8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES AND EXCHANGE ACT OF 1934

April 24, 2018 (April 18, 2018)

Date of report (Date of earliest event reported)

HERITAGE GLOBAL INC.

(Exact Name of Registrant as Specified in its Charter)

FLORIDA

(State or Other Jurisdiction of

Incorporation or Organization)

0-17973	59-2291344
(Commission File No.)	(I.R.S. Employer Identification No.)

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

(Address of Principal Executive Offices)

(858) 847-0656

(Registrants Telephone Number, Including Area Code)

N/A

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

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.  ☐

Item 1.01. Entry into a Material Definitive Agreement

On April 18, 2018, Heritage Global Inc. (the “Company”), National Loan Exchange, Inc. (“NLEX”), David Ludwig (“Mr. David Ludwig”) and Tom Ludwig (together with Mr. David Ludwig, the “Executives”) entered into an Addendum (the “Addendum”), effective June 1, 2018 (the “Effective Date”), to the Employment Agreements (the “Employment Agreements”), effective May 31, 2014, between NLEX and each of the Executives. The Addendum extends the term of the Employment Agreements by five years, from May 31, 2018 to May 31, 2023. Except as revised by the Addendum, the terms of the Employment Agreements continue to be in effect.

The Addendum eliminates the prior provisions for bonus compensation or options grants contained in the Employment Agreements.

NLEX Employee Cash Incentives

Pursuant to the Addendum, for each calendar year, NLEX will allocate thirty percent of its Net Operating Income (as defined in the Addendum) in the aggregate to a “Sales and Marketing Pool” and an “Operations Pool”, in the proportions specified in the Addendum and varying each year, for cash incentive awards. Each year in advance, Mr. David Ludwig will recommend to the Company’s Board of Directors (the “Board”) the NLEX employees (including Mr. David Ludwig) entitled to receive a portion of the Sales and Marketing Pool as well as the portion to be received, and Tom Ludwig will recommend to the Board the NLEX employees (including Tom Ludwig) entitled to receive a portion of the Operations Pool, and the portion to be received.

Also pursuant to the Addendum, for each calendar year, NLEX will allocate twenty percent of its Principal Net Operating Income (as defined in the Addendum) in the aggregate to a “Principal Sales and Marketing Pool” and an “Principal Operations Pool”, in the proportions specified in the Addendum and varying each year, for cash incentive awards. Each year in advance, Mr. David Ludwig will recommend to the Board the NLEX employees (including Mr. David Ludwig) entitled to receive a portion of the Sales and Marketing Pool as well as the portion to be received, and Tom Ludwig will recommend to the Board the NLEX employees (including Tom Ludwig) entitled to receive a portion of the Operations Pool, and the portion to be received.

Option and Restricted Stock Issuance

In connection with the Addendum, David Ludwig and Tom Ludwig will each be granted 300,000 shares of Company restricted stock, par value $0.01 (“Common Stock”), in accordance with the terms and conditions of a Restricted Stock Agreement, to be negotiated by the parties prior to the Effective Date.

In connection with the Addendum and promptly after the Effective Date, the Company will issue options to purchase 300,000 shares of Common Stock under the Heritage Global 2010 Non-Qualified Stock Option Plan (the “2010 Plan”) or the Heritage Global 2016 Stock Option Plan (the “2016 Plan”), as determined by the Board, to certain employees of NLEX (excluding Executives), and in such amounts, as recommended by the Executives. Subject to the approval of such recommendation by the Board, NLEX will also pay a one-time bonus to each recipient of such options in an amount equal to the aggregate exercise price of such recipient’s option. The options will vest over a four-year period.

In addition, not later than sixty days prior to each of the first three anniversaries of the Effective Date, the Executives will recommend to the Board the NLEX employees (including the Executives) who are entitled to receive options to acquire an aggregate 200,000 shares of Common Stock per year (for a total of 600,000 shares of Common Stock over three years). The options will be issued under the 2010 Plan or the 2016 Plan, and in the case of options issued to Executives, outside either the 2010 or 2016 Plans, as determined by the Board.

