Fermi Inc. (FRMI) Risk Analysis

The stock market in recent years has experienced significant price and volume fluctuations that have often been unrelated to the operating performance of companies. The market price of our common stock could fluctuate significantly for many reasons, including in response to the risks described in this section and elsewhere in this Quarterly Report on Form 10-Q or for reasons unrelated to our operations, many of which are beyond our control, such as reports by industry analysts, investor perceptions, or negative announcements by our customers, competitors, or suppliers regarding their own performance, as well as industry conditions and general financial, economic, and political instability. A decrease in the market price of our common stock would likely adversely impact the trading price of the Notes. The market price of our common stock could also be affected by possible sales of our common stock by investors who view the Notes as a more attractive means of equity participation in us and by hedging or arbitrage trading activity that we expect to develop involving our common stock. This trading activity could, in turn, affect the trading price of the Notes.

In the future, we may sell additional shares of our common stock or equity-linked securities to raise capital. In addition, a substantial number of shares of our common stock is reserved for issuance upon the settlement of outstanding equity awards, upon any issuance of shares under the Promissory Note and upon conversion of the Notes. We cannot predict the size of future issuances or the effect, if any, that they may have on the market price for our common stock. The issuance and sale of substantial amounts of our common stock or equity-linked securities, or the perception that such issuances and sales may occur, could adversely affect the trading price of the Notes and the market price of our common stock and impair our ability to raise capital through the sale of additional equity or equity-linked securities.

Holders of the Notes are not entitled to any rights with respect to our common stock (including, without limitation, voting rights and rights to receive any dividends or other distributions on our common stock) prior to the conversion date relating to such Notes (if we have elected to settle the relevant conversion by delivering solely shares of our common stock (other than paying cash in lieu of delivering any fractional share)) or the last trading day of the relevant observation period (if we elect to pay and deliver, as the case may be, a combination of cash and shares of our common stock in respect of the relevant conversion), but holders of the Notes are subject to all changes affecting our common stock. For example, if an amendment is proposed to our certificate of formation (the "Charter") or our bylaws (the "Bylaws") requiring shareholder approval and the record date for determining the shareholders of record entitled to vote on the amendment occurs prior to the conversion date related to a holder's conversion of its Notes or the last trading day of the relevant observation period, as applicable, such holder will not be entitled to vote on the amendment, although such holder will nevertheless be subject to any changes affecting our common stock.

Upon the occurrence of a fundamental change, holders have the right to require us to repurchase all or any portion of their Notes. However, the fundamental change provisions will not afford protection to holders of the Notes in the event of other transactions that could adversely affect the Notes. For example, transactions such as leveraged recapitalizations, refinancings, restructurings, or acquisitions initiated by us may not constitute a fundamental change requiring us to offer to repurchase the Notes. In the event of any such transaction, the holders would not have the right to require us to repurchase the Notes, even though each of these transactions could increase the amount of our indebtedness, or otherwise adversely affect our capital structure or any credit ratings, thereby adversely affecting the holders of the Notes.

Certain provisions in the indenture governing the Notes may make it more difficult or expensive for a third party to acquire us. For example, the indenture governing the Notes requires us, except in limited circumstances, to repurchase the Notes for cash upon the occurrence of a fundamental change and, in certain circumstances, to increase the conversion rate for a holder that converts its Notes in connection with a make-whole fundamental change. A takeover of us may trigger the requirement that we repurchase the Notes and/or increase the conversion rate, which could make it more costly for a potential acquirer to engage in such takeover. Such additional costs may have the effect of delaying or preventing a takeover of us that would otherwise be beneficial to investors.

The Notes and the shares of common stock issuable upon conversion of the Notes, if any, have not been, and are not required to be, registered under the Securities Act or any state securities laws. Unless the Notes and the shares of common stock issuable upon conversion of the Notes, if any, have been registered, the Notes and such shares may not be transferred or resold except in a transaction exempt from or not subject to the registration requirements of the Securities Act and applicable state securities laws. We do not intend to file a U.S. registration statement or a prospectus qualifying the resale of the Notes and the common stock, if any, into which the Notes are convertible, and the holders of the Notes are not entitled to require us to register or qualify the Notes or the common stock for resale or otherwise.

