			266
Total operating costs and expenses		10,303			11,613			23,398			20,177
Earnings of equity method investments		306			4,172		683				4,254
Operating income		3,101			3,624			6,995			4,499
Interest expense, net		(101	)		(37	)		(169	)		(75	)
Income before income tax expense		3,000			3,587			6,826			4,424
Income tax expense		221			1,009			1,218			1,201
Net income	$	2,779		$	2,578		$	5,608		$	3,223

Weighted average common shares outstanding – basic		36,700,830			36,103,198			36,627,200			36,053,729
Weighted average common shares outstanding – diluted		37,651,694			36,999,614			37,504,023			36,846,539
Net income per share – basic	$	0.08		$	0.07		$	0.15		$	0.09
Net income per share – diluted	$	0.07		$	0.07		$	0.15		$	0.09

The accompanying notes are an integral part of these condensed consolidated financial statements.

HERITAGE GLOBAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands of US dollars, except share amounts)
(unaudited)


										Additional
	Preferred stock					Common stock				paid-in		Accumulated			Treasury stock
	Shares			Amount		Shares		Amount		capital		deficit			Shares		Amount			Total
Balance as of December 31, 2022		565		$	6		36,932,177	$	369	$	293,589	$	(245,270	)	$	243,468	$	(395	)	$	48,299
Cumulative change in accounting principle (Note 2)		—			—		—		—		—		(231	)		—		—			(231	)
Balance as of January 1, 2023 (as adjusted for change in accounting principle)		565			6		36,932,177		369		293,589		(245,501	)		243,468		(395	)		48,068
Issuance of common stock from stock option awards		—			—		31,191		—		5		—			—		—			5
Stock-based compensation expense		—			—		—		—		179		—			—		—			179
Issuance of restricted common stock		—			—		134,592		2		150		—			—		—			152
Net income		—			—		—		—		—		2,829			—		—			2,829
Balance as of March 31, 2023		565			6		37,097,960		371		293,923		(242,672	)		243,468		(395	)		51,233
Issuance of common stock from stock option awards		—			—		32,111		—		5		—			—		—			5
Stock-based compensation expense		—			—		—		—		228		—			—		—			228
Issuance of restricted common stock		—			—		15,000		—		—		—			—		—			—
Issuance of common stock due to conversion of Series N Preferred stock		(2	)		—		80		—		—		—			—		—			—
Net income		—			—		—		—		—		2,779			—		—			2,779
Balance as of June 30, 2023		563		$	6		37,145,151	$	371	$	294,156	$	(239,893	)	$	243,468	$	(395	)	$	54,245


									Additional
	Preferred stock				Common stock				paid-in			Accumulated			Treasury stock
	Shares		Amount		Shares		Amount		capital			deficit			Shares		Amount			Total
Balance as of December 31, 2021		565	$	6		36,574,702	$	366	$	293,030		$	(260,763	)	$	—	$	—		$	32,639
Issuance of common stock from stock option awards		—		—		103,135		1		(24	)		—			—		—			(23	)
Stock-based compensation expense		—		—		—		—		106			—			—		—			106
Net income		—		—		—		—		—			645			—		—			645
Balance as of March 31, 2022		565		6		36,677,837		367		293,112			(260,118	)		—		—			33,367
Issuance of common stock from stock option awards		—		—		56,250		—		25			—			—		—			25
Stock-based compensation expense		—		—		—		—		108			—			—		—			108
Repurchase of common stock		—		—		—		—		—			—			71,512		(105	)		(105	)
Net income		—		—		—		—		—			2,578			—		—			2,578
Balance as of June 30, 2022		565	$	6		36,734,087	$	367	$	293,245		$	(257,540	)	$	71,512	$	(105	)	$	35,973

The accompanying notes are an integral part of these condensed consolidated financial statements.

HERITAGE GLOBAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of US dollars)

(unaudited)


	Six Months Ended June 30,
	2023			2022
Cash flows provided by operating activities:
Net income	$	5,608		$	3,223
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of deferred issuance costs and fees		40			111
Earnings of equity method investments		(683	)		(4,254	)
Noncash credit loss expense		90			—
Noncash lease expense		326			251
Depreciation and amortization		241			266
Deferred taxes		448			496
Stock-based compensation expense		407			214
Changes in operating assets and liabilities:
Accounts receivable		(1,937	)		820
Inventory – equipment		(430	)		(701	)
Other current assets		119			274
Accounts payable and accrued liabilities		(2,147	)		967
Payables to sellers		4,897			(309	)
Lease liabilities		(316	)		(239	)
Net cash provided by operating activities		6,663			1,119

Cash flows (used in) provided by investing activities:
Investment in notes receivable		(18,698	)		—
Payments received on notes receivable		3,381			1,522
Cash received on transfer of notes receivable to partners		8,851			—
Investment in equity method investments		(4,249	)		(6,107	)
Return of investment in equity method investments		2,260			2,048
Cash distributions from equity method investments		683			4,753
Purchase of property and equipment		(220	)		(39	)
Net cash (used in) provided by investing activities		(7,992	)		2,177

Cash flows provided by (used in) financing activities:
Proceeds from debt payable to third parties		11,400			—
Repayment of debt payable to third parties		(7,619	)		(739	)
Proceeds from issuance of common stock from stock option awards		33			34
Payments of tax withholdings related to issuance of restricted common stock and stock option awards		(117	)		(32	)
Repurchase of common stock		—			(105	)
Net cash provided by (used in) financing activities		3,697			(842	)
Net increase in cash and cash equivalents		2,368			2,454
Cash and cash equivalents as of beginning of period		12,667			13,622
Cash and cash equivalents as of end of period	$	15,035		$	16,076

Supplemental cash flow information:
Cash paid for taxes	$	519		$	273
Cash paid for interest	$	244		$	65
Noncash change in Right-of-use assets	$	405		$	251
Noncash change in Lease liabilities	$	405		$	239

The accompanying notes are an integral part of these condensed consolidated financial statements.

HERITAGE GLOBAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1 –Basis of Presentation

These unaudited condensed consolidated interim financial statements include the accounts of Heritage Global Inc. together with its subsidiaries, including Heritage Global Partners, Inc. (“HGP”), National Loan Exchange Inc. (“NLEX”), Heritage Global LLC (“HG LLC”), Heritage Global Capital LLC (“HGC”), and Heritage ALT LLC (“ALT”). These entities, collectively, are referred to as “HG,” the “Company,” “we” or “our” in these consolidated financial statements. These consolidated financial statements were prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”), as outlined in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) and include the assets, liabilities, revenues, and expenses of all subsidiaries over which HG exercises control. All significant intercompany accounts and transactions have been eliminated upon consolidation.

The Company began its operations in 2009 with the establishment of HG LLC. The business was subsequently expanded by the acquisitions of HGP, NLEX, and ALT in 2012, 2014, and 2021 respectively, and the creation of HGC in 2019. As a result, HG is positioned to provide an array of value-added capital and financial asset solutions: auction and appraisal services, traditional asset disposition sales, and specialty financing solutions. The Company’s reportable segments consist of Auction and Liquidation, through HGP, Refurbishment & Resale, through ALT, Brokerage, through NLEX and Specialty Lending, through HGC.

The Company prepared the unaudited condensed consolidated interim financial statements included herein pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). In the opinion of management, these condensed financial statements reflect all adjustments that are necessary to present fairly the results for the interim periods included herein. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations; however, the Company believes that the disclosures are appropriate. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 24, 2023 (the “Form 10-K”).

The results of operations for the three and six-month periods ended June 30, 2023 are not necessarily indicative of those operating results to be expected for any subsequent interim period or for the entire year ending December 31, 2023. The accompanying Condensed Consolidated Balance Sheet as of December 31, 2022 has been derived from the audited consolidated balance sheet as of December 31, 2022, contained in the Company’s Form 10-K.

Repurchase Program

The Company’s Board of Directors authorized a share repurchase program on May 5, 2022 (“2022 Repurchase Program”), which permits the Company to purchase up to an aggregate of $4.0 million in common shares over a three year period ending in June of 2025. As of June 30, 2023, the Company had approximately $3.6 million in remaining aggregate dollar value of shares that may be purchased under the program. There were no shares repurchased in the open market for the six months ended June 30, 2023.

Note 2 – Summary of Significant Accounting Policies

Use of estimates

The preparation of the Company’s unaudited condensed consolidated interim financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Management bases its estimates and judgments on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results could differ from those estimates.

Significant estimates include the assessment of collectability of revenue recognized and the valuation of accounts receivable and notes receivable, inventory, investments, goodwill and intangible assets, liabilities, deferred income tax assets and liabilities including projecting future years’ taxable income, and stock-based compensation. These estimates have the potential to significantly impact our condensed consolidated interim financial statements, either because of the significance of the financial statement item to which they relate, or because they require judgment and estimation due to the uncertainty involved in measuring, at a specific point in time, events that are continuous in nature.

Reclassifications

Certain prior year balances within the condensed consolidated financial statements have been reclassified to conform to current year presentation.

Revenue recognition

The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”) and ASC Topic 310, Receivables (“ASC 310”).

Services revenue generally consists of commissions and fees from providing auction services, appraisals, brokering of sales transactions, and secured lending. Asset sales revenue generally consists of proceeds obtained through sales of purchased assets. With the exception of revenue generated within our Specialty Lending segment, revenue is recognized for both services revenue and asset sales revenue based on the ASC 606 standard recognition model, which consists of the following: (1) an agreement exists between two or more parties that creates enforceable rights and obligations, (2) the performance obligations are clearly identified, (3) the transaction price has been determined, (4) the transaction price has been properly allocated to each performance obligation, and (5) the entity satisfies a performance obligation by transferring a promised good or service to a customer for each of the entities.

All services and asset sales revenue from contracts with customers consists of three reportable segments: Auction and Liquidation, Refurbishment & Resale, and Brokerage. Generally, revenue is recognized at the point in time in which the performance obligation has been satisfied and full consideration is received. The exception to recognition at a point in time occurs when certain contracts provide for advance payments recognized over a period of time. Services revenue recognized over a period of time is not material in comparison to total revenues (less than 1% of total revenues for the three months ended June 30, 2023), and therefore not reported on a disaggregated basis. Further, as certain contracts stipulate that the customer make advance payments, amounts not recognized within the reporting period are considered deferred revenue and the Company’s “contract liability”. The deferred revenue balance was approximately $1.1 million as of June 30, 2023 and $0.4 million as of December 31, 2022 and is reflected in accounts payable and accrued liabilities on the condensed consolidated balance sheet. The deferred revenue balance is primarily related to customer deposits on asset sales within the Refurbishment & Resale segment. The Company records receivables in certain situations based on timing of payments for Auction and Liquidation transactions held at the end of the reporting period; however, revenue is generally recognized in the period that the Company satisfies the performance obligation and cash is collected. The Company does not record a “contract asset” for partially satisfied performance obligations.

For auction services and brokerage sale transactions, funds are typically collected from buyers and are held by the Company on the seller's behalf. The funds are included in cash and cash equivalents in the condensed consolidated balance sheets. The Company releases the funds to the seller, less the Company's commission and other fees due, after the buyer has accepted the goods. The amount of cash held on behalf of the sellers is recorded as payables to sellers in the accompanying condensed consolidated balance sheets.

The Company evaluates revenue from Auction and Liquidation and Brokerage segment transactions in accordance with the accounting guidance to determine whether to report such revenue on a gross or net basis. The Company has determined that it acts as an agent for its fee based transactions and therefore reports the revenue from transactions in which the Company acts as an agent on a net basis.

The Company also earns income through transactions that involve the Company acting jointly with one or more additional purchasers or lenders, pursuant to a partnership, joint venture or limited liability company (“LLC”) agreement (collectively, “Joint Ventures”). For these transactions, in which the Company’s ownership share meets the criteria for the equity method investments under ASC Topic 323, Equity Method and Joint Ventures (“ASC 323”), the Company does not record revenue or expense. Instead, the Company’s proportionate share of the net income (loss) is reported as earnings of equity method investments. In general, the Joint Ventures apply the same revenue recognition and other accounting policies as the Company.

Through our Specialty Lending segment, the Company provides specialty financing solutions to investors in charged-off and nonperforming asset portfolios. The Company recognizes revenue generated by lending activity in accordance with ASC 310. Fees collected in relation to the issuance of loans include loan origination fees, interest income, portfolio monitoring fees, and a backend profit share percentage related to the underlying asset portfolio.

The loan origination fees are offset with any direct origination costs and are deferred upon issuance of the loan and amortized over the lives of the related loans, as an adjustment to interest income. The interest method is used to arrive at a periodic interest cost (including amortization) that will represent a level effective rate on the sum of the face amount of the debt and (plus or minus) the unamortized premium or discount and expense at the beginning of each period.

The monitoring fees and the backend profit share are considered a separate earnings process as compared to the origination fees and interest income. Monitoring fees are recorded at the agreed upon rate, and at the moment in which payments are made by the borrower. The backend profit share is recognized in accordance with the agreed upon rate at the time in which the amount is realizable and earned. The recognition policy was established due to the uncertainty of timing of the amount of backend profit share which will be realized.

Specialty Lending - Concentration and credit risk

As of June 30, 2023, the Company held a gross balance of investments in notes receivable of $30.5 million, recorded in both notes receivable and equity method investments, and consisting of one borrower’s note balance of approximately $22.2 million, or 73% as of June 30, 2023, down from 77% as of March 31, 2023. The Company does not intend to hold highly concentrated balances due from one borrower as part of its long-term strategy but may, in the short term, have concentration risk on its path to an established and diversified portfolio.

The Company does not evaluate concentration risk solely based on balance due from specific borrowers, but also considers the number of portfolio purchases, type of charged off accounts within the portfolio, and the seller of the portfolio when determining the overall risk. Of the balance due from one borrower of $22.2 million, there are 26 distinct loan agreements, the underlying portfolio of accounts are diversified throughout FinTech, installment loans and credit card accounts, and further diversified amongst four separate sellers of these charged off portfolios.

The Company mitigates this concentration risk as follows. The Company requires, and monitors, security from each borrower consisting of their charged off and nonperforming receivable portfolios. The Company engages in a due diligence process that leverages its valuation expertise. In the event of default, the Company is entitled to call the unpaid interest and principal balances and receive all collections directly. The Company may also recover its investment by engaging a third party to collect on the underlying charged off or nonperforming receivable portfolio or the underlying portfolio can be sold through the Company's Brokerage segment. In certain cases, the Company’s recovery options may be subject to concurrence of the originator or other prior holder of the assets. From inception of the specialty lending program through June 30, 2023, the Company has incurred no actual credit losses.

Recently adopted accounting pronouncement

On January 1, 2023, the Company adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASC 326”). ASC 326 requires the application of a credit loss model based prospectively on current expected credit losses (CECL), and replaces the previous model based retrospectively on past incurred losses.

The Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost, of which the Company reported only accounts receivable and notes receivable as of December 31, 2022. Results for reporting periods beginning January 1, 2023 are presented under ASC 326, whereas prior periods continue to be reported under previously acceptable GAAP.

Accounts receivable are expected to be collected in less than one year and are therefore classified as current assets. Notes receivable are reported within current and non-current assets based upon the timing of expected collection. Management’s intent is to hold notes receivable for the foreseeable future or until maturity or payoff.

The reserve for credit losses required by the adoption of ASC 326 is a valuation account that is deducted from (or added to) the accounts receivable’s and to the notes receivable’s amortized cost basis in order to present on the condensed consolidated balance sheets the net amount expected to be collected. The credit loss expense, and subsequent adjustments to such losses, are recorded as a provision for (or reversal of) credit loss expense in the condensed consolidated statements of income.

Estimating future credit losses requires significant judgment by management. Significant judgments include, but are not limited to, assessing the debtors’ current financial condition, assessing current economic conditions and the extent to which they are relevant to the existing characteristics of the Company’s accounts and notes receivables, assessing the relevance of the estimated life of notes receivable, and determining the level of reliance on historical experience in light of economic conditions. The Company will continually review and update, when necessary, all such relevant judgments and assessments in determining the reserves for credit losses.

The Company previously estimated that the adoption of ASC 326 would result in an adjustment to accumulated deficit on January 1, 2023 of between $0.3 million and $0.4 million. Upon finalizing the execution of the implementation controls and processes, management arrived at a combined reserve for credit losses of $0.3 million for accounts receivable and notes receivable, offset by the cumulative income tax effect of $0.1 million. Consequently, the cumulative effect of the implementation of ASC 326 resulted in an adjustment to retained earnings of $0.2 million as of January 1, 2023. For additional information see Note 3 – Accounts Receivable, net. and Note 4 – Notes Receivable, net.

Reserve for Credit Losses - Accounts Receivable

The Company carries accounts receivable at the face amounts less a reserve for estimated credit losses. As of December 31, 2022, an allowance for doubtful accounts of $0.1 million had been recorded. Going forward, the Company estimates its reserve for credit losses using relevant available information from internal and external sources relating to past events, current conditions and reasonable and supportable forecasts.

The Company only extends credit to entities and institutions of significance, such as well-known academic institutions and US government agencies. Consequently, historical accounts receivable credit losses are nearly zero, which provides the starting point for management’s assessment of the reserve for credit losses for its accounts receivable.

The Company elected to base its estimation of expected credit losses for accounts receivable on historical credit loss experience. However, in assessing relevant information including its assessment of current conditions, management determined that a credit loss allowance slightly higher than its historical data would indicate is appropriate for certain of its revenue generating activities.

As of December 31, 2022 and under previously acceptable GAAP, the Company recorded a $0.1 million allowance for doubtful accounts for accounts receivable. Using a revised basis for estimation under ASC 326, the Company increased the reserve for credit losses against its accounts receivable balances by approximately $10,000. Consequently, to reflect the cumulative effects of the adoption of ASC 326, the Company recorded an additional reserve for credit losses and an increase to accumulated deficit of approximately $10,000 on the January 1, 2023 condensed consolidated balance sheets, and the balance of the reserve for credit losses was therefore $0.1 million as of January 1, 2023.

Reserve for Credit Losses - Notes Receivable

Notes receivable are reported at amortized cost, net of a reserve for credit losses. Amortized cost is the principal balance outstanding, net of deferred fees and costs on originated loans. Non-performing notes receivable are charged off against the reserve when management has confirmed the note to be uncollectable. Expected recoveries do not exceed the aggregate of amounts previously charged off and expected to be charged off. No amounts were recorded as a reserve for credit losses to notes receivable as of December 31, 2022.

Under ASC 326, the Company elected to evaluate notes receivable as a single pool, as the risk characteristics of all individual notes receivable and borrowers are similar. Management estimates the reserve balance using relevant available information from internal and external sources relating to past events, current conditions and reasonable and supportable forecasts. Historical credit loss experience typically provides the basis for an estimation of expected credit losses; however, the Company lacks sufficient data upon which to base an historical estimation. Additionally, since the Company began recording notes receivable on the condensed consolidated balance sheets, the Company has recorded no actual credit losses to notes receivable.

Lacking historical internal data upon which to base a reserve for credit losses to notes receivable, the Company, under ASC 326, elected to base its reserve on external credit loss experience data. Management observes that the Company's notes receivable are similar in character to transactions undertaken by smaller banking institutions. The Company elected to base its estimation of expected credit losses on the Scaled Current Expected Credit Loss (CECL) Allowance Loss Estimator ("SCALE rate") available from the Federal Reserve, which was 1.3205% as of December 31, 2022. The SCALE rate methodology is endorsed by the FASB and the Conference of State Bank Supervisors. Management determined under ASC 326 that the SCALE rate, a generally applicable rate, may be appropriately adjusted by its assessment of observable facts and relevant circumstances indicating that the factors analyzed in the determination of the SCALE rate may not conform to the Company's operations and borrower assessments. However, in conducting its assessment of these factors, management concluded that no adjustment to the SCALE rate is warranted as of December 31, 2022.

As of December 31, 2022 and under previously acceptable GAAP, the Company recorded no reserve for credit losses to notes receivable. Using a revised basis for estimation under ASC 326, management determined the cumulative reserve for credit losses of $0.2 million was appropriate for notes receivable recorded on the condensed consolidated balance sheets as of December 31, 2022. Consequently, to reflect the cumulative effects of the adoption of ASC 326, the Company recorded the reserve for credit losses and an increase to accumulated deficit of $0.2 million on the January 1, 2023 condensed consolidated balance sheets, and balance of the reserve for credit losses was therefore $0.2 million as of January 1, 2023.

Note 3 – Accounts Receivable, net

The Company’s accounts receivable, net consists of accounts receivables recorded in the ordinary course of business associated with the recognition of revenue from contracts with customers. As of December 31, 2022, accounts receivable, net recorded on the consolidated balance sheets was $1.0 million, consisting of accounts receivable of $1.1 million offset by an allowance for doubtful accounts of $0.1 million. On January 1 2023, the Company recorded an additional reserve for credit losses for accounts receivable in accordance with ASC 326, as described in Note 1 – Basis of Presentation, Recently Adopted Accounting Pronouncement. The cumulative effect as of December 31, 2022 of the modified retrospective method of adoption of ASC 326 required the Company to record on the consolidated balance sheets as of January 1, 2023 an additional reserve to accounts receivable for credit losses of approximately $10,000 for the estimated credit losses attributable to accounts receivable as of December 31, 2022.

The following presents the adjustment to accounts receivable, net as a result of the implementation of ASC 326 on January 1, 2023 (in thousands):


Accounts receivable as of December 31, 2022	$	1,110

Allowance for doubtful accounts as of December 31, 2022		(122	)
Cumulative effect of the implementation of ASC 326		(10	)
Beginning balance of reserve for credit losses as of January 1, 2023		(132	)
Accounts receivable, net of reserve for credit losses as of January 1, 2023	$	978

In accordance with ASC 326, the Company performs a review of accounts receivables on a quarterly basis. During the six months ended June 30, 2023, the Company recorded no material adjustments for credit losses in selling, general and administrative expense on the condensed consolidated statement of income related to accounts receivable. As of June 30, 2023, the reserve for credit losses was approximately $0.1 million.

Note 4 – Notes Receivable, net

The Company’s notes receivable, net consists of investments in loans to buyers of charged-off and nonperforming receivable portfolios. As of June 30, 2023 and December 31, 2022, the Company’s outstanding notes receivables, net of unamortized deferred fees and costs on originated loans, and adjusted for the reserve for credit losses was $15.0 million and $8.5 million, respectively. The activity during the six months ended June 30, 2023 includes the additional investment in notes receivable of approximately $18.7 million, which was offset by principal payments made by borrowers of approximately $3.4 million, the transfer of notes to partners of approximately $8.9 million, adjustments to the deferred fees and costs balance and the reserve for credit losses totaling approximately $0.1 million.

On January 1, 2023, the Company recorded an allowance for credit losses for notes receivable in accordance with ASC 326, as described in Note 2 – Summary of Significant Accounting Policies. The cumulative effects as of December 31, 2022 of the modified retrospective method of adoption of ASC 326 required the Company to record on the condensed consolidated balance sheets as of January 1, 2023 a reserve for credit losses to notes receivable of $0.1 million for the estimated credit losses to notes receivable as of December 31, 2022.

The following presents the adjustment to notes receivable, net as a result of the implementation of ASC 326 on January 1, 2023 (in thousands):


Notes receivable, net as of December 31, 2022	$	8,750

Reserve for credit losses of December 31, 2022		—
Cumulative effect of the implementation of ASC 326		(119	)
Beginning balance of reserve for credit losses as of January 1, 2023		(119	)
Notes receivable, net of reserve for credit losses as of January 1, 2023	$	8,631

In accordance with ASC 326, the Company performs a review of notes receivables on a quarterly basis. During the six months ended June 30, 2023, the Company recorded a provision for credit losses in selling, general and administrative expense on the condensed consolidated statement of income of $0.1 million. As of June 30, 2023, the reserve for credit losses was approximately $0.2 million. The provision relates primarily to the change in the outstanding balance of notes receivable.

To date, the Company has recorded no actual credit losses on notes receivable.

Note 5 – Stock-based Compensation

As of June 30, 2023, the Company had four stock-based compensation plans, which are described more fully in Note 17 – Stockholders' Equity - Stock-Based Compensation Plans of the Company's audited consolidated financial statements for the year ended December 31, 2022 contained in the Company’s Form 10-K.

At the Company's 2022 Annual Meeting of Shareholders, the Company's shareholders approved the 2022 Heritage Global Inc. Equity Incentive Plan, which replaces the Heritage Global Inc. 2016 Plan, and authorized the issuance of an aggregate of 3.5 million shares of Common Stock for awards made after June 8, 2022.

Stock Options

During the six months ended June 30, 2023, the Company issued options to purchase 395,000 shares of common stock to certain of the Company’s employees. During the same period, the Company canceled no options to purchase common stock as a result of employee resignations.

The following summarizes the changes in common stock options for the six months ended June 30, 2023:


	Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value (In thousands)
Outstanding as of December 31, 2022		2,027,350		$	1.38		7.3	$	2,112
Granted		395,000		$	2.84
Exercised		(76,500	)	$	0.53
Outstanding as of June 30, 2023		2,345,850		$	1.65		7.2	$	4,622

Options exercisable as of June 30, 2023		1,157,350		$	1.10		5.7	$	2,921

The Company recognized stock-based compensation expense related to common stock options of $0.4 million for the six months ended June 30, 2023. As of June 30, 2023, there was approximately $1.6 million of unrecognized stock-based compensation expense related to unvested common stock options outstanding, which is expected to be recognized over a weighted average period of 2.7 years.

Restricted Stock

Restricted stock awards represent a right to receive shares of common stock at a future date determined in accordance with the participant’s award agreement. There is no exercise price and no monetary payment required for receipt of restricted stock awards or the shares issued in settlement of the award. Instead, consideration is furnished in the form of the participant’s services to the Company. Compensation cost for these awards is based on the fair value of the shares of common stock on the date of grant and recognized as compensation expense on a straight-line basis over the requisite service period.

On June 1, 2018, the Company granted 600,000 shares of Company restricted common stock in connection with the Addendum to the Employment Agreements of David Ludwig and Tom Ludwig. The shares were subject to certain restrictions on transfer and a right of repurchase over five years. The shares fully vested as of May 31, 2023.

On March 30, 2021, the Company and Scott West entered into a Separation Agreement and General Release (the “Separation Agreement”). Under the terms of the Separation Agreement, Mr. West’s separation from the Company was effective on March 31, 2021. On April 8, 2021, the Company granted 25,000 shares of the Company’s restricted common stock, for which the risk of forfeiture lapsed on April 8, 2023. In addition, the Separation Agreement provides for customary mutual releases by the Company and Mr. West, and the Separation Agreement includes confidentiality, non-disparagement and other obligations. The full amount of the restricted common stock was expensed as of March 31, 2021 and fully vested as of April 8, 2023.

On August 3, 2022, the Company granted 115,000 shares of Company restricted common stock to non-executive directors under the 2022 Heritage Global Inc. Equity Incentive Plan. Of these restricted stock shares granted during 2022, 40,000 shares were granted with a vesting term that was completed prior to the grant date due to a delay in the Company’s ability to grant such shares, and the remaining 75,000 shares vested in full on March 31, 2023.

On March 1, 2023, the Company granted 97,290 shares of Company restricted common stock to employees under the 2022 Heritage Global Inc. Equity Incentive Plan. The restricted stock shares vest on March 1, 2024.

On March 31, 2023, the Company granted 75,000 shares of Company restricted common stock to non-executive directors under the 2022 Heritage Global Inc. Equity Incentive Plan. The restricted stock shares vest on March 31, 2024.

On April 1, 2023, the Company granted 15,000 shares of Company restricted common stock to one non-executive director under the 2022 Heritage Global Inc. Equity Incentive Plan. The restricted stock shares vest on April 1, 2024.

The Company determined the fair value of the shares awarded by using the closing price of our common stock as of the grant date. Stock-based compensation expense related to the restricted stock awards was approximately $0.1 million for the six months ended June 30, 2023. The unrecognized stock-based compensation expense as of June 30, 2023, was approximately $0.2 million.

Note 6 – Equity Method Investments

In November 2018, CPFH LLC, of which the Company holds a 25% share, was formed to purchase certain real estate assets among partners in a joint venture. In March 2020, HGC Origination I LLC and HGC Funding I LLC were formed as joint ventures with a partner for purposes of conducting business relating to the sourcing, origination and funding of loans to debt purchasing clients. In April 2022, KNFH LLC, of which the Company holds a 25% share, was formed to purchase certain real estate assets and machinery and equipment among partners in a joint venture. In December 2022, DHC8 LLC, of which the Company holds a 13.33% share, was formed to provide funding and receive principal and interest payments as a result of the initial investment. In May 2023, HGC MPG Funding LLC, of which the company holds a 25% share, was formed as a joint venture with a partner for purposes of conducting business relating to the sourcing, origination and funding of loans to debt purchasing clients. CPFH LLC, KNFH LLC and DHC8 LLC are joint ventures formed in connection with the Company’s Industrial Assets Division, whereas HGC Origination I LLC and HGC Funding I LLC, and HGC MPG Funding LLC were formed in connection with the Financial Assets Division. The Company has significant influence over the operations and financial policies of each of its equity method investments.

The table below details the Company’s joint venture revenues and earnings during the six months ended June 30, 2023 and 2022 (in thousands):


	Six Months Ended June 30,
	2023			2022
Revenues:
CPFH LLC	$	—		$	31,021
KNFH LLC		303			4,578
DHC8 LLC		821			—
HGC Origination I LLC and HGC Funding I LLC		2,541			860
HGC MPG Funding LLC		118			—
Total revenues	$	3,783		$	36,459

Operating income (loss):
CPFH LLC	$	—		$	15,318
KNFH LLC		(141	)		873
DHC8 LLC		701			—
HGC Origination I LLC and HGC Funding I LLC		2,562			838
HGC MPG Funding LLC		118			—
Total operating income	$	3,240		$	17,029

The table below details the summarized components of assets and liabilities of the Company’s joint ventures, as of June 30, 2023 and December 31, 2022 (in thousands):


	June 30,		December 31,
	2023		2022
Assets:
KNFH LLC	$	297	$	—
DHC8 LLC		7,922		8,561
HGC Origination I LLC and HGC Funding I LLC		46,340		53,385
HGC MPG Funding LLC		13,386		—
Total assets	$	67,945	$	61,946

Liabilities:
KNFH LLC	$	285	$	47
DHC8 LLC		1,144		1,028
HGC Origination I LLC and HGC Funding I LLC		—		1,504
HGC MPG Funding LLC		—		—
Total liabilities	$	1,429	$	2,579

Note 7 – Earnings Per Share

The Company is required, in periods in which it has net income, to calculate basic earnings per share (“basic EPS”) using the two-class method. The two-class method is required because the Company’s shares of Series N preferred stock, each of which is convertible to 40 common shares, have the right to receive dividends or dividend equivalents should the Company declare dividends on its common stock. Under the two-class method, earnings for the period are allocated on a pro-rata basis to the common and preferred stockholders. The weighted-average number of common and preferred shares outstanding during the period is then used to calculate basic EPS for each class of shares. For the three months ended June 30, 2023 and 2022, the earnings allocated to the outstanding preferred shares were not material.

In periods in which the Company records a net loss, basic loss per share is calculated by dividing the loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period. As the preferred stock does not participate in losses, the two-class method is not used in periods in which the Company records a net loss.

Stock options and other potential common shares are included in the calculation of diluted earnings per share (“diluted EPS”). In calculating diluted EPS, such shares are assumed to be exercised or converted, except when their effect would be anti-dilutive.

The table below shows the calculation of the number of shares used in computing diluted EPS:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Basic weighted average shares outstanding		36,700,830		36,103,198		36,627,200		36,053,729
Treasury stock effect of common stock options and restricted stock awards		950,864		896,416		876,823		792,810
Diluted weighted average common shares outstanding		37,651,694		36,999,614		37,504,023		36,846,539

For the six months ended June 30, 2023 and 2022, there were potential common shares of 0.7 million and 1.1 million, respectively, that were excluded from the computation of diluted EPS, as the inclusion of such common shares would have been anti-dilutive. For the three months ended June 30, 2023 and 2022 there were potential common shares of 0.8 million and 1.0 million, respectively, that were excluded from the computation of diluted EPS, as the inclusion of such common shares would have been anti-dilutive.

Note 8 – Leases

The Company leases office and warehouse space in four locations: Del Mar, California, Hayward, California, San Diego, California and Edwardsville, Illinois. The Company determined that all of its lease arrangements are classified as operating leases.

On August 12, 2022, the Company entered into an agreement with Liberty Industrial Park, LLC pursuant to which the Company leases 6,627 square feet of industrial space in San Diego, California. The lease has a commencement date of September 1, 2022. It provides for an initial monthly base rent of $11,266, which increases on an annual basis to $13,180 per month in the final year. In addition, the Company is obligated to pay its share of maintenance costs of common areas.

On June 1, 2023, the Company amended its Edwardsville office building lease with David Ludwig, extending the term of the agreement to May 31, 2027 and setting rent amounts for the new term. It provides for an initial monthly base rent of $9,412, which increases on an annual basis to $9,914 per month in the final year.

The right-of-use assets and lease liabilities for each lease location are as follows (in thousands):


	June 30,		December 31,
	2023		2022
Right-of-use assets:
Del Mar, CA	$	262	$	336
Hayward, CA		1,664		1,800
San Diego, CA		535		590
Edwardsville, IL		395		50
Total right-of-use assets	$	2,856	$	2,776

Lease liabilities
Del Mar, CA	$	283	$	360
Hayward, CA		1,726		1,852
San Diego, CA		553		605
Edwardsville, IL		396		50
Total lease liabilities	$	2,958	$	2,867

The Company’s leases generally do not provide an implicit rate, and, therefore, the Company uses its incremental borrowing rate as the discount rate when measuring operating lease liabilities. The incremental borrowing rate represents an estimate of the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease within a particular currency environment. The Company used its incremental borrowing rate as of January 1, 2019 for operating leases that commenced prior to that date. As of January 1, 2019, the Company’s incremental borrowing rate was 5.25%. For leases commencing after January 1, 2019 the Company uses its incremental borrowing rate at time of commencement. On September 1, 2022 and June 1, 2023, the Company’s incremental borrowing rate was 5.50%. and 7.25%, respectively. The weighted average remaining lease term for operating leases is 4.6 years and the weighted average discount rate is 5.35% as of June 30, 2023.

Lease expense is recognized on a straight-line basis over the lease term. For the six months ended June 30, 2023 and 2022, lease expense was approximately $0.4 million and $0.3 million, respectively. As of June 30, 2023, undiscounted future minimum lease payments related to leases that have initial or remaining lease terms in excess of one year are as follows (in thousands):


2023 (remainder of year from July 1, 2023 to December 31, 2023)	$	385
2024		789
2025		662
2026		649
2027		546
Thereafter		312
Total undiscounted future minimum lease payments		3,343
Less: imputed interest		(385	)
Present value of lease liabilities	$	2,958

Note 9 – Intangible Assets and Goodwill

Intangible assets

The Company’s identifiable intangible assets are associated with its acquisitions of HGP in 2012, NLEX in 2014 and ALT in 2021, as shown in the table below (in thousands except for lives), and are amortized using the straight-line method over their remaining estimated useful lives. The Company’s tradename that was acquired as part of the acquisition of NLEX in 2014 has an indefinite life and therefore is not amortized.


	Remaining		Carrying Value					Carrying Value
	Life		December 31,					June 30,
	(years)		2022		Amortization			2023
Amortized intangible assets:
Trade Name (HGP)		1.5	$	257	$	(64	)	$	193
Trade Name (ALT)		18.2		607		(16	)		591
Vendor Relationship (ALT)		3.2		843		(115	)		728
Total amortized intangible assets				1,707		(195	)		1,512

Unamortized intangible assets:
Trade Name (NLEX)	N/A			2,437		—			2,437
Total intangible assets			$	4,144	$	(195	)	$	3,949

Amortization expense during the six months ended June 30, 2023 and 2022 was $0.2 million. The Company estimates that the residual value for intangible assets is not significant.

As of June 30, 2023, the estimated amortization expense for the remainder of the current fiscal year and the next five fiscal years and thereafter is shown below (in thousands):


Year	Amount
2023 (remainder of year from July 1, 2023 to December 31, 2023)	$	196
2024		391
2025		263
2026		186
2027		33
Thereafter		443
Total estimated amortization expense	$	1,512

Goodwill

The Company’s goodwill relates to its acquisition of various entities. Goodwill consists of the following at June 30, 2023 and December 31, 2022 (in thousands):


	June 30, 2023		December 31, 2022
ALT	$	1,861	$	1,861
HGP		2,041		2,041
NLEX		3,544		3,544
Total goodwill	$	7,446	$	7,446

There were no additions to goodwill and no impairments recorded to the carrying value of goodwill during the six months ended June 30, 2023.

