Unit Economics & Scenarios

1. Step 1

   Investor lends $100

   79.00 UST STRIPS at 79.00 (→ 100, maturing 45 to 90 days after the Note) · 14.16 capital to the Project in two equal tranches (7.08 at closing, 7.08 into milestone escrow) · 6.84 prepaid: coupon reserve 5.28, diligence and appraisal, Vehicle and Administrator and Custodian fees 1.57

2. Step 2

   Project capital

   14.16 of new capital per $100 of face — a $35,000,000 pre-money and a $40,000,000 post-money

3. Step 3

   Warrant — 20% of the fully diluted capitalization

   Nominal strike · no anti-dilution · appraised at $6,994,067 against Project equity at closing of $34,970,336

4. Step 4

   Unit allocation for tax, by appraisal

   Warrant 19.81 · note issue price 80.19 · discount 19.8% of face, accreting back to 100

The warrant is appraised at 20% of the Project's equity at closing, measured against its net obligation and discounted at 12%. Issue price is symmetrical between holder and issuer, so this is appraised rather than assumed.

The unit allocation is the table that matters for the tax discussion. In both classes the Note is the majority of what the Investor pays; the appraised Warrant is the smaller part, and that part is the original issue discount that accretes back to face.

Illustrative example only; all figures are hypothetical. Not an offer, a solicitation, or tax, legal, or investment advice.

Every outcome returns the principal. That is a statement about the collateral, not a forecast: the pledged U.S. Treasury STRIPS accrete from 79.00 to par and mature 45 to 90 days after the Note, and the right to require prepayment in kind delivers them against the Note at full maturity value. If the Project fails, the investor takes the STRIPS, keeps the coupons, and retains the Warrant: 1.00x after-tax (1.05x gross) on the unit.

• No adviser fee is paid out of the raise; where a placement agent is engaged, its fee is paid at closing out of the proceeds.
• The Dealer is paid only through its execution of the STRIPS purchase.
• Vehicle formation and administration, and the amount the Vehicle retains, are shown separately.

The out-of-pocket figure is $5,000,000 compounded at 10% for 5 years. The net deduction is exactly the gross participation less the growth capital — the economic interest in the financing — and it is the same to the dollar in both classes, on different gross figures: interest of $6,994,067 against a basis of $14,458,314 in the tax-exempt class.

Why the Project's cost cannot move

The STRIPS accrete $7,414,180 inside the Vehicle. If that accretion were ever taxed, the two participations would be reduced pro rata — 25.11% to the Structuring Company and 74.89% to the Project — and the Structuring Company separately indemnifies the Project for the Project's share, from outside the Vehicle and secured on its own participation in it. The Project ends in the same place either way, which is what the table below shows. The indemnity is payable only where the Project has discharged the Note in full, so it is never payable on a Project failure.

The requirement of $8,863,987 bears a charge on the accretion at any rate up to 119.6% in the taxable class, and 159.6% in the tax-exempt class, before it is exhausted.

The gross participation of $8,863,987 on $5,000,000 advanced is 12.13% a year before tax. The Project's interest deduction on the Note, net of the income it recognizes on its own participation above basis, is $3,863,987 — so it is out of pocket by $8,052,550 after tax, which is 10% a year.

The Project must fund the full repayment on the maturity date from a refinancing it arranges in its own name; its participation arrives 45 to 90 days later and is not available to meet it.

Note issue price $28,311,552 = face $35,305,619 less the appraised allocation to the Warrant ($6,994,067). The difference, $6,994,067, is the original issue discount that accretes to face in the schedule above, and it exceeds the de minimis threshold of $441,320. The appraised Warrant and the original issue discount are equal by construction: the Investor pays the face for the unit, so whatever the appraisal allocates to the Warrant is exactly the discount left on the Note. The adjusted issue price column is a running balance, not a series to be summed; its final figure is the face the Note accretes to.

The coupon matches the tax over the term, not year by year — level while the OID accretes, so the investor is ahead early and behind later. Over the full term the two offset exactly.