Exhibit 10.26
LOAN MODIFICATION AGREEMENT AND
REAFFIRMATION OF LOAN
[HERITAGE GLOBAL INC.; LOAN NO.:13880]
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:
AGREEMENT REGARDING ASSUMPTION OF LOAN AND PLEDGES AND REAFFIRMATION OF GUARANTY – Page 1 (Cameron)
DM2\5482333.2 G1031/00009
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:
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“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 |
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month period $0, (ii) second six month period $12,500, (iii) third six month period $12,500.” |
“-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).”
“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.
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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
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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
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Loan Amount (the “Required Paydown”). Borrower shall pay to Lender the Required Paydown within three (3) days of Lender’s request.”
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“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.”
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[Remainder of page intentionally left blank; signature pages follow]
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Exhibit 10.26
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.,
By: /s/ James Sklar__________________ Name: James Sklar
GRANTOR:
Heritage Global Partners Inc.,
By: /s/ James Sklar__________________ Name: James Sklar
Heritage Global LLC,
By: /s/ James Sklar__________________ Name: James Sklar
a Delaware limited liability company
By: /s/ James Sklar__________________ Name: James Sklar |
| LENDER:
C3bank, National Association
By: /s/ AJ Moyer_______________________ Name: AJ Moyer_______________________ Its: Chief Executive Officer______________
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Signature page to Loan Modification Agreement and
Reaffirmation of Loan
GRANTOR:
Heritage ALT LLC,
By: /s/ James Sklar__________________ Name: James Sklar
Heritage Global Inc.,
By: /s/ James Sklar________________ Name: James Sklar
National Loan Exchange, Inc. an Illinois company
By: /s/ David Ludwig________________ Name: David Ludwig
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