Note 10 – Debt

Outstanding debt as of June 30, 2023 and December 31, 2022 is summarized as follows (in thousands):


	June 30, 2023		December 31, 2022
Third party debt, current	$	1,681	$	3,411
Third party debt, non-current		6,382	871
Total third party debt	$	8,063	$	4,282

2021 Credit Facility

On May 5, 2021, the Company entered into a promissory note, business loan agreement, commercial security agreement and pledge agreement (the “2021 Credit Facility”) with C3bank, National Association ("Lender") for a $10.0 million revolving line of credit. The Company is permitted to use the proceeds of the loan solely for its business operations. The Company is the borrower under the 2021 Credit Facility. The 2021 Credit Facility is secured by a security interest in certain of the Company’s subsidiaries’ current and future tangible and intangible assets, inventory, chattel paper, accounts, equipment and general intangibles, and a pledge of the equity of the direct and indirect subsidiaries of the Company.

On August 23, 2022, the Company entered into a Loan Modification Agreement and Reaffirmation of Loan (the “2022 Modification Agreement”), effective as of April 1, 2022, by and between the Company and Lender. The 2022 Modification Agreement modified and reaffirmed the 2021 Credit Facility to provide for, among other things, the arrangement of financial covenants, which remained unchanged, into two categories: (i) financial covenants used to resize the maximum principal amount available to the Company as of the date of determination (as determined by Lender in its sole discretion), and (ii) financial covenants to be maintained by the Company.

On May 26, 2023, the Company entered into a Loan Modification Agreement and Reaffirmation of Loan (the “Modification Agreement”), effective as of May 26, 2023, by and between the Company and Lender. The Modification Agreement modifies and reaffirms the 2021 Credit Facility to, among other things, extend the maturity date, modify the applicable interest rate, and further modify the loan covenants. The maturity date was modified to October 27, 2024. The applicable interest rate spread and floor was modified to be the Wall Street Journal Prime rate plus 1.00% (such rate not to be less than 6.75% per annum). Additionally, the Modification Agreement modifies the loan covenants to provide that the Company shall pay the Lender an annual unused line fee, payable on the earlier of (a) bi-annually every six (6) months in arrears, within ten (10) days thereof, commencing on October 27, 2023, or (b) the payment in full of the 2021 Credit Facility, but only if the average balance of the 2021 Credit Facility for the respective six months is below $5.0 million. The availability of additional draws under the 2021 Credit Facility is conditioned, among other things, on the compliance with certain customary representations and warranties, including default, insolvency or bankruptcy, material adverse change in financial condition and any guarantor’s attempt to revise its guarantee. The agreement governing the 2021 Credit Facility also contains customary affirmative covenants regarding, among other things, the maintenance of records, maintenance of certain insurance coverage, compliance with governmental requirements and maintenance of several financial covenants. The 2021 Credit Facility contains certain customary financial covenants and negative covenants that, among other things, include restrictions on the Company’s ability to create, incur or assume indebtedness for borrowed money, including capital leases or to sell, transfer, mortgage, assign, pledge, lease, grant a security interest in, or encumber any of the Company’s assets. As of June 30, 2023, the Company was in compliance with all financial and negative covenants. As of June 30, 2023, there was no outstanding balance on the 2021 Credit Facility.

ALT Note

On August 23, 2021, the Company entered into a $2.0 million subordinated promissory note with an interest rate of 3% per annum and a maturity date of August 23, 2025 (the “ALT Note”) as part of the aggregate purchase price paid to acquire certain assets and liabilities of American Laboratory Trading. The ALT Note requires 48 equal installments of approximately $44,000 on the first day of each month beginning September 23, 2021 with the final payment due on August 23, 2025. The outstanding balance of the ALT Note as of June 30, 2023 was $1.2 million.

2023 Credit Facility

On May 26, 2023, the Company entered into a promissory note, a business loan agreement and commercial security agreement (collectively, the “2023 Credit Facility”) with C3 Bank. The 2023 Credit Facility provides for a new $7.0 million term loan (the "Term Loan"). The Company is permitted to use the proceeds of the Term Loan solely for its business operations. The maturity date of the Term Loan is April 27, 2028. The Term Loan sets the interest rate spread and interest rate floor to accrue at a variable interest rate, which is based on the rate of interest last quoted by The Wall Street Journal as the “prime rate,” plus a margin of 0.250%. Additionally, the Term Loan provides that in the event of prepayment the Company shall pay the Lender a prepayment fee during the first year equal to twelve months of interest (less interest actually paid). The Company is the borrower under the Term Loan. The Term Loan is secured by a security interest in certain of the Company’s and its certain subsidiaries’ current and future tangible and intangible assets, inventory, chattel paper, accounts, equipment and general intangibles and a pledge of the equity of the direct and indirect subsidiaries of the Company. Specifically, the Term Loan is secured by the building currently used by ALT in East Lyme, CT. As of June 30, 2023, the Company was in compliance with all financial and negative covenants. As of June 30, 2023, the outstanding balance on the Term Loan was $6.9 million, of which $1.2 million was classified as "current" and $5.7 million was classified as "non-current."

Note 11 – Income Taxes

As of June 30, 2023, the Company had aggregate tax net operating loss carry forwards of approximately $64.8 million ($61.5 million of unrestricted net operating tax losses and $3.3 million of restricted net operating tax losses). Substantially all of the net operating loss carry forwards expire between 2024 and 2037. The Company’s utilization of restricted net operating tax loss carry forwards against future income for tax purposes is restricted pursuant to the “change in ownership” rules in Section 382 of the Internal Revenue Code.

The reported tax expense varies from the amount that would be provided by applying the statutory U.S. Federal income tax rate to the income from operations before taxes primarily as a result of the impact of state income taxes.

The Company records net deferred tax assets to the extent that it believes such assets will more likely than not be realized. As a result of cumulative losses and uncertainty with respect to future taxable income, the Company has provided a partial valuation allowance against its net deferred tax assets as of June 30, 2023 and December 31, 2022.

Note 12 – Related Party Transactions

As part of the operations of NLEX, the Company leases office space in Edwardsville, IL that is owned by the President of NLEX and a member of the board of directors of the Company, David Ludwig. The total amount paid to the related party for both six month periods ended June 30, 2023 and 2022 was approximately $56,000 and is included in selling, general and administrative expenses in the unaudited condensed consolidated statements of income.

Note 13 – Segment Information

The following table sets forth certain financial information for the Company's reportable segments (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Industrial Assets Division:
Auction and Liquidation	$	715		$	3,199		$	2,182		$	3,848
Refurbishment & Resale		736			144			1,837			341
Total divisional operating income		1,451			3,343			4,019			4,189

Financial Assets Division:
Brokerage		2,117			841			4,162			1,336
Specialty Lending		746			342			1,299			578
Total divisional operating income		2,863			1,183			5,461			1,914

Corporate operating expense & other income		(1,213	)		(902	)		(2,485	)		(1,604	)

Consolidated operating income	$	3,101		$	3,624		$	6,995		$	4,499

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis should be read in conjunction with the information contained in the unaudited condensed consolidated interim financial statements of Heritage Global Inc. (together with its consolidated subsidiaries, “we”, “us”, “our” or the “Company”) and the related notes thereto for the three and six month periods ended June 30, 2023 and 2022, appearing elsewhere herein, and in conjunction with the Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission (“SEC”) on March 24, 2023 (the “Form 10-K”).

Forward Looking Information

This Quarterly Report on Form 10-Q (the “Report”) contains certain “forward-looking statements” as defined by the Private Securities Litigation Reform Act of 1995 that are based on management’s exercise of business judgment as well as assumptions made by, and information currently available to, management. When used in this document, the words “may,” "will,” “anticipate,” “believe,” “estimate,” “expect,” “intend,” and words of similar import, are intended to identify any forward-looking statements. You should not place undue reliance on these forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These statements are subject to certain risks, uncertainties, and assumptions, including the important factors noted under Item 1A “Risk Factors” in our Form 10-K, and as noted below. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, our actual results could differ materially from those anticipated in these forward-looking statements. We undertake no obligation, and do not intend, to update, revise or otherwise publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof, or to reflect the occurrence of any unanticipated events. Although we believe that our expectations are based on reasonable assumptions, we can give no assurance that our expectations will materialize.

Overview, History and Recent Developments

Heritage Global Inc. was incorporated in Florida in 1983 under the name “MedCross, Inc.” Our name was changed to “I-Link Incorporated” in 1997, to “Acceris Communications Inc.” in 2003, to “C2 Global Technologies Inc.” in 2005, to “Counsel RB Capital Inc.” in 2011, and to Heritage Global Inc. in 2013. The most recent name change more closely identifies HG with its auction and specialty lending business lines.

Our corporate headquarters are located at 12625 High Bluff Drive, Suite 305, San Diego, CA 92130. Our telephone number is (858) 847-0659 and our corporate website is www.hginc.com. Information contained on our website is not incorporated by reference into this Form 10-Q.

The organization chart below outlines our basic domestic corporate structure as of June 30, 2023.



		Heritage Global Inc. (1)



100%	100%		100%	100%

Heritage Global Partners, Inc. (2) (California)	Heritage Global LLC (3) (Delaware)		National Loan Exchange, Inc. (5) (Illinois)	Heritage Global Capital LLC (6) (Delaware)

	100%

	Heritage ALT LLC (4) (Delaware)

____________________

(1) Registrant.

(2) Auction and Liquidation.

(3) Holding Company.

(4) Refurbishment and Resale.

(5) Brokerage.

(6) Specialty Lending.

Industry and Competition

Our business consists primarily of the auction, appraisal, refurbishment and asset advisory services provided by our Industrial Assets Division and the charged-off receivable brokerage and specialty financing services provided by our Financial Assets Division, each of which is further described below. Our business also includes the purchase and sale, including at auction, of industrial machinery and equipment, real estate, inventories, charged-off receivable and distressed debt. The market for all of these services and assets is highly fragmented. To acquire auction or appraisal contracts, or assets for resale, we compete with other liquidators, auction companies, dealers and brokers. We also compete with them for potential purchasers and lenders. Some competitors have significantly greater financial and marketing resources and name recognition.

We believe that our business is positioned to grow in all economic cycles. As the economy encounters situations of recession and rising credit costs, our business may experience wider margins on principal asset sales, a favorable lending cycle for charged-off and nonperforming asset portfolios, higher volumes of nonperforming assets and building surplus inventories and bankruptcies. In times of economic growth, our business has demonstrated its ability to experience growth based on our competitive advantages in the industry, including our domain expertise related to deal sourcing and execution capabilities, our diversification of integrated service platforms and our experience across underserved markets. We intend to continue to leverage our competitive advantages to grow within each segment and across platforms through increasing synergies, maintaining high incremental margins, improving earnings predictability, strengthening financial metrics reflected on our balance sheet and managing expenses.

Our business strategy in the Specialty Lending and Auction and Liquidation segments includes the option of partnering with one or more additional purchasers or lenders, pursuant to a partnership, joint venture or limited liability company agreement (collectively, “Joint Ventures”). These Joint Ventures give us access to more opportunities, by helping to mitigate some of the competition from the market’s larger participants and by contributing to our objective to be the leading resource for clients requiring financial and industrial asset solutions.

Our Competitive Strengths

We believe we have attributes that differentiate us from our competitors and that provide us with significant competitive advantages. Our key competitive strengths are described below.

Differentiated business model - We believe we have diversified business lines serving the financial and industrial asset liquidation market. We have multiple revenue streams in our brokerage and principal based auction services, advisory services and secured lending services. Further, our business is event-driven and we have repeat, forward-flow contracts in place with industry leading customers. We expect to drive growth in our revenue streams by taking different roles, and by using partners as needed.

Compelling macro growth drivers - Historically, recessions drive an increased supply of surplus assets and an increased demand for liquidation services, which we believe we are well-positioned to provide. Further, consumer lending and resulting charge-offs are expected to continue their upward trend to meet, and possibly exceed, pre-pandemic levels, which we believe will drive an increased supply of non-performing consumer loans. Additionally, we believe an active market for mergers and acquisitions in manufacturing industries drives demand for industrial asset liquidations and our services. The market in which we operate is highly fragmented, presenting a continued opportunity for the Company to increase market share and drive consolidation.

High return on invested capital - We believe we have an opportunity to drive improved auction economics by serving more frequently in the role of principal rather than the lower margin role of broker. Further, we believe we have a strong growth opportunity in providing secured loans to our financial asset debt buyers, a service we are providing through HGC.

Strong management team - We have built an experienced executive-level management team with deep domain expertise. Our President and Chief Executive Officer, Ross Dove, is a third-generation auctioneer and a pioneering innovator in applying technology to the asset liquidation industry. Mr. Dove began his career in the auction business over thirty years ago, beginning with a small family-owned auction house and helping to expand it into a global firm, DoveBid, which was sold to a third party in 2008. In addition, our senior management team has deep domain expertise in both industrial asset and financial asset transactions. On September 17, 2020, we entered into an Employment Agreement with Kirk Dove, the former President and Chief Operating Officer of the Company. Upon his resignation, Kirk Dove continued his employment with us in an advisory capacity, and is expected to do so until December 31, 2024. Also, during 2020, Nick Dove was appointed as President, Industrial Assets Division, and David Ludwig was appointed as President, Financial Assets Division. Nick Dove previously served as Executive Vice President of Sales of Heritage Global Partners since August 2017. David Ludwig previously served as President of NLEX, a wholly owned subsidiary of the Company, and has served in such capacity since the Company acquired NLEX in 2014.

Financial Assets Division

Our Financial Assets division provides services to issuers of consumer credit that are looking to monetize nonperforming and charged-off loans — loans that creditors have written off as uncollectable. Nonperforming and charged-off loans typically originate from banks that issue unsecured consumer credit.

Brokerage Segment

Through NLEX, we act as an advisor for sales of charged-off and nonperforming asset portfolios via an electronic auction exchange platform for banks, the U.S. government, and other debt holders throughout the United States and Canada. Since the 1980s, NLEX has sold over $150 billion face value of performing, nonperforming and charged-off assets. NLEX sales are concentrated in online, automotive, consumer credit card, student loan and real estate charge-offs. The typical credit we broker sells at a deep discount to face value, and we typically receive a commission for these services from both buyers and sellers. We have existing relationships with high quality, top- tier and mid-tier debt buyers. NLEX is in the process of expanding into the FinTech lenders, peer-to-peer lending and Buy Now Pay Later sectors, where we believe NLEX has opportunity for significant growth. In addition, we plan to add post-sale initiatives, making our services more attractive to our customers as compared to our competitors.

Specialty Lending Segment

Through HGC, we provide specialty financing solutions to investors in charged-off and nonperforming asset portfolios.

Since the inception of HGC in 2019, we have issued $124 million in total loans to investors by both self- funded loans and in partnership with senior lenders. Our portion of the total loans funded since inception is $48.3 million. Our income from secured lending consists of upfront fees, interest income, monthly monitoring fees and backend profit share. In general, we expect to earn an annual rate of return on our share of notes receivable outstanding of approximately 20% or more based on established terms of the loans funded and performance of collections. As of June 30, 2023, our total balance related to investments in loans to buyers of charged-off and nonperforming receivable portfolios was $29.9 million, of which $15.0 million is classified as Notes Receivable and $14.9 million is classified as Equity Method Investments.

Our management team has decades of domain expertise with the ability to leverage extensive funding activity and widespread industry relationships. We believe we have the opportunity for growth through increased penetration of the underserved market of mid-tier buyers of charged-off receivables, providing more economic financing options and a greater variety of funding solutions to our customers.

Industrial Assets Division

Our Industrial Assets division advises enterprise and financial customers on the sale of industrial assets, mostly from surplus and sometimes distressed circumstances while acting as an agent, guarantor or principal in the sale.

Auction and Liquidation Segment

Through HGP, we offer a global full-service auction, appraisal and asset advisory firm, including the acquisition of turnkey manufacturing facilities and used industrial machinery and equipment. The fees for our services typically range from 15%–50%, depending on our role and the transaction. This division predominantly targets sellers of surplus or distressed “inside the building” assets. Our buyers consist of both end-users and dealers.

Refurbishment & Resale Segment

Through ALT, we have specialized our offering in the biotech and pharma sectors, which have been key verticals over the past decade. ALT focuses on refurbishing and reselling laboratory equipment.

Our management team has decades of domain expertise with the ability to leverage extensive industry relationships, real time access to databases of buyers and sales, as well as a deep understanding of the underlying asset value across the more than 25 industrial sectors in which we operate. We believe we have the opportunity for growth in our auction services through our ability to secure ongoing contracts with large multinational sellers, to be a first mover in emerging sectors, and to gain market share in sectors in which we are currently less active. Our extensive network and ability to find and source new opportunities are key factors for expansion. We believe we have the opportunity for growth in our valuation services through the addition of incremental bank-approved vendor lists, geographic expansion and through deeper penetration with our existing bank relationships.

Government Regulation

We are subject to federal, state and local consumer protection laws, including laws protecting the privacy of customer non-public information and regulations prohibiting unfair and deceptive trade practices. Many jurisdictions also regulate “auctions” and “auctioneers” and may regulate online auction services. These consumer protection laws and regulations could result in substantial compliance costs and could interfere with the conduct of our business.

Legislation in the United States has increased public companies’ regulatory and compliance costs as well as the scope and cost of work provided by independent registered public accountants and legal advisors. As regulatory and compliance guidelines continue to evolve, we may incur additional costs in the future, which may or may not be material, in order to comply with legislative requirements or rules, pronouncements and guidelines by regulatory bodies.

Critical Accounting Policies and Estimates

Management’s Discussion and Analysis of Financial Condition and Results of Operations references our unaudited condensed consolidated interim financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). This requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Management bases its estimates and judgments on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results could differ from those estimates.

Significant estimates include the assessment of collectability of revenue recognized and the valuation of accounts receivable and notes receivable, inventory, investments, goodwill and intangible assets, liabilities, deferred income tax assets and liabilities including projecting future years’ taxable income, and stock-based compensation. These estimates have the potential to significantly impact our consolidated financial statements, either because of the significance of the financial statement item to which they relate, or because they require judgment and estimation due to the uncertainty involved in measuring, at a specific point in time, events that are continuous in nature.

We have no off-balance sheet arrangements.

We have not paid any dividends, and do not expect to pay any dividends in the future.

The critical accounting policies used in the preparation of our audited consolidated financial statements are discussed in our Form 10-K. We adopted a change in accounting policy effective January 1, 2023, as fully described in Note 2 – Summary of Significant Accounting Policies of the financial statements attached to this Form 10-Q. This change, referred to as “ASC 326,” was required by the Financial Accounting Standards Board. Prior periods were not restated, and the cumulative effect to periods prior to January 1, 2023 were recorded to our condensed consolidated balance sheets as of that date. Prospectively, the change will not have a material effect on our results of operations.

Other than this required change, there were no changes to our accounting policies during the six months ended June 30, 2023.

Management’s Discussion of Financial Condition

Liquidity and Capital Resources

Liquidity

We had working capital of $15.5 million and $7.7 million as of June 30, 2023 and December 31, 2022, respectively.

Our current assets as of June 30, 2023 increased to $32.6 million compared to $23.9 million as of December 31, 2022. This change was primarily due to an increase in the current portion of notes receivable of $4.1 million, an increase in cash of $2.3 million, and an increase in accounts receivable of $1.9 million. Our current liabilities as of June 30, 2023 increased to $17.1 million compared to $16.2 million as of December 31, 2022. The most significant change was an increase of $4.9 million in our payables to sellers due to the timing of certain asset liquidation settlements, offset by a decrease in the current portion of third party debt of $1.7 million, and by a decrease in various payables totaling $2.4 million.

During the six months ended June 30, 2023, our primary source of cash was cash on hand, proceeds from the Term Loan and cash provided by operating activities. Cash disbursements during the six months ended June 30, 2023 consisted primarily of investments in notes receivable net of cash received on transfer of notes to partners of $9.8 million, equity method investments of $4.2 million, repayment on our 2021 Credit Facility of $7.3 million, repayment on our ALT Note of $0.2 million, repayment on our Term Loan of $0.1 million, payment of operating expenses, and settlement of auction liabilities.

We believe we can fund our operations and our debt service obligations for at least 12 months from the date of filing this quarterly report through a combination of working capital, cash flows from our on-going operations and accessing financing from our existing line of credit.

Our indebtedness consists of a promissory note dated August 23, 2021 (the “ALT Note”) issued in the amount of $2.0 million as part of the aggregate purchase price paid to acquire certain assets and liabilities of American Laboratory Trading, any amounts borrowed under our 2021 Credit Facility, and the Term Loan. The terms of the ALT Note require us to pay off the Note in 48 equal installments of approximately $44,000 with an interest rate of 3% per annum and a maturity date of August 23, 2025. As of June 30, 2023, we had an outstanding balance of $1.2 million on the ALT Note. The Term Loan requires we pay monthly installments over a 5-year term with adjustments for changes in the variable interest rate. As of June 30, 2023, we had an outstanding balance of $6.9 million on the Term Loan.

Capital Resources

As of June 30, 2023 and December 31, 2022, we had stockholders’ equity of $54.2 million and $48.3 million, respectively.

We determine our future capital and operating requirements based upon our current and projected operating performance and contractual commitments. We expect to be able to finance our future operations through a combination of working capital, future net cash flows from operating activities, our 2021 Credit Facility and Term Loan. Our contractual requirements are limited to the outstanding debt and lease commitments with related and unrelated parties. Capital requirements are generally limited to our purchases of surplus and distressed assets and our investment activity under our Specialty Lending segment. We believe that our current capital resources, including available borrowing capacity from our 2021 Credit Facility and Term Loan, are sufficient for these requirements. In the event additional capital is needed, we believe we can obtain additional debt financing through capital partners.

Cash Position and Cash Flows

Cash and cash equivalents as of June 30, 2023 were $15.0 million as compared to $12.7 million as of December 31, 2022, an increase of approximately $2.3 million.

Cash Provided By Operating Activities

Cash provided by operations was $6.7 million during the six months ended June 30, 2023 as compared to $1.1 million during the same period in 2022. The approximate $5.6 million change was primarily attributable to a change of $6.0 million in net income adjusted for noncash items during the six months ended June 30, 2023 as compared to the same period in 2022. The amount was offset by changes in operating assets and liabilities of $0.6 million during the six months ended June 30, 2023 as compared to the same period in 2022.

The changes in operating assets and liabilities during the six months ended June 30, 2023 as compared to the same period in 2022 are primarily due to the nature of our operations. We earn revenue from discrete asset liquidation deals that vary considerably with respect to their magnitude and timing, and that can consist of fees, commissions, asset sale proceeds, or a combination thereof. The operating assets and liabilities associated with these deals are, therefore, subject to the same variability and can be quite different at the end of any given period.

Cash (Used In) Provided by Investing Activities

Cash used in investing activities during the six months ended June 30, 2023 was $8.0 million compared to cash provided from investing activities of $2.2 million during the same period in 2022.

Cash used in investing activities during the six months ended June 30, 2023 consisted primarily in investment in notes receivable of $18.7 million and equity method investments of $4.2 million, related entirely to specialty lending activity within our Financial Assets Division. Cash used in investing activities during the six months ended June 30, 2023 was offset by cash provided by investing activities primarily of cash received on transfer of notes receivable to partners of $8.9 million, payments received on notes receivable of $3.4 million as well as return of investment and cash distributions received from equity method investments of $2.3 million.

Cash provided by investing activities during the six months ended June 30, 2022 consisted primarily of payments received on notes receivable of $1.5 million as well as return of investment and cash distributions received from equity method investments of $6.8 million in the aggregate, of which $5.9 million resulted from the sale of the remaining real estate assets of CPFH LLC, the joint venture, located in Huntsville, Alabama.

Cash Provided By (Used In) Financing Activities

Cash provided by financing activities was approximately $3.7 million during the six months ended June 30, 2023 compared to cash used in financing activities of $0.8 million during the six months ended June 30, 2022. Financing activities during the six months ended June 30, 2023 consisted primarily of $11.4 million in proceeds from draws on our 2021 Credit Facility and our Term Loan, offset by $7.3 million in repayments to our 2021 Credit Facility, $0.1 million in repayments to our Term Loan and $0.2 million in repayments to our ALT Note. Financing activities during the six months ended June 30, 2022 consisted primarily of a $0.5 million repayment to our 2021 Credit Facility and $0.2 million in repayments to our ALT Note.

Contractual Obligations

Our significant contractual obligations are our third party loans, client and partner asset liquidation settlement payments and lease obligations. The loan and lease obligations are fully described in the notes to the consolidated financial statements included in our Form 10-K.

Management’s Discussion of Results of Operations

The following table sets out the Company’s condensed consolidated results of operations for the three and six months ended June 30, 2023 and 2022 (in thousands).


	Three Months Ended June 30,						Change						Six Months Ended June 30,						Change
	2023			2022			Dollars			Percent			2023			2022			Dollars			Percent
Revenues:
Services revenue	$	9,810		$	4,595			5,215			113	%	$	20,055		$	8,763		$	11,292			129	%
Asset sales		3,288			6,470			(3,182	)		(49	)%		9,655			11,659			(2,004	)		(17	)%
Total revenues		13,098			11,065			2,033			18	%		29,710			20,422			9,288			45	%

Operating costs and expenses:
Cost of services revenue		1,807			910			897			99	%		4,147			1,664			2,483			149	%
Cost of asset sales		1,935			5,631			(3,696	)		(66	)%		6,270			9,033			(2,763	)		(31	)%
Selling, general and administrative		6,440			4,939			1,501			30	%		12,740			9,214			3,526			38	%
Depreciation and amortization		121			133			(12	)		(9	)%		241			266			(25	)		(9	)%
Total operating costs and expenses		10,303			11,613			(1,310	)		(11	)%		23,398			20,177			3,221			16	%
Earnings of equity method investments		306			4,172			(3,866	)		(93	)%		683			4,254			(3,571	)		(84	)%
Operating income		3,101			3,624			(523	)		(14	)%		6,995			4,499			2,496			55	%
Interest expense, net		(101	)		(37	)		(64	)		173	%		(169	)		(75	)		(94	)		125	%
Income before income tax expense		3,000			3,587			(587	)		(16	)%		6,826			4,424			2,402			54	%
Income tax expense		221			1,009			(788	)		(78	)%		1,218			1,201			17			(1	)%
Net income	$	2,779		$	2,578			201			8	%	$	5,608		$	3,223			2,385			74	%

Our revenue has several components: (1) traditional fee based asset disposition services, such as commissions from on-line and webcast auctions, liquidations and negotiated sales, and commissions from the NLEX charged-off receivables business, (2) the acquisition and subsequent disposition of distressed and surplus assets, including industrial machinery and equipment and real estate, and (3) fees and interest earned for appraisal, management advisory services and specialty lending services.

We report segment information based on the “management” approach. The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of our reportable segments. We manage our business primarily on differentiated revenue streams for services offered. Our reportable segments consist of the Auction and Liquidation segment, Refurbishment & Resale segment, Brokerage segment, and Specialty Lending segment. Our Auction and Liquidation segment, through HGP, operates as a global full-service auction, appraisal and asset advisory firm, including the acquisition of turnkey manufacturing facilities and used industrial machinery and equipment. Our Refurbishment & Resale segment, through ALT, acquires, refurbishes and supplies specialized laboratory equipment. Our Brokerage segment, through NLEX, brokers charged-off receivables in the U.S. and Canada on behalf of financial institutions. Our Specialty Lending segment, through HGC, provides specialty financing solutions to investors in charged-off and nonperforming asset portfolios.

We evaluate the performance of our reportable segments based primarily on operating income. Notwithstanding the foregoing, the reported segment operating income for ALT and HGC represents incremental costs for managing these segments as part of their sister segments (HGP for ALT and NLEX for HGC). As such, the reported operating income for ALT and HGC does not represent their true standalone contribution, as we do not attempt to allocate existing fixed divisional overhead costs of the sister divisions to the newer segments. Similarly, corporate overhead cost is not allocated to the operating divisions for management reporting purposes. Further, we do not utilize segmented asset information to evaluate the performance of our reportable segments and do not include intercompany transfers between segments for management reporting purposes.

The following table sets forth certain operating income for the Company's reportable segments (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Industrial Assets Division:
Auction and Liquidation	$	715		$	3,199		$	2,182		$	3,848
Refurbishment & Resale		736			144			1,837			341
Total divisional operating income		1,451			3,343			4,019			4,189

Financial Assets Division:
Brokerage		2,117			841			4,162			1,336
Specialty Lending		746			342			1,299			578
Total divisional operating income		2,863			1,183			5,461			1,914

Corporate operating expense & other income		(1,213	)		(902	)		(2,485	)		(1,604	)

Consolidated operating income	$	3,101		$	3,624		$	6,995		$	4,499

Three-Month Period Ended June 30, 2023 Compared to Three-Month Period Ended June 30, 2022

Revenues and cost of revenues – Revenues were $13.1 million during the three months ended June 30, 2023 compared to $11.1 million during the same period in 2022. Costs of services revenue and asset sales were $3.7 million during the three months ended June 30, 2023 compared to $6.5 million during the same period in 2022. The gross profit of these items was $9.4 million during the three months ended June 30, 2023 compared to $4.5 million during the same period in 2022, an increase of approximately $4.9 million, or approximately 109%. The increased gross profit in the second quarter of 2023 reflects the substantial increase in service revenue due to strong performance in the Financial Assets Division, as well as the normal changes in the timing and magnitude of asset liquidation transactions.

Selling, general and administrative expense – Selling, general and administrative expense was $6.4 million during the three months ended June 30, 2023 compared to $4.9 million during the same period in 2022.

Significant components of selling, general and administrative expense for the three months ended June 30, 2023 and June 30, 2022 are shown below (in thousands):


	Three Months Ended June 30,
	2023		2022		% change
Compensation
Auction and liquidation	$	1,543	$	1,605		(4	)%
Refurbishment and resale		541		386		40	%
Brokerage		1,762		1,006		75	%
Specialty lending		281		143		97	%
Corporate and other		530		480		11	%
Stock-based compensation		228		108		111	%
Consulting		9		25		(64	)%
Board of Directors fees		82		73		12	%
Accounting, tax and legal professional fees		489		290		69	%
Insurance		136		105		30	%
Occupancy		319		243		31	%
Travel and entertainment		167		153		9	%
Advertising and promotion		139		109		27	%
Information technology support		110		100		10	%
Other		104		113		(8	)%
Total selling, general & administrative expense	$	6,440	$	4,939		30	%

As compared to the second quarter of 2022, there was an increase in selling, general and administrative expense during the second quarter of 2023 primarily due to increased compensation expense as a result of our improved financial performance across our operating segments and increased headcount.

Depreciation and amortization expense – Depreciation and amortization expense was $0.1 million during the three months ended June 30, 2023 and the same period in 2022, which consisted primarily of amortization expense related to intangible assets.

Off-Balance Sheet Arrangements – We had no off-balance sheet arrangements as of June 30, 2023 and December 31, 2022.

Six-Month Period Ended June 30, 2023 Compared to Six-Month Period Ended June 30, 2022

Revenues and cost of revenues – Revenues were $29.7 million during the six months ended June 30, 2023 compared to $20.4 million during the same period in 2022. Costs of services revenue and asset sales were $10.4 million during the six months ended June 30, 2023 compared to $10.7 million during the same period in 2022. The gross profit of these items was $19.3 million during the six months ended June 30, 2023 compared to $9.7 million during the same period in 2022, an increase of approximately $9.6 million, or approximately 99%. The increased gross profit in the second quarter of 2023 reflects the substantial increase in service revenue due to strong performance in the Financial Assets Division, as well as the normal changes in the timing and magnitude of asset liquidation transactions.

Selling, general and administrative expense – Selling, general and administrative expense was $12.7 million during the six months ended June 30, 2023 compared to $9.2 million during the same period in 2022.

Significant components of selling, general and administrative expense for the six months ended June 30, 2023 and June 30, 2022 are shown below (in thousands):


	Six Months Ended June 30,
	2023		2022		% change
Compensation
Auction and liquidation	$	2,986	$	2,853		5	%
Refurbishment and resale		1,046		765		37	%
Brokerage		3,533		1,873		89	%
Specialty lending		491		287		71	%
Corporate and other		1,153		741		56	%
Stock-based compensation		407		214		90	%
Consulting		28		40		(30	)%
Board of Directors fees		154		146		5	%
Accounting, tax and legal professional fees		855		601		42	%
Insurance		267		222		20	%
Occupancy		637		506		26	%
Travel and entertainment		447		365		22	%
Advertising and promotion		253		222		14	%
Information technology support		202		187		8	%
Other		281		192		46	%
Total selling, general & administrative expense	$	12,740	$	9,214		38	%

As compared to the six months ended June 30, 2022, there was an increase in selling, general and administrative expense during the first half of 2023 primarily due to increased compensation expense as a result of our improved financial performance across our operating segments and increased headcount.

Depreciation and amortization expense – Depreciation and amortization expense was $0.2 million and $0.3 million during the six months ended June 30, 2023 and June 30, 2022, respectively, which consisted primarily of amortization expense related to intangible assets.

Key Performance Indicators

We monitor a number of financial and non-financial measures on a regular basis in order to track our underlying operational performance and trends. Other than operating income (a GAAP financial measure as shown in our consolidated statements of income), which we believe is the most important measure of our operational performance and trends, we believe that EBITDA and Adjusted EBITDA (non-GAAP financial measures) are key performance indicators (“KPIs”) for our business. These KPIs may not be defined or calculated in the same way as similar KPIs used by other companies.

We prepared our unaudited condensed consolidated financial statements in accordance with GAAP. We define EBITDA as net income plus depreciation and amortization, interest expense, and provision for income taxes. Adjusted EBITDA reflects EBITDA adjusted further to eliminate the effects of stock-based compensation. Management uses EBITDA and Adjusted EBITDA in assessing the Company’s results, evaluating the Company’s performance and in reaching operating and strategic decisions. Management believes that the presentation of EBITDA and Adjusted EBITDA, when considered together with our GAAP financial statements and the reconciliation to the most directly comparable GAAP financial measure, is useful in providing investors a more complete understanding of the factors and trends affecting the underlying performance of the Company on a historical and ongoing basis. Our use of EBITDA and Adjusted EBITDA is not meant to be, and should not be, considered in isolation or as a substitute for, or superior to, any GAAP financial measure. You should carefully evaluate the financial information below, which reconciles our GAAP reported net income to EBITDA and Adjusted EBITDA for the periods presented (in thousands).


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Net income	$	2,779	$	2,578	$	5,608	$	3,223
Add back:
Depreciation and amortization		121		133		241		266
Interest expense, net		101		37		169		75
Income tax expense		221		1,009		1,218		1,201
EBITDA		3,222		3,757		7,236		4,765

Management add back:
Stock based compensation		228		108	407		214
Adjusted EBITDA	$	3,450	$	3,865	$	7,643	$	4,979

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

As a Smaller Reporting Company, we are not required to provide the information required by this item.

Item 4. Controls and Procedures.

As of the end of the period covered by this Report, our Chief Executive Officer and Principal Financial Officer (the “Certifying Officers”) conducted evaluations of our disclosure controls and procedures. As defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the term “disclosure controls and procedures” means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including the Certifying Officers, to allow timely decisions regarding required disclosure. Based on this evaluation, the Certifying Officers have concluded that our disclosure controls and procedures were effective as of June 30, 2023.

Further, there were no changes in our internal control over financial reporting during the six months ended June 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

There have been no material changes to the legal proceedings discussed in our Form 10-K.

Item 1A. Risk Factors

As a Smaller Reporting Company, we are not required to provide the information required by this item.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

(a) Exhibits


Exhibit No.		Identification of Exhibit
3.1		Amended and Restated Articles of Incorporation (restated for filing purposes only) (filed as Exhibit 3.1 to the Company’s Annual Report on Form 10-K filed on March 9, 2020 (File No. 000-17973), and incorporated herein by reference).

3.2		Restated Bylaws, as amended (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on September 30, 2020 (File No. 001-39471), and incorporated herein by reference).

4.1		Warrant Agreement by and between Heritage Global Inc. and Napier Park Industrial Asset Acquisition, LP, effective as of March 19, 2019 (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on March 25, 2019 (File No. 000-17973), and incorporated herein by reference).

10.1		Amended and Restated Promissory Note, by and between Heritage Global Inc. and C3bank, National Association, effective as of May 26, 2023.

10.2		Loan Modification Agreement and Reaffirmation of Loan, by and between Heritage Global Inc. and C3bank, National Association, effective as of May 26, 2023.

10.3		Promissory Note, by and between Heritage Global Inc. and C3bank, National Association, effective as of May 26, 2023.

10.4		Business Loan Agreement, by and between Heritage Global Inc. and C3bank, National Association, effective as of May 26, 2023.

10.5		Pledge and Security Agreement, by and between Heritage Global Inc. and C3bank, National Association, effective as of May 26, 2023.

10.6		Employment Agreement, by and between Heritage Global Inc. and Nick Dove, effective as of January 1, 2023.

10.7		Employment Agreement, by and between Heritage Global Inc. and David Ludwig, effective as of June 1, 2023.

31.1		Certification of Principal Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) as adopted under Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Principal Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) as adopted under Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS		Inline XBRL Instance Document

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Labels Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunder duly authorized.