The foregoing is only a summary of the Addendum and does not purport to be complete and is qualified in its entirety by reference to the full text of the Addendum, which is attached hereto as Exhibit 10.1 and is incorporated herein by reference.

Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory

Arrangements of Certain Officers

The information provided in Item 1.01 of this Current Report on Form 8-K is incorporated by reference into this Item 5.02.

Item 9.01. Financial Statements and Exhibits

(d) Exhibits:

Exhibit No.	Description
10.1	Addendum to Employment Agreements, effective June 1, 2018, by and betweenHeritage Global Inc., National Loan Exchange, Inc., Tom Ludwig and David Ludwig.

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 thereunto duly authorized.

	Heritage Global Inc.
Date:  April 24, 2018	By:	/s/ Scott A. West
	Name:	Scott A. West
	Title:	Chief Financial Officer

EX-10.1

Exhibit 10.1

ADDENDUM

This Addendum (this “Addendum”) is entered into as of June 1, 2018 (the “Effective Date”), by and among Heritage Global Inc. a Florida corporation (“Heritage Global”), National Loan Exchange, Inc., an Illinois corporation (“NLEX”), Dave Ludwig (“President”), and Tom Ludwig (“General Counsel”, and together with President, “Executives”).

NLEX and each Executive is party to an Employment Agreement dated May 31, 2014 (the “Employment Agreements”), and the parties desire to extend the Employment Period (as defined in the Employment Agreements).

NLEX is a wholly owned subsidiary of Heritage Global.

NLEX and Heritage Global desire Executives to establish and administer an employee incentive program, under which certain employees of NLEX (including Executives) may have an opportunity to receive incentive compensation and options to purchase shares of Heritage Global common stock, based on the achievement of certain performance benchmarks.

Intending to be legally bound, the parties agree as follows:

1.Extension of Employment Period. The Employment Period of each Executive is hereby extended through May 31, 2023. All provisions of the Employment Agreements related to bonus compensation or option grants are deemed deleted from the Employment Agreements and are superseded by this Addendum.

2.Incentive Plan Administration. Executives shall establish performance goals and criteria to be satisfied by NLEX employees who may be entitled to receive the incentives established by this Addendum, and shall administer the incentive program established by this Addendum to incentivize NLEX employees to exercise the highest degree of effort, skill and care in assisting NLEX to achieve performance benchmarks established by the Executives in consultion with each employee and approved by the board of directors of Heritage Global (the “Board”) from time to time.

3.NLEX Incentive Compensation Payments.

(a)NOI Incentive. Subject to the terms of this Addendum, for eachcalendar year, NLEX shall allocate thirty percent (30%) of its Net Operating Income (defined below) in the aggregate to a “Sales and Marketing Pool” and an “Operations Pool”, in the proportions specified in Exhibit A hereto. In accordance with Section 2, each year in advance (or before the end of the calendar year for 2018): (i) President shall recommend to the Board the NLEX employees (including President) to be entitled to receive a portion of the Sales and Marketing Pool, and the portion to be received, and (ii) General Counsel shall recommend to the Board the NLEX employees (including General Counsel) to be entitled to receive a portion of the Operations Pool, and the portion to be received. For purposes of this Addendum, “Net Operating Income” means the sum of: (i) the gross revenues actually received by NLEX in connection with the operation of its business during the applicable 12 month period (excluding any revenues included in the calculation of Principal Net Operating Income (defined below)), minus (ii) all NLEX expenses and losses for the same 12 month period, minus (iii) up to $1,000,000 of Heritage Global Public company expenses attributable to the business of NLEX.

