SCHEDULE 13D/A: Great Elm Group Investors Agree to Forbear PIK Note Conversions Until 2026, Significant Ownership Details Updated

A group of investors, including Northern Right Capital and Matthew A. Drapkin, have updated their beneficial ownership in Great Elm Group, Inc. to 19.1% and agreed to defer the conversion of their PIK Notes until January 13, 2026.

Summary

• The filing is Amendment No. 10 to a Schedule 13D, updating beneficial ownership information for Great Elm Group, Inc. (Issuer).
• The Reporting Persons, including Northern Right Capital Management, L.P., Northern Right Capital (QP), L.P., Northern Right Long Only Master Fund LP, Northern Right Fund GP LLC, BC Advisors, LLC, and Matthew A. Drapkin, collectively beneficially own 5,886,170 shares, representing approximately 19.1% of the Issuer's outstanding Common Stock.
• This percentage is based on 30,841,349 shares outstanding, which includes 29,743,735 shares as of November 4, 2024, plus 1,097,614 shares potentially issuable to Managed Accounts from PIK Note conversions.
• In February 2020, the Reporting Persons purchased $6,000,000 in 5.0% Convertible Senior PIK Notes due 2030, receiving additional PIK Notes as interest payments semi-annually.
• As of the filing date, Northern Right QP holds $2,881,132.32, NRC LO holds $612,413.00, and Mr. Drapkin holds $317,600.45 in PIK Notes.
• These PIK Notes are convertible into Common Stock at an initial rate of 288.0018 shares per $1,000 principal amount, which would equate to 2,195,231 shares in aggregate for the Reporting Persons if not for the forbearance.
• On January 13, 2025, Northern Right QP, NRC LO, and Mr. Drapkin entered into a Forbearance Agreement with the Issuer, agreeing not to convert their PIK Notes into Common Stock until January 13, 2026.
• As a result of the Forbearance Agreement, the shares issuable upon conversion by Northern Right QP, NRC LO, and Mr. Drapkin are not currently deemed beneficially owned by them or related entities.
• On January 13, 2025, Northern Right QP transferred 409,577 shares of Common Stock and PIK Notes (representing a conversionary interest in 176,376 shares) to NRC LO for no consideration.
• Matthew A. Drapkin, a board member, directly owns 545,388 shares and was awarded additional restricted shares on January 3, 2025, totaling 153,846 shares, which vest over time contingent on his continued board service.

Sentiment

Score: 6

Explanation: The sentiment is moderately positive. While there's a future dilution risk from PIK notes, the forbearance agreement provides short-term stability by delaying this. The significant and aligned ownership by a key board member and related entities suggests strong insider commitment and potential for constructive engagement, which can be viewed favorably.

Positives

• The Forbearance Agreement defers potential dilution from the conversion of PIK Notes by key investors until January 13, 2026, providing short-term stability regarding the share count.
• The significant aggregate beneficial ownership of 19.1% by a group of related investors, including a board member (Matthew A. Drapkin), indicates strong alignment of interests with the company's performance.

Negatives

• The deferred conversion of PIK Notes still represents a future potential dilution event for existing shareholders, as up to 2,195,231 shares could be issued upon conversion by the Reporting Persons after the forbearance period ends.

Risks

• Potential future dilution of existing shareholders' equity and voting power if the PIK Notes held by the Reporting Persons are converted into Common Stock after the Forbearance End Date of January 13, 2026.
• The Forbearance Agreement can be extended by Northern Right QP, NRC LO, or Mr. Drapkin with the Issuer's consent, or amended/terminated with 61 days' prior written notice, introducing some flexibility that could impact future share structure.

Future Outlook

The Forbearance Agreement defers the conversion of significant PIK Notes until January 13, 2026, at which point the Issuer could face potential dilution from these conversions. The agreement may be extended with Issuer consent or terminated with 61 days' notice, indicating flexibility in the future capital structure.

Management Comments

• Matthew A. Drapkin, a board member of Great Elm Group, Inc., has agreed to forbear from exercising his right to convert his PIK Notes until January 13, 2026, aligning with the broader investor group's strategy.
• Mr. Drapkin's compensation includes restricted shares that vest over time, contingent on his continued service on the boards of Great Elm Group, Inc. and Great Elm Capital Corp., demonstrating ongoing commitment.

Industry Context

This Schedule 13D amendment reflects a significant investor group's updated stake and strategic agreements with a publicly traded company. Such filings are common for activist investors or large institutional holders to disclose their positions and any material agreements that could influence corporate governance or capital structure. The forbearance agreement on convertible notes is a specific mechanism to manage potential dilution, often seen in situations where a company and its large investors seek to align on capital management strategies.

Corporate Governance

Related Party Transactions

• The purchase of $6,000,000 in PIK Notes by the Reporting Persons in February 2020, and subsequent receipt of additional PIK Notes as interest payments, represents a significant financial transaction with entities closely tied to a board member (Matthew A. Drapkin).
• The Forbearance Agreement entered into on January 13, 2025, between the Issuer and entities/individuals (Northern Right QP, NRC LO, Matthew A. Drapkin) who are significant shareholders and include a board member, is a related party agreement concerning the conversion of their PIK Notes.
• The award of 153,846 restricted shares to Matthew A. Drapkin on January 3, 2025, as compensation for his board service, is a related party transaction under the Issuer's 2016 Long-Term Incentive Compensation Plan.

Stakeholder Impact

• **Shareholders:** The Forbearance Agreement delays potential dilution from PIK Note conversions, which could be viewed positively in the short term. However, the risk of future dilution remains after January 13, 2026. The significant ownership by a group including a board member suggests strong alignment of interests.
• **Company Management:** The agreement provides clarity on the capital structure for the next year, allowing management to plan without immediate pressure from PIK Note conversions. The equity compensation for Mr. Drapkin incentivizes his continued service and performance.

Next Steps

• The Forbearance Agreement is set to expire on January 13, 2026, at which point the PIK Notes held by Northern Right QP, NRC LO, and Mr. Drapkin may become convertible into Common Stock.
• Matthew A. Drapkin's restricted shares will continue to vest in monthly and quarterly installments through December 31, 2025, contingent on his continued board service.

Key Dates

Keywords

Great Elm Group, GEG, Schedule 13D, Beneficial Ownership, PIK Notes, Convertible Debt, Forbearance Agreement, Share Dilution, Institutional Investor, Matthew A. Drapkin, Corporate Governance, SEC Filing