	Heritage Global Inc.

Date: August 10, 2023	By:	/s/ Ross Dove
		Ross Dove
		Chief Executive Officer
		(Principal Executive Officer)

	By:	/s/ Brian Cobb
		Brian J. Cobb
		Chief Financial Officer
		(Principal Financial Officer and Principal Accounting Officer)

EX-10.1 2 hgbl-ex10_1.htm EX-10.1 EX-10.1

Exhibit 10.1

AMENDED AND RESTATED

PROMISSORY NOTE

Principal	Loan Date	Maturity	Loan No	Call	Coll	Account	Officer	Initials
$10,000,000.00	05-05-2021   10-27-2024	13880

References in the boxes above are for Lender's use only and do not limit the applicability of this document to any particular loan or item.
Any item above containing ”***” has been omitted due to text length limitations.

Borrower:	Heritage Global Inc.
12625 High Bluff Drive, Suite 201
San Diego, CA 92130

Lender:	C3bank, National Association 
Encinitas Office
850 S. Coast Hwy. 101
Encinitas, CA 92024

Principal Amount: $10,000,000.00 Date of Initial Note: May 5, 2021

AMENDED AND RESTATED PROMISSORY NOTE DATED May 26, 2023. This Amended and Restated Promissory Note amends and restates that certain Promissory Note dated May 5, 2021 (the “Initial Note”) (individually and collectively, the “Note”).

PROMISE TO PAY. Heritage Global Inc. ("Borrower") promises to pay to C3bank, National Association ("Lender"), or order, in lawful money of the United States of America, the principal amount of Ten Million & 00/100 Dollars ($10,000,000.00) or so much as may be outstanding, together with interest on the unpaid outstanding principal balance of each advance. Interest shall be calculated from the date of each advance until repayment of each advance.

PAYMENT. Borrower will pay this loan in one payment of all outstanding principal plus all accrued unpaid interest on October 27, 2024. In addition, Borrower will pay regular monthly payments of all accrued unpaid interest due as of each payment date, beginning June 7, 2021, with all subsequent interest payments to be due on the same day of each month after that. Unless otherwise agreed or required by applicable law, payments will be applied first to any accrued unpaid interest; then to principal; then to any late charges; and then to any unpaid collection costs. Borrower will pay Lender at Lender's address shown above or at such other place as Lender may designate in writing.

ANNUAL UNUSED FEE (MINIMUM INTEREST): Commencing on October 27, 2023, Borrower shall pay to Lender the Unused Line Fee as further detailed in the Loan Agreement.

_________Initial.

[Intentionally Omitted]

VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from time to time based on changes in an index which is the WALL STREET JOURNAL PRIME (the "Index"). Lender will tell Borrower the current Index rate upon Borrower's request. The interest rate change will not occur more often than each DAY. Borrower understands that Lender may make loans based on other rates as well. The Index currently on May 26, 2023 is 8.25% per annum. Interest on the unpaid principal balance of this Note will be calculated as described in the "INTEREST CALCULATION METHOD" paragraph using a rate of 1.000 percentage point over the Index, adjusted if necessary for any minimum and maximum rate limitations described below, resulting in a current rate of 9.25%. NOTICE: Under no circumstances will the interest rate on this Note be less than 6.750% per annum or more than the maximum rate allowed by applicable law.

INTEREST CALCULATION METHOD. Interest on this Note is computed on a 365/360 basis; that is, by applying the ratio of the interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. All interest payable under this Note is computed using this method.

PREPAYMENT. Borrower may pay without penalty all or a portion of the amount owed earlier than is due. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrower's obligation to continue to make payments of accrued unpaid interest. Rather, early payments will reduce the principal balance due. Borrower agrees not to send Lender payments marked "paid in" without recourse", or
similar language. If Borrower sends such a payment, Lender may accept it without losing any of Lender's rights under this Note, and Borrower will remain obligated to pay any further amount owed to Lender. All written communications concerning disputed amounts, including any check or other payment instrument that indicates that the payment constitutes "payment in full" of the amount owed or that is tendered with other conditions or limitations or as full satisfaction of a disputed amount must be mailed or delivered to: C3bank, National Association; Riverside Office; 3727 Arlington Ave; Riverside, CA 92506.

LATE CHARGE. If a payment is 11 days or more late, Borrower will be charged 6.000% of the regularly scheduled payment or $5.00, whichever is greater.

INTEREST AFTER DEFAULT. Upon default, at Lender's option, and if permitted by applicable law, Lender may add any unpaid accrued interest to principal and such sum will bear interest therefrom until paid at the rate provided in this Note (including any increased rate). Upon default, the interest rate on this Note shall, if permitted under applicable law, immediately become 17.000%.

DEFAULT. Each of the following shall constitute an event of default ("Event of Default") under this Note: Payment Default. Borrower fails to make any payment when due under this Note.

Other Defaults. Borrower fails to comply with or to perform any other term, obligation, covenant or condition contained in this Note or in any of the related documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower.

Default in Favor of Third Parties. Borrower or any Grantor defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower's property or Borrower's ability to repay this Note or perform Borrower's obligations under this Note or any of the related documents.

AMENDED AND RESTATED

PROMISSORY NOTE

Loan No: 13880 (Continued) Page 2

AMENDED AND RESTATED

PROMISSORY NOTE

Loan No: 13880 (Continued) Page 3

False Statements. Any warranty, representation or statement made or furnished to Lender by Borrower or on Borrower's behalf under this Note or the related documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter.

Insolvency. The dissolution or termination of Borrower's existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrower's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower.

Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower or by any governmental agency against any collateral securing the loan. This includes a garnishment of any of Borrower's accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute.

Events Affecting Guarantor. Any of the preceding events occurs with respect to any guarantor, endorser, surety, or accommodation party of any of the indebtedness or any guarantor, endorser, surety, or accommodation party dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any guaranty of the indebtedness evidenced by this Note.

Change In Ownership. The occurrence of either (I) a sale to all or substantially all of the assets of the Borrower, or (II) the acquisition in a single transaction, or series of related transactions, of at least 50% or more of the outstanding capital stock of the Borrower.

Adverse Change. A material adverse change occurs in Borrower's financial condition, or Lender believes the prospect of payment or performance of this Note is impaired.

Cure Provisions. If any default, other than a default in payment, is curable and Borrower has not been given a notice of a breach of the same provision of this Note within the preceding twelve (12) months, may be cured Borrower, after Lender sends written notice to Borrower demanding cure of such default: (1) cures the default within fifteen (15) days; or (2) the cure requires more than fifteen (15) days, immediately initiates steps which Lender deems in Lender's sole discretion to be sufficient to cure the default and thereafter continues and completes all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical.

LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal balance under this Note and all accrued unpaid interest immediately due, and then Borrower will pay that amount.

ATTORNEYS' FEES; EXPENSES. Lender may hire or pay someone else to help collect this Note if Borrower does not pay. Borrower will pay Lender that amount. This includes, subject to any limits under applicable law, Lender's attorneys' fees and Lender's legal expenses, whether or not there is a lawsuit, including attorneys' fees, expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), and appeals. Borrower also will pay any court costs, in addition to all other sums provided by law.

JURY WAIVER. To the extent permitted by applicable law, Lender and Borrower hereby waive the right to any jury trial in any action, proceeding, or counterclaim brought by either Lender or Borrower against the other.

GOVERNING LAW. This Note will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the State of California without regard to its conflicts of law provisions. This Note has been accepted by Lender in the State of California.

CHOICE OF VENUE. If there is a lawsuit, Borrower agrees upon Lender's request to submit to the jurisdiction of the courts of Riverside County, State of California.

DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $24.50 if Borrower makes a payment on Borrower's loan and the check or preauthorized charge with which Borrower pays is later dishonored.

COLLATERAL. Borrower acknowledges this Note is secured by the following collateral described in the security instrument listed herein:

(A) a Commercial Security Agreement dated May 5, 2021 made and executed between Heritage Global Inc., Heritage Global Partners Inc., Heritage Global LLC, National Loan Exchange, Inc., Heritage Global Capital LLC and Equity Partners HG, LLC and Lender on collateral described as: inventory, chattel paper, accounts, equipment and general intangibles.

LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under this Note may be requested orally by Borrower or as provided in this paragraph. All oral requests shall be confirmed in writing on the day of the request. All communications, instructions, or directions by telephone or otherwise to Lender are to be directed to Lender's office shown above. The following person or persons are authorized, except as provided in this paragraph, to request advances and authorize payments under the line of credit until Lender receives from Borrower, at Lender's address shown above, written notice of revocation of such authority: JAMES SKLAR, EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL & SECRETARY. FUNDS WILL BE DISBURSED AS REQUESTED BY BORROWER AND APPROVED BY A C3BANK OFFICER. Borrower agrees to be liable for all sums either: (A) advanced in accordance with the instructions of an authorized person or (B) credited to any of Borrower's accounts with Lender. The unpaid principal balance owing on this Note at any time may be evidenced by endorsements on this Note or by Lender's internal records, including daily computer print-outs.

SUCCESSOR INTERESTS. The terms of this Note shall be binding upon Borrower, and upon Borrower's heirs, personal representatives, successors and assigns, and shall inure to the benefit of Lender and its successors and assigns.

NOTIFY US OF INACCURATE INFORMATION WE REPORT TO CONSUMER REPORTING AGENCIES. Borrower may notify Lender if Lender reports any inaccurate information about Borrower's account(s) to a consumer reporting agency. Borrower's written notice describing the specific inaccuracy(ies) should be sent to Lender at the following address: C3bank, National Association 3727 Arlington Ave Riverside, CA 92506.

GENERAL PROVISIONS. If any part of this Note cannot be enforced, this fact will not affect the rest of the Note. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower and any other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive any applicable statute of limitations, presentment, demand for payment, and notice of dishonor. Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, no party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may renew or extend (repeatedly and for any length of time) this loan or release any party or guarantor or collateral; or impair, fail to realize upon or perfect Lender's security interest in the collateral; and take any other action deemed necessary by Lender without the consent of or notice to anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made. The obligations under this Note are joint and several.

AMENDED AND RESTATED

PROMISSORY NOTE

Loan No: 13880 (Continued) Page 4

AMENDED AND RESTATED

PROMISSORY NOTE

Loan No: 13880 (Continued) Page 5

PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO THE TERMS OF THE NOTE.

BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS AMENDED AND RESTATED PROMISSORY NOTE.
BORROWER:

HERITAGE GLOBAL INC.

By: /s/ James Sklar

James Sklar, Executive Vice President, General Counsel and Secretary of Heritage Global Inc. LaserPro, Ver. 19.3.0.038 Copr. Finastra USA Corporation 1997, 2021. All Rights Reserved. - CA C:\CFI\LPL\D20.FC TR-2032 PR-45 REAFFIRMATION OF LOAN [HERITAGE GLOBAL INC.; LOAN NO.:13880]

EX-10.2 3 hgbl-ex10_2.htm EX-10.2 EX-10.2

Exhibit 10.2

LOAN MODIFICATION AGREEMENT AND

This LOAN MODIFICATION AGREEMENT AND REAFFIRMATION OF LOAN (this “Agreement”) is made effective as of May 26, 2023 (“Reference Date”) by and between Heritage Global Inc., a Florida corporation (“Borrower”), and C3bank, National Association (“Lender”) with respect to the following facts:

R E C I T A L S:

On or about May 5, 2021, Lender entered into a Business Loan Agreement (as modified, the “Existing Loan Agreement”, as modified by this Agreement, the “Loan Agreement”) with Borrower whereby Lender agreed to make a revolving line of credit to Borrower in the maximum principal amount of Ten Million and No/100 Dollars ($10,000,000.00) (the “Loan”). The Loan was evidenced by, among other things, (i) that certain Promissory Note dated May 5, 2021, from Borrower in favor of Lender in the original principal amount of Ten Million and No/100 Dollars ($10,000,000.00) (as the same may be amended, restated, modified or replaced from time to time, the “Note”), (ii) that certain Commercial Security Agreement dated May 5, 2021, by and among Borrower, Heritage Global Partners Inc., a California corporation (“HGP”), Heritage Global LLC, a Delaware limited liability company (“HG”), Heritage ALT LLC, formerly known as Equity Partners HG LLC, a Delaware limited liability company (“EPHG”), National Loan Exchange, Inc., an Illinois company (“NLEX”), Heritage Global Capital LLC, a Delaware limited liability company (“HGC”, together with HGP, HG, EPHG and NLEX, each a “Grantor” and collectively, the “Grantors”) and Lender (as the same heretofore may have been or hereafter may be amended, restated, supplemented, extended, renewed, replaced or otherwise modified from time to time, the “Security Agreement”), and (iii) Pledge and Security Agreement of even date hereof by and between Borrower and Lender (as the same heretofore may have been or hereafter may be amended, restated, supplemented, extended, renewed, replaced or otherwise modified from time to time, the “Pledge Agreement”);

On or about April 1, 2022, Borrower and Lender entered into that certain Loan Modification Agreement and Reaffirmation of Loan dated as of such date (the “First Modification”), which, among other things, revised EPHG’s name and the Loan financial covenants.

On or about May 4, 2023, Borrower and Lender entered into that certain Change in Terms Agreement dated as of such date (the “Second Modification”), which, among other things, extended the maturity date to June 7, 2023.

This Agreement, the Existing Loan Agreement, the First Modification, the Note, the Security Agreement, the Pledge Agreement, and the Related Documents together with any other documents required by Lender to evidence or secure the Loan, and any and all amendments and modifications thereto, shall be collectively referred to as the “Loan Documents”. Capitalized terms not otherwise defined herein shall have the meaning ascribed to them in the Loan Agreement (or if not defined in the Loan Agreement, in the other Loan Documents);

AGREEMENT REGARDING ASSUMPTION OF LOAN AND PLEDGES AND REAFFIRMATION OF GUARANTY – Page 1 (Cameron)

DM2\5482333.2 G1031/00009

Borrower has now requested and Lender hereby agrees to, subject to the terms and conditions of this Agreement, among other things, to extend the Maturity Date, modify the applicable interest rate, and modify the Loan covenants.

At Borrower’s request, Lender has agreed to modify the Existing Loan Agreement and other Loan Documents, conditioned upon Borrower’s execution of and performance under this Agreement and the ratification and confirmation of the Loan and the Loan Documents, and of any and all such documents required by Lender and completion of such other acts or things reasonably requested by Lender.

AGREEMENT

NOW, THEREFORE, in consideration of the foregoing and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

Recitals. The recitals set forth above are hereby incorporated herein as true and correct.

Confirmation of Loan. Borrower hereby acknowledges and confirms Borrower’s obligations to Lender as set forth in the Loan Documents and reaffirms and restates each and every term, condition, provision, and waiver thereof. There is no intention to otherwise modify, increase, reduce or alter the respective rights or obligations of Lender under the Loan Documents except as set forth herein. Nothing in this Agreement shall be deemed to constitute Lender’s release of Borrower of any of its obligations under the Loan Documents.

Representations and Warranties. Borrower hereby represents and warrants to Lender that:

This Agreement and the other Loan Documents represent valid and enforceable obligations against the Borrower.

As of the Reference Date, Borrower has no claims or defenses against Lender or any other person or entity which would or might affect (i) the enforceability of any provisions of the Loan Documents; or (ii) the collectability of sums advanced by Lender in connection with the Loan.

The execution, delivery, and performance by Borrower of this Agreement and the Loan Documents have been duly authorized, are not in conflict with the terms of any organizational document of such Borrower and will not violate any law, rule, or order of any court or governmental agency or body to which Borrower is subject. All representations and warranties contained in this Agreement, the Existing Loan Agreement and in any and all of the other Loan Documents are true and correct as of the date of this Agreement, and all such representations and warranties shall survive the execution of this Agreement.

As of the Reference Date, there is no uncured breach or default under the Loan Documents or any material agreement. There have been no new material agreements entered into since the date of the closing of the Loan and no amendments, waivers, modifications or terminations of any material agreement have occurred, other than as stated herein.

Borrower acknowledges that this modification does not guarantee any extension and/or modification beyond this modification of Borrower’s obligations as detailed herein, and any such additional modification and/or amendment is subject to Lender’s written approval, in Lender’s sole discretion.

Additional Amendment to Loan Documents. The Loan Documents are hereby modified as follows, subject to Borrower’s payment of the Document Fee (as defined below):

Definition – Note. The term “Note” is hereby deleted in its entirety and the following is hereby inserted in its place: “The word “Note” means the Amended and Restated Note dated May 26, 2023, and executed by Heritage Global, Inc. in the principal amount of Ten Million and No/100 Dollars ($10,000,000.00), together with all renewals of, extensions of, modifications of, refinancings or, consolidations of, and substitutions for the note or credit agreement.” For avoidance of doubt, such Amended and Restated Note shall be executed by Borrower in favor of Lender concurrently herewith.

Applicable Interest Rate Spread. As of the Reference Date, the spread over the Index shall decrease from 1.70 percentage points to one (1) percentage point. The Index is currently eight percent and one quarter percent (8.25%), resulting in a new initial rate of nine and one quarter percent (9.25%).

Applicable Interest Rate Floor. As of the Reference Date, the interest rate floor shall increase to six and three quarters of one percent (6.75%). Under no circumstances will the interest rate on this Loan be less than 6.75% per annum.

Maturity Date. The Maturity Date is hereby extended to October 27, 2024, the “New Maturity Date”. For avoidance of doubt the entire outstanding indebtedness shall be due and payable on October 27, 2024, or on such earlier date resulting from acceleration or otherwise as provided in the Loan Documents.

Unused Line Fee. The following is hereby added to the section titled “Affirmative Covenant” in the Loan Agreement:

“Borrower shall pay to Lender an annual Unused Line Fee, which shall be payable on the earlier of (a) bi-annually every six (6) months in arrears, within ten (10) days thereof, commencing on October 27, 2023 (i.e., first due on October 27, 2023, second due on April 27, 2024, third due on October 27, 2024), or (b) the payment in full of the Loan.  For purposes of this section “Unused Line Fee” shall mean an amount calculated as (x) 12.5 basis points (.125%) multiplied by (y) the amount equal to (i) the Loan Amount, minus (ii) the average balance for such six (6) month period, but only if such balance is below $5,000,000 (50% of the Loan Amount).  For avoidance of doubt, the Unused Line Fee shall not apply if the average balance for the respective six month is more than $5MM.  For example, if the Borrower pays off the Loan in full on October 27, 2023, and the average balance for April 27, 2023 through October 27, 2023 was $7MM, then Borrower owes the following in Unused Line Fees (i) first six 

month period $0, (ii) second six month period $12,500, (iii) third six month period $12,500.”

Financial Reporting. The following financial reporting covenants are added to the paragraph titled “Financial Statements” of the Loan Agreement:

“-Quarterly consolidated operating projections;

-Quarterly Heritage Global Capital LLC loan summary (management and board level reporting summarizing loan performance, collateral details, and other general loan performance data and KPI's used to monitor the portfolio);

-Quarterly consolidated balance sheet and income statement segmented by entity;

-Annual Heritage Global Partners, Inc., schedule of inventory; and

-Annual Borrower valuation allowance analysis and memo (re: loss carryforward analysis).”

Financial Covenants. Page 3 of the Loan Agreement commencing at “The following financial covenants to be tested quarterly” through
“Initial” on the same page of the Loan Agreement is hereby deleted in its entirety and replaced with the following:

“The following financial covenants shall be tested quarterly by Lender, in its sole discretion:

Financial Covenants:

Equity and Liquidity: Borrower shall maintain Equity (as defined below) of at least $40,000,000, and on its balance sheet Total Liquidity (as defined below) of at least $3,500,000.

“Total Liquidity” shall mean the sum of (a) cash, plus (b) cash equivalents, plus (c) remaining availability on the subject line of credit.

“Equity” shall mean GAAP Total stockholder’s equity

Debt to Equity Ratio: Borrower shall maintain a Debt to Equity Ratio that does not exceed .50x (calculated as Total Debt / Equity).

“Total Debt” shall mean total outstanding debt.

Out of Debt Covenant: Borrower shall pay down the outstanding balance of the Loan to $5,000,000 for at least 30 days in a calendar year (non-consecutive).

Dividends: Borrower shall not distribute any dividends during the term of the Loan, without Lender’s prior written approval.

Additional Debt: Borrower and affiliates may not incur additional indebtedness other than the this Loan and the term loan with Lender having loan number 15784 (the “Term Loan”).

Banking Relationship: Borrower shall move one hundred percent (100.0%) of its primary banking relationship with Lender. Borrower shall maintain its primary demand deposit account (the account into which substantially all of Borrower’s receipts from operations are deposited and from which substantially all of Borrower’s disbursements are made) with Lender. Unless otherwise approved by Lender (which approval Lender shall not unreasonably withhold, condition or delay), Borrower and its subsidiaries shall maintain their primary demand deposit account relationship with Lender, which shall include but not be limited to accounts of Heritage Global Partners Inc., a California corporation, Heritage Global LLC, a Delaware limited liability company, Heritage ALT LLC, formerly known as Equity Partners HG LLC, a Delaware limited liability company, and Heritage Global Capital LLC, a Delaware limited liability company.

Loan Portfolio Performance:

(A) Borrower’s subsidiary, Heritage Global Capital LLC, a Delaware limited liability company (“HGC”), shall be subject to the following performance measurement (the “Portfolio Measurement”): the balance of HGC's loan receivables, and/or equity method investments holding such receivables, considered past due for the minimum contractual principal and interest payment, and/or other contractual obligation shall not exceed five percent (5%) of the required aggregate receivables for such period of determination. For purposes of this covenant "past due" shall mean in excess of thirty (30) calendar days past the contractual due date.

(B) Borrower, HGC, and/or any subsidiary thereof shall remain comply with all terms and conditions of all partnership/operating agreements entered into whether now or herein after existing, to which Borrower and HGC shall certify to quarterly upon Lender’s request.

For avoidance of doubt, an Event of Default shall have occurred should (A) the Portfolio Measurement not be met and/or (B) if in Lender’s sole determination Borrower, HGC and/or any subsidiary thereof is in breach of or in violation of any partnership/operating agreement to which such breach has been noticed and enforcement proceedings have been initiated, which will materially adversely affect Borrower’s ability to repay this Loan. In the event, an Event of Default is existing and continuing under this paragraph, Borrower shall have thirty (30) days from the date of Lender’s notice to cure such breach..

Financial Covenants Curtailment Ratios.

The following financial covenants (individually, a “Curtailment Ratio”, collectively the “Curtailment Ratios”) determine the maximum Loan Amount at the then applicable calculation date (each, the “New Maximum Loan Amount”), which such New Maximum Loan Amount shall reflect the amount of debt that could be supported by any given Curtailment Ratio:

Debt to Current Asset Ratio: Borrower shall maintain a Total Debt to Total Current Assets (as defined below) ratio equal to or less than .50x.

“Total Current Assets” shall mean the sum of (a) cash and equivalents, plus (b) account receivables, plus (c) inventory, plus (d) other current assets, and plus (e) equity method investments of Heritage Global Capital, LLC.

For purposes of this paragraph only, Total Debt shall only include the outstanding balance due under this Loan.

Debt Service Coverage Ratio: Borrower shall maintain Debt Service Coverage Ratio (“DSCR”) of at least 1.30x (calculated as trailing 12-month EBITDA (as defined below) / company-wide trailing 12-month Debt Payments (as defined below)).

“EBITDA” shall mean the total earnings before interest taxes depreciation and amortization as reported in the borrower’s public SEC filings (i.e., 10-Q and 10-K), unadjusted.

“Debt Payments” shall mean the sum of (a) the assumed debt service on the subject line calculated at the balance of $10,000,000, at the then-current interest rate due under the Note, amortized over a period of seven (7) years, plus (b) the contractual monthly payment of the Term Loan, plus (c) current portion of outstanding long-term debt of Borrower (not including that included (a)), plus (d) interest expenses paid by Borrower (not including that included in (a)).

Debt to EBITDA Ratio: Total Debt shall not exceed 2.0 times the trailing 12-month EBITDA.

For avoidance of doubt, Lender shall use the Sizers to determine the then maximum Loan Amount (the “New Maximum Loan Amount”) at the then applicable calculation date, meaning that the New Maximum Loan amount shall reflect the amount of debt that could be supported by any given Sizer. In the event the then outstanding Loan Amount exceeds the New Maximum Loan Amount, Borrower shall pay down the Loan in the amount equal to the then outstanding Loan Amount, minus the New Maximum Loan Amount (the “Required Paydown”). Borrower shall pay to Lender the Required Paydown within three (3) days of Lender’s request.

For illustrative purposes only, if Borrower does not meet the DSCR with $10,000,000.00 in trailing 12-month Debt Payments based on Borrower’s trailing 12-month EBITDA, then the maximum Loan Amount must be reduced to the amount that the trailing 12-month EBITDA could support at a DSCR of 1.30x.

In the event that upon calculating the New Loan Amount, the then outstanding Loan Amount exceeds the New Maximum Loan Amount, Borrower shall pay down the Loan in the amount equal to (a) the then outstanding Loan Amount, minus (b) the New Maximum Loan Amount (the “Required Paydown”).

Borrower shall pay to Lender the Required Paydown within three (3) days of Lender’s request.”

For avoidance of doubt, as of May 25, 2023, the unpaid principal balance of the Loan was Five Million and No/100 Dollars ($5,000,000.00).

From and after the Reference Date, any references in any Loan Documents to any of the Loan Documents shall mean such Loan Document, as modified by this Agreement.

No Other Modifications. Except as amended and/or modified by this Agreement, all of the obligations and other terms of the Existing Loan Agreement and other Loan Documents shall remain in full force and effect, unaltered and unchanged by this Agreement.

Conditions Precedent to Loan Modification. The obligation of Lender to give effect to the modifications set forth herein is subject to the satisfaction of each of the following conditions precedent:

Borrower as necessary and appropriate, shall execute, acknowledge and deliver to Lender: (i) such duly adopted consents and/or resolutions of Borrower and of such other entities as Lender may require, and naming the person(s) authorized to execute this Agreement on behalf of each such entity; and (ii) any further and additional documents as Lender may determine to be necessary or appropriate, including, without limitation, such documents as may be necessary or appropriate to insure the proper attachment, perfection and priority of Lender’s security interest in the Collateral.

Borrower shall have paid to Lender, in immediately available funds, the amount of all expenses incurred by Lender in connection with (i) the negotiation and preparation of this Agreement and all other documents executed and delivered pursuant hereto, and (ii) the transactions contemplated by this Agreement and all documents executed and delivered pursuant hereto (including, without limitation, legal fees and expenses, title premiums and other closing costs);

Borrower shall have paid to Lender upon or before execution of this Agreement, in immediately available funds, the amount of the document fees and expenses incurred to date by Lender in the amount of Five Thousand and No/100 Dollars ($5,000.00) the “Document Fee”).

The representations and warranties contained in this Agreement, the Existing Loan Agreement and the other Loan Documents shall be true and correct, in all material respects, as of the effective date of this Agreement; and

Lender shall be satisfied, in its sole discretion, that after giving effect to this Agreement no Event of Default shall exist and no event, circumstance or condition shall exist which, with notice or passage of time or both would be an Event of Default.

Release of Claims by Borrower.

Except as expressly set forth herein, Borrower on its own behalf and on behalf of each of its respective agents, employees, representatives, affiliates, predecessors-in-interest, heirs, successors, and assigns (such persons and entities other than Borrower are referred to collectively as the “Other Releasors”), releases, discharges and acquits Lender and each of its assignees, members, investors and participants (if any), and each of its respective officers, directors, shareholders, agents, employees, affiliates, successors, and assigns (collectively, the “Released Parties”), of and from any and all rights, claims, demands, obligations, liabilities, indebtedness, breaches of contract, breaches of duty or any relationship, acts, omissions, misfeasance, malfeasance, causes of action, promises, damages, costs, losses and expenses of every kind, nature, description or character which exist or which could or may be claimed to exist, whether known or unknown, suspected or unsuspected, liquidated or unliquidated, claimed or unclaimed, whether based on contract, tort, breach of any duty, or other legal or equitable theory of recovery, each as though fully set forth herein at length (collectively, the “Claims”), which in any way arise out of, are connected with or relate to any or all of the following, existing or occurring as of or prior to the execution of this Agreement: (a) the Loan or the administration of the Loan, as well as any action or inaction of the Released Parties or any of them with respect to the Loan or the administration thereof; (b) any or all of the transactions which are the subject of or contemplated by any or all of the Loan Agreement or other Loan Documents; (c) the Collateral; or (d) any fact, matter, transaction or act or omission by any or all of the Released Parties and relating to the Loan, the Loan Documents, or the Collateral.

Waiver. As to all matters being released by Borrower pursuant to this Section 7, Borrower, on its own behalf and on behalf of each of its respective Other Releasors, expressly waive any and all rights under Section 1542 of the California Civil Code and any and all rights under any similar statute, rule or regulation of any state or territory of the United States, and any and all rights under any similar statute, rule or regulation of the United States or any of its agencies. Section 1542 of the California Civil Code provides as follows:

“A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS THAT THE CREDITOR OR RELEASING PARTY DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THIS RELEASE AND THAT, IF KNOWN BY HIM OR HER, WOULD HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR OR RELEASED PARTY.”

No Assignment. Borrower, on its own behalf and on behalf of each of its respective Other Releasors, warrant and represent to Lender that Borrower and the Other Releasors have not sold, assigned, transferred, conveyed or otherwise disposed of any Claims that are the subject of this Section.

Discovery of Unknown or Different Facts. Borrower on its own behalf and on behalf of each of its respective Other Releasors, acknowledge and agree that the facts with respect to which the release of Claims contained in this Section is executed may hereafter be found to be different from the facts now believed by Borrower to be true, and Borrower on its own behalf and on behalf of each of their respective Other Releasors, expressly accept and assume the risk of such possible differences and agree that the release of Claims contained in this Section shall be and remain effective notwithstanding such differences in facts.

Reaffirmation. Each Grantor agrees as follows:

Such Grantor reaffirms to Lender each of the representations, warranties, covenants, obligations and agreements made by such Grantor as set forth in the Security Agreement executed by it (as amended herein, the Security Agreement) with the same force and effect as if each were separately stated herein and made as of the date hereof, and such Grantor is not relying on the financial condition of Borrower or the value of any and all Collateral as an inducement to enter into this Agreement. This reaffirmation renews and extends the Security Agreement executed by such Grantor in favor of Lender and in no way acts as a release or relinquishment of any Security Agreement. Such Grantor has been provided with a copy and has reviewed the Loan Documents and this Agreement and expressly acknowledges, confirms and agrees that the Security Agreement is not affected by this Agreement, except as specifically provided herein.

Such Grantor certifies as of the date hereof that the Security Agreement remains in full force and effect (as amended herein) and enforceable in accordance with its respective terms and there exists no defaults, offsets or defenses thereunder, or any event which with the giving of notice, passage of time, or both would constitute a default, offset or defense thereunder.

Effect of Agreement. All of the representations, warranties, terms, and conditions of the Loan Documents remain unaltered and in full force and effect in accordance with their respective terms. Borrower acknowledges that it has consulted with counsel and such other experts and advisors as they deem necessary in connection with the negotiation, execution and delivery of this Agreement, or have had an opportunity to so consult and have knowingly chosen not to do so. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto, their respective successors and assigns. No other person shall be entitled to claim any right or benefit hereunder, except the parties hereto.

10.

Severability. In case any provision of this Agreement shall be invalid, illegal, or unenforceable, such provision shall be severable from the remainder of this Agreement and the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

11.

Counterparts; Validity. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which, together, shall constitute one and the same instrument. The failure of any party to execute this Agreement shall have no effect on its validity or enforceability as to or among the other parties.

12.

Entire Agreement. This Agreement and the Loan Documents are intended by the parties as the final expression of their agreement and therefore contain the entire agreement between the parties and supersede all prior understandings or agreements concerning the subject matter hereof. This Agreement may only be amended in a writing signed by Lender and Borrower.

[Remainder of page intentionally left blank; signature pages follow]

Exhibit 10.2

IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be duly executed and delivered as of the date first above written.

BORROWER:
 
Heritage Global Inc., 
a Florida corporation
 
By: /s/ James Sklar__________________  Name: James Sklar
Its: Executive Vice President, General Counsel and Secretary
 
GRANTOR:
 
Heritage Global Partners Inc.,   
a California corporation
 
 
By: /s/ James Sklar__________________  Name: James Sklar
Its: Executive Vice President, General Counsel and Secretary
 
Heritage Global LLC, 
a Delaware limited liability company
 
 
By: /s/ James Sklar__________________    Name: James Sklar
Its: Executive Vice President, General Counsel and Secretary


Heritage Global Capital LLC, 
a Delaware limited liability company
 
By: /s/ James Sklar__________________    Name: James Sklar
Its: Executive Vice President, General Counsel and Secretary

LENDER:
 
C3bank,
National Association
 
By: /s/ AJ Moyer_______________________
Name: AJ Moyer_______________________
Its: Chief Executive Officer______________

Signature page to Loan Modification Agreement and

Reaffirmation of Loan

GRANTOR:
 
Heritage ALT LLC, 
a Delaware limited liability company, formerly known as Equity Partners HG LLC
 
By: /s/ James Sklar__________________    Name: James Sklar
Its: Executive Vice President, General Counsel and Secretary
 
Heritage Global Inc., 
a Florida corporation
 
By: /s/ James Sklar________________    Name: James Sklar
Its: Executive Vice President, General Counsel and Secretary
 
National Loan Exchange, Inc.
an Illinois company
 
By: /s/ David Ludwig________________    Name: David Ludwig
Its: President

EX-10.3 4 hgbl-ex10_3.htm EX-10.3 EX-10.3

Exhibit 10.3

PROMISSORY NOTE

Principal
$7,000,000.00

Loan Date
05-26-2023

Maturity
05-26-2028

Loan No
15784

Call / Coll
71 RE

Account

Officer
JC

Initials

References in the boxes above are or Lender’s use only and do not limit the applicability of this document to any particular loan or item.
Any item above containing “***” has been omitted due to text length limitations.

Borrower: Heritage Global Inc. Lender: C3bank, National Association

12625 High Bluff Drive, Suite 305 Encinitas Office

San Diego, CA 92130 850 S Coast Hwy 101

Encinitas, CA 92024

----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Principal Amount: $7,000,000.00 Date of Note: May 26, 2023

PROMISE TO PAY. Heritage Global Inc. (“Borrower”) promises to pay to C3bank, National Association (“Lender”), or order, in lawful money of the United States of America, the principal amount of Seven Million & 00/100 Dollars ($7,000,000.00), together with interest on the unpaid principal balance from May 26, 2023, until paid in full.

PAYMENT. Subject to any payment changes resulting from changes in the Index, Borrower will pay this loan in accordance with the following payment schedule, which calculates interest on the unpaid principal balances as described in the “INTEREST CALCULATION METHOD” paragraph using the interest rates described in this paragraph: 59 monthly consecutive principal and interest payments in the initial amount of $144,072.96 each, beginning June 26, 2023, with interest calculated on the unpaid principal balances using an interest rate based on the Prime rate as published in the Wall Street Journal (currently 8.250%), plus a margin of 0.250 percentage points, resulting in an initial interest rate of 8.500%; and one principal and interest payment of $144,072.65 on May 26, 2028, with interest calculated on the unpaid principal balances using an interest rate based on the Prime rate as published in the Wall Street Journal (currently 8.250%), plus a margin of 0.250 percentage points, resulting in an initial interest rate of 8.500%. This estimated final payment is based on the assumption that all payments will be made exactly as scheduled and that the Index does not change; the actual final payment will be for all principal and accrued interest not yet paid, together with any other unpaid amounts under this Note. Unless otherwise agreed or required by applicable law, payments will be applied first to any unpaid collection costs; then to any late charges; then to any accrued unpaid interest; and then to principal. Borrower will pay Lender at Lender’s address shown above or at such other place as Lender may designate in writing.

DEFAULT RATE- PAYMENT INCREASE. On the occurrence of an Event of Default (inclusive of any cure periods with respect thereto), Lender, in addition to any other rights or remedies available to Lender under the Loan Documents, shall be entitled to damages for the detriment caused thereby, and Borrower, without notice or demand by Lender, shall thereafter pay Default Interest until the Event of Default is cured. In the event that Default Interest accrues, Lender, at its option, may do one or more of the following: (A) increase Borrower’s payments to ensure Borrower’s Loan will pay off by the Maturity Date or to cover accruing interest; (B) increase the number of Borrower’s payments; and (C) continue Borrower’s payments at the same amount and increase Borrower’s final payment.

VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from time to time based on changes in an independent index which is the Prime rate as published in the Wall Street Journal (the “Index”). The Index is not necessarily the lowest rate charged by Lender on its loans. If Lender determines, in its sole discretion, that the Index for this Note has become unavailable or unreliable, either temporarily, indefinitely, or permanently, during the term of this Note, Lender may amend this Note by designating a substantially similar substitute index. Lender may also amend and adjust any margin corresponding to the Index being substituted to accompany the substitute index. Margins corresponding to the Index are described in the “Payments” section. The change to the margin may be a positive or negative value, or zero. In making these amendments, Lender may take into consideration any then-prevailing market convention for selecting a substitute index and margin for the specific Index that is unavailable or unreliable. Such an amendment to the terms of this Note will become effective and bind Borrower 10 business days after Lender gives written notice to Borrower without any action or consent of the Borrower. Lender will tell Borrower the current Index rate upon Borrower’s request. The interest rate change will not occur more often than each day. Borrower understands that Lender may make loans based on other rates as well. The Index currently is 8.250% per annum. The interest rate or rates to be applied to the unpaid principal balance during this Note will be the rate or rates set forth herein in the “Payment” section. Notwithstanding any other provision of this Note, after the first payment stream, the interest rate for each subsequent payment stream will be effective as of the due date of the last payment in the just-ending payment stream. NOTICE: Under no circumstances will the interest rate on this Note be less than 6.750% per annum or more than the maximum rate allowed by applicable law. Whenever changes occur in the interest rate, Lender, at its option, may do one or more of the following: (A) change the amounts of Borrower’s payments to maintain the original amortization schedule, (B) increase Borrower’s payments to cover accruing interest if the interest rate adjustment is an increase, (C) change the number of Borrower’s payments, and (D) continue Borrower’s payments at the same amount and change Borrower’s final payment amount.

PREPAYMENT FEE. Borrower agrees that all loan fees and other prepaid finance charges are earned fully as of the date of the loan and will not be subject to refund upon early payment (whether voluntary or as a result of default), except as otherwise required by law. Upon prepayment of this Note, Lender is entitled to the following prepayment fee: Borrower may repay this Note, in whole or in part, provided that Borrower gives Lender not less than five (5) days prior notice, which notice shall be revocable by Borrower so long as Borrower pays to Lender all costs and expenses incurred by Lender in connection with such contemplated prepayment. As a condition precedent to prepayment, Borrower shall be required to pay all sums due outstanding under the Loan, including, without limitation, the Minimum Interest. No principal amount repaid may be reborrowed. For purposes of this Section “Minimum Interest” means, in connection with any prepayment of the Note (whether as a result of acceleration or otherwise) made prior to the one year anniversary of the Closing Date (the end of the 12th month of the Loan term), an amount equal to (i) twelve (12) months of interest on the full Loan Amount (as if the entire Loan Amount had been drawn as of the Loan Closing Date, less (ii) the amount of any monthly interest payments previously received by Lender before the date of prepayment. Except for the foregoing, Borrower may pay all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrower’s obligation to continue to make payments under the payment schedule. Rather, early payments will reduce the principal balance due and may result in Borrower’s making fewer payments. Borrower agrees not to send Lender payments marked “paid in full”, “without recourse”, or similar language. If Borrower sends such a payment, Lender may accept it without losing any of Lender’s rights under this Note, and Borrower will remain obligated to pay any further amount owed to Lender. All written communications concerning disputed amounts, including any check or other payment instrument that indicates that the payment constitutes “payment in full” of the amount owed or that is tendered with other conditions or limitations or as full satisfaction of a disputed amount must be mailed or delivered to: C3bank, National Association; Encinitas Office; 850 S Coast Hwy 101; Encinitas, CA 92024.

LATE CHARGE. If a payment is 11 days or more late, Borrower will be charged 6.000% of the regularly scheduled payment or $5.00, whichever is greater.

 
Loan No: 15784

PROMISSORY NOTE
(Continued)

 
Page 2

INTEREST AFTER DEFAULT. Upon default, at Lender’s option, and if permitted by applicable law, Lender may add any unpaid accrued interest to principal and such sum will bear interest therefrom until paid at the rate provided in this Note (including any increased rate). Upon default, the interest rate on this Note shall, if permitted under applicable law, immediately become 17.000%.

DEFAULT. Each of the following shall constitute an event of default (“Event of Default”) under this Note:

Payment Default. Borrower fails to make any payment when due under this Note.

Default in Favor of Third Parties. Borrower or any Grantor defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower’s property or Borrower’s ability to repay this Note or perform Borrower’s obligations under this Note or any of the related documents.

Environmental Default. Failure of any party to comply with or perform when due any term, obligation, covenant or condition contained in any environmental agreement executed in connection with any loan.

False Statements. Any warranty, representation or statement made or furnished to Lender by Borrower or on Borrower’s behalf under this Note or the related documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter.

Insolvency. The dissolution or termination of Borrower’s existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrower’s property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower.

Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower or by any governmental agency against any collateral securing the loan. This includes a garnishment of any of Borrower’s accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute.

Events Affecting Guarantor. Any of the preceding events occurs with respect to any Guarantor of any of the indebtedness or any Guarantor dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any guaranty of the indebtedness evidenced by this Note.

Change In Ownership. Any change in ownership of twenty-five percent (25%) or more of the common stock of Borrower.

Adverse Change. A material adverse change occurs in Borrower’s financial condition, or Lender believes the prospect of payment or performance of this Note is impaired.

Cure Provisions. If any default, other than a default in payment, is curable and if Borrower has not been given a notice of a breach of the same provision of this Note within the preceding twelve (12) months, it may be cured if Borrower, after Lender sends written notice to Borrower demanding cure of such default: (1) cures the default within fifteen (15) days; or (2) if the cure requires more than fifteen (15) days, immediately initiates steps which Lender deems in Lender’s sole discretion to be sufficient to cure the default and thereafter continues and completes all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical.

LENDER’S RIGHTS. Upon default, Lender may declare the entire unpaid principal balance under this Note and all accrued unpaid interest immediately due, and then Borrower will pay that amount.

ATTORNEYS’ FEES; EXPENSES. Lender may hire or pay someone else to help collect this Note if Borrower does not pay. Borrower will pay Lender that amount. This includes, subject to any limits under applicable law, Lender’s attorneys’ fees and Lender’s legal expenses, whether or not there is a lawsuit, including attorneys’ fees, expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), and appeals. Borrower also will pay any court costs, in addition to all other sums provided by law.

CHOICE OF VENUE. If there is a lawsuit, Borrower agrees upon Lender’s request to submit to the jurisdiction of the courts of San Diego County, State of California.

DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $24.50 if Borrower makes a payment on Borrower’s loan and the check or preauthorized charge with which Borrower pays is later dishonored.

COLLATERAL. Borrower acknowledges this Note is secured by the following collateral described in the security instruments listed herein:

(A) a Mortgage dated May 26, 2023, to Lender on real property located in New London County, State of Connecticut.

(B) an Assignment of All Rents to Lender on real property located in New London County, State of Connecticut.

(C) a Commercial Security Agreement dated May 26, 2023 made and executed between Heritage Global Inc., Heritage Global LLC, Heritage Global Partners Inc., National Loan Exchange, Inc., Heritage Global Capital LLC and Heritage ALT LLC and Lender on collateral described as: inventory, chattel paper, accounts, equipment and general intangibles.

(D) a Commercial Security Agreement dated May 26, 2023 made and executed between HG ALT LLC and Lender on collateral described as: inventory, chattel paper, accounts, equipment, general intangibles, consumer goods and fixtures.

SUCCESSOR INTERESTS. The terms of this Note shall be binding upon Borrower, and upon Borrower’s heirs, personal representatives, successors and assigns, and shall inure to the benefit of Lender and its successors and assigns.

 
Loan No: 15784

PROMISSORY NOTE
(Continued)

 
Page 3

NOTIFY US OF INACCURATE INFORMATION WE REPORT TO CONSUMER REPORTING AGENCIES. Borrower may notify Lender if Lender reports any inaccurate information about Borrower’s account(s) to a consumer reporting agency. Borrower’s written notice describing the specific inaccuracy(ies) should be sent to Lender at the following address: C3bank, National Association 3727 Arlington Ave Riverside, CA 92506.

GENERAL PROVISIONS. If any part of this Note cannot be enforced, this fact will not affect the rest of the Note. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower and any other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive any applicable statute of limitations, presentment, demand for payment, and notice of dishonor. Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, no party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may renew or extend (repeatedly and for any length of time) this loan or release any party or guarantor or collateral; or impair, fail to realize upon or perfect Lender’s security interest in the collateral; and take any other action deemed necessary by Lender without the consent of or notice to anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made. The obligations under this Note are joint and several.

PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO THE TERMS OF THE NOTE.

BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY NOTE.

BORROWER:

HERITAGE GLOBAL INC.

By: /s/ James Sklar

James Sklar, Executive Vice President, General

Counsel and Secretary of Heritage Global Inc.

EX-10.4 5 hgbl-ex10_4.htm EX-10.4 EX-10.4

Exhibit 10.4

BUSINESS LOAN AGREEMENT

Principal
$7,000,000.00

Loan Date
05-26-2023

Maturity
05-26-2028

Loan No
15784

Call / Coll
71 RE

Account

Officer
JC

Initials

References in the boxes above are or Lender’s use only and do not limit the applicability of this document to any particular loan or item.
Any item above containing “***” has been omitted due to text length limitations.

Borrower: Heritage Global Inc. Lender: C3bank, National Association

12625 High Bluff Drive, Suite 305 Encinitas Office

San Diego, CA 92130 850 S Coast Hwy 101

Encinitas, CA 92024

THIS BUSINESS LOAN AGREEMENT dated May 26, 2023, is made and executed between Heritage Global Inc. (“Borrower”) and C3bank, National Association (“Lender”) on the following terms and conditions. Borrower has received prior commercial loans from Lender or has applied to Lender for a commercial loan or loans or other financial accommodations, including those which may be described on any exhibit or schedule attached to this Agreement. Borrower understands and agrees that: (A) in granting, renewing, or extending any Loan, Lender is relying upon Borrower’s representations, warranties, and agreements as set forth in this Agreement; (B) the granting, renewing, or extending of any Loan by Lender at all times shall be subject to Lender’s sole judgment and discretion; and (C) all such Loans shall be and remain subject to the terms and conditions of this Agreement.

TERM. This Agreement shall be effective as of May 26, 2023, and shall continue in full force and effect until such time as all of Borrower’s Loans in favor of Lender have been paid in full, including principal, interest, costs, expenses, attorneys’ fees, and other fees and charges, or until May 26, 2028.

CONDITIONS PRECEDENT TO EACH ADVANCE. Lender’s obligation to make the initial Advance and each subsequent Advance under this Agreement shall be subject to the fulfillment to Lender’s satisfaction of all of the conditions set forth in this Agreement and in the Related Documents.

Loan Documents. Borrower shall provide to Lender the following documents for the Loan: (1) the Note; (2) Security Agreements granting to Lender security interests in the Collateral; (3) financing statements and all other documents perfecting Lender’s Security Interests; (4) evidence of insurance as required below; (5) guaranties; (6) together with all such Related Documents as Lender may require for the Loan; all in form and substance satisfactory to Lender and Lender’s counsel.

Borrower’s Authorization. Borrower shall have provided in form and substance satisfactory to Lender properly certified resolutions, duly authorizing the execution and delivery of this Agreement, the Note and the Related Documents. In addition, Borrower shall have provided such other resolutions, authorizations, documents and instruments as Lender or its counsel, may require.

Payment of Fees and Expenses. Borrower shall have paid to Lender all fees, charges, and other expenses which are then due and payable as specified in this Agreement or any Related Document.

Representations and Warranties. The representations and warranties set forth in this Agreement, in the Related Documents, and in any document or certificate delivered to Lender under this Agreement are true and correct.

No Event of Default. There shall not exist at the time of any Advance a condition which would constitute an Event of Default under this Agreement or under any Related Document.

REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as of the date of this Agreement, as of the date of each disbursement of loan proceeds, as of the date of any renewal, extension or modification of any Loan, and at all times any Indebtedness exists:

Organization. Borrower is a corporation for profit which is, and at all times shall be, duly organized, validly existing, and in good standing under and by virtue of the laws of the State of Florida. Borrower is duly authorized to transact business in all other states in which Borrower is doing business, having obtained all necessary filings, governmental licenses and approvals for each state in which Borrower is doing business. Specifically, Borrower is, and at all times shall be, duly qualified as a foreign corporation in all states in which the failure to so qualify would have a material adverse effect on its business or financial condition. Borrower has the full power and authority to own its properties and to transact the business in which it is presently engaged or presently proposes to engage. Borrower maintains an office at 12625 High Bluff Drive, Suite 305, San Diego, CA 92130. Unless Borrower has designated otherwise in writing, the principal office is the office at which Borrower keeps its books and records including its records concerning the Collateral. Borrower will notify Lender prior to any change in the location of Borrower’s state of organization or any change in Borrower’s name. Borrower shall do all things necessary to preserve and to keep in full force and effect its existence, rights and privileges, and shall comply with all regulations, rules, ordinances, statutes, orders and decrees of any governmental or quasi-governmental authority or court applicable to Borrower and Borrower’s business activities.

Assumed Business Names. Borrower has filed or recorded all documents or filings required by law relating to all assumed business names used by Borrower. Excluding the name of Borrower, the following is a complete list of all assumed business names under which Borrower does business: None.

Authorization. Borrower’s execution, delivery, and performance of this Agreement and all the Related Documents have been duly authorized by all necessary action by Borrower and do not conflict with, result in a violation of, or constitute a default under (1) any provision of (a) Borrower’s articles of incorporation or organization, or bylaws, or (b) any agreement or other instrument binding upon Borrower or (2) any law, governmental regulation, court decree, or order applicable to Borrower or to Borrower’s properties.

Financial Information. Each of Borrower’s financial statements supplied to Lender truly and completely disclosed Borrower’s financial condition as of the date of the statement, and there has been no material adverse change in Borrower’s financial condition subsequent to the date of the most recent financial statement supplied to Lender. Borrower has no material contingent obligations except as disclosed in such financial statements.

Legal Effect. This Agreement constitutes, and any instrument or agreement Borrower is required to give under this Agreement when delivered will constitute legal, valid, and binding obligations of Borrower enforceable against Borrower in accordance with their respective terms.

Properties. Except as contemplated by this Agreement or as previously disclosed in Borrower’s financial statements or in writing to Lender and as accepted by Lender, and except for property tax liens for taxes not presently due and payable, Borrower owns and has good title to all of Borrower’s properties free and clear of all Security Interests, and has not executed any security documents or financing statements relating to such properties. All of Borrower’s properties are titled in Borrower’s legal name, and Borrower has not used or filed a financing statement under any other name for at least the last five (5) years.

Hazardous Substances. Except as disclosed to and acknowledged by Lender in writing, Borrower represents and warrants that: (1) During the period of Borrower’s ownership of the Collateral, there has been no use, generation, manufacture, storage, treatment, disposal, release or threatened release of any Hazardous Substance by any person on, under, about or from any of the Collateral.

 
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(2) Borrower has no knowledge of, or reason to believe that there has been (a) any breach or violation of any Environmental Laws; (b) any use, generation, manufacture, storage, treatment, disposal, release or threatened release of any Hazardous Substance on, under, about or from the Collateral by any prior owners or occupants of any of the Collateral; or (c) any actual or threatened litigation or claims of any kind by any person relating to such matters. (3) Neither Borrower nor any tenant, contractor, agent or other authorized user of any of the Collateral shall use, generate, manufacture, store, treat, dispose of or release any Hazardous Substance on, under, about or from any of the Collateral; and any such activity shall be conducted in compliance with all applicable federal, state, and local laws, regulations, and ordinances, including without limitation all Environmental Laws. Borrower authorizes Lender and its agents to enter upon the Collateral to make such inspections and tests as Lender may deem appropriate to determine compliance of the Collateral with this section of the Agreement. Any inspections or tests made by Lender shall be at Borrower’s expense and for Lender’s purposes only and shall not be construed to create any responsibility or liability on the part of Lender to Borrower or to any other person. The representations and warranties contained herein are based on Borrower’s due diligence in investigating the Collateral for hazardous waste and Hazardous Substances. Borrower hereby (1) releases and waives any future claims against Lender for indemnity or contribution in the event Borrower becomes liable for cleanup or other costs under any such laws, and (2) agrees to indemnify, defend, and hold harmless Lender against any and all claims, losses, liabilities, damages, penalties, and expenses which Lender may directly or indirectly sustain or suffer resulting from a breach of this section of the Agreement or as a consequence of any use, generation, manufacture, storage, disposal, release or threatened release of a hazardous waste or substance on the Collateral. The provisions of this section of the Agreement, including the obligation to indemnify and defend, shall survive the payment of the Indebtedness and the termination, expiration or satisfaction of this Agreement and shall not be affected by Lender’s acquisition of any interest in any of the Collateral, whether by foreclosure or otherwise.

Litigation and Claims. No litigation, claim, investigation, administrative proceeding or similar action (including those for unpaid taxes) against Borrower is pending or threatened, and no other event has occurred which may materially adversely affect Borrower’s financial condition or properties, other than litigation, claims, or other events, if any, that have been disclosed to and acknowledged by Lender in writing.

Taxes. To the best of Borrower’s knowledge, all of Borrower’s tax returns and reports that are or were required to be filed, have been filed, and all taxes, assessments and other governmental charges have been paid in full, except those presently being or to be contested by Borrower in good faith in the ordinary course of business and for which adequate reserves have been provided.

Lien Priority. Unless otherwise previously disclosed to Lender in writing, Borrower has not entered into or granted any Security Agreements, or permitted the filing or attachment of any Security Interests on or affecting any of the Collateral directly or indirectly securing repayment of Borrower’s Loan and Note, that would be prior or that may in any way be superior to Lender’s Security Interests and rights in and to such Collateral.

Binding Effect. This Agreement, the Note, all Security Agreements (if any), and all Related Documents are binding upon the signers thereof, as well as upon their successors, representatives and assigns, and are legally enforceable in accordance with their respective terms.

Note Amortization Schedule. Borrower acknowledges that the amortization schedule provided is only an estimate of the payments due under the Note and is subject to change pursuant to terms of the Note.

AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, so long as this Agreement remains in effect, Borrower will:

Notices of Claims and Litigation. Promptly inform Lender in writing of (1) all material adverse changes in Borrower’s financial condition, and (2) all existing and all threatened litigation, claims, investigations, administrative proceedings or similar actions affecting Borrower or any Guarantor which could materially affect the financial condition of Borrower or the financial condition of any Guarantor.

Financial Records. Maintain its books and records in accordance with GAAP, or an OCBOA acceptable to Lender, applied on a consistent basis, and permit Lender to examine and audit Borrower’s books and records at all reasonable times.

Financial Statements. Furnish Lender with such financial statements and other related information at such frequencies and in such detail as Lender may reasonably request.

Additional Information. Furnish such additional information and statements, as Lender may request from time to time.

Additional Requirements.

ADDITIONAL REPORTING COVENANTS

Borrower shall deliver or cause the following to be delivered to Lender, in form and substance reasonably acceptable to Lender, to the extent applicable:

- Quarterly financial statements and operating statements, within 45 days after the end of each quarter, each report covering such quarter to date.

- Annual audited financial statements of Borrower within 120 days after the end of each year;

- Certified quarterly reporting on all financial covenants;

- Such other (A) information concerning Borrower’s operation and finances as Lender may reasonably request from time to time; and (B) reporting requirements in respect of the Borrower customarily found for similar financings and others appropriate to the specific transaction as may be agreed between Borrower and Lender;

- On request, Borrower must promptly provide Lender, within 5-days, with any other financial or other information concerning its affairs and properties as Lender may reasonably request;

- Any and all other information including third party reports received by Borrower related to the Property shall be made available to the Lender within 5-business days from the reasonable request thereof;

- Quarterly consolidated operating projections;

- Quarterly Heritage Global Capital LLC loan summary (management and board level reporting summarizing loan performance, collateral details, and other general loan performance data and KPI’s used to monitor the portfolio);

- Quarterly consolidated balance sheet and income statement segmented by entity;

- Annual Heritage Global Partners, Inc., schedule of inventory; and - Annual Borrower valuation allowance analysis and memo (re: loss carryforward analysis).

 
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ADDITIONAL FINANCIAL COVENANTS

Equity and Liquidity: Borrower shall maintain Equity (as defined below) of at least $40,000,000, and on its balance sheet Total Liquidity as defined below) of at least $3,500,000. “Total Liquidity” shall mean the sum of (a) cash, plus (b) cash equivalents, plus (c) remaining availability on the subject line of credit. “Equity” shall mean GAAP Total stockholder’s equity

Debt to Equity Ratio: Borrower shall maintain a Debt to Equity Ratio that does not exceed .50x (calculated as Total Debt / Equity). “Total Debt” shall mean total outstanding debt.

Dividends: Borrower shall not distribute any dividends during the term of the Loan, without Lender’s prior written approval.

Additional Debt: Borrower and affiliates may not incur additional indebtedness other than this Loan and the revolving line of credit with Lender having loan number 13880 (the “LOC Loan”).

Loan Portfolio Performance:

(A) Borrower’s subsidiary, Heritage Global Capital LLC, a Delaware limited liability company (“HGC”), shall be subject to the following performance measurement (the “Portfolio Measurement”): the balance of HGC’s loan receivables, and/or equity method investments holding such receivables, considered past due for the minimum contractual principal and interest payment, and/or other contractual obligation shall not exceed five percent (5%) of the required aggregate receivables for such period of determination. For purposes of this covenant “past due” shall mean in excess of thirty (30) calendar days past the contractual due date.

Debt to Current Asset Ratio: Borrower shall maintain a Total Debt to Total Current Assets (as defined below) ratio equal to or less –than .50x.

For purposes of this paragraph only, Total Debt shall only include the outstanding balance due under the LOC Loan.

“EBITDA” shall mean the total earnings before interest taxes depreciation and amortization as reported in the borrower’s public SEC-Things (i.e., 10-Q and 10-K), unadjusted.

“Debt Payments” shall mean the sum of (a) the assumed debt service on the LOC Loan is calculated at the balance of $10,000,000,--at-the then-current interest rate due under the Note, amortized over a period of seven (7) years, plus (b) the contractual monthly payment of this Loan., plus (c) current portion of outstanding long-term debt of Borrower (not including that included in (a)), plus (d) interest expenses paid by Borrower (not including that included in (a)).

Debt to EBITDA Ratio: Total Debt shall not exceed 2.0 times the trailing 12-month EBITDA.

______ INITIAL [BORROWER HAS READ AND UNDERSTOOD EACH ADDITIONAL REQUIREMENT]

Insurance. Maintain fire and other risk insurance, public liability insurance, and such other insurance as Lender may require with respect to Borrower’s properties and operations, in form, amounts, coverages and with insurance companies acceptable to Lender. Borrower, upon request of Lender, will deliver to Lender from time to time the policies or certificates of insurance in form satisfactory to Lender, including stipulations that coverages will not be cancelled or diminished without at least thirty (30) days prior written notice to Lender. Each insurance policy also shall include an endorsement providing that coverage in favor of Lender will not be impaired in any way by any act, omission or default of Borrower or any other person. In connection with all policies covering assets in which Lender holds or is offered a security interest for the Loans, Borrower will provide Lender with such lender’s loss payable or other endorsements as Lender may require.

Insurance Reports. Furnish to Lender, upon request of Lender, reports on each existing insurance policy showing such information as Lender may reasonably request, including without limitation the following: (1) the name of the insurer; (2) the risks insured; (3) the amount of the policy; (4) the properties insured; (5) the then current property values on the basis of which insurance has been obtained, and the manner of determining those values; and (6) the expiration date of the policy. In addition, upon request of Lender (however not more often than annually), Borrower will have an independent appraiser satisfactory to Lender determine, as applicable, the actual cash value or replacement cost of any Collateral. The cost of such appraisal shall be paid by Borrower.

Guaranties. Prior to disbursement of any Loan proceeds, furnish executed guaranties of the Loans in favor of Lender, executed by the guarantor named below, on Lender’s forms, and in the amount and under the conditions set forth in those guaranties.

Name of Guarantor Amount

HG ALT LLC Unlimited

 
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Other Agreements. Comply with all terms and conditions of all other agreements, whether now or hereafter existing, between Borrower and any other party and notify Lender immediately in writing of any default in connection with any other such agreements.

Loan Proceeds. Use all Loan proceeds solely for Borrower’s business operations, unless specifically consented to the contrary by Lender in writing.

Taxes, Charges and Liens. Pay and discharge when due all of its indebtedness and obligations, including without limitation all assessments, taxes, governmental charges, levies and liens, of every kind and nature, imposed upon Borrower or its properties, income, or profits, prior to the date on which penalties would attach, and all lawful claims that, if unpaid, might become a lien or charge upon any of Borrower’s properties, income, or profits. Provided however, Borrower will not be required to pay and discharge any such assessment, tax, charge, levy, lien or claim so long as (1) the legality of the same shall be contested in good faith by appropriate proceedings, and (2) Borrower shall have established on Borrower’s books adequate reserves with respect to such contested assessment, tax, charge, levy, lien, or claim in accordance with GAAP or an OCBOA acceptable to Lender.

Performance. Perform and comply, in a timely manner, with all terms, conditions, and provisions set forth in this Agreement, in the Related Documents, and in all other instruments and agreements between Borrower and Lender. Borrower shall notify Lender immediately in writing of any default in connection with any agreement.

Operations. Maintain executive and management personnel with substantially the same qualifications and experience as the present executive and management personnel; provide written notice to Lender of any change in executive and management personnel; conduct its business affairs in a reasonable and prudent manner.

Environmental Studies. Promptly conduct and complete, at Borrower’s expense, all such investigations, studies, samplings and testings as may be requested by Lender or any governmental authority relative to any substance, or any waste or by-product of any substance defined as toxic or a hazardous substance under applicable federal, state, or local law, rule, regulation, order or directive, at or affecting any property or any facility owned, leased or used by Borrower.

Compliance with Governmental Requirements. Comply with all laws, ordinances, and regulations, now or hereafter in effect, of all governmental authorities applicable to the conduct of Borrower’s properties, businesses and operations, and to the use or occupancy of the Collateral, including without limitation, the Americans With Disabilities Act. Borrower may contest in good faith any such law, ordinance, or regulation and withhold compliance during any proceeding, including appropriate appeals, so long as Borrower has notified Lender in writing prior to doing so and so long as, in Lender’s sole opinion, Lender’s interests in the Collateral are not jeopardized. Lender may require Borrower to post adequate security or a surety bond, reasonably satisfactory to Lender, to protect Lender’s interest.

Inspection. Permit employees or agents of Lender at any reasonable time to inspect any and all Collateral for the Loan or Loans and Borrower’s other properties and to examine or audit Borrower’s books, accounts, and records and to make copies and memoranda of Borrower’s books, accounts, and records. If Borrower now or at any time hereafter maintains any records (including without limitation computer generated records and computer software programs for the generation of such records) in the possession of a third party, Borrower, upon request of Lender, shall notify such party to permit Lender free access to such records at all reasonable times and to provide Lender with copies of any records it may request, all at Borrower’s expense.

Environmental Compliance and Reports. Borrower shall comply in all respects with any and all Environmental Laws; not cause or permit to exist, as a result of an intentional or unintentional action or omission on Borrower’s part or on the part of any third party, on property owned and/or occupied by Borrower, any environmental activity where damage may result to the environment, unless such environmental activity is pursuant to and in compliance with the conditions of a permit issued by the appropriate federal, state or local governmental authorities; shall furnish to Lender promptly and in any event within thirty (30) days after receipt thereof a copy of any notice, summons, lien, citation, directive, letter or other communication from any governmental agency or instrumentality concerning any intentional or unintentional action or omission on Borrower’s part in connection with any environmental activity whether or not there is damage to the environment and/or other natural resources.

Additional Assurances. Make, execute and deliver to Lender such promissory notes, mortgages, deeds of trust, security agreements, assignments, financing statements, instruments, documents and other agreements as Lender or its attorneys may reasonably request to evidence and secure the Loans and to perfect all Security Interests.

Minimum Interest. Borrower may repay this Loan, in whole, but not in part, provided that Borrower pays the Minimum Interest in accordance with the terms of the Note.

Insurance. Insurance coverage required by Lender during the term of the Loan must be reasonably acceptable to Lender and/or Lender’s third-party insurance reviewer.

Loan Holdback. At the Closing Date, Lender shall withhold Loan proceeds in the entire Loan Amount (the “Holdback”) which shall be disbursed to Borrower upon Borrower’s request, provided however that Borrower must draw the entire Holdback no later than thirty (30) days from the Closing Date. In the event that Borrower does not draw the entire Holdback by such date, Lender shall advance the remaining Holdback into an account at Lender’s institution for the benefit of Borrower. For avoidance of doubt, the advances of the Loan Amount shall not accrue interest until advanced by Lender to Borrower.

LENDER’S EXPENDITURES. If any action or proceeding is commenced that would materially affect Lender’s interest in the Collateral or if Borrower fails to comply with any provision of this Agreement or any Related Documents, including but not limited to Borrower’s failure to discharge or pay when due any amounts Borrower is required to discharge or pay under this Agreement or any Related Documents, Lender on Borrower’s behalf may (but shall not be obligated to) take any action that Lender deems appropriate, including but not limited to discharging or paying all taxes, liens, security interests, encumbrances and other claims, at any time levied or placed on any Collateral and paying all costs for insuring, maintaining and preserving any Collateral. All such expenditures incurred or paid by Lender for such purposes will then bear interest at the rate charged under the Note from the date incurred or paid by Lender to the date of repayment by Borrower. All such expenses will become a part of the Indebtedness and, at Lender’s option, will (A) be payable on demand; (B) be added to the balance of the Note and be apportioned among and be payable with any installment payments to become due during either (1) the term of any applicable insurance policy; or (2) the remaining term of the Note; or (C) be treated as a balloon payment which will be due and payable at the Note’s maturity.

NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this Agreement is in effect, Borrower shall not, without the prior written consent of Lender:

Indebtedness and Liens. (1) Except for trade debt incurred in the normal course of business and indebtedness to Lender contemplated by this Agreement, create, incur or assume indebtedness for borrowed money, including capital leases, (2) sell, transfer, mortgage, assign, pledge, lease, grant a security interest in, or encumber any of Borrower’s assets (except as allowed as Permitted Liens), or (3) sell with recourse any of Borrower’s accounts receivable, except to Lender.

 
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Continuity of Operations. (1) Engage in any business activities substantially different than those in which Borrower is presently engaged, (2) cease operations, liquidate, merge or restructure as a legal entity (whether by division or otherwise), consolidate with or acquire any other entity, change its name, convert to another type of entity or redomesticate, dissolve or transfer or sell Collateral out of the ordinary course of business, or (3) pay any dividends on Borrower’s stock (other than dividends payable in its stock), provided, however that notwithstanding the foregoing, but only so long as no Event of Default has occurred and is continuing or would result from the payment of dividends, if Borrower is a “Subchapter S Corporation” (as defined in the Internal Revenue Code of 1986, as amended), Borrower may pay cash dividends on its stock to its shareholders from time to time in amounts necessary to enable the shareholders to pay income taxes and make estimated income tax payments to satisfy their liabilities under federal and state law which arise solely from their status as Shareholders of a Subchapter S Corporation because of their ownership of shares of Borrower’s stock, or purchase or retire any of Borrower’s outstanding shares or alter or amend Borrower’s capital structure.

Loans, Acquisitions and Guaranties. (1) Loan, invest in or advance money or assets to any other person, enterprise or entity, (2) purchase, create or acquire any interest in any other enterprise or entity, or (3) incur any obligation as surety or guarantor other than in the ordinary course of business.

Agreements. Enter into any agreement containing any provisions which would be violated or breached by the performance of Borrower’s obligations under this Agreement or in connection herewith.

CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to Borrower, whether under this Agreement or under any other agreement, Lender shall have no obligation to make Loan Advances or to disburse Loan proceeds if: (A) Borrower or any Guarantor is in default under the terms of this Agreement or any of the Related Documents or any other agreement that Borrower or any Guarantor has with Lender; (B) Borrower or any Guarantor dies, becomes incompetent or becomes insolvent, files a petition in bankruptcy or similar proceedings, or is adjudged a bankrupt; (C) there occurs a material adverse change in Borrower’s financial condition, in the financial condition of any Guarantor, or in the value of any Collateral securing any Loan; or (D) any Guarantor seeks, claims or otherwise attempts to limit, modify or revoke such Guarantor’s guaranty of the Loan or any other loan with Lender.

DEFAULT. Each of the following shall constitute an Event of Default under this Agreement:

Payment Default. Borrower fails to make any payment when due under the Loan.

Other Defaults. Borrower fails to comply with or to perform any other term, obligation, covenant or condition contained in this Agreement or in any of the Related Documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower.

Default in Favor of Third Parties. Borrower or any Grantor defaults under any loan, extension of credit, security agreement, purchase, sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect .any of Borrower’s or any Grantor’s property or Borrower’s or any Grantor’s ability to repay the Loans or perform their respective obligations under this Agreement or any of the Related Documents.

False Statements. Any warranty, representation or statement made or furnished to Lender by Borrower or on Borrower’s behalf under this Agreement or the Related Documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter.

Insolvency. The dissolution or termination of Borrower’s existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrower’s property, any assignment for the benefit of creditors, any type of creditor workout, or :the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower.

Defective Collateralization. This Agreement or any of the Related Documents ceases to be in full force and effect (including failure of any collateral document to create a valid and perfected security interest or lien) at any time and for any reason.

Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower or by any governmental agency against any collateral securing the Loan. This includes a garnishment of any of Borrower’s accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute.

Events Affecting Guarantor. Any of the preceding events occurs with respect to any Guarantor of any of the Indebtedness or any Guarantor dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any Guaranty of the Indebtedness.

Change in Ownership. Any change in ownership of twenty-five percent (25%) or more of the common stock of Borrower.

Adverse Change. A material adverse change occurs in Borrower’s financial condition, or Lender believes the prospect of payment or performance of the Loan is impaired.

Right to Cure. If any default, other than a default on Indebtedness, is curable and if Borrower or Grantor, as the case may be, has not been given a notice of a similar default within the preceding twelve (12) months, it may be cured if Borrower or Grantor, as the case may be, after Lender sends written notice to Borrower or Grantor, as the case may be, demanding cure of such default: (1) cure the default within fifteen (15) days; or (2) if the cure requires more than fifteen (15) days, immediately initiate steps which Lender deems in Lender’s sole discretion to be sufficient to cure the default and thereafter continue and complete all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical.

EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where otherwise provided in this Agreement or the Related Documents, all commitments and obligations of Lender under this Agreement or the Related Documents or any other agreement immediately will terminate (including any obligation to make further Loan Advances or disbursements), and, at Lender’s option, all Indebtedness immediately will become due and payable, all without notice of any kind to Borrower, except that in the case of an Event of Default of the type described in the “Insolvency” subsection above, such acceleration shall be automatic and not optional. In addition, Lender shall have all the rights and remedies provided in the Related Documents or available at law, in equity, or otherwise. Except as may be prohibited by applicable law, all of Lender’s rights and remedies shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Borrower or of any Grantor shall not affect Lender’s right to declare a default and to exercise its rights and remedies.

 
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MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement:

Amendments. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment.

Attorneys’ Fees; Expenses. Borrower agrees to pay upon demand all of Lender’s costs and expenses, including Lender’s attorneys’ fees and Lender’s legal expenses, incurred in connection with the enforcement of this Agreement. Lender may hire or pay someone else to help enforce this Agreement, and Borrower shall pay the costs and expenses of such enforcement. Costs and expenses include Lender’s attorneys’ fees and legal expenses whether or not there is a lawsuit, including attorneys’ fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Borrower also shall pay all court costs and such additional fees as may be directed by the court.

Caption Headings. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement.

Consent to Loan Participation. Borrower agrees and consents to Lender’s sale or transfer, whether now or later, of one or more participation interests in the Loan to one or more purchasers, whether related or unrelated to Lender. Lender may provide, without any limitation whatsoever, to any one or more purchasers, or potential purchasers, any information or knowledge Lender may have about Borrower or about any other matter relating to the Loan, and Borrower hereby waives any rights to privacy Borrower may have with respect to such matters. Borrower additionally waives any and all notices of sale of participation interests, as well as all notices of any repurchase of such participation interests. Borrower also agrees that the purchasers of any such participation interests will be considered as the absolute owners of such interests in the Loan and will have all the rights granted under the participation agreement or agreements governing the sale of such participation interests. Borrower further waives all rights of offset or counterclaim that it may have now or later against Lender or against any purchaser of such a participation interest and unconditionally agrees that either Lender or such purchaser may enforce Borrower’s obligation under the Loan irrespective of the failure or insolvency of any holder of any interest in the Loan. Borrower further agrees that the purchaser of any such participation interests may enforce its interests irrespective of any personal claims or defenses that Borrower may have against Lender.

Governing Law. This Agreement will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the State of California without regard to its conflicts of law provisions. This Agreement has been accepted by Lender in the State of California.

Choice of Venue. If there is a lawsuit, Borrower agrees upon Lender’s request to submit to the jurisdiction of the courts of San Diego County, State of California.