(b)Principal NOI Incentive. Subject to the terms of this Addendum, for each calendar year, NLEX shall allocate twenty percent (20%) of its Principal Net Operating Income (defined below) in the aggregate to a “Principal Sales and Marketing Pool” and a “Principal Operations Pool”, in the proportions specified in Exhibit B hereto. In accordance with Section 2, each year in advance: (i) President shall recommend to the Board the NLEX employees (including President) to be entitled to receive a portion of the Principal Sales and Marketing Pool, and the portion to be received, and (ii) General Counsel shall recommend to the Board the NLEX employees (including General Counsel) to be entitled to receive a portion of the Principal Operations Pool, and the portion to be received. For purposes of this Addendum, “Principal Net Operating Income” means the sum of: (i) the gross revenues actually received by NLEX in connection with its Principal Transactions (defined below) during the applicable 12 month period, minus (ii) all NLEX expenses and losses in connection with its Principal Transactions for the same 12 month period, minus (iii) up to $1,000,000 of Heritage Global operating and overhead expenses attributable to the Principal Transactions of NLEX. For purposes of this Addendum, “Principal Transaction” means each transaction undertaken by NLEX in which it makes a direct or indirect investment of capital [that is at risk], and not a transaction in which NLEX acts exclusively as a broker for the account of an NLEX customer.

(c)Terms Applicable to Incentives.

(i)Each recommendation by Executives under Sections 3(a) and (b) shall be subject to the review and approval of the Board, and no such amounts shall be allocated or paid without prior approval of the Board.

(ii)Heritage Global shall determine Net Operating Income and Principal Net Operating Income within thirty (30) days following its receipt of annual audit report from its independent auditors for each calendar year that includes any part of the applicable calendar year.

(iii)NLEX shall pay the amounts determined in accordance with Sections 3(a) and (b) promptly following written notice from Heritage Global of its determination of Net Operating Income and Principal Net Operating Income for the applicable Contract Year.

(iv)For clarity, NLEX revenues shall be counted only once in determining Net Operating Income and Principal Net Operating Income, and no NLEX revenues shall be attributed to both Net Operating Income and Principal Net Operating Income.

(v)Any payment due to either Executive under or in accordance with this Addendum shall be payable only if such Executive is employed by NLEX at the time such payment becomes due, unless Heritage terminates the Executive without Cause.

(vi)The Net Operating Income and Principal Net Operating Income shall be prorated for years 2018 and 2023 to include only those months included after the Effective Date through the Termination Date.

4.Heritage Global Common Stock and Options.

(a)Common Stock. Subject to the terms of this Addendum, promptly following the Effective Date, Heritage Global will issue to President 300,000 shares of restricted Heritage Global common stock, and will issue to General Counsel 300,000 shares of restricted Heritage Global common stock, in each case in accordance with the terms and conditions of the Restricted Stock Agreement attached as Exhibit C hereto.

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(b)Initial Options. Subject to the terms of this Addendum, Heritage Global shall issue to certain NLEX employees (excluding Executives) stock options to purchase an aggregate 300,000 shares of Heritage Global common stock under the Heritage Global 2010 Non-Qualified Stock Option Plan (the “2010 Plan”) and/or the Heritage Global 2016 Stock Option Plan (the “2016 Plan”), as determined by the Board. Promptly following the Effective Date and in accordance with Section 2, Executives shall recommend to the Board the NLEX employees (excluding Executives) to be entitled to a stock option under this Section 4(b), and the number of shares of Heritage Global common stock to be subject to each such option. Subject to approval of such recommendations by the Board, NLEX shall pay a one-time bonus to each recipient of such options in an amount equal to the aggregate exercise price of such recipient's option.

(c)Future Options. Subject to the terms of this Addendum, Heritage Global shall issue to certain NLEX employees (including Executives) stock options to purchase an aggregate 600,000 shares of Heritage Global common stock, by issuing options to acquire 200,000 of such shares on each of the first three anniversaries of the Effective Date. Such options shall be issued under the 2010 Plan, and/or the 2016 Plan, and in the case of options issued to Executives, outside either such plan, as determined by the Board. Not later than sixty (60) days prior to each of the first three (3) anniversaries of the Effective Date and in accordance with Section 2, Executives shall recommend to the Board the NLEX employees (including Executives) to be entitled to a stock option under this Section 4(c), and the number of shares of Heritage Global common stock to be subject to each such option.

