Convertible note payable

12 Months Ended

Dec. 31, 2024

Note 14 - Convertible Notes payable

In connection with the closing of the Business Combination, GSH entered into the Note Purchase Agreement, dated March 21, 2023, and effective March 30, 2023, with DHHC and the Convertible Note Investors. As part of the PIPE Investment, the Convertible Note Investors agreed to purchase $80.0 million in original principal amount of Notes at a 6.25% original issue discount and were issued an additional 744,588 UHG Class A Common Shares. The aggregate proceeds of the PIPE Investment were $75.0 million. As discussed below, the Notes were redeemed in December 2024.

Prior to the redemption discussed below, the Notes matured on March 30, 2028, and bore interest at a rate of 15%. The Company had the option to pay any accrued and unpaid interest at a rate in excess of 10% either in cash or by capitalizing such interest and adding it to the then outstanding principal amount of the Notes (“PIK Interest”). The Company elected to pay the full accrued and unpaid interest in excess of 10% in cash rather than PIK Interest. Prior to the redemption discussed below, the effective interest rate on the Notes was 20.46%.

The Notes were convertible at the holder’s option into UHG Class A Common Shares at any time after March 30, 2024 through March 30, 2028, at a per share price of $5.58 (the “Initial Conversion Price”). The Initial Conversion Price was subject to adjustments for certain anti-dilution provisions as provided in the Notes. Each Note was also convertible at the Company’s option into UHG Class A Common Shares, at any time after the second anniversary of the Closing Date if the VWAP per UHG Class A Common Share exceeded $13.50 for 20 trading days in a 30 consecutive trading day period. The Company was not required to bifurcate either of these conversion features as they met the derivative classification scope exception as described in ASC 815-15.

The Notes could be redeemed by the Company at any time prior to 60 days before March 30, 2028, by repaying all principal and interest amounts outstanding at the time of redemption plus a make-whole amount equal to the additional interest that would accrue if the Notes remained outstanding through their maturity date. The Company was not required to bifurcate the embedded redemption feature, as the economic characteristics and risks of the redemption feature were clearly and closely related to the economic characteristics and risk of the Notes in accordance with ASC 815-15.

The Notes also contained additional conversion, redemption, and payment provision features, at the option of the holder, which could be exercised upon contingent events such as the Company defaulting on the Notes, a change of control in the ownership of the Company, or other events requiring indemnification. As the contingent events were either entirely within the Company’s control or based on an event for which management considered the probability of occurring as extremely remote, these features which were required to be bifurcated, had minimal or no value, and therefore were deemed to not be material to the Consolidated Financial Statements.

Until the redemption discussed below occurred, the fair value of the Notes was calculated using a Binomial model and a Monte Carlo model. The PIPE Shares were valued using a Discounted Cash Flow Model. The Company accreted the value of the discount across the expected term of the Note using the effective interest method.

The following assumptions were used in the Binomial and Monte Carlo valuation models to determine the estimated fair value of the Notes at the issue date, March 30, 2023 and as of December 31, 2023.


	December 31, 2023		March 30, 2023
Risk Free Interest Rate	3.97	%	3.80	%
Expected Volatility	40	%	40	%
Expected Dividend Yield	—	%	—	%

Risk-Free Interest Rate – The risk-free interest rate is based on the U.S. Treasury zero coupon bond used to reduce any projected future cash flows derived from the payoff of the Notes as UHG common shares.

Expected Volatility – The Company’s expected volatility was estimated based on the average historical volatility for comparable publicly traded companies.

Expected Dividend Yield – The dividend yield is based on the Company’s history and expectation of dividend payouts. The Company does not expect to pay cash dividends to shareholders during the term of the Notes, therefore the expected dividend yield is determined to be zero.

On December 5, 2024 the Company entered into a redemption agreement with the Convertible Note Investors pursuant to which the Company agreed to redeem the Notes and pay principal and interest amounts outstanding at the time of redemption plus a make-whole amount. On December 11, 2024 (“Redemption Date”), the Company redeemed the Notes and paid to the Convertible Note Investors (a) an aggregate of $70.0 million, plus accrued and unpaid interest through the Redemption Date, and (b) an aggregate of 10,168,850 shares of Class A Common Stock with a fair value of $4.41 per share. The Company financed the transaction, in part, by entering into the Credit Agreement with Kennedy Lewis. See Note 9 - Debt for further details.

The Company accounted for the redemption as an extinguishment of debt in accordance with ASC 405, Liabilities. As a result, the Company recognized a loss on extinguishment of $45.6 million based on the difference between the total reacquisition price of the extinguished debt, including the make-whole amount of $37.1 million, and the net carrying amount of the Notes on the Redemption Date. As a result, there is no remaining debt balance associated with the Convertible Notes as of December 31, 2024.

The below table presents the outstanding balance of the Notes as of December 31, 2023:


	December 31, 2023
Principal Balance	$	80,000,000
Unamortized Discount	(11,961,220)
Carrying Value	$	68,038,780

Interest expense included within Other expense, net on the Consolidated Statements of Operations was $8.4 million and $6.0 million for the Notes for the years ended December 31, 2024 and 2023. Interest expense included within Cost of sales on the Consolidated Statements of Operations was $4.9 million and $2.3 million for the Notes for the years ended December 31, 2024 and 2023, as a result of interest having been capitalized into inventory.