No Waiver by Lender. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender’s right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Borrower, or between Lender and any Grantor, shall constitute a waiver of any of Lender’s rights or of any of Borrower’s or any Grantor’s obligations as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sole discretion of Lender.

Notices. Any notice required to be given under this Agreement shall be given in writing, and shall be effective when actually delivered, when actually received by telefacsimile (unless otherwise required by law), when deposited with a nationally recognized overnight courier, or, if mailed, when deposited in the United States mail, as first class, certified or registered mail postage prepaid, directed to the addresses shown near the beginning of this Agreement. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party’s address. For notice purposes, Borrower agrees to keep Lender informed at all times of Borrower’s current address. Unless otherwise provided or required by law, if there is more than one Borrower, any notice given by Lender to any Borrower is deemed to be notice given to all Borrowers.

Severability. If a court of competent jurisdiction finds any provision of this Agreement to be illegal, invalid, or unenforceable as to any circumstance, that finding shall not make the offending provision illegal, invalid, or unenforceable as to any other circumstance. If feasible, the offending provision shall be considered modified so that it becomes legal, valid and enforceable. If the offending provision cannot be so modified, it shall be considered deleted from this Agreement. Unless otherwise required by law, the illegality, invalidity, or unenforceability of any provision of this Agreement shall not affect the legality, validity or enforceability of any other provision of this Agreement.

Subsidiaries and Affiliates of Borrower. To the extent the context of any provisions of this Agreement makes it appropriate, including without limitation any representation, warranty or covenant, the word “Borrower” as used in this Agreement shall include all of Borrower’s subsidiaries and affiliates. Notwithstanding the foregoing however, under no circumstances shall this Agreement be construed to require Lender to make any Loan or other financial accommodation to any of Borrower’s subsidiaries or affiliates.

Successors and Assigns. All covenants and agreements by or on behalf of Borrower contained in this Agreement or any Related Documents shall bind Borrower’s successors and assigns and shall inure to the benefit of Lender and its successors and assigns. Borrower shall not, however, have the right to assign Borrower’s rights under this Agreement or any interest therein, without the prior written consent of Lender.

Survival of Representations and Warranties. Borrower understands and agrees that in making the Loan, Lender is relying on all representations, warranties, and covenants made by Borrower in this Agreement or in any certificate or other instrument delivered by Borrower to Lender under this Agreement or the Related Documents. Borrower further agrees that regardless of any investigation made by Lender, all such representations, warranties and covenants will survive the making of the Loan and delivery to Lender of the Related Documents, shall be continuing in nature, and shall remain in full force and effect until such time as Borrower’s Indebtedness shall be paid in full, or until this Agreement shall be terminated in the manner provided above, whichever is the last to occur.

Time is of the Essence. Time is of the essence in the performance of this Agreement.

Additional Definition: “Closing Date”. The word “Closing Date” shall mean the date on which the last to occur of the following: (i) all of Lender’s conditions to Closing shall have been satisfied or waived by Lender; and (ii) the Loan proceeds shall have been advanced to escrow holder pursuant to the settlement statement approved by Lender.

DEFINITIONS. The following capitalized words and terms shall have the following meanings when used in this Agreement. Unless specifically stated to the contrary, all references to dollar amounts shall mean amounts in lawful money of the United States of America. Words and terms used in the singular shall include the plural, and the plural shall include the singular, as the context may require. Words and terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code.

 
Loan No: 15784

BUSINESS LOAN AGREEMENT
(Continued)

 
Page 7

Accounting words and terms not otherwise defined in this Agreement shall have the meanings assigned to them in accordance with generally accepted accounting principles as in effect on the date of this Agreement:

Advance. The word “Advance” means a disbursement of Loan funds made, or to be made, to Borrower or on Borrower’s behalf on a line of credit or multiple advance basis under the terms and conditions of this Agreement.

Agreement. The word “Agreement” means this Business Loan Agreement, as this Business Loan Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this Business Loan Agreement from time to time.

Borrower. The word “Borrower” means Heritage Global Inc. and includes all co-signers and co-makers signing the Note and all their successors and assigns.

Collateral. The word “Collateral” means all property and assets granted as collateral security for a Loan, whether real or personal property, whether granted directly or indirectly, whether granted now or in the future, and whether granted in the form of a security interest, mortgage, collateral mortgage, deed of trust, assignment, pledge, crop pledge, chattel mortgage, collateral chattel mortgage, chattel trust, factor’s lien, equipment trust, conditional sale, trust receipt, lien, charge, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever, whether created by law, contract, or otherwise.

Environmental Laws. The words “Environmental Laws” mean any and all state, federal and local statutes, regulations and ordinances relating to the protection of human health or the environment, including without limitation the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq. (“CERCLA”), the Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 (“SARA”), the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., or other applicable state or federal laws, rules, or regulations adopted pursuant thereto. Also, the following statutes, rules and regulations are included, without limitation, in the words “Environmental Laws” as they are applied to Collateral located in the referenced states: Chapters 6.5 through 7.7 of Division 20 of the California Health and Safety Code, Section 25100, et seq.

Event of Default. The words “Event of Default” mean any of the events of default set forth in this Agreement in the default section of this Agreement.

GAAP. The word “GAAP” means generally accepted accounting principles.

Grantor. The word “Grantor” means each and all of the persons or entities granting a Security Interest in any Collateral for the Loan, including without limitation all Borrowers granting such a Security Interest.

Guarantor. The word “Guarantor” means any guarantor, surety, or accommodation party of any or all of the Loan.

Guaranty. The word “Guaranty” means the guaranty from Guarantor to Lender, including without limitation a guaranty of all or part of the Note.

Hazardous Substances. The words “Hazardous Substances” mean materials that, because of their quantity, concentration or physical, chemical or infectious characteristics, may cause or pose a present or potential hazard to human health or the environment when improperly used, treated, stored, disposed of, generated, manufactured, transported or otherwise handled. The words “Hazardous Substances” are used in their very broadest sense and include without limitation any and all hazardous or toxic substances, materials or waste as defined by or listed under the Environmental Laws. The term “Hazardous Substances” also includes, without limitation, petroleum and petroleum by-products or any fraction thereof and asbestos.

Indebtedness. The word “Indebtedness” means the indebtedness evidenced by the Note or Related Documents, including all principal .and interest together with all other indebtedness and costs and expenses for which Borrower is responsible under this Agreement or under any of the Related Documents.

Lender. The word “Lender” means C3bank, National Association, its successors and assigns.

Loan. The word “Loan” means any and all loans and financial accommodations from Lender to Borrower whether now or hereafter existing, and however evidenced, including without limitation those loans and financial accommodations described herein or described on any exhibit or schedule attached to this Agreement from time to time.

Note. The word “Note” means the Note dated May 26, 2023 and executed by Heritage Global Inc. in the principal amount of $7,000,000.00, together with all renewals of, extensions of, modifications of, refinancings of, consolidations of, and substitutions for the note or credit agreement.

OCBOA. The term “OCBOA” means Other Comprehensive Basis of Accounting, as designated by Lender in writing as an acceptable alternative to GAAP.

Permitted Liens. The words “Permitted Liens” mean (1) liens and security interests securing Indebtedness owed by Borrower to Lender; (2) liens for taxes, assessments, or similar charges either not yet due or being contested in good faith; (3) liens of materialmen, mechanics, warehousemen, or carriers, or other like liens arising in the ordinary course of business and securing obligations which are not yet delinquent; (4) purchase money liens or purchase money security interests upon or in any property acquired or held by Borrower in the ordinary course of business to secure indebtedness outstanding on the date of this Agreement or permitted to be incurred under the paragraph of this Agreement titled “Indebtedness and Liens”; (5) liens and security interests which, as of the date of this Agreement, have been disclosed to and approved by the Lender in writing; and (6) those liens and security interests which in the aggregate constitute an immaterial and insignificant monetary amount with respect to the net value of Borrower’s assets.

Related Documents. The words “Related Documents” mean all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, security deeds, collateral mortgages, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the Loan.

Security Agreement. The words “Security Agreement” mean and include without limitation any agreements, promises, covenants, arrangements, understandings or other agreements, whether created by law, contract, or otherwise, evidencing, governing, representing, or creating a Security Interest.

Security Interest. The words “Security Interest” mean, without limitation, any and all types of collateral security, present and future, whether in the form of a lien, charge, encumbrance, mortgage, deed of trust, security deed, assignment, pledge, crop pledge, chattel mortgage, collateral chattel mortgage, chattel trust, factor’s lien, equipment trust, conditional sale, trust receipt, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever whether created by law, contract, or otherwise.

 
Loan No: 15784

BUSINESS LOAN AGREEMENT
(Continued)

 
Page 8

BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN AGREEMENT AND BORROWER AGREES TO ITS TERMS. THIS BUSINESS LOAN AGREEMENT IS DATED MAY 26, 2023.

BORROWER:

HERITAGE GLOBAL INC.

By: /s/ James Sklar

James Sklar, Executive Vice President, General

Counsel and Secretary of Heritage Global Inc.

LENDER:

C3BANK, NATIONAL ASSOCIATION

By: /s/ Andrew Meitzen

Authorized Signer

EX-10.5 6 hgbl-ex10_5.htm EX-10.5 EX-10.5

Exhibit 10.5

PLEDGE AND SECURITY AGREEMENT
LOAN #15784

This PLEDGE AND SECURITY AGREEMENT (this “Pledge Agreement”), is made as of May 26, 2023, by HERITAGE GLOBAL INC., a Florida corporation (together with its permitted successors and assigns, “Pledgor”), having an address at 12625High Bluff Drive, Suite 305, San Diego, CA 92130, for the benefit of C3BANK, a national banking association, having an address at 850 S. Coast Highway 101, Encinitas, California 92024 (together with its successors and assigns, “Lender”).

RECITALS

A. Pledgor is the sole member or stockholder, as applicable, of Heritage Global Partners, Inc., a California corporation (“HGP”); Heritage Global, LLC, a Delaware limited liability company (“HG”); Heritage Global Capital, LLC, a Delaware limited liability company (“HGC”); and National Loan Exchange, Inc., an Illinois corporation (“NLEX”). Pledgor is the sole member of HG the sole member of Heritage ALT LLC, a Delaware limited liability company (“HA”). (HGP, together with HG, HGC, NLEX, and HA collectively, the “Pledged Entities” and each, a “Pledged Entity”).

B. Pursuant to that certain Business Loan Agreement (together with all extensions, renewals, modifications, substitutions and amendments thereof, the “Loan Agreement”), dated as of the date hereof, and by and between Pledgor and Lender, Pledgor has become indebted to Lender with respect to a loan in the maximum principal amount of up to Seven Million and No/100 Dollars ($7,000,000.00) (the “Loan”). Initially capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Loan Agreement.

C. As a condition precedent to making the Loan, Lender requires that Pledgor execute and deliver this Pledge Agreement to Lender. Pledgor acknowledges that it will receive material benefits from the making of the Loan.

NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each Pledgor agrees as follows:

1. Defined Terms. As used herein, the following terms shall have the following meanings:

(a) “Assignment of Interest” shall have the meaning ascribed thereto in Section 2 hereof.

(b) “Charter Documents” means the agreements and instruments listed on Exhibit A hereto, as each of the same may hereafter be amended, restated, replaced, supplemented or otherwise modified from time to time.

DOCPROPERTY "CUS_DocIDChunk0" DMSLIBRARY01\33769679.v2

(d) “Pledged Interests” shall have the meaning ascribed thereto in Section 2 hereof.

(e) “Secured Obligations” shall mean the due payment, performance and observance of all of the obligations contemplated by the Loan Agreement.

(f) “Uniform Commercial Code” means the Uniform Commercial Code as in effect from time to time in the State of California except for matters which the Uniform Commercial Code of the State of California provides shall be governed by the Uniform Commercial Code in effect in any state, in which case “Uniform Commercial Code” shall mean the Uniform Commercial Code as in effect from time to time in such other state.

2. Pledge and Delivery of Collateral.

(a) The Pledge. As collateral security for the prompt payment and performance of the Secured Obligations, Pledgor hereby pledges and grants to Lender a security interest in all of Pledgor’s right, title, interest, claim and estate in and to each and all of the following property, whether now owned by Pledgor or hereafter acquired and whether now existing or hereafter coming into existence (all being collectively referred to herein as “Collateral”):

(i) all membership interests of, or other equity interests in the Pledged Entities, and all options, warrants and other rights and privileges of any type or nature now existing or hereafter acquired by Pledgor in respect of such membership interests or other equity interests (whether in connection with any capital increase, recapitalization, reclassification or reorganization of the Pledged Entities or otherwise), all investment property and all rights, preferences, privileges, dividends, distributions, redemption payments, or liquidation payments and general intangibles relating to the foregoing (all such membership interests and other equity interests, and all such options, warrants, other rights, investment property, preferences, privileges, dividends, distributions, redemption payments, or liquidation payments and general intangibles and other rights being hereinafter collectively referred to as the “Pledged Interests”);

(ii) all certificates, instruments, or other writings representing or evidencing the Pledged Interests, and all accounts, payment intangibles and general intangibles arising out of, or in connection with, the Pledged Interests;

(iii) any and all moneys, payment intangibles or property due and to become due to Pledgor now or in the future in respect of the Pledged Interests, or to which Pledgor may now or in the future be entitled to in its capacity as a member or stockholder of the Pledged Entities, whether by way of a dividend, distribution, return of capital, or otherwise;

(iv) all other claims, causes of action, choses of action and other property of any type or nature which the Pledgor now has or may in the future acquire in its capacity as a member or stockholder of the Pledged Entities against the Pledged Entities and its property, including general intangibles relating thereto in any manner or any respect; (v) all rights of Pledgor under the Charter Documents and/or applicable law, including, without limitation, all voting and consent rights of Pledgor arising thereunder or otherwise, in each case, in connection with Pledgor’s ownership of the Pledged Interests, including general intangibles relating thereto in any manner or any respect; and

(vi) to the extent not otherwise included in clauses (i) through (v), (A) all proceeds and products of any and all of the property of Pledgor described in clauses (i) through (v) above, whether now owned and existing or hereafter acquired or arising, including, without limitation, (i) all rents, issues, royalties, distributions, revenues and profits of or from any of the foregoing, (ii) whatever is now or hereafter received by Pledgor upon the collection or sale, exchange, lease, transfer or other disposition (whether voluntary or involuntary) of, or otherwise with respect to, any item of Collateral, whether constituting accounts, general intangibles, equipment, inventory, money, deposit accounts, payment intangibles, goods, chattel paper, documents, instruments, insurance proceeds, securities, and any other tangible or intangible personal property, (iii) any such items that are now or hereafter acquired by Pledgor with any proceeds or products of Collateral, (iv) any amounts now or hereafter payable under any insurance policy by reason of any loss or damage to any Collateral or any proceeds or products thereof, and (v) the right to further transfer, including to pledge, mortgage, license, assign or sell, any of the Collateral or any interest therein, and (B) to the extent related to any property described in said clauses or such proceeds, all present and future books and records, files, invoices, papers and correspondence relating thereto, including, without limitation, books of account and ledgers of every kind and nature, computer programs, computer tapes, computer software, and all electronically recorded data relating to Pledgor or the business of Pledgor or to any or all of the Collateral, all equipment, receptacles, containers and cabinets for such books and records.

(b) Delivery of the Collateral. All certificates or instruments, if any, representing or evidencing any of the Collateral shall be delivered to and held by or on behalf of Lender pursuant hereto and shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer, stock powers endorsed by Pledgor in blank, or assignments in blank, all in form and substance reasonably satisfactory to Lender. Upon the occurrence and during the continuance of an Event of Default, Lender shall have the right, at any time, in its discretion upon written notice to Pledgor, to transfer to or to register in the name of Lender or its nominee any or all of the Collateral. Prior to or concurrently with the execution and delivery of this Pledge Agreement, Pledgor shall deliver to Lender (i) with respect to a Pledged Entity that is a limited liability company, an assignment of membership interest, or (ii) with respect to a Pledged Entity that is a corporation, an instrument of transfer, in each case endorsed by such Pledgor in blank (each, as applicable, an “Assignment of Interest”), in the form set forth on Exhibit B1-B3 hereto, for Pledgor’s Pledged Interests, transferring all of such Pledged Interests in blank, duly executed by Pledgor and undated. Lender shall have the right, at any time in its discretion upon the occurrence and during the continuance of an Event of Default and without notice to Pledgor, to transfer to, and to designate on Pledgor’s Assignment of Interest, any Person to whom the Pledged Interests are sold in accordance with the provisions hereof. In addition, Lender shall have the right at any time to exchange any Assignment of Interest representing or evidencing the Pledged Interests or any portion thereof for one or more additional or substitute Assignments of Interest representing or evidencing smaller or larger percentages of the Pledged Interests represented or evidenced thereby, subject to the terms thereof.

(c) Obligations Unconditional. The obligations of Pledgor hereunder are absolute and unconditional, irrespective of the value, genuineness, validity, regularity or enforceability of the Loan Agreement, the Note or any other Related Documents, or any substitution, release or exchange of any guarantee of or security for any of the Obligations, and, to the fullest extent permitted by applicable law, irrespective of any other circumstance whatsoever which might otherwise constitute a legal or equitable discharge or defense of a surety or Pledgor, it being the intent of this Section 2(c) that the obligations of each Pledgor hereunder shall be absolute and unconditional under any and all circumstances. Without limiting the generality of the foregoing, it is agreed that the occurrence of any one or more of the following shall not affect the liability of any Pledgor hereunder:

(i) at any time or from time to time, without notice to Pledgor, the time for any performance of or compliance with any of the obligations shall be extended, or such performance or compliance shall be waived;

(ii) any of the acts mentioned in any of the provisions of the Loan Agreement, the Note, or any other Related Documents shall be done or omitted;

(iii) the maturity of any of the obligations shall be accelerated, or any of the obligations shall be modified, supplemented or amended in any respect, or any right under the Loan Agreement, the Note, or any other Related Documents, or any other agreement or instrument referred to herein or therein shall be waived or any other guarantee of any of the obligations or any security or collateral therefor shall be terminated, released or exchanged in whole or in part or otherwise dealt with; or

(iv) any lien or security interest granted to, or in favor of Lender as security for any of the Obligations shall fail to be perfected or shall be released.

(d) Financing Statements. Pledgor hereby authorizes Lender to file at any time or times, one or more UCC financing statements covering the Collateral and UCC assignment financing statements assigning the UCC financing statements which constitute part of the Collateral, each in the office of the Secretary of State of the State of Florida, or any other state where the Pledged Interests are formed.

3. Reinstatement. The obligations of Pledgor under this Pledge Agreement shall be automatically reinstated if and to the extent that for any reason any payment by or on behalf of such Pledgor in respect of the obligations is rescinded or must be otherwise restored by any holder of any of the obligations, whether as a result of any proceedings in bankruptcy or reorganization or otherwise and Pledgor agrees that it will indemnify Lender and on demand for all reasonable costs and expenses (including, without limitation, reasonable fees of counsel) incurred by Lender in connection with such rescission or restoration.

4. Representations, Warranties of Pledgor. Pledgor represents and warrants that:

(a) Existence; Capacity. Pledgor: (i) is a corporation organized and validly existing under the laws of the State of Florida; (ii) has all requisite power, and has all governmental licenses, authorizations, consents and approvals required to own its assets and carry on its business as now being or as proposed to be conducted; and (iii) is qualified to do business in all jurisdictions in which the nature of the business conducted by it makes such qualification necessary under applicable law.

(b) Litigation. There are no legal or arbitral proceedings or any proceedings by or before any Governmental Authority or other agency, now pending or (to the knowledge of Pledgor) threatened against Pledgor, the Collateral and/or Borrower.

(c) No Breach. None of the execution and delivery of this Pledge Agreement by Pledgor, the consummation of the transactions herein or therein contemplated and compliance with the terms and provisions hereof or thereof will conflict with or result in a breach of, or require any consent under (except such consents that have been obtained on or prior to the date hereof), any organizational documents of Pledgor or Borrower, any applicable law or regulation, or any order, writ, injunction or decree of any court or Governmental Authority, or any agreement or instrument to which Pledgor is a party or by which it is bound or to which it is subject or constitute a default under any such agreement or instrument, or (except for the security interest granted pursuant to this Pledge Agreement) result in the creation or imposition of any lien upon any assets or revenues of Pledgor.

(d) Necessary Action. Pledgor has all requisite power and authority to execute, deliver and perform its obligations under this Pledge Agreement; the execution, delivery and performance by Pledgor of this Pledge Agreement has been duly authorized by all necessary action; and this Pledge Agreement has been duly and validly executed and delivered by Pledgor and constitutes its legal, valid and binding obligation, enforceable against Pledgor in accordance with its terms, subject to bankruptcy, insolvency, moratorium or other similar laws affecting the enforcement of creditors’ rights in general and to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law).

(e) Approvals. No authorizations, approvals and consents of, and no filings and registrations with, any governmental or regulatory authority or agency or under the organizational documents of Pledgor or the Pledged Entities or any other person are necessary for (i) the execution, delivery or performance by Pledgor of this Pledge Agreement or for the validity or enforceability thereof, (ii) the grant by Pledgor of the assignments and security interests granted hereby, or the pledge by Pledgor of the Collateral pursuant hereto, (iii) the perfection or maintenance of the pledge, assignment and security interest created hereby (including, without limitation, the first priority nature of such pledge, assignment and security interest) except for the filing of financing statements under the Uniform Commercial Code or (iv) the exercise by Lender of all or any of the rights and remedies in respect of the Collateral pursuant to this Pledge Agreement (and upon such exercise, for the purchaser of such Collateral to be admitted as a member or owner of the Pledged Entities to the full extent of the Pledged Interests).

(f) Ownership. Pledgor own one hundred percent (100%) of the membership or other equity interests in the Pledged Entities, and pursuant to this Pledge Agreement, Lender has received a pledge of the one hundred percent (100%) membership or other equity interests in the Pledged Entities. Pledgor has good title to the Collateral, free and clear of all pledges, liens, mortgages, hypothecations, security interests, charges, options or other encumbrances whatsoever, except the lien and security interest created by this Pledge Agreement. The Pledged Interests are not and will not be subject to any contractual restriction upon the transfer thereof (except for any such restrictions contained herein). The organizational chart attached as Exhibit A to that certain Confirmation Statement and Control Agreement delivered to Lender by Pledgor on the date hereof (a form of which is attached hereto as Exhibit D) is true, correct and complete, and accurately reflects the ownership interest of Pledgors in the Pledged Entities, as of the date hereof.

(g) Principal Place of Business. Pledgor’s principal place of business is as set forth in the introductory paragraph of this Pledge Agreement.

(h) Valid Security Interest. This Pledge Agreement creates a valid security interest in the Collateral, securing the Secured Obligations, and upon the filing in the appropriate filing offices of the financing statements to be filed in accordance with this Pledge Agreement and the delivery and possession of the security certificates, if any, which evidence the Pledged Interests along with Assignment of Interest executed in blank, such security interests will be perfected, first priority security interests, and all filings and other actions necessary to perfect such security interests will have been duly taken.

(i) Authorization. Upon delivery of the certificated Pledged Interests, if any, to Lender pursuant to this Pledge Agreement hereof, Pledgor authorizes Lender to store, deposit and safeguard the Collateral. Any obligation of Lender for the reasonable care of the Collateral in Lender’s possession shall be limited to the same degree of care which Lender uses for similar property pledged to Lender by other Persons.

(j) Delivery. Pledgor has delivered to Lender a true, correct and complete copy of the Pledged Entities’ Charter Documents, as in effect on the date hereof.

5. Covenants of Pledgor. Pledgor covenants that:

(a) No Transfer. Except as otherwise expressly permitted under the Loan Agreement, Pledgor has not and will not (i) sell, assign, transfer, exchange, or otherwise dispose of, or grant any option with respect to, the Collateral or any interest therein, (ii) create, incur or permit to exist any pledge, lien, mortgage, hypothecation, security interest, charge, option or any other encumbrance with respect to any Collateral, or any interest therein, or any proceeds thereof, except for the security interest provided for by this Pledge Agreement, or (iii) vote to enable, or take any other action to permit, the Pledged Entities to issue any membership or other equity interests, or to issue any other securities convertible into or granting the right to purchase or exchange for any membership or other equity interests in Borrower.

(b) No Waiver, Amendment, Etc. Pledgor shall not directly or indirectly, without the prior written consent of Lender, attempt to waive, alter, amend, modify or supplement any provision of the Charter Documents in any manner that would reasonably be expected to result in a material adverse effect on the Collateral. Pledgor agrees that all rights to do any and all of the foregoing have been collaterally assigned to Lender, but Pledgor agrees that, upon request from Lender from time to time, Pledgor shall do any of the foregoing or shall join Lender in doing so or shall confirm the right of Lender to do so and shall execute such instruments and undertake such actions as Lender may reasonably request in connection therewith.

(c) Settlement and Release. Pledgor shall not make any election, compromise, adjustment or settlement in respect of any of the Collateral.

(d) Preservation of Collateral. Lender may, in its discretion, for the account and expense of Pledgor pay any amount or do any act required of Pledgor hereunder or reasonably requested by Lender to preserve, protect, maintain or enforce the Secured Obligations, the Collateral or the security interests granted herein, provided Pledgor has failed to pay such amount or take such action within ten (10) days after written demand by Lender. Any such payment shall be deemed an advance by Lender to Pledgor and shall be payable by such Pledgor within ten (10) days after written demand together with interest thereon at the Default Rate from the date expended by Lender until paid.

(e) Warranty of Title. Pledgor shall warrant and defend the right, title and interest of Lender in and to the Collateral and the proceeds thereof against the claims and demands of all persons whomsoever other than Lender pursuant to this Pledge Agreement. Any interest, securities, Lien or option with respect to the Pledged Interests issued in violation of this Pledge Agreement shall be void ab initio.

(f) Files and Records. Pledgor shall maintain, at its principal office, and, upon reasonable request, make available to Lender the originals, or copies in any case where the originals have been delivered to Lender of the instruments, documents, policies and agreements constituting the Collateral (to the extent not held by Lender) and related documents and instruments, and all files, surveys, certificates, correspondence, appraisals, computer programs, tapes, discs, cards, accounting records and other information and data relating to the Collateral.

(g) Litigation. Pledgor shall promptly give to Lender notice of all pending legal or arbitration proceedings, and of all proceedings pending by or before any governmental or regulatory authority or agency or, if Pledgor obtains knowledge of such threat, threatened, against Pledgor or the Pledged Entities or which relates to the Collateral which, if adversely determined, would materially adversely affect Pledgor’s or Pledged Entities’ condition (financial or otherwise) or business or the Collateral.

(h) Existence, Etc. Pledgor shall and shall cause Pledged Entities to preserve and maintain its existence and all of its material rights, privileges and franchises. Pledgor shall comply and cause Pledged Entities to comply with the requirements of all applicable laws, rules, regulations and orders of governmental or regulatory authorities; and pay and discharge or cause Pledged Entities to pay or discharge all taxes, assessments and governmental charges or levies imposed on it or on its income or profits or on any of their property prior to the date on which penalties attach thereto, except for any such tax, assessment, charge or levy the payment of which is being contested in good faith and by proper proceedings.

(i) Charter Documents. Pledgor shall, at its expense:

(i) perform and observe all the terms and provisions of the Charter Documents to be performed or observed by it, maintain the Charter Documents in full force and effect, enforce the Charter Documents in accordance with their respective terms, and to take all such action to such end relating to the Charter Documents as may be from time to time reasonably requested by Lender; and

(ii) furnish to Lender reasonably promptly upon receipt thereof copies of all notices, requests and other documents received by Pledgor under or pursuant to the Charter Documents, and from time to time furnish to Lender such information and reports regarding the Collateral as Lender may reasonably request.

(j) Principal Place of Business and State of Organization. Pledgor will not change Pledgor’s principal place of business or state of organization/formation unless Pledgor has previously notified Lender thereof not less than thirty (30) days prior thereto and taken such action as may be requested by Lender in its reasonable discretion to cause the security interest of Lender in the Collateral to be continuously perfected.

(k) Acknowledgements of Parties. If Pledgor shall, as a result of its ownership of the Pledged Interests, become entitled to receive or shall receive any new or additional membership or stock certificate (including, without limitation, any certificate representing a dividend or a distribution in connection with any reclassification, increase or reduction of capital or any certificate issued in connection with any reorganization), option or rights, whether in addition to, in substitution of, as a conversion of, or in exchange for any shares of the Pledged Interests, or otherwise in respect thereof, Pledgor shall accept the same as Lender’s agent, hold the same in trust for Lender and promptly deliver the same forthwith to Lender in the exact form received, duly endorsed by Pledgor to Lender, if required, together with an undated regular membership interest power covering such certificate duly executed in blank and with, if Lender so requests, signature guaranteed, to be held by Lender hereunder as additional security for the obligations. Until the obligations are indefeasibly paid and performed in full, any sums paid to Pledgor upon or in respect of the Pledged Interests upon the liquidation or dissolution of the Pledged Entities shall be paid over to Lender to be held by it hereunder as additional security for the Obligations, and in case any distribution of capital shall be made on or in respect of the Pledged Interests or any property shall be distributed upon or with respect to the Pledged Interests pursuant to the recapitalization or reclassification of the capital of Borrower or pursuant to the reorganization thereof, the property so distributed shall be delivered to Lender to be held by it, subject to the terms hereof, as additional security for the Obligations. If any sums of money or property so paid or distributed in respect of the Pledged Interests shall be received by Pledgor, Pledgor shall, until such money or property is paid or delivered to Lender, hold such money or property in trust for Lender, segregated from other funds of Pledgor, as additional security for the Obligations.

6. Reserved

7. Further Assurances; Remedies. In furtherance of the grant of the pledge and security interest pursuant to Section 2 hereof, Pledgor hereby agrees with Lender as follows:

(a) Delivery and Other Perfection. Pledgor shall:

(i) if any of the above‑described Collateral required to be pledged by Pledgor under Section 2(a) hereof is received by Pledgor, forthwith either (x) transfer and deliver to Lender such Collateral so received by Pledgor (together with the certificates (if any) for any such Collateral, including assignments duly endorsed in blank) all of which thereafter shall be held by Lender, pursuant to the terms of this Pledge Agreement, as part of the Collateral or (y) take such other action as Lender shall deem reasonably necessary or appropriate to duly file on record the security interest created hereunder in such Collateral referred to in said Section 2(a);

(ii) give, execute, deliver, file and/or record any financing statement, notice, instrument, document, agreement or other papers that may be necessary or desirable (in the reasonable judgment of Lender) to create, preserve, perfect or validate the security interest granted pursuant hereto or to enable Lender to exercise and enforce its rights hereunder with respect to such pledge and security interest, including, without limitation, causing any or all of the Collateral to be transferred of record into the name of Lender or its nominee; and

(iii) permit representatives of Lender, upon reasonable notice, at any time during normal business hours to inspect and make abstracts from its books and records pertaining to the Collateral, and permit representatives of Lender to be present at Pledgor’s place of business to receive copies of all communications and remittances relating to the Collateral, and forward copies of any notices or communications received by Pledgor with respect to the Collateral, all in such manner as Lender may reasonably require.

(b) Preservation of Rights. Except in accordance with applicable law, Lender shall not be required to take steps necessary to preserve any rights against prior parties to any of the Collateral.

(i) Pledgor shall not and shall not have the right to directly or indirectly, without the prior written consent of Lender, attempt to waive, alter, amend, modify, supplement or change in any manner that would be reasonably expected to result in a material adverse effect on the Collateral, Lender’s rights therein, or release, subordinate, terminate or cancel in whole or in part, or give any consent under, any of the instruments, documents, policies or agreements constituting the Collateral or exercise any of the rights, options or interests of Pledgor as party, holder, mortgagee or beneficiary thereunder except as otherwise expressly permitted under the Loan Agreement or hereunder. Pledgor agrees that all rights to do any and all of the foregoing have been collaterally assigned to and may be exercised by Lender but Pledgor agrees that, upon reasonable request from Lender from time to time, Pledgor shall do any of the foregoing or shall join Lender in doing so or shall confirm the right of Lender to do so and shall execute such instruments and undertake such actions as Lender may reasonably request in connection therewith. Pledgor shall not make any election, compromise, adjustment or settlement in respect of any of the Collateral.

Notwithstanding anything herein to the contrary, so long as no Event of Default shall have occurred and be continuing, Pledgor shall have the right to exercise all of Pledgor’s rights under the Charter Documents to which it is a party for all purposes not inconsistent with any of the terms of this Pledge Agreement, the Note, the Loan Agreement or any other Loan Document, provided that Pledgor agrees that it will not take any action in any manner that is inconsistent with the terms of this Pledge Agreement, the Note, the Loan Agreement or any other Loan Document.

(ii) Anything to the contrary notwithstanding, (i) Pledgor shall remain liable under the Charter Documents to perform all of its duties and obligations thereunder to the same extent as if this Pledge Agreement had not been executed, (ii) the exercise by Lender of any of the rights hereunder shall not release Pledgor from any of its duties or obligations under the Charter Documents, and (iii) Lender shall have no obligation or liability for Pledgor’s actions or omissions under the Charter Documents by reason of this Pledge Agreement, nor shall Lender be obligated to perform any of the obligations or duties of Pledgor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder.

(d) Events of Default, Etc. During any period in which an Event of Default has occurred and is continuing:

(i) Lender shall have all of the rights and remedies with respect to the Collateral of a secured party under the Uniform Commercial Code (whether or not said Uniform Commercial Code is in effect in the jurisdiction where the rights and remedies are asserted) and such additional rights and remedies to which a secured party is entitled under the laws in effect in any jurisdiction where any rights and remedies hereunder may be asserted, including, without limitation, the right, to the maximum extent permitted by law, to exercise all voting, consensual and other powers of ownership pertaining to the Collateral as if Lender were the sole and absolute owner thereof (and Pledgor agrees to take all such action as may be appropriate to give effect to such right);

(ii) Lender in its discretion may, in its name or in the name of Pledgor or otherwise, demand, sue for, collect or receive any money or property at any time payable or receivable on account of or in exchange for any of the Collateral, but shall be under no obligation to do so;

(iii) Lender may, at its option, apply all or any part of the Collateral in accordance with Section 7(f) hereof;

(iv) Lender may, with respect to the Collateral or any part thereof which shall then be or shall thereafter come into the possession, custody or control of Lender or any of its agents, sell, assign or otherwise dispose of all or any part of such Collateral, at such place or places as Lender deems best, and for cash or on credit or for future delivery (without thereby assuming any credit risk), at public or private sale, without demand of performance or notice of intention to effect any such disposition or of time or place thereof (except such notice as is required above or by applicable statute and cannot be waived) and Lender or anyone else may be the purchaser, assignee or recipient of any or all of the Collateral so disposed of at any public sale (or, to the extent permitted by law, at any private sale), and thereafter hold the same absolutely, free from any claim or right of whatsoever kind, including any right or equity of redemption (statutory or otherwise), of Pledgor, any such demand, notice or right and equity being hereby expressly waived and released.

Unless prohibited by applicable law, Lender may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for the sale, and such sale may be made at any time or place to which the same may be so adjourned;

(v) Lender may exercise all membership or stockholder rights, powers and privileges to the same extent as Pledgor is entitled to exercise such rights, powers and privileges;

(vi) Lender may, in connection with a sale of all or any of the Pledged Interests, without any further action of any party, cause any purchaser or transferee of all or any part of any Pledged Interests to be admitted as a new member or owner of the Pledged Entities to the extent of such Pledged Interests, and cause Pledgor to withdraw as a member or owner of the Pledged Entities to the extent such Pledged Interests are sold or transferred, and complete by inserting the Effective Date (as defined therein) and the name of the assignee thereunder and deliver to such assignee the Assignment of Interest executed and delivered by Pledgor and, if appropriate, cause one or more amended or restated certificates of limited partnership, certificates of limited liability company or articles of incorporation to be filed with respect to the Pledged Entities;

(vii) Lender may exercise any and all rights and remedies of Pledgor under or in connection with the Charter Documents or otherwise in respect of the Collateral, including, without limitation, any and all rights of Pledgor to demand or otherwise require payment of any amount under, or performance of any provisions of, the Charter Documents; and

(viii) all payments received, directly or indirectly, by Pledgor under or in connection with the Charter Documents or otherwise in respect of the Collateral shall be received in trust for the benefit of Lender, shall be segregated from other funds of Pledgor and shall be forthwith paid over to Lender in the same form as so received (with any necessary endorsement).

The proceeds of any collection, sale or other disposition under this Section 7(d) shall be applied by Lender pursuant to Section 7(f) hereof.

Pledgor recognizes that, by reason of certain prohibitions contained in the Securities Act of 1933, as amended, and applicable state securities laws, Lender may be compelled, with respect to any sale of all or any part of the Collateral, to limit purchasers to those who will agree, among other things, to acquire the Collateral for their own account, for investment and not with a view to the distribution or resale thereof. Pledgor acknowledges that any such private sales may be at prices and on terms less favorable to Lender than those obtainable through a public sale without such restrictions, and, notwithstanding such circumstances, Pledgor agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner and that Lender shall have no obligation to engage in public sales and no obligation to delay the sale of any Collateral for the period of time necessary to permit the issuer thereof to register it for public sale.