Prior to the Offering, there was no trading market for the Notes, and we do not intend to apply to list the Notes on any securities exchange or to arrange for quotation on any automated dealer quotation system. We have been informed by the initial purchasers that they intend to make a market in the Notes, but the initial purchasers are not obligated to do so and may cease their market-making at any time without notice. In addition, the liquidity of the trading market in the Notes, and the market price quoted for the Notes, may be adversely affected by, among other things, changes in the overall market for this type of security and by changes in our financial performance or prospects or in the prospects for companies in our industry generally. As a result, we cannot assure holders that an active trading market will develop for the Notes. Even if an active trading market for the Notes does develop, there is no guarantee that it will continue. Historically, the market for non-investment grade debt has been subject to severe disruptions that have caused substantial volatility in the prices of securities that are similar to the Notes. The market, if any, for the Notes may experience similar disruptions, and any such disruptions may adversely affect the liquidity in that market or the prices at which holders may sell their Notes.

Under the Notes, a converting holder will be exposed to fluctuations in the value of our common stock during the period from the date such holder surrenders Notes for conversion until the date we settle our conversion obligation. Upon conversion of the Notes, we have the option to pay or deliver, as the case may be, cash, shares of our common stock, or a combination of cash and shares of our common stock. If we elect to satisfy our conversion obligation in cash or a combination of cash and shares of our common stock, the amount of consideration that holders will receive upon conversion of their Notes will be determined by reference to the volume-weighted average price of our common stock for each trading day in a 30 trading day observation period. If the price of our common stock decreases during this period, the amount and/or value of consideration holders receive will be adversely affected. In addition, if the market price of our common stock at the end of such period is below the average volume-weighted average price of our common stock during such period, the value of any shares of our common stock that holders receive in satisfaction of our conversion obligation will be less than the value used to determine the number of shares that they will receive. If we elect to satisfy our conversion obligation solely in shares of our common stock upon conversion of the Notes, we will be required to deliver the shares of our common stock, together with cash for any fractional share, on the second business day following the relevant conversion date (subject to limited exceptions). Accordingly, if the price of our common stock decreases during this period, the value of the shares that holders receive will be adversely affected and would be less than the conversion value of the Notes on the conversion date.

We believe that we are, and expect to remain for the foreseeable future, a "United States real property holding corporation" for U.S. federal income tax purposes. As a result, non-U.S. holders whose ownership of the Notes or our common stock exceeds certain levels will be subject to U.S. federal income tax and may be subject to U.S. federal withholding tax in respect of payments in connection with a sale, exchange, redemption, conversion, or other taxable disposition of the Notes or our common stock. Non-U.S. holders are urged to consult their tax advisors with respect to the U.S. federal income tax consequences of acquiring, owning, converting, and disposing of the Notes or owning and disposing of our common stock.

In order to assist us in qualifying and maintaining our qualification as a REIT for U.S. federal income tax purposes, our Charter prohibits, among other prohibitions, any person or entity, other than an "excepted holder," as defined below, from actually or constructively owning more than 2.5% in value or in number, whichever is more restrictive, of the outstanding shares of any class or series of our capital stock (the "ownership limit"). As a result, notwithstanding any other provision of the Notes, no holder of the Notes, other than an "excepted holder," will be entitled to receive common stock following conversion of such Notes to the extent that receipt of such common stock would cause such holder (after application of certain constructive ownership rules) to exceed the ownership limit or violate any other restriction on the ownership and transfer of our common stock as provided in our Charter. Our Board of Directors, in its sole discretion, may waive, prospectively or retroactively, the ownership limit with respect to a particular person or entity (such person or entity, an "excepted holder," and such increased ownership limit, an "excepted holder limit"); provided that the Board of Directors will not grant any such excepted holder limit if it would cause us to fail to qualify as a REIT under the Code. If any delivery of our common stock owed to a holder upon conversion of the Notes is not made, in whole or in part, as a result of the limitations described above, our obligation to make such delivery shall not be extinguished, and we shall deliver such common stock as promptly as practicable after any such converting holder gives notice to us that such delivery would not result in it being the beneficial or constructive owner of common stock in excess of the ownership limit or applicable excepted holder limit or violate any other restriction on ownership and transfer of our common stock set forth in our Charter.