(d)Terms Applicable to Common Stock and Options.

(i)Each recommendation by Executives under Sections 4(b) and (c) shall be subject to the review and approval of the Board, and no options shall be issued or bonus payments made without prior approval of the Board.

(ii)Each stock option issued in accordance with this Addendum shall be: (x) issued under the 2010 Plan, the 2016 Plan, or outside either plan, as determined by the Board in accordance with this Addendum, (y) subject to the terms of the 2010 Plan or the 2016 Plan, as determined by the Board, and (z) issued on such terms and conditions and in a form approved by the Board.

(iii)Each stock option issued in accordance with this Addendum shall vest 25% on each of the first four (4) anniversaries of the date of grant, and shall have a per share exercise price equal to the fair market value of a share of Heritage Global common stock as of the date of grant, determined by the Board in accordance with the 2010 Plan or 2016 Plan (including with respect to the options to be issued to Executives outside the option plans).

(iv)Heritage Global’s obligations under Section 4 are subject to the availability of shares of common stock reserved for issuance under the 2010 Plan and 2016 Plan, and its ability to comply with applicable securities and other laws and the requirements of each securities exchange on which any of its securities are traded.

5.Miscellaneous.

(a)This Addendum embodies the complete agreement and understanding among the parties, with respect to the incentive programs described herein, and supersedes any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the

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subject matter hereof in any way. Except as modified by this Addendum, the Employment Agreements continue in full force and effect.

(b)All payments and incentives to be made, granted or issued under or in connection with this Addendum, and the form and terms and conditions thereof, are subject to the final approval of the Board in its discretion, and none shall be made, granted or issued without the express prior approval of the Board.

(c)This Addendum is for the sole benefit of Executives, Heritage Global, and NLEX, and their respective successors and permitted assigns. Nothing in this Addendum, express or implied, is intended to or shall confer upon any other person or entity any legal or equitable right, benefit, or remedy of any nature whatsoever under or by reason of this Addendum.

(d)This Addendum 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.

[The next page is the signature page]

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The parties hereby execute this Addendum as of the Effective Date.

HERITAGE GLOBAL, INC.
By:	/s/ Allan Silber
Name:	Allan Silber
Title:	Chairman

NATIONAL LOAN EXCHANGE, INC.
By:	/s/ Tom Ludwig
Name:	Tom Ludwig
Title:	General Counsel and Executive Vice President

EXECUTIVES:

/s/ Dave Ludwig

Dave Ludwig

/s/ Tom Ludwig

Tom Ludwig

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EXHIBIT A

Net Operating Income Allocation by Pool

Year	Sales and Marketing Pool	Operations Pool
Year 1(June 1, 2018- May 31, 2019)	60% [18% of NOI]	40% [12% of NOI]
Year 2 (June 1, 2019-May 31, 2020)	57% [17.1% of NOI]	43% [12.9% of NOI]
Year 3 (June 1, 2020-May 31, 2021)	53% [15.9% of NOI]	47% [14.1% of NOI]
Year 4 (June 1, 2021-May 31, 2022)	50% [15% of NOI]	50% [15% of NOI]
Year 5 (June 1, 2022- May 31, 2023)	47% [14.1% of NOI]	53% [15.9% of NOI]

EXHIBIT B

Principal Net Operating Income Allocation by Pool

Year	Sales and Marketing Pool	Operations Pool
Year 1(June 1, 2018-May 31, 2019)	60% [12% of NOI]	40% [8% of NOI]
Year 2 (June 1, 2019-May 31, 2020)	57% [11.4% of NOI]	43% [8.6% of NOI]
Year 3 (June 1, 2020-May 31, 2021)	53% [10.6% of NOI]	47% [9.4% of NOI]
Year 4 (June 1, 2021-May 31, 2022)	50% [10% of NOI]	50% [10% of NOI]
Year 5 (June 1, 2022- May 31, 2023)	47% [9.4% of NOI]	53% [10.6% of NOI]

EXHIBIT C

Restricted Stock Agreement

See attached.