(e) Private Sale. Lender shall not incur any liability as a result of the sale of the Collateral, or any part thereof, at any private sale pursuant to Section 7(d) hereof conducted in a commercially reasonable manner. Pledgor hereby waives any claims against Lender arising by reason of the fact that the price at which the Collateral may have been sold at such a private sale was less than the price which might have been obtained at a public sale or was less than the aggregate amount of the Secured Obligations, even if Lender accepts the first offer received and does not offer the Collateral to more than one offeree.

(f) Application of Proceeds. Except as otherwise herein expressly provided, the proceeds of any collection, sale or other realization of all or any part of the Collateral pursuant hereto, and any other cash at the time held by Lender under this Section 7, shall be applied by Lender:

First, to the payment of the costs and expenses of such collection, sale or other realization, including reasonable out‑of‑pocket costs and expenses of Lender (including the fees and expenses of its counsel), and all third party costs and expenses made or incurred by Lender in connection therewith;

Next, to the payment in full of the secured obligations; and

Finally, to the payment to Pledgor, or its successors or assigns, or as a court of competent jurisdiction may direct, of any surplus then remaining.

As used in this Section 7, “proceeds” of Collateral shall mean cash, securities and other property realized in respect of, and distributions in kind of, Collateral, including any thereof received under any reorganization, liquidation or adjustment of debt of Pledgor or any issuer of or obligor on any of the Collateral.

(g) Attorney-in-Fact. Without limiting any rights or powers granted by this Pledge Agreement to Lender, Lender is hereby appointed the attorney‑in‑fact of Pledgor for the purpose of, upon the occurrence and during the continuance of an Event of Default, carrying out the provisions of this Section 7 and taking any action and executing any instruments which Lender may deem necessary or advisable to accomplish the purposes hereof, which appointment as attorney‑in‑fact is irrevocable and coupled with an interest. Without limiting the generality of the foregoing, so long as Lender shall be entitled under this Section 7 to make collections in respect of the Collateral, Lender shall have the right and power to receive, endorse and collect all checks made payable to the order of Pledgor representing any payment or other distribution in respect of the Collateral or any part thereof and to give full discharge for the same.

(h) Confirmation Statement; Control Agreement. To better assure the perfection of the security interest of Lender in the Pledged Interests, concurrently with the execution and delivery of this Pledge Agreement, Pledgor shall send written instructions in the form of Exhibit C hereto to the Pledged Entities, and shall cause Pledged Entities to, and Pledged Entities shall, deliver to Lender the Confirmation Statement and Control Agreement in the form of Exhibit D hereto pursuant to which Pledged Entities will confirm that it has registered the pledge effected by this Pledge Agreement on its books and agrees, upon the occurrence and during the continuation of an Event of Default, to comply with the instructions of Lender in respect of the Pledged Interests without further consent of Pledgor or any other person. Notwithstanding anything in this paragraph, neither the written instructions nor the Confirmation Statement and Control Agreement shall be construed as expanding the rights of Lender to give instructions with respect to the Collateral beyond such rights set forth in this Pledge Agreement.

8. Termination. This Pledge Agreement shall survive the exercise of remedies following an Event of Default under the Loan Agreement or the other Related Documents, and shall remain in full force and effect until all Secured Obligations and other sums due under the Loan Agreement and the other Related Documents have been indefeasibly paid in full to Lender. Upon the indefeasible payment and performance in full of all secured obligations under the Loan Agreement to Lender, this Pledge Agreement shall terminate, and Lender shall forthwith cause to be assigned, transferred and delivered, against receipt but without any recourse, warranty or representation whatsoever, any remaining Collateral and money received in respect thereof, to or on the order of Pledgor. Lender’s obligation to so assign, transfer and deliver shall survive the termination of this Agreement.

9. Miscellaneous.

(a) No Waiver. No failure on the part of Lender or any of its agents to exercise, and no course of dealing with respect to, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise by Lender or any of its agents of any right, power or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies provided herein are cumulative and are not exclusive of any remedies provided by law.

(b) Governing Law. The governing law provisions of the Loan Agreement shall apply mutatis mutandis to this Pledge Agreement and are hereby incorporated by reference into this Pledge Agreement to the same extent and with the same force as if fully set forth herein.

(c) Notices. All notices, demands, requests, consents, approvals or other communications required, permitted or desired to be given hereunder shall be given to Pledgor at the address for Borrower and in accordance with the notice provision of the Loan Agreement.

(d) Waivers, etc. The terms of this Pledge Agreement may be waived, altered or amended only by an instrument in writing duly executed by Pledgor and Lender. Any such amendment or waiver shall be binding upon Lender and Pledgor.

(e) Successors and Assigns. This Pledge Agreement shall be binding upon the successors and assigns of Pledgor and inure to the benefit of the successors and assigns of Lender (provided, however, that Pledgor shall not assign or transfer its rights hereunder without the prior written consent of Lender). Without limiting the foregoing, Lender may at any time and from time to time without the consent of Pledgor, assign or otherwise transfer all or any portion of its rights and remedies under this Pledge Agreement to any other person or entity, either separately or together with other property of Pledgor for such purposes in connection with a transfer of Lender’s interest in the Loan. Without limiting the foregoing, in connection with any assignment of the Loan in accordance with the Loan Agreement, Lender may assign or otherwise transfer all of its rights and remedies under this Pledge Agreement to the assignee and such assignee shall thereupon become vested with all of the rights and obligations in respect thereof granted to Lender herein or otherwise. Each representation and agreement made by Pledgor in this Pledge Agreement shall be deemed to run to Lender, and each reference in this Pledge Agreement to Lender shall be deemed to refer to Lender and each of their successors and assigns.

(f) No Liability on Part of Lender. Lender, by its acceptance of this Pledge Agreement, the Collateral and any payments on account thereof, shall not be deemed to have assumed or to have become liable for any of the obligations or liabilities of Pledgor. Lender shall not have any duty to collect any sums due in respect of any of the Collateral in its possession or control, or to enforce, protect or preserve any rights pertaining thereto, and Lender shall not be liable for failure to collect or realize upon the Collateral, or any part thereof, or for any delay in so doing, nor shall Lender be under any obligation to take any action whatsoever with regard thereto. Lender shall, if requested by the payor of any revenue payment, give receipts for any payments received by Lender on account of the Collateral.

(g) Expenses, Indemnification.

(i) Pledgor agrees to pay or reimburse Lender for paying: (A) all reasonable out of pocket expenses of Lender (including, without limitation, the reasonable fees and expenses of counsel to Lender), in connection with (1) the negotiation, preparation, execution and delivery of this Pledge Agreement and (2) any amendment, modification or waiver of any of the terms of this Pledge Agreement requested or initiated by Pledgor; (B) all costs and expenses of Lender (including reasonable counsel’s fees) in connection with any enforcement or collection proceedings resulting from an Event of Default; and (C) all transfer, stamp, documentary or other similar taxes, assessments or charges levied by any governmental or revenue authority in respect of this Pledge Agreement, or any other document referred to herein and all costs, expenses, taxes, assessments and other charges incurred in connection with any filing, registration, recording or perfection of any security interest contemplated by this Pledge Agreement or any document referred to herein.

(ii) Pledgor hereby agrees to indemnify Lender and its directors, officers, employees and agents from, and hold each of them harmless against, any and all losses, liabilities, claims, damages or expenses incurred by any of them arising out of or by reason of any claim of any Person (A) relating to or arising out of the acts or omissions of Pledgor under this Pledge Agreement or, after Lender has exercised any rights in accordance herewith, the Charter Documents (but excluding any such losses, liabilities, claims, damages or expenses incurred by reason of the gross negligence or willful misconduct of the Person to be indemnified), or (B) resulting from the ownership of or security interests in any Collateral, including, without limitation, the reasonable fees and disbursements of counsel incurred in connection with any such investigation or litigation or other proceedings (but excluding any such losses, liabilities, claims, damages or expenses incurred by reason of the gross negligence or willful misconduct of the Person to be indemnified).

(h) Further Assurances. Pledgor agrees that, from time to time upon the written request of Lender, Pledgor will execute and deliver such further documents and do such other acts and things as Lender may reasonably request in order fully to affect the purposes of this Pledge Agreement.

(i) Delay Not a Waiver. Neither any failure nor any delay on the part of Lender in insisting upon strict performance of any term, condition, covenant or agreement, or exercising any right, power, remedy or privilege hereunder, shall operate as or constitute a waiver thereof, nor shall a single or partial exercise thereof preclude any other future exercise, or the exercise of any other right, power, remedy or privilege.

(j) Counterparts. This Pledge Agreement may be executed by facsimile or other electronic means, and in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Pledge Agreement by signing any such counterpart.

(k) Severability. If any provision hereof is invalid and unenforceable in any jurisdiction, then, to the fullest extent permitted by law, (i) the other provisions hereof shall remain in full force and effect in such jurisdiction and shall be liberally construed in favor of Lender in order to carry out the intentions of the parties hereto as nearly as may be possible and (ii) the invalidity or unenforceability of any provision hereof in any jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction.

(l) Recitals. The recital and introductory paragraphs hereof are a part hereof, form a basis for this Pledge Agreement and shall be considered prima facie evidence of the facts and documents referred to therein.

(m) Gender; Number. As used in this Pledge Agreement, the masculine, feminine or neuter gender shall be deemed to include the others, and the singular shall include the plural (and vice versa), whenever the context so requires.

(n) Reserved.

(o) Incorporation by Reference. To the extent that any provisions or defined terms contained in any other Loan Document (including, without limitation, the Loan Agreement) are used herein or incorporated herein by reference, and such other Loan Document is terminated or otherwise satisfied prior to the termination of this Pledge Agreement, then, for the avoidance of doubt, such provisions and/or defined terms shall survive until the satisfaction of the Obligations without regard to the fact that the Loan Document originally containing the same has been otherwise terminated or satisfied.

10. Third Party Waivers.

(a)

Rights of Lender. Pledgor authorizes the Lender to perform any or all of the following acts at any time in its sole discretion, all without notice to Pledgor, without affecting Pledgor’s obligations under this Pledge Agreement or any other Related Documents and without affecting the liens and encumbrances against the Collateral in favor of the Lender:

(i)

Lender may take and hold security for the secured obligations, accept additional or substituted security, and subordinate, exchange, enforce, waive, release, compromise, fail to perfect and sell or otherwise dispose of any such security;

(ii)

Upon the occurrence and during the continuance of an Event of Default, Lender may direct the order and manner of any sale of all or any part of any security now or later to be held for the secured obligations, and Lender (or its nominees or designees) may also bid at any such sale;

(iii)

Lender may apply any payments or recoveries from Pledgor, any Pledgor Affiliate or any other source, and any proceeds of any security, to the secured obligations in such manner, order and priority as the Lender may elect;

(iv)

Lender may release Pledgor or any other Person from its liability for the secured obligations or any part thereof;

(v)

Lender may substitute, add or release any one or more guarantors, pledgors or endorsers; and

(vi)

In addition to the secured obligations, Lender may extend other credit to Pledgor or any Pledgor Affiliate, and may take and hold security for the credit so extended, all without affecting Pledgor’s liability hereunder or under the other Related Documents and without affecting the liens and encumbrances against the Collateral hereunder or under the other Related Documents.

(b)

Absolute Obligations. Pledgor expressly agrees that until all secured obligations are paid and performed in full and each and every term, covenant and condition of this Pledge Agreement and the other Related Documents is fully satisfied and performed, Pledgor shall not be released of its obligations, waivers and agreements set forth herein or in any other Loan Document nor shall the validity, enforceability or priority of the liens and encumbrances against the Collateral in favor of the Lender be affected in any manner by or because of:

(i)

Any act or event which might otherwise discharge, reduce, limit or modify any Pledgor’s obligations hereunder or under the other Related Documents or the liens and encumbrances against the Collateral in favor of Lender, other than payment in full of the secured obligations;

(ii)

Any waiver, extension, modification, forbearance, delay or other act or omission of Lender or any failure to proceed promptly or otherwise as against Pledgor or any other Person or any security;

(iii)

Any action, omission or circumstance which might increase the likelihood that Lender might enforce the rights granted under this Pledge Agreement or under the other Related Documents or which might affect the rights or remedies of Pledgor as against any other Person; or

(iv)

Any dealings occurring at any time between Pledgor or any of its Affiliates and Lender, whether relating to the secured obligations or otherwise.

Pledgor hereby expressly waives and surrenders any defense to the performance of the obligations under this Pledge Agreement and under all other Related Documents or to the enforcement of the liens and encumbrances against the Collateral in favor of Lender based upon any of the foregoing acts, omissions, agreements, waivers or matters described in this subsection (other than the defense that payment has been made). It is the purpose and intent of this Pledge Agreement that the obligations of Pledgor under this Pledge Agreement and under all other Related Documents shall be absolute and unconditional under any and all circumstances.

(c)

Pledgor’s Waivers. Pledgor waives:

(i)

Any right it may have to require Lender to proceed against Pledgor or any other Person, proceed against or exhaust any security held from Pledgor or any Person, or pursue any other remedy in Lender’s power to pursue until the indefeasible payment of the Loan in full;

(ii)

Any defense based on any claim that Pledgor’s obligations exceed or are more burdensome than those of Pledgor or any other Person;

(iii)

Any defense: (A) based on any legal disability of any other Person, (B) based on any release, discharge, modification, impairment or limitation of the liability of any other Person to the Lender from any cause, whether consented to by the Lender or arising by operation of law, (C) arising out of or able to be asserted as a result of any case, action or proceeding before any governmental authority relating to bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution, winding-up or relief of any other Person or any of their affiliates, or any general assignment for the benefit of creditors, composition, marshaling of assets for creditors or other, similar arrangement in respect of its creditors generally or any substantial portion of its creditors; in each case as undertaken under any U.S. Federal or State law (each of the foregoing described in this clause (C) being referred to herein as an “Insolvency Proceeding”); or (D) arising from any rejection or disaffirmance of the Obligations, or any part thereof, or any security held therefor, in any such Insolvency Proceeding;

(iv)

Any defense based on any action taken or omitted by Lender in any Insolvency Proceeding involving any other Person, including any election to have Lender’s claim allowed as being secured, partially secured or unsecured, any extension of credit by Lender to any other Person in any Insolvency Proceeding, and the taking and holding by Lender of any security for any such extension of credit;

(v)

Except as otherwise provided herein, all presentments, demands for performance, notices of nonperformance, protests, notices of protest, notices of dishonor, notices of intention to accelerate, notices of acceleration, notices of acceptance of this Pledge Agreement or any other Loan Document and of the existence, creation, or incurring of new or additional indebtedness, and demands and notices of every kind; and

(vi)

Any defense based on or arising out of any defense that Pledgor or any of its affiliates may have to the payment or performance of the Secured Obligations, other than the defense of payment of the Secured Obligations.

(d)

Waiver of Subrogation and Other Rights.

(i)

Upon the occurrence and during the continuance of any Event of Default, in its sole discretion, without prior notice to or consent of Pledgor, Lender may elect to: (A) foreclose against any collateral for the Secured Obligations, (B) accept a transfer of any such collateral for the Secured Obligations in lieu of foreclosure, (C) compromise or adjust the Secured Obligations or any part thereof or make any other accommodation with Pledgor or any other Person, or (D) exercise any other remedy against Pledgor or any other Person or any collateral for the Secured Obligations. No such action by Lender shall release or limit Lender’s rights hereunder or under the other Related Documents, even if the effect of the action is to deprive Pledgor of any subrogation rights, rights of indemnity, or other rights to collect reimbursement from any other Person for any sums paid to Lender, whether contractual or arising by operation of law or otherwise. Pledgor expressly agrees that under no circumstances shall Pledgor be deemed to have any right, title, interest or claim in or to any Collateral to be held by Lender or any third party after any foreclosure or transfer in lieu of foreclosure of the Collateral.

Regardless of whether Pledgor may have made any payments to Lender, until repayment in full of all of the Secured Obligations, Pledgor waives: (A) upon the occurrence and during the continuance of an Event of Default all rights of subrogation, all rights of indemnity, and any other rights to collect reimbursement from any other Person on account of the Collateral encumbered by this Pledge Agreement, whether contractual or arising by operation of law (including the United States Bankruptcy Code or any successor or similar statute) or otherwise; (B) all rights to enforce any remedy that Lender may have against any Person granting collateral for the Secured Obligations; and (C) all rights to participate in any Collateral now or later to be held by Lender.

[BALANCE OF PAGE INTENTIONALLY BLANK;
SIGNATURE PAGES FOLLOW]

IN WITNESS WHEREOF, Pledgor has executed this Pledge Agreement as of the day and year first above written.

PLEDGOR:

HERITAGE GLOBAL INC.
a Florida corporation
 
By: _/s/ James Sklar_____________________
Name:  James Sklar
Title:  Executive Vice President, General      
           Counsel and Secretary

[SIGNATURES CONTINUE ON NEXT PAGE]

[Signature Page to Pledge and Security Agreement]

ACCEPTED BY LENDER:

C3BANK,
a National Association
 
By: _/s/_Andrew Meitzen____________________
Name:  Andrew Meitzen ____________________
Title: _Chief Credit and Risk Officer____________

[Signature Page to Pledge and Security Agreement]

CONSENT OF PLEDGED ENTITIES
(Pledge and Security Agreement)

Pledged Entities hereby (a) acknowledge receipt of a copy of the executed Pledge Agreement to which this Consent of Pledged Entities is attached, (b) consents to the Pledge Agreement, (c) agrees to comply with the terms and provisions thereof, (d) agrees not to do anything or cause, permit or suffer anything to be done which is prohibited by, or contrary to, the terms of the Pledge Agreement, and (e) agrees to register on its books and records Lender’s security interest in the Pledged Interests as provided in the Pledge Agreement.

Without limiting the foregoing (and notwithstanding anything to the contrary in any charter document of Pledged Entities), from and after the date hereof, Borrower agrees:

(a) to deliver directly to Lender any and all instruments and/or certificates evidencing any right, option or warrant, and all new, additional or substituted securities issued to, or to be received by, Pledgor by virtue of its ownership of the Pledged Interests issued by Pledged Entities or upon exercise by Pledgor of any option, warrant or right attached to such Pledged Interests;

(b) to recognize Lender’s or any other successful bidder’s automatic right to become a member or stockholder of Pledged Entities following a sale of the Pledged Interests in accordance with Section 7(d) of the Pledge Agreement, which admission shall be automatic upon the conclusion of a disposition pursuant to the Uniform Commercial Code and shall not require any further action on the part of Pledged Entities or any other person; and

(c) in the event of a sale of the Pledged Interests in accordance with Section 7(d) of the Pledge Agreement, Pledged Entities will, upon Lender’s request and at Pledgor’s expense: (i) provide Lender with such other information in Borrower’s possession and financial projections as may be necessary or, in Lender’s reasonable opinion, advisable to enable Lender to effect the sale of the Pledged Interests; and (ii) do or cause to be done all such other acts and things as may be reasonably necessary to make the sale of the Pledged Interests or any part thereof valid and binding and in compliance with applicable law.

Pledged Entities further acknowledges and agrees that it shall do all of the foregoing without any further notice from or consent or agreement of Pledgor.

[SIGNATURE PAGES FOLLOW]

IN WITNESS WHEREOF, Pledged Entities have executed this Consent as of the date first set forth above.

PLEDGED ENTITIES:

HERITAGE GLOBAL PARTNERS, INC.

a California corporation

By: _/s/ James Sklar_______________

Name: James Sklar
Title: Executive Vice President, General

Counsel and Secretary

HERITAGE GLOBAL, LLC

a Delaware limited liability company

By: _/s/ James Sklar_______________

Name: James Sklar
Title: Executive Vice President, General

Counsel and Secretary

HERITAGE ALT LLC

a Delaware limited liability company

By: _/s/ James Sklar_______________

Name: James Sklar
Title: Executive Vice President, General

Counsel and Secretary

HERITAGE GLOBAL CAPITAL, LLC,

a Delaware limited liability company

By: _/s/ James Sklar_______________

Name: James Sklar
Title: Executive Vice President, General

Counsel and Secretary

NATIONAL LOAN EXCHANGE, INC.,

an Illinois limited liability company

By: /s/ David Ludwig_________________

[Signature Page to Consent of Borrower to Pledge and Security Agreement]

Name: David Ludwig
Title: President

Signature Page to Pledge Agreement (Everglades on the Bay)

Error! No property name supplied.Error! No property name supplied.

101581111.3

102261249.4

DOCPROPERTY "CUS_DocIDChunk0" DMSLIBRARY01\33769679.v2

EXHIBIT A
CHARTER DOCUMENTS

Heritage Global Partners, Inc.

Articles of Incorporation (as amended)

Amended and Restated Bylaws

Omnibus Unanimous Written Consent Action of the Board of Directors

Heritage Global, LLC

Certificate of Formation

Certificate of Amendment to Certificate of Formation

Omnibus Unanimous Written Consent Action of the Board of Directors

Amended and Restated Limited Liability Company Agreement

Heritage ALT LLC

Certificate of Formation

Certificate of Amendment to Certificate of Formation

Certificate of Amendment to the Certificate of Formation dated May 27, 2011

Certificate of Amendment to the Certificate of Formation dated August 21, 2013

Certificate of Amendment to the Certificate of Formation dated August 6, 2021

Omnibus Unanimous Written Consent Action of the Sole Member

Limited Liability Company Agreement

Heritage Global Capital, LLC

Certificate of Formation

Limited Liability Company Agreement

Omnibus Unanimous Written Consent Action of the Sole Member

National Loan Exchange, Inc.

Articles of Incorporation (as amended)

Bylaws

Omnibus Unanimous Written Consent Action of the Board of Directors

[Exhibit A]

EXHIBIT B1

(Heritage Global, LLC)

FORM OF ASSIGNMENT OF MEMBERSHIP INTEREST

This ASSIGNMENT OF MEMBERSHIP INTEREST (this “Assignment of Membership Interest”), dated as of May 26, 2023 (the “Effective Date”), is made by HERITAGE GLOBAL INC., a Florida corporation (together with its successors and assigns, the “Assignor”) to C3BANK, a national banking association (together with its successors and assigns, the “Lender” or “Assignee”).

RECITALS

The undersigned has entered into a certain Pledge and Security Agreement dated as of May 26, 2023 (such Agreement, as it may be amended or otherwise modified from time to time, the “Pledge Agreement”), with Lender. Unless otherwise noted, terms defined in the Pledge Agreement are used herein as defined therein.

The Assignor is the sole member of HERITAGE GLOBAL, LLC, a Delaware limited liability company (the “Pledged Entity”), existing under and evidenced by the Amended and Restated Limited Liability Company Agreement of the Pledged Entity dated November 30, 2010 (such agreement, as it may be amended, supplemented or otherwise modified from time to time, the “Operating Agreement”). Under the Operating Agreement, the Assignor has certain rights, title and interest in and to Pledged Entity and its assets and distributions (collectively, the “Interest”).

Lender has required that the Assignor shall have executed and delivered this Assignment of Membership Interest.

NOW THEREFORE, in consideration of the premises and of the mutual covenants and agreements contained herein, the parties hereto agree as follows:

Section 1 Assignment and Acceptance of Assigned Interest. As of the Effective Date, the Assignor hereby sells, transfers, conveys and assigns (without recourse and, except as set forth herein, representation or warranty) to the Assignee all of the Assignor’s right, title and interest in and to the Interest and of its rights under the Operating Agreement, including, without limitation, all its (a) rights to receive moneys due and to become due under or pursuant to the Operating Agreement, (b) rights to receive proceeds of any insurance, indemnity, warranty or guaranty with respect to the Operating Agreement, (c) claims for damages arising out of or for breach of or default under the Operating Agreement, and (d) rights to perform thereunder and to compel performance, and otherwise exercise all rights and remedies thereunder. The Assignor’s right, title and interest in the Interest and of the Assignor’s rights under the Operating Agreement that are being assigned to the Assignee pursuant to this Pledge Agreement are hereinafter referred to as the “Assigned Interest”. The Assignee, upon the execution of this Assignment of Membership Interest, hereby accepts from the Assignor the Assigned Interest and agrees to become a successor

[Exhibit B1]

member of Pledged Entity in the place and stead of the Assignor to the extent of the Assigned Interest and to be bound by the terms and provisions of the Operating Agreement.

Section 2 Capital Account. On or prior to the Effective Date, the Assignee shall notify each of the other members of Pledged Entity required to be so notified under the terms of the Operating Agreement and thereafter, the portion of all profits and losses, and all other items of income, gain, loss, deduction or credit, allocable to the Assigned Interest shall be credited or charged, as the case may be, to the Assignee and the Assignee shall be entitled to the portion of all distributions, payments or other allocations payable in respect of the Assigned Interest, regardless of the source of such distributions, payments or other allocations or the date on which they were earned.

Section 3 Representations and Warranties of the Assignor. The Assignor represents to Assignee, as of the Effective Date of this Assignment of Membership Interest, that:

(a) This Assignment of Membership Interest has been duly executed and delivered by the Assignor and is a valid and binding obligation of the Assignor, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency and similar laws affecting rights of creditors generally, and general principles of equity; and

(b) The Assignor is the sole owner of the Assigned Interest free and clear of any liens, except for the liens created by the Pledge Agreement.

Section 4 Filings. On or as soon as practicable after the Effective Date, the Assignee shall file and record or cause to be filed and recorded with all proper offices or agencies all documents and instruments required to effect the terms herein, if any, including, without limitation, (a) this Assignment of Membership Interest and (b) any membership and assumed or fictitious name certificate or certificates and any amendments thereto.

Section 5 Future Assurances. Each of the Assignor and the Assignee mutually agrees to cooperate at all times from and after the date hereof with respect to any of the matters described herein, and to execute such further deeds, bills of sale, assignments, releases, assumptions, notifications or other documents as may be reasonably requested for the purpose of giving effect to, evidencing or giving notice of the assignment evidenced hereby.

Section 6 Successors and Assigns. This Assignment of Membership Interest shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective successors and assigns.

Section 7 Modification and Waiver. No supplement, modification, waiver or termination of this Assignment of Membership Interest or any provisions hereof shall be binding unless executed in writing by all parties hereto and the original or a copy of such writing has been delivered to Assignee.

Section 8 Counterparts. Any number of counterparts of this Assignment of Membership Interest may be executed. Each counterpart will be deemed to be an original instrument and all counterparts taken together will constitute one agreement. Delivery of an executed counterpart of a signature page to this Assignment of Membership Interest by facsimile, telecopier or other

[Exhibit B1]

electronic means shall be as effective as delivery of a manually executed counterpart of this Assignment of Membership Interest.

Section 9. Execution; Effective Date. This Assignment of Membership Interest will be binding and effective and will result in the assignment of the Assigned Interest on the Effective Date.

Section 10. Governing Law. This Assignment of Membership Interest will be governed by the laws of the State of California.

[SIGNATURE PAGE FOLLOWS]

[Exhibit B1]

IN WITNESS WHEREOF, the parties hereto have caused this Assignment of Membership Interest to be executed and delivered.

ASSIGNOR:

Heritage Global Inc., 
a Florida corporation
 
 
By: _/s/ James Sklar_______________
Name:  James Sklar
Title:  Executive Vice President, General      
           Counsel and Secretary
 

ASSIGNEE:

C3BANK,

a National Association

By: /s/_Andrew Meitzen _______________

Name: Andrew Meitzen________________

Title: Chief Credit and Risk Officer_______

[Signature Page to Assignment of Membership Interest]

EXHIBIT B2

(Heritage ALT LLC)

FORM OF ASSIGNMENT OF MEMBERSHIP INTEREST

RECITALS

The Assignor is the sole member of HERITAGE ALT LLC, a Delaware limited liability company (the “Pledged Entity”), existing under and evidenced by the Amended and Restated Limited Liability Company Agreement of the Pledged Entity dated June 21, 2011 (such agreement, as it may be amended, supplemented or otherwise modified from time to time, the “Operating Agreement”). Under the Operating Agreement, the Assignor has certain rights, title and interest in and to Pledged Entity and its assets and distributions (collectively, the “Interest”).

Lender has required that the Assignor shall have executed and delivered this Assignment of Membership Interest.

NOW THEREFORE, in consideration of the premises and of the mutual covenants and agreements contained herein, the parties hereto agree as follows:

[Exhibit B2]

Section 3 Representations and Warranties of the Assignor. The Assignor represents to Assignee, as of the Effective Date of this Assignment of Membership Interest, that:

(b) The Assignor is the sole owner of the Assigned Interest free and clear of any liens, except for the liens created by the Pledge Agreement.

Section 6 Successors and Assigns. This Assignment of Membership Interest shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective successors and assigns.

[Exhibit B2]

Section 9. Execution; Effective Date. This Assignment of Membership Interest will be binding and effective and will result in the assignment of the Assigned Interest on the Effective Date.

Section 10. Governing Law. This Assignment of Membership Interest will be governed by the laws of the State of California.

[SIGNATURE PAGE FOLLOWS]

[Exhibit B2]

IN WITNESS WHEREOF, the parties hereto have caused this Assignment of Membership Interest to be executed and delivered.

ASSIGNOR:

Heritage Global Inc., 
a Florida corporation
 
 
By: _/s/ James Sklar_______________
Name:  James Sklar
Title:  Executive Vice President, General      
           Counsel and Secretary
 

ASSIGNEE:

C3BANK,

a National Association

By: /s/_Andrew Meitzen _______________

Name: Andrew Meitzen________________

Title: Chief Credit and Risk Officer_______

[Exhibit B2]

EXHIBIT B3

(Heritage Global Capital LLC)

FORM OF ASSIGNMENT OF MEMBERSHIP INTEREST

RECITALS

The Assignor is the sole member of HERITAGE GLOBAL CAPITAL LLC, a Delaware limited liability company (the “Pledged Entity”), existing under and evidenced by the Amended and Restated Limited Liability Company Agreement of the Pledged Entity dated September 3, 2019 (such agreement, as it may be amended, supplemented or otherwise modified from time to time, the “Operating Agreement”). Under the Operating Agreement, the Assignor has certain rights, title and interest in and to Pledged Entity and its assets and distributions (collectively, the “Interest”).

Lender has required that the Assignor shall have executed and delivered this Assignment of Membership Interest.

NOW THEREFORE, in consideration of the premises and of the mutual covenants and agreements contained herein, the parties hereto agree as follows:

[Exhibit B3]

member of Pledged Entity in the place and stead of the Assignor to the extent of the Assigned Interest and to be bound by the terms and provisions of the Operating Agreement.

Section 3 Representations and Warranties of the Assignor. The Assignor represents to Assignee, as of the Effective Date of this Assignment of Membership Interest, that:

(b) The Assignor is the sole owner of the Assigned Interest free and clear of any liens, except for the liens created by the Pledge Agreement.

Section 6 Successors and Assigns. This Assignment of Membership Interest shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective successors and assigns.

[Exhibit B3]

electronic means shall be as effective as delivery of a manually executed counterpart of this Assignment of Membership Interest.

Section 9. Execution; Effective Date. This Assignment of Membership Interest will be binding and effective and will result in the assignment of the Assigned Interest on the Effective Date.

Section 10. Governing Law. This Assignment of Membership Interest will be governed by the laws of the State of California.

[SIGNATURE PAGE FOLLOWS]

[Exhibit B3]

IN WITNESS WHEREOF, the parties hereto have caused this Assignment of Membership Interest to be executed and delivered.

ASSIGNOR:

Heritage Global Inc., 
a Florida corporation
 
 
By: _/s/ James Sklar_______________
Name:  James Sklar
Title:  Executive Vice President, General      
           Counsel and Secretary
 
 

ASSIGNEE:

C3BANK,

a National Association

By: /s/_Andrew Meitzen _______________

Name: Andrew Meitzen________________

Title: Chief Credit and Risk Officer_______

[Exhibit B3]

IRREVOCABLE STOCK POWER

For value received, the undersigned hereby sell, assign and transfer unto:

C3bank, national association

Two Thousand shares (2,000) of the Common Capital stock of

HERITAGE GLOBAL PARTNERS, INC., a California corporation

standing in the undersigned’s name on the books of said corporation

represented by Certificate No. ___

herewith and do hereby irrevocably constitute and appoint C3bank, national association, attorney to transfer the said stock on the books of the within

named Company with full power of substitution in the premises.

Heritage Global Inc., a Florida corporation

Dated May 26, 2023_____ Signed by: _/s/ James Sklar_______________

Name: James Sklar

Title: Executive Vice President, General

Counsel and Secretary

Please note:

1) Keep the stock power blank, except for date and signature(s).

2) Sign name(s) exactly as it (they) appear(s) on the stock certificate.

3) Send separate stock power for each security donated.

[Form – Stock Power1]

IRREVOCABLE STOCK POWER

For value received, the undersigned hereby sell, assign and transfer unto:

C3bank, national association

One Hundred shares (100) of the Common Capital stock of

NATIONAL LOAN EXCHANGE, INC., an Illinois corporation

standing in the undersigned’s name on the books of said corporation

represented by Certificate No. ___

herewith and do hereby irrevocably constitute and appoint C3bank, national association, attorney to transfer the said stock on the books of the within

named Company with full power of substitution in the premises.

Heritage Global Inc., a Florida corporation

Dated May 26, 2023______ Signed by: _/s/ James Sklar_______________

Name: James Sklar

Title: Executive Vice President, General

Counsel and Secretary

Please note:

1) Keep the stock power blank, except for date and signature(s).

2) Sign name(s) exactly as it (they) appear(s) on the stock certificate.

3) Send separate stock power for each security donated.

[Form – Stock Power2]

EXHIBIT C
FORM OF INSTRUCTION TO REGISTER PLEDGE

May 26, 2023

To: HERITAGE GLOBAL PARTNERS, INC.

HERITAGE GLOBAL, LLC

HERITAGE ALT LLC

HERITAGE GLOBAL CAPITAL, LLC

NATIONAL LOAN EXCHANGE, INC.

12625High Bluff Drive, Suite 305

San Diego, CA 92130

In accordance with the requirements of that certain Pledge and Security Agreement, dated of even date herewith (as amended, supplemented or otherwise modified from time to time, the “Pledge Agreement”), between C3BANK, a national association (“Pledgee”), and HERITAGE GLOBAL INC.,a Florida corporation (“Pledgor”), you are hereby instructed, to assure the perfection of the security interest of Pledgee in the membership and other equity interests described below, to register the pledge of the following interests in the name of Pledgee as follows:

All of the membership and other equity interests of Pledgor in HERITAGE GLOBAL PARTNERS, INC., a California corporation; HERITAGE GLOBAL, LLC, a Delaware limited liability company; HERITAGE ALT LLC, a Delaware limited liability company; HERITAGE GLOBAL CAPITAL, LLC, a Delaware limited liability company; and NATIONAL LOAN EXCHANGE, INC., an Illinois corporation (collectively, the “Pledged Entities”), including without limitation, all of the following property now owned or at any time hereafter acquired by Pledgor or in which Pledgor now has or at any time in the future may acquire any right, title or interest:

(a) all membership interests of, or other equity interests in, the Pledged Entities and options, warrants, and other rights hereafter acquired by Pledgor in respect of such membership interests or other equity interests (whether in connection with any capital increase, recapitalization, reclassification, or reorganization of the Pledged Entities or otherwise) (all such membership interests and other equity interests, and all such options, warrants and other rights being hereinafter collectively referred to as the “Pledged Interests”);

(b) all certificates, instruments, or other writings representing or evidencing the Pledged Interests, and all accounts and general intangibles arising out of, or in connection with, the Pledged Interests;

(c) any and all moneys or property due and to become due to Pledgor now or in the future in respect of the Pledged Interests, or to which Pledgor may now or in the future be entitled to in its capacity as a member or stockholder of the Pledged Entities, whether by way of a dividend, distribution, return of capital, or otherwise; (d) all other claims which Pledgor now has or may in the future acquire in its capacity as a member or stockholder of the Pledged Entities against the Pledged Entities and its property;

[Exhibit C]

(e) all rights of Pledgor under the Charter Documents, including, without limitation, all voting and consent rights of Pledgor arising thereunder or otherwise in connection with Pledgor’s ownership of the Pledged Interests; and

(f) to the extent not otherwise included in clauses (a) through (e), all proceeds of and to any of the property of Pledgor described in clauses (a) through (e) above and, to the extent related to any property described in said clauses or such proceeds, all books, correspondence, credit files, records, invoices and other papers.

You are hereby further authorized and instructed to execute and deliver to Pledgee a Confirmation Statement and Control Agreement, substantially in the form of Exhibit D to the Pledge Agreement and, to the extent provided more fully therein, to comply with the instructions of Pledgee in respect of the Collateral without further consent of, or notice to, the undersigned. Notwithstanding anything in this paragraph, this instruction shall not be construed as expanding the rights of Pledgee to give instructions with respect to the Collateral beyond such rights set forth in the Pledge Agreement. Initially capitalized terms used herein and not otherwise defined shall have the meanings given to such words in the Pledge Agreement.