Fluctuations in the price of our common stock could affect the price at which holders can sell any shares of common stock received upon conversion of the Notes. The market price of our common stock has been highly volatile, and it is likely that such price will continue to be volatile in the future. For example, since our first day of trading following our IPO on October 1, 2025, our common stock has traded as high as $36.99 per share and as low as $4.47 per share. The market price of our common stock could be subject to wide fluctuations in response to various factors, including due to the risks described in this section and elsewhere in this Quarterly Report on Form 10-Q or for reasons unrelated to our operations,some of which are beyond our control. Broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance, and our common stock may trade at prices significantly below current levels. The realization of any of these risks could have a dramatic and material adverse impact on the market price of our common stock.

Our Charter authorizes our Board of Directors to take such actions as are necessary and desirable to preserve our qualification as a REIT for U.S. federal income tax purposes. Unless exempted by our Board of Directors, no person may actually or constructively own more than 2.5% in value or number of shares, whichever is more restrictive, of the outstanding shares of any class or series of our capital stock, which may inhibit large investors from desiring to purchase our stock. This restriction may have the effect of delaying, deferring, or preventing a change in control, including an extraordinary transaction (such as a merger, tender offer, or sale of all or substantially all of our assets) that might provide a premium price for our common stock or otherwise be in the best interest of our shareholders. In addition, no holder of Notes will be entitled to receive common stock following conversion of such Notes to the extent that receipt of such common stock would cause such holder (after application of certain constructive ownership rules) to exceed the ownership limit or violate any other restriction on the ownership and transfer of our common stock as provided in our Charter. Any purported delivery of common stock upon conversion of Notes will be void and have no effect to the extent (but only to the extent) that such delivery would result in a violation of the restrictions on ownership and transfer of our common stock set forth in our Charter.

We would be "closely held" within the meaning of Section 856(h) of the Code, if the rule prohibiting capital stock of the REIT from being "closely held" applied to a REIT's first taxable year. In order for us to ensure we will not be deemed "closely held," during the month of June of our second REIT taxable year, we will have the right to redeem any or all shares of capital stock of certain individuals named in our Charter, at a redemption price equal to the fair market value of such capital stock (as determined by an independent valuation firm selected by our Board of Directors and approved by the holders of such capital stock), plus any declared and unpaid dividends or other distributions to, but excluding, the date fixed for redemption. We may not have funds available to effectuate any such redemptions, and we may have to sell assets or borrow money in adverse market conditions to obtain sufficient funds for the redemptions. Alternatively, shareholders subject to this provision may choose to dispose of all or a portion of their capital stock in market transactions. Such events could adversely affect the price of our common stock and our ability to operate our business. If we elect to be taxed as a REIT and we are unable to comply with the requirement that we not be "closely held" within the meaning of Section 856(h) of the Code as of the second half of our second REIT taxable year, we would fail to qualify as a REIT.

Project Matador will require substantial capital investment to achieve commercial operation. As of June 30, 2026, the Company had not generated any revenues, had incurred recurring losses from operations and negative cash flows from operating activities since inception, and had substantial near-term capital expenditure obligations under existing equipment purchase, construction, lease, and other project-related commitments, in addition to recurring operating expenses that must be funded. As of June 30, 2026, the Company had cash on hand of $62.5 million and restricted cash of $29.2 million, a portion of which is available to fund defined capital expenditures. When measured against forecasted disbursements under the Company's current operating plan, these resources are not sufficient to satisfy the Company's financial obligations as they become due within one year after the date the accompanying unaudited condensed consolidated financial statements are issued. These factors raise substantial doubt about the Company's ability to continue as a going concern for the next twelve months from the date of issuance of the accompanying unaudited condensed consolidated financial statements included in this Quarterly Report. Management has implemented plans which are disclosed in Note 2, Significant Accounting Policies, to the accompanying unaudited condensed consolidated financial statements. These plans include the application of the net proceeds from the Notes issued in July 2026, as described in Note 9, Subsequent Events. As a result of these actions, management believes that the substantial doubt about the Company's ability to continue as a going concern has been alleviated. There is no guarantee, however, that we will successfully implement the plans described in Note 2. If our planned borrowing draws under existing committed facilities, monetization of unencumbered equipment, sequencing of capital expenditures with the execution of definitive tenant agreements and corresponding project-level financing, or efforts to defer, scale, or renegotiate near-term collateral and credit support obligations are not successful, or if we are unable to identify and execute additional project-level capital arrangements or customer arrangements with strategic counterparties on acceptable terms, we may need to scale back our business plan, reduce our operating costs and headcount, or discontinue or curtail certain of our development activities.