[SIGNATURE PAGE FOLLOWS]

[Exhibit C]

Very truly yours,

PLEDGOR:

HERITAGE GLOBAL INC.
a Florida corporation
 
By: _/s/ James Sklar_______________
Name:  James Sklar
Title:  Executive Vice President, General      
           Counsel and Secretary

[Signature Page to Instruction to Register Pledge]

PLEDGEE:

C3BANK,

a National Association

By: /s/_Andrew Meitzen _______________

Name: Andrew Meitzen________________

Title: Chief Credit and Risk Officer_______

[Signature Page to Instruction to Register Pledge]

EXHIBIT D

FORM OF CONFIRMATION STATEMENT AND CONTROL AGREEMENT

Date: May 26, 2023

To: C3BANK

850 S. Coast Highway 1010

Encinitas, California 92024

Attention:

Fax No.:

Pursuant to the requirements of that certain Pledge and Security Agreement dated of even date herewith (as amended, supplemented or otherwise modified from time to time, the “Pledge Agreement”), between C3BANK,a national association, (“Lender”) and HERITAGE GLOBAL INC.,a Florida corporation (“Pledgor”), this Confirmation Statement and Control Agreement relates to those membership and other equity interests described in the Pledge Agreement (the “Pledged Interests”), and the issuers thereof (collectively, the “Pledged Entities”).

For purposes of perfecting the security interest of Lender in the Pledged Interests, Pledged Entities agree that the organizational chart attached as Exhibit A hereto is true, correct and complete, and accurately reflects the ownership of the Pledged Entities, as of the date of this Confirmation Statement and Control Agreement.

The registered pledgee of the Pledged Interests is C3BANK, NA.

Pledged Entities have registered the Pledged Interests in the name of the registered pledgee on the date hereof. No other pledge or other interest adverse to that of the registered pledgee is currently registered on the books and records of the Pledged Entities with respect to the Pledged Interests.

Until the secured obligations are indefeasibly paid in full, Pledged Entities agree: (i) upon the occurrence and during the continuation of an Event of Default, to comply with the instructions of Lender, without any further consent from Pledgor or any other Person, in respect of the Lender; and (ii) upon the occurrence and during the continuation of an Event of Default, to disregard any request made by Pledgor or any other person which contravenes the instructions of Lender with respect to the Pledged Interests; and (iii) to recognize Lender’s or any other successful bidder’s right to become a member or stockholder of the Pledged Entities following a sale of the Pledged Interests in accordance with Section 7(d) of the Pledge Agreement. Notwithstanding anything in this paragraph, this Confirmation Statement and Control Agreement shall not be construed as expanding the rights of Lender to give instructions with respect to the Pledged Interests beyond such rights as are set forth in the Pledge Agreement. Initially capitalized terms used herein and not otherwise defined shall have the meanings given to such terms in the Pledge Agreement.

[SIGNATURE PAGES FOLLOW]

[Exhibit D]

Very truly yours,

PLEDGED ENTITIES:

HERITAGE GLOBAL PARTNERS, INC.

a California corporation

By_/s/ James Sklar_______________

Name: James Sklar

Title: Executive Vice President, General

Counsel and Secretary

HERITAGE GLOBAL, LLC

a Delaware limited liability company

By: _/s/ James Sklar_______________

Name: James Sklar

Title: Executive Vice President, General

Counsel and Secretary

HERITAGE ALT LLC

a Delaware limited liability company

By: _/s/ James Sklar_______________

Name: James Sklar

Title: Executive Vice President, General

Counsel and Secretary

HERITAGE GLOBAL CAPITAL, LLC,

a Delaware limited liability company

By: _/s/ James Sklar_______________

Name: James Sklar

Title: Executive Vice President, General

Counsel and Secretary

NATIONAL LOAN EXCHANGE, INC.,

an Illinois limited liability company

By: /s/ David Ludwig_________________

Name: David Ludwig

[Signature Page to Confirmation Statement and Control Agreement]

Title: President

Exhibit D

Error! No property name supplied.Error! No property name supplied.

101581111.3

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DOCPROPERTY "CUS_DocIDChunk0" DMSLIBRARY01\33769679.v2

ACKNOWLEDGED AND AGREED:

C3BANK,

a National Association

By: /s/_Andrew Meitzen _______________

Name: Andrew Meitzen________________

Title: Chief Credit and Risk Officer_______

[Signature Page to Confirmation Statement and Control Agreement]

EXHIBIT A

TO EXHIBIT D FORM OF CONFIRMATION STATEMENT AND CONTROL AGREEMENT

EXHIBIT A

ORGANIZATIONAL CHART

(See attached)

Heritage ALT LLC

(Delaware)

[Exhibit D]

EX-10.6 7 hgbl-ex10_6.htm EX-10.6 EX-10.6

Exhibit 10.6

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this “Agreement”) is made effective as of January 1, 2023 (the “Effective Date”) by and between Heritage Global Inc., a Florida corporation (“Company”), and Nick Dove (“Executive”).

Executive is skilled in business and financial matters as they relate to the business of purchasing and selling surplus or distressed industrial assets and facilitating such purchases and sales. The parties hereto believe that it is in their respective interests to enter into an employment agreement whereby, for the consideration specified herein, Executive shall provide the services specified herein. Certain definitions are set forth in Section 7.

The parties hereto agree as follows:

Section 1.

Employment.

(a)

Employment Period. Company agrees to employ Executive, and Executive accepts such employment for the period beginning on the Effective Date and ending December 31, 2026 (the “Initial Term”). Upon completion of the Initial Term, this Agreement shall be automatically renewed for additional one-year terms (each a “Renewal Term”) unless either party to this Agreement gives notice of non-renewal (pursuant to Section 8 hereof) not less than one hundred eighty (180) days prior to the end of such Initial or Renewal Term. Notwithstanding the foregoing, Executive’s employment hereunder may be earlier terminated in accordance with Section 2 hereof. The period of time between the Effective Date and the termination or expiration of Executive’s employment hereunder for any reason shall be referred to herein as the “Employment Period.” The date on which Executive’s employment hereunder shall be terminated for whatever reason, whether with or without Cause or Good Reason or due to a nonrenewal of this Agreement by either party, shall be referred to herein as the “Termination Date.”

(b)

Position and Duties.

(i)

During the Employment Period, Executive shall serve as President of the Industrial Assets Division (defined below) and as President of Company’s Affiliate Heritage Global Partners, Inc. Executive shall report to the Chief Executive Officer of Company. Executive shall have the normal duties, responsibilities, and authority implied by such position and shall perform such other activities as are directed by Company’s Board of Directors (the “Board”), subject in each case to the power of the Board to expand, limit, or otherwise alter such duties, responsibilities, positions, and authority and to otherwise override actions of officers. In addition, within fourteen (14) days following the end of each quarter during the Employment Period (commencing with the quarter ending September 30, 2023), Executive shall provide leadership updates regarding the enterprise risk management (“ERM”) programs pertaining to the Industrial Assets Division as well as develop an improving succession plan each year of Executive’s term and then prepare and provide to the Chief Executive Officer of Company a Transition and ERM Report (defined herein).

(ii)

Executive shall devote his reasonable best efforts and substantially all of Executive’s full business time and attention to the business and affairs of Company given Executive’s title as stated herein, except for permitted vacation periods in accordance with

Company’s policy, periods of illness or other incapacity, and reasonable time spent with respect to civic and charitable activities, provided that none of such activities materially interfere with Executive’s duties to Company or its Affiliates or otherwise violate Executive’s duty of loyalty to Company. Executive shall comply will all policies and procedures of Company and its Affiliates, as applicable and as may be amended by Company or Affiliates from time to time in Company or Affiliates’ sole discretion, including the written code of ethics of Company, as will be delivered to Executive prior to the Effective Date and made available to Executive upon request.

(c)

Salary and Benefits and Bonus.

(i)

During the Employment Period, Company shall pay Executive a base salary at the rate of no less than $250,000 per year (the “Base Salary”). The Base Salary shall be paid in accordance with the regular payroll practices of Company with respect to executive officers of Company, subject to applicable withholdings and deductions.

(ii)

During the Employment Period, Executive will be entitled to participate in all health and welfare benefit plans and practices maintained by Company, if any, for its executive employees generally in accordance with the terms of such plans and practices as in effect from time to time, and in any other insurance, health, retirement or welfare benefit plans, programs and practices which Company generally provides to its executives from time to time, in its sole discretion.

(iii)

During the Employment Period, Executive will be entitled to an annual bonus (in arrears) in an amount equal to ten percent (10%) of NOI during the applicable calendar year (the “Annual Bonus”). Any Annual Bonus shall be paid no later than March 15th of the year following the year to which the Annual Bonus corresponds (the “Bonus Year”), and Executive must be employed on the last day of the Bonus Year in order to be entitled to receive the Annual Bonus, provided that if Executive’s employment is terminated due to death or by Company due to Executive’s Disability, Executive will be entitled to receive a prorated Annual Bonus for the Bonus Year that includes Executive’s death or termination by Company due to Executive’s Disability (a “Prorated Bonus”) Any Prorated Bonus will be determined by Company in its reasonable discretion consistent with past practice and calculated based on the number of days in the Bonus Year during which Executive’s employment under the terms of this Agreement was in effect (a “Short Year”), and provided that Company determines a positive NOI for the Short Year. Any payment of a Prorated Bonus in the event of Executive’s death or termination by Company due to Executive’s Disability will be made at the same time as such Annual Bonus would have otherwise been paid absent Executive’s death or Disability. The Annual Bonus shall replace any and all bonus opportunities available to Executive under any other agreement or plan between Executive and Company, and Executive hereby forever waives and releases the right to any bonus proceeds under any such other agreement or plan (excluding any bonus proceeds earned and payable to Executive as of the Effective Date).

For purposes of this Agreement, “NOI” means the net operating income of Company’s Industrial Assets Division for the calendar year in question, determined by Company in its reasonable discretion consistent with past practice, minus the Expense Allocation for the calendar year in question. For purposes of this Agreement, “Industrial Assets Division” means the business currently conducted by Heritage Global Partners, Inc.

(including its Heritage Global Valuations division) and American Laboratory Trading, Inc., as well as any other future business units or subsidiaries that Company may designate as part of the Industrial Assets Division during the Initial or Renewal Terms of this Agreement (an “Expansion”). For purposes of this Agreement, “Expense Allocation” means an amount equal to $1,600,000.00. For each calendar year beginning after 2023, the Expense Allocation will increase by an amount equal to the product of: (i) any increase in the aggregate corporate overhead expense of Company’s enterprise during the immediately preceding calendar year, as determined by Company in its reasonable discretion, multiplied by (ii) 0.5; provided that the Expense Allocation for any calendar year shall not be increased by more than $100,000, applied cumulatively during this Agreement. Company may, in its good faith and reasonable discretion, increase the Expense Allocation to take into account any increase in expense resulting from an Expansion. Notwithstanding the foregoing, if, during the Term, Company raises capital, Executive and Company shall discuss whether and to what extent equity, finance or corporate costs directly attributable to such capital raise shall be included in and added to the Expense Allocation for the purposes of determining NOI and Executive’s bonus hereunder. Executive is under no obligation to agree to any increase to the Expense Allocation due to such capital raise, and any increase to the Expense Allocation must be expressly agreed to in writing by Company and Executive.

(d)

Business Expenses. Subject to Company’s established policies and procedures for business expense reimbursement, which may be amended from time to time in the Board’s sole discretion, Company shall pay or reimburse Executive (at Company’s option) for all reasonable business expenses incurred by Executive in the course of performing Executive’s duties and responsibilities under this Agreement, including, but not limited to, for food and lodging accommodations that would reasonably be expected to be incurred for a similarly situated executive traveling on behalf of Company.

(e)

Workplace and Work Schedule. Executive shall primarily work at the Company’s office in San Diego, California, and will be expected to travel regularly in the course and scope of his employment. Executive is entitled to such holidays as are established by Company’s policies.

(f)

Vacation. Executive is entitled to four (4) weeks of paid vacation each year during the Employment Period at a rate of Executive’s then applicable Base Salary (prorated for the period of vacation). Scheduling of Executive’s vacation is subject to Company’s reasonable needs. Accrued and unused paid time off will be paid out to Executive upon separation of employment.

Section 2.

Termination of Employment.

(a)

Termination Due to Death or Disability of Executive. Executive’s employment shall automatically terminate upon the death of Executive. Company may also terminate Executive’s employment during the Employment Period due to his Disability.

(b)

Termination by Company for Cause. Company may terminate the employment of Executive immediately at any time during the Employment Period for Cause by giving him a Notice of Termination.

(c)

Termination without Cause or Good Reason. Company may terminate Executive’s employment at any time during the Employment Period without Cause by giving Executive a Notice of Termination at least thirty (30) days prior to the Termination Date.

Executive may terminate Executive’s employment at any time during the Employment Period without Good Reason by giving Company a Notice of termination at least thirty (30) days prior to the Termination Date.

(d)

Termination by Executive for Good Reason. Executive may terminate his employment during the Employment Period for Good Reason by providing Company a Notice of Termination. For the purposes of this Agreement, a Notice of Termination for Good Reason shall mean a notice by Executive specifying the existence of one or more of the conditions described in Section 7(e)(ii), (iii) or (iv) within ninety (90) days after the initial existence of the condition and within one hundred eighty (180) days for the condition described in Section 7(e)(i) ("Good Reason Notice"). Executive agrees that, for a period of 90 days following the date of the Good Reason Notice (the “Transition Period”), Executive shall continue to be employed by the Company and provide such assistance as Company may request to transition his roles, responsibilities, and knowledge regarding the business of Company and its Affiliates to such personnel as Company may specify. Company may end the Transition Period early by written notice to Executive.

(i)

In the event of Executive’s Good Reason Notice for termination under items (ii), (iii), or (iv) of Section 7(e) herein, Company shall have 30 days from the date on which such notice is provided to cure such Good Reason event (the “Cure Period”). If the Company rectifies the Good Reason event prior to the expiration of the Cure Period, then Executive shall not be entitled to receive the payments under Section 3(c) herein if he terminates his employment for the Good Reason event that was cured. If Company does not cure the Good Reason event prior to the expiration of the Cure Period, then Executive will be entitled to receive payments under Section 3(c) regarding such Good Reason event.

(ii)

In the event of Executive’s Notice of a Good Reason for termination under item (i) of Section 7(e) herein, Company shall have no right to cure and Executive shall be entitled to receive payments under Section 3(c) regarding such Good Reason Event.

(e)

Termination Due to Nonrenewal of this Agreement. Executive’s employment hereunder shall automatically terminate following a nonrenewal of this Agreement pursuant to Section 1 hereof.

Section 3.

Effect of Termination of Employment.

(a)

Death or Disability; Termination by Company for Cause; Termination by Executive without Good Reason; Termination Due to Nonrenewal. If Executive’s employment is terminated due to death or Disability pursuant to Section 2(a), or for Cause pursuant to Section 2(b), or by Executive without Good Reason pursuant to Section 2(c), or due to nonrenewal of this Agreement by either Company or Executive, then neither Executive nor his beneficiary or estate will have any further rights or claims against Company or its Affiliates under this Agreement, except the right to receive:

(i)

the earned but unpaid portion, if any, of the Base Salary and vacation, through the Termination Date;

(ii)

any outstanding amounts owed to Executive, if any, pursuant to Section 1(d), which amount shall be paid within ninety (90) after Executive incurred such expense (collectively, the amounts payable under Sections 3(a)(i) and 3(a)(ii) are referred to herein as the “Accrued Compensation”); and

(iii)

only if Executive’s employment is terminated due to the death of Executive or by Company due to Executive’s Disability, any Prorated Bonus in accordance with Section 1(c)(iii).

(b)

Without Cause. If Executive’s employment is terminated by Company without Cause pursuant to Section 2(c), then neither Executive nor his beneficiary or estate shall have any further rights or claims against Company under this Agreement, except the right to receive:

(i)

the Accrued Compensation; and

(ii)

subject to Section 9(b), payment of the greater of: (1) an amount equal to Executive’s then current annual Base Salary; or (2) any Prorated Bonus that Executive would otherwise be entitled to receive for the Bonus Year that includes Executive’s termination of employment, determined by Company in its reasonable discretion consistent with past practice and calculated based on the number of days in the applicable Bonus Year from January 1 to the date of Executive’s termination of employment (the amount payable under this Clause (ii), the “Without Cause Severance”). Company shall pay any Without Cause Severance to Executive within five (5) business days following the filing of the Form 10-Q or 10-K covering the period during which the Executive was terminated and subject to applicable withholdings and deductions.

(c)

Good Reason. If Executive’s employment is terminated by Executive for Good Reason pursuant to Section 2(d), then neither Executive nor his beneficiary or estate shall have any further rights or claims against Company or its Affiliates, except the right to receive: (i) the Accrued Compensation, plus (ii) subject to the terms of this Section 3(c) and Section 9(b), payment of an amount equal to Executive’s then current annual Base Salary (the amount payable under this clause (ii), the “Good Reason Severance”). In addition, to the extent permitted by Company’s benefit plans and applicable law, during the Transition Period Executive shall be entitled to participate in Company’s health benefit plans in accordance with Section 1(c)(ii); provided that if such participation is not permitted under Company’s benefit plans or applicable law, then Company shall use good faith efforts to enable Executive to continue participation in such health benefit plans under COBRA by continuing to pay premiums at the contribution level in effect for Executive until the end of the Transition Period. Any Good Reason Severance shall be paid by Company to Executive within ten (10) business days following the end of the Transition Period and shall be subject to applicable withholdings and deductions.

(d)

Executive will not be entitled to any of the payments contemplated under Section 3(b)(ii) or Section 3(c)(ii), as the case may be, if Executive fails to execute such Release or seeks to revoke such Release before it becomes effective. In addition, if Executive violates the terms of Section 4, the continuing obligations of Company to make the payments contemplated under Section 3(b)(ii) or Section 3(c)(ii), as the case may be, shall immediately terminate.

Section 4.

Restrictions.

(a)

Executive shall at all times, both during the Employment Period and for a period of twelve (12) months following the Termination Date (or, with respect to any trade secret, for so long as such trade secret retains its status as such under applicable law), keep strictly confidential and not use or disclose to any third party any trade secret, information, knowledge or data not generally known to the public which Executive may have learned, discovered, developed, conceived, originated, prepared or received prior to, during or as a result of Executive’s employment by Company or any Affiliate with respect to the operations, businesses, affairs, products, services, technology, intellectual properties, Agents, customers, clients, pricing of products or services, policies, procedures, accounts, personnel, concepts, format, style, techniques or software of Company or any Affiliate, including the Intellectual Property Rights (defined below) of Company or its Affiliates (“Proprietary Information”). Executive acknowledges that Proprietary Information includes, without limitation, the business or other needs, requirements, preferences or other information relating to Agents and customers of Company or any Affiliate, acquisition targets of Company or any Affiliate and all information or data collected by Company with reference thereto. Proprietary Information shall not include any information that is or becomes generally available to the public other than as a result of a wrongful or unauthorized disclosure by Executive. Executive shall comply with any and all procedures which Company may adopt from time to time during his employment to preserve the confidentiality of any trade secret or other confidential and proprietary information. Immediately upon the Termination Date, Executive shall, at the option of Company (i) return to Company all Proprietary Information he has received or obtained, regardless of how recorded, including all copies thereof made by him or any employee, agent or advisor of or to him or (ii) destroy (or cause to be destroyed) all materials incorporating or based on such Proprietary Information. In each case, Executive shall certify in writing that the foregoing has been completed. Company may, in its sole discretion, upon or after the Termination Date, notify Executive’s new employer, clients or other parties that Executive has had access to certain trade secrets or other confidential and proprietary information which Executive is under a continuing obligation not to use or disclose. In the event that Executive is requested or required (by deposition, interrogatories, requests for information or documents in legal proceedings, subpoenas, civil investigative demand or similar process) to disclose any Proprietary Information, Executive will give Company prompt written notice of such request or requirement so that Company may seek an appropriate protective order or other remedy and/or waive compliance with the provisions of this Agreement, and Executive will cooperate with Company to obtain such protective order. If, in the absence of a protective order or other remedy or the receipt of a waiver by Company, Executive is nonetheless, based upon the advice of counsel, legally compelled to disclose Proprietary Information to any tribunal or else stand liable for contempt or suffer other censure or penalty, Executive may, without liability hereunder, disclose to such tribunal only that portion of the Proprietary Information which, based upon the advice of counsel, is legally required to be disclosed, provided that Executive exercises reasonable efforts to preserve the confidentiality of the Proprietary Information, including, without limitation, by cooperating with Company to obtain an appropriate protective order or other reliable assurance that confidential treatment will be accorded the Proprietary Information required to be disclosed by such tribunal.

Notwithstanding the foregoing or anything in this Agreement to the contrary, nothing herein shall prohibit Executive from reporting, without prior notice to Company and without a protective order, a suspected violation of law to any governmental or regulatory agency and cooperating with such agency, receiving a monetary recovery for information provided to such agency, or making disclosures that are otherwise protected under applicable law or regulation. Notice of Immunity Under the Economic Espionage Act of 1996, as amended by the Defend Trade Secrets Act of 2016. Notwithstanding any other provision of this Agreement:

(A)

Executive will not be held criminally or civilly liable under any federal or state trade secret law for any disclosure of a trade secret that is made: (1) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney and solely for the purpose of reporting or investigating a suspected violation of law; or (2) in a complaint or other document that is filed under seal in a lawsuit or other proceeding.

(B)

If Executive files a lawsuit for retaliation by Company for reporting a suspected violation of law, Executive may disclose Company’s trade secrets to Executive’s attorney and use the trade secret information in the court proceeding if Executive (1) files any document containing the trade secret under seal; and (2) does not disclose the trade secret, except pursuant to court order.

(b)

In order to protect Company from unfair competition and to prevent the unauthorized disclosure or use of the Proprietary Information, during the Employment Period, Executive shall not directly or indirectly: (i) engage in or become associated with any Competitive Activity (defined below); or (ii) induce or influence any Agent, customer, supplier, or other person that has a business relationship with Company or any Affiliates to discontinue or reduce the extent of such relationship. Executive will be considered to have become “associated with a Competitive Activity” if he becomes, directly or indirectly, involved with any Person that is engaged in a Competitive Activity, whether as an owner, employee, employer, consultant, principal, officer, director, independent contractor, agent, partner, advisor or in any other capacity, with or without compensation; provided, however, that Executive will not be prohibited from passive ownership of less than five percent (5%) of any publicly traded corporation that is in competition with Company. “Competitive Activity” means (i) engaging in the business of purchasing and selling surplus or distressed industrial assets, facilitating such purchases and sales or (ii) engaging in any other services being offered or planning to be offered by Company or its Affiliates, on or before the Termination Date.

(c)

In order to protect Company from unfair competition and to prevent the unauthorized disclosure or use of the Proprietary Information, both during the Employment Period and for a period of twelve (12) months following the Termination Date, Executive shall not, directly or indirectly, for his own account or as a partner, joint venturer, employee, agent, or consultant: (i) solicit or seek to employ, engage, retain or solicit any person who, during any portion of the two (2) years prior to the Termination Date was, directly or indirectly, employed as an employee, engaged as an independent contractor or Agent or otherwise retained by Company or any Affiliates; (ii) induce any Person to leave his or her employment with Company or any Affiliates, terminate an independent contractor or Agent relationship with Company or terminate or reduce any contractual relationship with Company or any Affiliates; or (iii) use Company’s Proprietary Information to directly or indirectly induce or influence any Agent, customer, supplier, or other person that has a business relationship with Company or any Affiliates to discontinue or reduce the extent of such relationship.

(d)

Both during and after the Employment Period, neither Executive nor anyone acting on his behalf will (i) make any derogatory, disparaging or critical statement about Company or its Affiliates, or any of their present or former officers, directors, employees, shareholders or (ii) without the prior written consent of Company, communicate, directly or indirectly, with the press or other media concerning Company or its Affiliates, or the present or former employees or business of Company or its Affiliates (other than incidental references to Company or its Affiliates or their business which are non-specific in nature and included as a part of Executive’s general market observations). Further, Company agrees that, both during and after the Employment Period, except as required by applicable law or compelled by legal process, its officers and members of the Board will not (i) make any derogatory, disparaging or critical statement about Executive or (ii) without the prior written consent of Executive, communicate, directly or indirectly, with the press or other media concerning Executive. This Section does not, in any way, restrict or impede Executive or Company from exercising protected rights, including rights under applicable law to the extent that such rights cannot be waived by agreement, or from complying with any applicable law or regulation or a valid order of a court of competent jurisdiction or an authorized government agency. Nothing in this Agreement prevents Executive from discussing or disclosing information about unlawful acts in the workplace, such as harassment or discrimination or any other conduct that Executive has reason to believe is unlawful.

(e)

Executive acknowledges and agrees that, subject to Section 2(g), all writings, works of authorship, technology, inventions, discoveries, ideas, and other work product of any nature whatsoever, that are created, prepared, produced, authored, edited, amended, conceived, or reduced to practice by Executive individually or jointly with others during the period of his employment by Company (including periods of time prior to the Effective Date) and relating in any way to the business or contemplated business, research, or development of Company or its Affiliates and all printed, physical, and electronic copies, all improvements, rights, and claims related to the foregoing, and other tangible embodiments thereof (collectively, "Work Product"), as well as any and all rights in and to copyrights, trade secrets, trademarks (and related goodwill), patents, and other intellectual property rights therein arising in any jurisdiction throughout the world and all related rights of priority under international conventions with respect thereto, including all pending and future applications and registrations therefor, and continuations, divisions, continuations-in-part, reissues, extensions, and renewals thereof (collectively, "Intellectual Property Rights"), shall be the sole and exclusive property of Company.

(f)

Executive acknowledges that, by reason of being employed by company and/or its Affiliates at the relevant times, to the extent permitted by law, all of the Work Product consisting of copyrightable subject matter is "work made for hire" as defined in the Copyright Act of 1976 (17 U.S.C. § 101), and such copyrights are therefore owned by Company. To the extent that the foregoing does not apply, subject to Section 2(g), Executive hereby irrevocably assigns to Company, for no additional consideration, Executive’s entire right, title, and interest in and to all Work Product and Intellectual Property Rights therein, including the right to sue, counterclaim, and recover for all past, present, and future infringement, misappropriation, or dilution thereof, and all rights corresponding thereto throughout the world.

Nothing contained in this Agreement shall be construed to reduce or limit the rights, title, or interest of Company and its Affiliates in any Work Product or Intellectual Property Rights so as to be less in any respect than that they would have had in the absence of this Agreement. Upon request of Company, whether during or following Executive’s employment, Executive shall execute all such assignments, oaths, declarations, and other documents as may be prepared by Company to effect the purposes of this paragraph. Upon request of Company from time to time, whether during or following Executive’s employment, Executive shall provide Company with all information, documentation, assistance, and other acts that Company reasonably may request to evidence, perfect, enforce, transfer, or defend Company’s proprietary rights in, to, or based upon Intellectual Property Rights which are to be the property of Company or any Affiliate under Section 4. Executive shall provide all such information, documentation, assistance, and other acts for no additional consideration other than actual and necessary out-of-pocket expenses that are incurred at Company’s request. Executive hereby irrevocably designates and appoints Company as his attorney-in-fact and agent to act for and on his behalf to execute and file any document and to do all other lawfully permitted acts to further the purposes of this paragraph with the same legal force and effect as if executed by Executive.

(g)

California Statutory Limitation on Assignment. Executive understands and acknowledges that Work Product does not include, and any provision in this Agreement requiring Executive to assign (or otherwise providing for ownership by company or its Affiliates of) rights to an invention does not apply to, any invention that qualifies fully under the provisions of California Labor Code Section 2870 (a copy of which has been separately provided to Executive), including any idea or invention that is developed entirely on Executive’s own time without using the equipment, supplies, facilities or trade secret information of Company or its Affiliates, and that does not either (i) relate to the business, or actual or demonstrably anticipated research or development of Company or its Affiliates or (ii) result from any work performed by Executive for Company or its Affiliates.

(h)

Executive shall abide by policies related to his employment by Company applicable to comparable executives as they are promulgated by Company from time to time.

(i)

Executive acknowledges that the breach or attempted or threatened breach of this Section 4 will result in immediate and irreparable injury to Company for which Company will not have an adequate remedy at law. As such, Executive acknowledges and agrees that Company shall be entitled, in addition to all other remedies, to a decree of specific performance thereof and to a temporary and permanent injunction enjoining such breach, without the necessity of posting bond or furnishing any similar security. The parties’ obligations under this Section 4 will survive any termination of Executive’s employment or this Agreement hereunder, including, without limitation, any termination due to nonrenewal of the Agreement.

Section 5.

Acknowledgments By Executive.

Executive understands that the restrictions contained in Section 4 are being entered into in as a condition for continued employment with Company and Company entering into this Agreement. Executive acknowledges that Executive has received and will receive sufficient

Section 6.

Tax Withholding and Set off.

Company may withhold from any compensation, Without Cause Severance or Good Reason Severance payable under this Agreement all federal, state, city or other taxes as shall be required pursuant to any law or governmental regulation or ruling. Company shall have the right to set off any payments owed to Executive under this Agreement against amounts owed to Company or its Affiliates by Executive; provided, however, that such set off shall be made only if the set off does not cause the imposition of tax or additions to tax pursuant to section 409A(a)(1) of the Code. Notwithstanding anything herein to the contrary, Executive shall be treated as an “employee” for federal and state tax purposes and also for purposes of any other state or federal laws governing unemployment compensation, disability benefits or similar such law.

Section 7.

Definitions.

(a)

“Affiliate” means any other Person controlling, controlled by, or under common control with Company, where “control” means the possession, directly or indirectly, of the power to direct the management and policies of a Person whether through the ownership of voting securities, by contract, or otherwise.

(b)

“Agent” means any Person which has received or is entitled to receive a commission from Company related to the sale or marketing of Company’s products or services.

(c)

“Cause” means actions or omissions by Executive: (i) constituting fraud, larceny, embezzlement, conversion or otherwise involving the misappropriation of assets of Company or any Affiliate or any other illegal conduct with respect to Company or any Affiliate which acts are harmful to, either financially, or to the business reputation of, Company or any Affiliate, in each case involving an amount in excess of $5,000 individually or in the aggregate; (ii) constituting gross negligence or intentional misconduct which damages Company or any Affiliate, in each case involving an amount in excess of $5,000 individually or in the aggregate; (iii) resulting in a conviction (or a plea of guilty or no contest) for any felony or any crime of moral turpitude; (iv) constituting habitual alcohol or substance abuse; (v) constituting a material breach of this Agreement which, if curable, is not cured within fifteen (15) days after receipt of written notice thereof, including but by no means limited to Executive’s material failure to manage for ERM and Transition and then follow the process for delivering the Transition and ERM Reports as required by this Agreement; (vi) constituting a material failure by Executive to perform his duties, which nonperformance continues after written notice thereof and a fifteen (15) day chance to cure; (vii) resulting in an unauthorized breach of Company’s Code of Conduct, which, if curable, is not cured within fifteen (15) days after receipt of written notice thereof; (viii) constituting a breach of the fiduciary duty owed by Executive to Company or any Affiliate which, if curable, is not cured within fifteen (15) days after receipt of written notice thereof; or (ix) otherwise constituting a material breach of this Agreement that is not cured within any applicable cure period.

(d)

“Disability” means that Executive (i) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, or (ii) is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under an accident and health plan covering employees of Company. Disability shall be determined by a physician acceptable to both Company and Executive, or, if Company and Executive cannot agree upon a physician within fifteen (15) days after Company claims that Executive is suffering from a Disability, by a physician selected by two (2) physicians, one designated by each of Company and Executive. Executive’s failure to submit to any physical examination by any such physician after such physician has given reasonable notice of time and place of such examination shall be conclusive evidence of Executive’s Disability.

(e)

“Good Reason” means: (i) that a Person other than Ross Dove, David Ludwig, Executive or a person not acceptable to Executive is appointed as the only principal executive officer (i.e., Chief Executive Officer or equivalent position, but excluding any executive chairman) of Company; provided that Good Reason does not exist if such position is offered to, but rejected by, Executive; (ii) a diminution in Executive’s Base Salary by more than fifteen percent (15%) (other than a reduction affecting all senior executive employees of the Company on a proportionate basis); (iii) a material diminution in Executive’s authorities, duties or responsibilities, or (iv) any material breach of any material provision of this Agreement by Company.

(f)

“Notice of Termination” means a written notice that indicates the Termination Date, the specific termination provision in this Agreement relied upon, and the facts and circumstances, if any, claimed to provide a basis for such termination.

(g)

“Person” means an individual, a partnership, a limited liability company, a corporation, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, a governmental entity (or any department, agency or political subdivision thereof), or any other legal entity.

(h)

“Transition and ERM Report” means a detailed, written report including the following categories:

(i)

providing a reasonably acceptable succession plan that enables Company to transition Executive’s roles and responsibilities to a replacement executive officer, and for Executive to transfer the institutional knowledge held by executive to such a replacement officer, in each case in all material respects; and

(ii)

providing an enterprise risk management and risk mitigation strategy designed to ensure that all material risks in the following areas are managed appropriately:

Protection/controls to ensure liquidity to pay all clients their auction proceeds (no misuse of client funds, paying them by contractual dates),

Continuing education and operational controls for export control and legal compliance, Continuing education and internal protocols for sexual harassment avoidance and awareness, and

Controls/protections for buying assets with hazardous materials/toxic waste to limit Company risk.

And any other controls or protections deemed necessary by mutual agreement between the CEO and Executive.

Section 8.

Notices.

Any notice provided for in this Agreement must be in writing and must be either personally delivered, mailed by first class mail (postage prepaid and. return receipt requested) or sent by reputable overnight courier service (charges prepaid) to the recipient at the address below indicated:

If to Company:

Heritage Global Inc.
12625 High Bluff Drive, Suite 305
San Diego, CA 92130
Attention: Ross Dove

with a copy via email to jsklar@hginc.com

If to Executive:

Nick Dove
13484 Lighthouse Way
San Diego, CA, 92130

With a copy via email to ndove345@hotmail.com.

or such other address or to the attention of such other person as the recipient party shall have specified by prior written notice to the sending party. Any notice under this Agreement will be deemed to have been given when so delivered or sent or, if mailed, five days after deposit in the U.S. or Canadian mail.

Section 9.

Section 409A Savings Clause.

(a)

Application of Section 409A. It is intended that this Agreement will comply with or be exempt from the requirements of Section 409A of the Code and the interpretive guidance thereunder, and this Agreement will be administered accordingly, and interpreted and construed on a basis consistent with such intent. The rules set forth in this Section 9 shall apply with respect to any payments that may be subject to section 409A of the Code notwithstanding any other provision of this Agreement.

(b)

Timing of Payments. Notwithstanding the applicable provisions of this Agreement regarding the timing of payments, any payment due hereunder which is contingent upon receipt of the Release described in Section 3(d) shall be made, if at all, in accordance with this Section 9(b), and only if Executive has delivered to Company a properly executed Release for which all legally mandated revocation rights of Executive have expired prior to the sixtieth (60th) day following the Termination Date. Any such payment shall be made after receipt of such executed and irrevocable Release within such sixty (60) period, unless otherwise scheduled to be made after such period pursuant to the terms of this Agreement; provided, however, if the sixty (60) day period for such payments begins in one taxable year of Executive and ends in a second taxable year of Executive, any payments otherwise payable within such sixty (60) day period will be made in the second taxable year. Any payments due after such sixty (60) day period shall be payable in accordance with their regularly scheduled payment date. All payments hereunder are subject to any required delay pursuant to Section 9(c), if applicable. If Company does not receive a properly executed Release, for which all rights of revocation have lapsed, prior to the time specified in this Section 9(b), Executive shall forfeit all rights to any payments under Sections 3(c)(ii) and 3(d)(ii) of this Agreement.

(c)

Delayed Payments.

(i)

Notwithstanding any other payment schedule provided herein to the contrary, if, and only if, Executive is deemed on the Termination Date to be a “specified employee” within the meaning of that term under section 409A(a)(2)(B) of the Code, then the terms of this Section 9(c) shall apply as required by section 409A of the Code. Any payment that is considered deferred compensation under section 409A of the Code payable on account of a “separation from service” shall be made on the date which is the earlier of (y) the expiration of the six (6) month period measured from the date of such “separation from service” of Executive or (z) the date of Executive’s death (the “Delay Period”) to the extent required under section 409A of the Code. Upon the expiration of the Delay Period, all payments delayed pursuant to the immediately preceding sentence (whether they otherwise would have been payable in a single sum or in installments in the absence of such delay) shall be paid to Executive in a lump sum by Company, and all remaining payments due under this Agreement shall be paid or provided in accordance with the normal payment dates specified for them herein; and No Liability for Damages.

(ii)

To the extent that any benefits to be provided during the Delay Period are considered deferred compensation under section 409A of the Code provided on account of a “separation from service,” and such benefits are not otherwise exempt from section 409A of the Code, Executive shall pay the cost of such benefits during the Delay Period, and Company shall reimburse Executive, to the extent that such costs otherwise would have been paid by Company or to the extent that such benefits otherwise would have been provided by Company at no cost to Executive, Company’s share of the cost of such benefits upon expiration of the Delay Period, and any remaining benefits shall be reimbursed or provided by Company in accordance with the procedures specified herein.

(d)

Separation from Service. For purposes of this Agreement, the phrase termination of employment or any similar term or phrase shall mean Executive’s “Separation from Service” as defined by the default provisions of Treas. Reg. § 1.409A-1(h).

(e)

Series of Payments. For purposes of the application of Treas. Reg. § 1.409A-1(b)(4) (or any successor provision), each payment in a series of payments to Executive will be deemed a separate payment.

(f)

Additional Section 409A Provisions. For purposes of section 409A of the Code, (i) Executive may not, directly or indirectly, designate the calendar year of any payment; (ii) no acceleration of the time and form of payment of any nonqualified deferred compensation to Executive or any portion thereof, shall be permitted; and (iii) to the extent that any right to reimbursement of expenses or payment of any benefit in-kind under this Agreement may constitute nonqualified deferred compensation (within the meaning of section 409A of the Code, (A) any such expense reimbursement shall be made by Company no later than the last day of the taxable year following the taxable year in which such expense was incurred by Executive, (B) the right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit, and (C) the amount of expenses eligible for reimbursement or in-kind benefits provided during any taxable year shall not affect the expenses eligible for reimbursement or in-kind benefits to be provided in any other taxable year; provided, that the foregoing clause shall not be violated with regard to expenses reimbursed under any arrangement covered by section 105(b) of the Code solely because such expenses are subject to a limit related to the period the arrangement is in effect.

(g)

While the payments and benefits provided hereunder are intended to be structured in a manner to avoid the implication of any penalty taxes under section 409A of the Code, in no event whatsoever shall Company or any of its Affiliates be liable for any additional tax, interest, or penalties that may be imposed on Executive as a result of Section 409A of the Code or any damages for failing to comply with section 409A of the Code.

Section 10.

General Provisions.

(a)

Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, but this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. Notwithstanding the foregoing, if the scope of any provision in Section 4 is found to be too broad to permit enforcement of such provision to its full extent, the parties consent to judicial modification of such provision and enforcement to the maximum extent permitted by law.

(b)

(c)

Counterparts. This Agreement may be executed in separate counterparts (and the same may be delivered by means of facsimile or PDF file), each of which is deemed to be an original and all of which taken together constitute one and the same agreement.

(d)

Successors and Assigns. No party may assign any of its rights or delegate any of its obligations hereunder without the prior written consent of each other party. Any purported assignment or delegation in violation of this Section shall be null and void. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective permitted successors and permitted assigns.

(e)

Choice of Law; Venue. This Agreement will be governed by and construed in accordance with the laws of the State of California, without regard to conflict of laws principles. Exclusive venue for any action arising out of or related to this Agreement will be only in state or federal court located in Los Angeles County, California, and each party consents to the exclusive jurisdiction of such courts and waives any defense based on lack of personal jurisdiction or inconvenient forum.

(f)

Waiver of Jury Trial. EACH PARTY IRREVOCABLY WAIVES ANY AND ALL RIGHTS IT MAY HAVE TO DEMAND THAT ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATED TO THIS AGREEMENT BE TRIED BY JURY. EACH PARTY KNOWINGLY AND VOLUNTARILY WAIVES ITS RIGHT TO DEMAND TRIAL BY JURY.

(g)

Amendment and Waiver. The provisions of this Agreement may be amended and/or waived only with the prior written consent of Company and Executive.

(h)

.Independent Legal Advice. Executive acknowledges that he has had the opportunity to seek independent legal and tax advice in his review of this Agreement, and that he has not relied on any statements by Company or its Affiliates, or their legal counsel with regard to the same.

(i)

Attorneys’ Fees. If any disputes arise between the parties with respect to the subject matter of this Agreement, the prevailing party in any arbitration, litigation, action, or other proceeding shall be entitled to its reasonable attorneys’ fees and costs incurred in connection therewith.

(j)

Nonwaiver. No failure or neglect of either party in any instance to exercise any right, power, or privilege hereunder or under law shall constitute a waiver of any other right, power, or privilege or of the same right, power, or privilege in any other instance. All waivers by either party must be contained in a written instrument signed by the party to be charged and, in the case of Company, by an officer of Company (other than Executive) or other person duly authorized by Company.

(k)

No Strict Construction. The language used in this Agreement shall be deemed to be the language chosen by the parties to express their mutual intent, and no rule of strict construction shall be applied against any party hereto.

* * * *

IN WITNESS WHEREOF, the parties hereto have executed this Employment Agreement as of the Effective Date.

COMPANY:

HERITAGE GLOBAL INC.

By: /s/ James Sklar

Name: James Sklar

Title: EVP. General Counsel and Secretary

EXECUTIVE:

/s/ Nick Dove

NICK DOVE

[Signature Page – Employment Agreement]

EX-10.7 8 hgbl-ex10_7.htm EX-10.7 EX-10.7

Exhibit 10.7

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this “Agreement”) is made effective as of June 1, 2023 (the “Effective Date”) by and between Heritage Global Inc., a Florida corporation (“Company”), and David Ludwig (“Executive”).

The parties hereto believe that it is in their respective interests to enter into an employment agreement whereby, for the consideration specified herein, Executive shall provide the services specified herein. Certain definitions are set forth in Section 7.

The parties hereto agree as follows:

Section 1.

Employment.

(a)

Employment Period. Company agrees to employ Executive, and Executive accepts such employment for the period beginning on the Effective Date and ending on December 31, 2027 (the “Initial Term”). Upon completion of the Initial Term, this Agreement shall be automatically renewed for additional one-year terms (each a “Renewal Term”) unless either party to this Agreement gives notice of non-renewal (pursuant to Section 8 hereof) not less than one hundred eighty (180) days prior to the end of such Initial or Renewal Term. Notwithstanding the foregoing, Executive’s employment hereunder may be earlier terminated in accordance with Section 2 hereof. The period of time between the Effective Date and the termination or expiration of Executive’s employment hereunder for any reason shall be referred to herein as the “Employment Period.” The date on which Executive’s employment hereunder shall be terminated for whatever reason, whether with or without Cause or Good Reason or due to a nonrenewal of this Agreement by either party, shall be referred to herein as the “Termination Date.”

(b)

Position and Duties.

(i)

During the Employment Period, Executive shall serve as President of the Financial Assets Division (defined below). Executive shall report to the Chief Executive Officer of Company. Executive shall have the normal duties, responsibilities, and authority implied by such position and shall perform such other activities as are directed by Company’s Board of Directors (the “Board”), subject in each case to the power of the Board to expand, limit, or otherwise alter such duties, responsibilities, positions, and authority and to otherwise override actions of officers. In addition, within fourteen (14) days following the end of each quarter during the Employment Period (commencing with the quarter ending September 30, 2023), Executive shall prepare and provide to the Chief Executive Officer of Company (“CEO”) a Transition and ERM Report (defined below). CEO shall then have fourteen (14) calendar days to notify Executive if the Transition and ERM report for the applicable quarter does not, in CEO’s reasonable discretion, meet the criteria set forth in Section 7(h) of this Agreement with respect to the Financial Assets Division’s practices. In that event, Executive shall have thirty (30) days following timely receipt of CEO’s notice of any deficiency in the report to cure said deficiencies.

(ii)

(c)

Salary and Benefits and Bonus.

(i)

During the Employment Period, Company shall pay Executive a base salary at the rate of no less than $400,000 per year (the “Base Salary”). The Base Salary shall be paid in accordance with the regular payroll practices of Company with respect to executive officers of Company, subject to applicable withholdings and deductions.

(ii)

(iii)

During the Employment Period, Executive shall be entitled to an annual bonus (in arrears, and prorated for any partial year on or after the Effective Date) in an amount equal to twelve percent (12%) of NOI during the applicable calendar year (the “Annual Bonus”). Any Annual Bonus shall be paid no later than March 15th of the year following the year to which the Annual Bonus corresponds (the “Bonus Year”), and Executive must be employed on the last day of the Bonus Year in order to be entitled to receive the Annual Bonus; provided that if Executive’s employment is terminated due to death or by Company due to Executive’s Disability, or by Company or Employee via non-renewal or by Company without cause, Executive will be entitled to receive a prorated Annual Bonus (or full Annual Bonus should the termination become effective at year end) for the Bonus Year that includes Executive’s death or termination by Company (a “Prorated Bonus”). Any Prorated Bonus will be determined by Company in its reasonable discretion consistent with past practice and calculated based on the number of days in the Bonus Year during which Executive’s employment under the terms of this Agreement was in effect (a “Short Year”), and provided that Company determines a positive NOI for the Short Year. Any payment of a Prorated Bonus in the event of Executive’s death, termination by Company due to Executive’s Disability, termination by Company or Employee by non-renewal, or termination by Company without cause will be made at the same time as such Annual Bonus would have otherwise been paid absent Executive’s death, Disability, or termination by Company. The Annual Bonus shall replace any and all bonus opportunities available to Executive under any other agreement or plan between Executive and the Company or its Affiliates, and Executive hereby forever waives and releases the right to any bonus proceeds under any such other agreement or plan (excluding any bonus proceeds earned and payable to Executive as of the Effective Date, which the parties agree shall be prorated for the portion of the calendar year prior to the Effective Date; for clarity, the parties agree that Executive’s bonus for the time period of January 1, 2023 to May 31, 2023 will be determined per the terms of his previous employment agreement, i.e., his employment agreement dated May 31, 2014 with National Loan Exchange Inc. (a wholly owned subsidiary of Company) and the June 1, 2018 addendum thereto, and consistent with past practices, and his bonus for the time period of June 1, 2023 to December 31, 2023 will be determined using the terms of this Agreement with the time period of June 1, 2023 to December 31, 2023 being considered a Short Year with Prorated Bonus).

For purposes of this Agreement, “NOI” means the net operating income of Company’s Financial Assets Division (including Interest Expense) for the calendar year in question, determined by Company in its reasonable discretion, consistent with past practice, minus the Expense Allocation for the calendar year in question.. For purposes of this Agreement, “Financial Assets Division” means the business currently conducted by National Loan Exchange, Inc. and Heritage Global Capital LLC. For purposes of this Agreement, “Expense Allocation” means an amount equal to $1,600,000.00. For each calendar year beginning after 2023, the Expense Allocation will increase by an amount equal to the product of: (i) any increase in the aggregate corporate overhead expense of Company’s enterprise during the immediately preceding calendar year, as determined by Company in its reasonable discretion, multiplied by (ii) 0.5; provided that the Expense Allocation for any calendar year shall not be increased by more than $100,000 in any year up to an aggregate amount of $400,000 over the Term. However, if in a previous year the expense allocation would have been greater than $100,000, but was capped at $100,000 per the provision above, in the next year if the Expense Allocation is less than $100,000, it may be raised to the lesser of $100,000 or the amount of the Expense Allocation plus the difference between the previous years’ uncapped Expense Allocation and $100,000 (By way of example, if in year 2, the Expense Allocation would have been $125,000, but was capped at $100,000 per the provision above, and if in year 3, the Expense Allocation is $40,000, the previous year’s $25,000 excess may be added to year 3’s Expense Allocation, resulting in an Expense Allocation of $65,000 for year 3). For purposes of this Agreement, “Interest Expense” for any calendar year means the actual interest cost incurred by Company with respect to any funds borrowed from Company’s bank credit facility or a third-party and used to fund Heritage Global Capital LLC’s portion of any loan made by Heritage Global Capital LLC as calculated in accordance with Company’s standard accounting practices. For the purposes of this provision, references to Heritage Global Capital LLC include any special purpose vehicle subsidiary of Heritage Global Capital LLC and any entity in which a special purpose vehicle subsidiary is a member or participant. For further clarification, Interest Expense will not be deducted dollar for dollar from Executive’s Bonus, but as stated above, will be included in the calculation of the NOI of the Financial Assets Division in calculating Executive’s Bonus. Notwithstanding the foregoing, if, during the Term, Company raises capital for the benefit of Heritage Global Capital LLC (or any other division), Executive and Company shall discuss whether and to what extent equity, finance or corporate costs directly attributable to such capital raise shall be included in the Expense Allocation for the purposes of determining NOI and Executive’s bonus hereunder.

(d)

Business Expenses.

Subject to Company’s established policies and procedures for business expense reimbursement, which may be amended from time to time in the Board’s sole discretion, Company shall pay or reimburse Executive (at Company’s option) for all reasonable business expenses incurred by Executive in the course of performing Executive’s duties and responsibilities under this Agreement, including, but not limited to, for food and lodging accommodations that would reasonably be expected to be incurred for a similarly situated executive traveling on behalf of Company, and business development expenses and entertainment expenses, consistent with past practices between Company and Executive (i.e. Company will continue to reimburse Executive for expenses as it has previously).

(e)

Workplace and Work Schedule. Executive shall primarily work at the Company’s office in Edwardsville, Illinois, and will be expected to travel regularly in the course and scope of his employment. Executive is entitled to such holidays as are established by Company’s policies.

(f)

Section 2.

Termination of Employment.

(a)

(b)

Termination by Company for Cause. Company may terminate the employment of Executive immediately at any time during the Employment Period for Cause by giving him a Notice of Termination.

(c)

Termination without Cause or Good Reason. Company may terminate Executive’s employment immediately at any time during the Employment Period without Cause by giving Executive a Notice of Termination. Executive may terminate Executive’s employment at any time during the Employment Period without Good Reason by giving Company a Notice of Termination at least thirty (30) days prior to the Termination Date.

(d)

Termination by Executive for Good Reason. Executive may terminate his employment during the Employment Period for Good Reason by providing Company a Notice of Termination. For the purposes of this Agreement, a Notice of Termination for Good Reason shall mean a notice by Executive specifying the existence of one or more of the conditions described in Section 7(e) within forty-five (45) days after the initial existence of the condition. Upon receipt of that notice, Company shall have a period of ninety (90) days to remedy the condition or conditions specified in the Notice of Termination for Good Reason. The Notice of Termination for Good Reason must specify a Termination Date of not more than thirty (30) days after the last day of Company’s cure period. If Company remedies the condition within the ninety (90) day period, the Notice of Termination for Good Reason shall become ineffective, and Company shall have no obligations under this Agreement as a result of or associated with notice of termination, and instead the Agreement will continue in its normal course.

(e)

Termination Due to Nonrenewal of this Agreement. Executive’s employment hereunder shall automatically terminate following a nonrenewal of this Agreement pursuant to Section 1 hereof.

Section 3.

Effect of Termination of Employment.

(a)

(i)

the earned but unpaid portion, if any, of the Base Salary and vacation, through the Termination Date;

(ii)

(iii)

only if Executive’s employment is terminated due to the death of Executive or by Company due to Executive’s Disability or by Company by non-renewal, any Prorated Bonus (or full Bonus in the case of non-renewal) in accordance with Section 1(c)(iii).

(b)

(i)

the Accrued Compensation and Prorated Bonus (or Annual Bonus should the termination become effective at year end); and

(ii)

subject to Section 9(b), payment of the greater of: (1) an amount equal to Executive’s then annual Base Salary; or (2) an amount equal to four (4%) percent of the net amount of any revenues received by National Loan Exchange, Inc. on forward flow contracts entered during Executive’s tenure with the Company (meaning gross revenues received pursuant to such forward flow contracts less all commissions paid, whether internal or external, with respect to such forward flow contracts) for the twelve months succeeding Executive’s termination (the “Contract Revenue Amount”) (the amount payable under this Clause (ii), “Severance”), with such Severance to be paid as follows:

(A)

Within ten (10) business days following the later of the date of execution of the Release described in Section 3(d) herein or the expiration of any applicable recission period set out in the Release (defined in Section 3(d) below), Company shall pay Executive a sum equal to Executive’s then annual Base Salary; and Within thirty (30) calendar days following the one-year anniversary of Executive’s termination, in the event Company determines in its sole but reasonable discretion that the Contract Revenue Amount exceeds the sum of $10,000,000, Company shall pay to Executive a sum equal to the product of four (4%) percent times the Contract Revenue Amount less the $400,000 sum paid pursuant to subsection 3(b)(ii)(A) above.

(B)

All payments made under subsection (b)(ii) shall be subject to applicable withholdings and deductions.

(c)

Good Reason. If Executive’s employment is terminated by Executive for Good Reason pursuant to Section 2(d), then neither Executive nor his beneficiary or estate shall have any further rights or claims against Company or its Affiliates, except the right to receive: (i) the Accrued Compensation and Prorated Bonus (or Annual Bonus should the termination become effective at year end), plus (ii) Severance; provided that, to receive Severance, for a period of 90 days following termination of Executive’s employment for Good Reason (the “Transition Period”), Executive must provide such assistance as Company may request to transition his roles, responsibilities and knowledge regarding the business of Company and its Affiliates to such personnel as Company may specify. Company may end the Transition Period early by written notice to Executive. Severance shall be paid as set forth in Section 3(b)(ii) above and shall be subject to applicable withholdings and deductions. In addition, to the extent permitted by Company’s benefit plans and applicable law, during the Transition Period Executive shall be entitled to participate in Company’s health benefit plans in accordance with Section 1(c)(ii); provided that if such participation is not permitted under Company’s benefit plans or applicable law, then Company shall use good faith efforts to enable Executive to continue participation in such health benefit plans under COBRA by continuing to pay premiums at the contribution level in effect for Executive until the end of the Transition Period.

(d)

Release. Executive acknowledges and agrees that the payments provided for in Sections 3(b)(ii) and 3(c)(ii) constitute liquidated damages for any claim of breach of contract under this Agreement as it relates to termination of Executive’s employment during the Employment Period without Cause pursuant to Section 2(c) or with Good Reason pursuant to Section 2(d). Notwithstanding the foregoing, as a condition to receiving the payments set forth in Section 3(b)(ii) or Section 3(c)(ii), Executive shall execute and agree to be bound by a release agreement, in form and substance reasonably satisfactory to Company, but which will not require release of the claim to be paid the amount to be specified in the release (i.e., the amount that is actually due under either Sections 3(b)(ii) or3(c)(ii)) (the “Release”), relating to the waiver and general release of any and all claims arising out of or relating to Executive’s employment and termination of employment. Executive will not be entitled to any of the payments contemplated under Section 3(b)(ii) or Section 3(c)(ii), as the case may be, if Executive fails to execute such Release or seeks to revoke such Release before it becomes effective. In addition, if Executive violates the terms of Section 4, the continuing obligations of Company to make the payments contemplated under Section 3(b)(ii) or Section 3(c)(ii), as the case may be, shall immediately terminate.

Section 4.

Restrictions.

(a)

Executive shall at all times, both during the Employment Period and for a period of twelve (12) months following the Termination Date (or, with respect to any trade secret, for so long as such trade secret retains its status as such under applicable law), keep strictly confidential and not use or disclose to any third party any trade secret, information, knowledge or data not generally known to the public which Executive may have learned, discovered, developed, conceived, originated, prepared or received prior to, during or as a result of Executive’s employment by Company or any Affiliate with respect to the operations, businesses, affairs, products, services, technology, intellectual properties, Agents, customers, clients, pricing of products or services, policies, procedures, accounts, personnel, concepts, format, style, techniques or software of Company or any Affiliate, including the Intellectual Property Rights (defined below) of Company or its Affiliates (“Proprietary Information”). Executive acknowledges that Proprietary Information includes, without limitation, the business or other needs, requirements, preferences or other information relating to Agents and customers of Company or any Affiliate, acquisition targets of Company or any Affiliate and all information or data collected by Company with reference thereto. Proprietary Information shall not include any information that is or becomes generally available to the public other than as a result of a wrongful or unauthorized disclosure by Executive. Executive shall comply with any and all procedures which Company may adopt from time to time to preserve the confidentiality of any trade secret or other confidential and proprietary information. Immediately upon the Termination Date, Executive shall, at the option of Company (i) return to Company all Proprietary Information he has received or obtained, regardless of how recorded, including all copies thereof made by him or any employee, agent or advisor of or to him or (ii) destroy (or cause to be destroyed) all materials incorporating or based on such Proprietary Information. In each case, Executive shall certify in writing that the foregoing has been completed. Company may, in its sole discretion, upon or after the Termination Date, notify Executive’s new employer, clients or other parties that Executive has had access to certain trade secrets or other confidential and proprietary information which Executive is under a continuing obligation for the applicable time period not to use or disclose. In the event that Executive is requested or required (by deposition, interrogatories, requests for information or documents in legal proceedings, subpoenas, civil investigative demand or similar process) to disclose any Proprietary Information, Executive will give Company prompt written notice of such request or requirement so that Company may seek an appropriate protective order or other remedy and/or waive compliance with the provisions of this Agreement, and Executive will cooperate with Company to obtain such protective order. If, in the absence of a protective order or other remedy or the receipt of a waiver by Company, Executive is nonetheless, based upon the advice of counsel, legally compelled to disclose Proprietary Information to any tribunal or else stand liable for contempt or suffer other censure or penalty, Executive may, without liability hereunder, disclose to such tribunal only that portion of the Proprietary Information which, based upon the advice of counsel, is legally required to be disclosed, provided that Executive exercises reasonable efforts to preserve the confidentiality of the Proprietary Information, including, without limitation, by cooperating with Company to obtain an appropriate protective order or other reliable assurance that confidential treatment will be accorded the Proprietary Information required to be disclosed by such tribunal.

(A)

(B)

(b)

In order to protect Company from unfair competition and to prevent the unauthorized disclosure or use of the Proprietary Information, both during the Employment Period and for a period of twelve (12) months following the Termination Date, Executive shall not directly or indirectly: (i) engage in or become associated with any Competitive Activity (defined below); or (ii) induce or influence any Agent, customer, supplier, or other person that has a business relationship with Company or any Affiliates to discontinue or reduce the extent of such relationship. Executive will be considered to have become “associated with a Competitive Activity” if he becomes, directly or indirectly, involved (in a business but not social capacity) with any Person that is engaged in a Competitive Activity, whether as an owner, employee, employer, consultant, principal, officer, director, independent contractor, agent, partner, advisor or in any other capacity, with or without compensation; provided, however, that Executive will not be prohibited from passive ownership of less than five percent (5%) of any publicly traded corporation that is in competition with Company. “Competitive Activity” means (i) engaging in the business of purchasing and selling surplus or distressed financial assets, facilitating such purchases and sales or (ii) engaging in any other services being offered or planning to be offered by Company or its Affiliates, on or before the Termination Date.

(c)

(d)

Both during and after the Employment Period for twelve months, except as required by applicable law or compelled by legal process, neither Executive nor anyone acting on his behalf will (i) make any derogatory, disparaging or critical statement about Company or its Affiliates, or any of their present or former officers, directors, employees, shareholders or (ii) without the prior written consent of Company, communicate, directly or indirectly, with the press or other media concerning Company or its Affiliates, or the present or former employees or business of Company or its Affiliates (other than incidental references to Company or its Affiliates or their business which are non-specific in nature and included as a part of Executive’s general market observations). Further, Company agrees that, both during and after the Employment Period for twelve months, except as required by applicable law or compelled by legal process, its officers and members of the Board will not (i) make any derogatory, disparaging or critical statement about Executive or (ii) without the prior written consent of Executive, communicate, directly or indirectly, with the press or other media concerning Executive. Nothing in this Section 4(d) shall prohibit either Executive or Company from reporting violations of law or instances of harassment or discrimination.

(e)

All works of authorship, processes, improvements, formulations, ideas, inventions, designs and discoveries, whether patentable or not and all patents, copyrights, trademarks, trade secrets, and other intangible rights that may be or have been conceived or developed by Executive either alone or with others, during the Employment Period or any extension or renewal thereof, whether or not conceived or developed during working hours, and with respect to which any equipment, supplies, facilities, or trade secret information of Company or any Affiliate was used, or that related to the business of Company or any Affiliate or to Company’s or any Affiliate’s actual or demonstrably anticipated research and development, or that result from any work performed by Executive for Company or any Affiliate (collectively “Intellectual Property Rights”), will be the sole property of Company. Notwithstanding anything herein to the contrary, as provided in the Employee Patent Act, 765 Ill. Comp. Stat. Ann. 1060/2, this Section 4(e) does not apply to an invention for which no equipment, supplies, facility, or trade secret information of Company or any Affiliate was used and which was developed entirely on the Executive's own time, unless (i) the invention relates (A) to the business of Company or any Affiliate, or (B) to Company’s or any Affiliate’s actual or demonstrably anticipated research or development, or (ii) the invention results from any work performed by Executive for Company or any Affiliate.

(f)

All Intellectual Property Rights that are subject to copyright protection and reduced to tangible form in whole or in part by Executive in the course of his employment shall be deemed to be a “work made for hire” as that term is used in 17 U.S.C. 101 et seq., and Executive shall take all actions reasonably requested by Company in order for Company to obtain or register copyrights in such material. To the extent not a “work made for hire,” Executive hereby assigns to Company the entire right, title, and interest in and to all Intellectual Property Rights which are to be the property of Company or any Affiliate under Section 4(e).

To the extent such Intellectual Property Rights cannot be assigned to Company, Executive hereby grants Company an exclusive, worldwide, royalty free, perpetual, irrevocable and fully sub-licensable license to use and exploit such Intellectual Property Rights, in Company’s sole discretion, in all media now known and hereafter discovered as though Company were owner thereof. Upon request of Company, whether during or following Executive’s employment, Executive shall execute all such assignments, oaths, declarations, and other documents as may be prepared by Company to effect the purposes of this paragraph. Upon request of Company from time to time, whether during or following Executive’s employment, Executive shall provide Company with all information, documentation, assistance, and other acts that Company reasonably may request to evidence, perfect, enforce, transfer, or defend Company’s proprietary rights in, to, or based upon Intellectual Property Rights which are to be the property of Company or any Affiliate under Section 4(e). Executive shall provide all such information, documentation, assistance, and other acts for no additional consideration other than actual and necessary out-of-pocket expenses that are incurred at Company’s request. Executive hereby irrevocably designates and appoints Company as his attorney-in-fact and agent to act for and on his behalf to execute and file any document and to do all other lawfully permitted acts to further the purposes of this paragraph with the same legal force and effect as if executed by Executive.

(f)

Illinois Statutory Limitation on Assignment. Executive understands and acknowledges that Work Product does not include, and any provision in this Agreement requiring Executive to assign (or otherwise providing for ownership by company or its Affiliates of) rights to an invention does not apply to, any invention that qualifies fully under the provisions of 765 ILCS 1060/2(1), including any idea or invention that is developed entirely on Executive’s own time without using the equipment, supplies, facilities or trade secret information of Company or its Affiliates, and that does not either (i) relate to the business, or actual or demonstrably anticipated research or development of Company or its Affiliates or (ii) result from any work performed by Executive for Company or its Affiliates.

(g)

Executive shall abide by policies related to his employment by Company applicable to comparable executives as they are promulgated by Company from time to time.

(h)

Section 5.

Acknowledgments By Executive.

consideration and other benefits as an employee of Company and as otherwise provided hereunder to clearly justify such restrictions, which, given the education, skills and ability of Executive, will not prevent Executive from earning a livelihood. Executive further acknowledges that this Agreement would not have been entered into and the benefits described in Section 1 and Section 3 would not have been promised in the absence of Executive’s promises under Section 4. Further, with respect to those covenants set forth in Sections 4(b) and (c) above, Executive acknowledges that Company has advised him to consult with an attorney before entering into said covenants and that Company shall provide Executive with not less than 14 calendar days to review the covenants prior to executing this Agreement, provided Executive may voluntarily elect to sign this Agreement including said covenants before the expiration of the 14-day period.

Section 6.

Tax Withholding and Set off.

Company may withhold from any compensation or Severance payable under this Agreement all federal, state, city or other taxes as shall be required pursuant to any law or governmental regulation or ruling. Company shall have the right to set off any payments owed to Executive under this Agreement against amounts owed to Company or its Affiliates by Executive; provided, however, that such set off shall be made only if the set off does not cause the imposition of tax or additions to tax pursuant to section 409A(a)(1) of the Code. Notwithstanding anything herein to the contrary, Executive shall be treated as an “employee” for federal and state tax purposes and also for purposes of any other state or federal laws governing unemployment compensation, disability benefits or similar such law.

Section 7.

Definitions.

(a)

(b)

“Agent” means any Person which has received or is entitled to receive a commission from Company related to the sale or marketing of Company’s products or services.

(c)

“Cause” means actions or omissions by Executive: (i) constituting fraud, larceny, embezzlement, conversion or otherwise involving the misappropriation of assets of Company or any Affiliate or any other illegal conduct with respect to Company or any Affiliate which acts are harmful to, either financially, or to the business reputation of, Company or any Affiliate, in each case involving an amount in excess of $5,000 individually or in the aggregate; (ii) constituting gross negligence or intentional misconduct which damages Company or any Affiliate, in each case involving an amount in excess of $5,000 individually or in the aggregate; (iii) resulting in a conviction (or a plea of guilty or no contest) for any felony or any crime of moral turpitude; (iv) constituting habitual alcohol or substance abuse; (v) constituting a material breach of this Agreement which, if curable, is not cured within fifteen (15) days after receipt of written notice thereof, including but by no means limited to Executive’s material failure to manage ERM and Transition and follow the process for delivering the Transition and ERM Reports as required by this Agreement (however, Executive shall have 30 days per Section 1(b) above to cure any deficiencies noted in the Transition and ERM Report); (vi) constituting a material failure by Executive to perform his duties, which nonperformance continues after written notice thereof and a fifteen (15) day chance to cure; (vii) resulting in an unauthorized breach of Company’s Code of Conduct which if curable, is not cured within (15) days after receipt of written notice thereof; (viii) constituting a breach of the fiduciary duty owed by Executive to Company or any Affiliate which, if curable, is not cured within fifteen (15) days after receipt of written notice thereof; or (ix) otherwise constituting a material breach of this Agreement that, if curable, is not cured within 15 days after receipt of written notice thereof.

(d)

(e)

“Good Reason” means: (i) any diminution in Executive’s Base Salary; (ii) a material diminution in Executive’s authorities, duties or responsibilities, or (iii) any material breach of any material provision of this Agreement by Company. Executive must provide written notice of Executive’s termination for Good Reason within 45 days of the initial occurrence of the Good Reason event in order for Executive’s termination for Good Reason to be effective hereunder, and Company shall have 90 days from the date on which such notice is provided to cure such Good Reason event (the “Cure Period”). If the Company fails to rectify the Good Reason event prior to the expiration of the Cure Period, then Executive may terminate employment within 30 days following expiration of the Cure Period and receive the payments under Section 3(c). If Executive does not terminate employment within 30 days following expiration of the Cure Period, then Executive will be deemed to waive his right to receive payments under Section 3(c) regarding such Good Reason event.

(f)

(g)

(h)

“Transition and ERM Report” means an annual, detailed, written report:

(i)

providing a reasonable and customary (for companies similar in size and operations to the Financial Assets Division) succession plan that enables Company to transition Executive’s roles and responsibilities to a replacement executive officer, and for Executive to transfer the institutional knowledge held by executive to such a replacement officer, in each case in all material respects; and

(ii)

providing a reasonable and customary (for companies similar in size and operations to the Financial Assets Division) enterprise risk management and risk mitigation strategy designed to ensure that all material risks in the following areas are managed appropriately:

Protection/controls to ensure liquidity to pay all clients’ proceeds (no misuse of client funds, paying them by contractual dates);

Adherence to Company’s and applicable Affiliates’ Investment Committee protocols;

Cyber security action plan/policy/procedure; and

Continuing Education and internal protocols for sexual harassment avoidance and awareness.

(iii)

specifying (in a reasonable and customary fashion for companies similar in size and operations to the Final Assets Division) what was completed during the preceding calendar year to prepare the Company for the transition specified above in 7h(i) and to accomplish risk mitigation for the areas specified above or to satisfy such risk mitigation efforts and goals.

Section 8.

Notices.

If to Company:

Heritage Global Inc.
12625 High Bluff Drive, Suite 305
San Diego, CA 92130
Attention: Ross Dove

with a copy via email to jsklar@hginc.com

If to Executive:

David Ludwig

10 Sunset Hills Professional Centre

Edwardsville, IL 62025

Section 9.

Section 409A Savings Clause.

(a)

(b)

(c)

Delayed Payments.

(i)

Upon the expiration of the Delay Period, all payments delayed pursuant to the immediately preceding sentence (whether they otherwise would have been payable in a single sum or in installments in the absence of such delay) shall be paid to Executive in a lump sum by Company, and all remaining payments due under this Agreement shall be paid or provided in accordance with the normal payment dates specified for them herein; and

(ii)

(d)

(e)

Series of Payments. For purposes of the application of Treas. Reg. § 1.409A-1(b)(4) (or any successor provision), each payment in a series of payments to Executive will be deemed a separate payment.

(f)

(g)

No Liability for Damages. While the payments and benefits provided hereunder are intended to be structured in a manner to avoid the implication of any penalty taxes under section 409A of the Code, in no event whatsoever shall Company or any of its Affiliates be liable for any additional tax, interest, or penalties that may be imposed on Executive as a result of Section 409A of the Code or any damages for failing to comply with section 409A of the Code.

Section 10.

General Provisions.

(a)

(b)

Complete Agreement. This Agreement embodies the complete agreement and understanding among the parties and supersedes and preempts any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way, including, for the avoidance of doubt, that certain Employment Agreement, dated May 31, 2014, by and between Company and Executive, as amended by that certain Addendum to the Employment Agreement dated effective as of June 1, 2018 and that certain Amendment to Addendum, effective June 1, 2019. However, this Agreement shall have no effect on any stock, shares, or ownership interests Employee has in the Company, its Affiliates or Agents. The headings in this Agreement are for reference only and shall not affect the interpretation of this Agreement.

(c)

(d)

(e)

Choice of Law; Venue. This Agreement will be governed by and construed in accordance with the laws of the State of Illinois, without regard to conflict of laws principles. Exclusive venue for any action arising out of or related to this Agreement will be only in state or federal court located in Madison County, Illinois and each party consents to the exclusive jurisdiction of such courts and waives any defense based on lack of personal jurisdiction or inconvenient forum.

(f)

(g)

Amendment and Waiver. The provisions of this Agreement may be amended and/or waived only with the prior written consent of Company and Executive.

(h)

Independent Legal Advice. Executive acknowledges that he has had the opportunity to seek independent legal and tax advice in his review of this Agreement, and that he has not relied on any statements by Company or its Affiliates, or their legal counsel with regard to the same.

(i)

(j)

* * * *

IN WITNESS WHEREOF, the parties hereto have executed this Employment Agreement as of the Effective Date.

COMPANY:

HERITAGE GLOBAL INC.

By: /s/ James Sklar

Name: James Sklar

Title: EVP. General Counsel and Secretary

EXECUTIVE:

/s/ David Ludwig

DAVID LUDWIG

[Signature Page – Employment Agreement]

EX-31.1 9 hgbl-ex31_1.htm EX-31.1 EX-31.1

Exhibit 31.1

OFFICER’S CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Ross Dove, certify that:

I have reviewed this Quarterly Report on Form 10-Q of Heritage Global Inc.;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 10, 2023


By:	/s/ Ross Dove
	Ross Dove
	Chief Executive Officer (Principal Executive Officer)

EX-31.2 10 hgbl-ex31_2.htm EX-31.2 EX-31.2

Exhibit 31.2

OFFICER’S CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Brian J. Cobb, certify that:

I have reviewed this Quarterly Report on Form 10-Q of Heritage Global Inc.;

(a)

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 10, 2023


By:	/s/ Brian J. Cobb
	Brian J. Cobb
	Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

EX-32.1 11 hgbl-ex32_1.htm EX-32.1 EX-32.1

Exhibit 32.1

HERITAGE GLOBAL INC.

OFFICER’S CERTIFICATION
PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. 1350)

The undersigned Ross Dove, duly appointed and incumbent officer of Heritage Global Inc., a Florida corporation (the “Corporation”), in connection with the Corporation’s Quarterly Report on Form 10-Q for the period ended June 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), does hereby represent, warrant and certify pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amended, that, to the best of his knowledge:

The Report is in full compliance with reporting requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

August 10, 2023

/s/ Ross Dove

Ross Dove

Chief Executive Officer
(Principal Executive Officer)

EX-32.2 12 hgbl-ex32_2.htm EX-32.2 EX-32.2

Exhibit 32.2

HERITAGE GLOBAL INC.

OFFICER’S CERTIFICATION
PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. 1350)

The undersigned Brian J. Cobb, duly appointed and incumbent officer of Heritage Global Inc., a Florida corporation (the “Corporation”), in connection with the Corporation’s Quarterly Report on Form 10-Q for the period ended June 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), does hereby represent, warrant and certify pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amended, that, to the best of his knowledge:

The Report is in full compliance with reporting requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

August 10, 2023

/s/ Brian J. Cobb

Brian J. Cobb

Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)