The accounting method for reflecting the Notes on our consolidated balance sheet, accruing interest expense for the Notes and reflecting the underlying shares of our common stock in our reported diluted earnings per share may adversely affect our reported earnings and financial condition. In August 2020, the Financial Accounting Standards Board published Accounting Standards Update 2020-06 ("ASU 2020-06"), which simplified certain of the accounting standards that apply to convertible notes. ASU 2020-06 eliminated the cash conversion and beneficial conversion feature models used to separately account for embedded conversion features as a component of equity. Instead, an entity accounts for convertible debt securities as a single unit of account, unless the conversion feature requires bifurcation and recognition as a derivative. Additionally, the guidance requires entities to use the "if-converted" method for all convertible instruments in the diluted earnings per share calculation and to include the effect of potential share settlement for instruments that may be settled in cash or shares. In accordance with ASU 2020-06 and subject to our full accounting assessment with respect to the Notes, which is not complete as of the date of this Quarterly Report on Form 10-Q, we expect that the Notes will be reflected as a liability on our consolidated balance sheet, with the initial carrying amount equal to the principal amount of the Notes, net of issuance costs. Issuance costs are treated as a debt discount for accounting purposes, which are amortized into interest expense over the term of the Notes. As a result of this amortization, the interest expense that we expect to recognize for the Notes for accounting purposes will be greater than the cash interest payments we will pay on the Notes, which will result in lower reported income. In addition, we expect that the shares of common stock underlying the Notes will be reflected in our diluted earnings per share using the "if-converted" method for fiscal periods in which we report net income. Under that method, diluted earnings per share would generally be calculated assuming that all the Notes were converted solely into shares of common stock at the beginning of the reporting period, unless the result would be anti-dilutive. The application of the if-converted method may reduce our reported diluted earnings per share to the extent we are profitable in the future. We have not reached a final determination regarding the accounting treatment for the Notes, and the description above is preliminary. Accordingly, we may account for the Notes in a manner that is significantly different than described above.

In connection with the pricing of the Notes, we entered into privately negotiated Capped Call Transactions with the option counterparties. The Capped Call Transactions initially cover, subject to customary adjustments substantially similar to those applicable to the Notes, the number of shares of our common stock initially underlying the Notes. The Capped Call Transactions are generally expected to reduce the potential dilution to our common stock upon any conversion of Notes and/or offset any cash payments we are required to make in excess of the principal amount of converted Notes, as the case may be, upon any conversion of the Notes, with such reduction and/or offset subject to a cap. In connection with the initial purchasers' exercise in full of their option to purchase additional Notes, we entered into additional Capped Call Transactions with the option counterparties. In connection with establishing their initial hedges of the Capped Call Transactions, the option counterparties or their respective affiliates entered into or expect to enter into various derivative transactions with respect to our common stock and/or purchase shares of our common stock concurrently with or shortly after the pricing of the Notes. In addition, the option counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to our common stock and/or purchasing or selling our common stock or other securities of ours in secondary market transactions following the pricing of the Notes and prior to the maturity of the Notes. This activity could cause or avoid an increase or a decrease in the market price of our common stock or the Notes, which could affect the ability of noteholders to convert the Notes and, to the extent the activity occurs during any valuation period related to a conversion of Notes, it could affect the number of shares of common stock, if any, and the value of the consideration that noteholders will receive upon conversion of the Notes. In addition, if any such Capped Call Transactions fail to become effective, the option counterparties or their respective affiliates may unwind their hedge positions with respect to our common stock, which could adversely affect the value of our common stock and the value of the Notes. The potential effect, if any, of these transactions and activities on the market price of our common stock or the Notes will depend in part on market conditions and cannot be ascertained at this time. Any of these activities could adversely affect the value of our common stock and the value of the Notes. The Capped Call Transactions are separate transactions, in each case entered into between us and the applicable option counterparty, are not part of the terms of the Notes and will not affect the holders' rights under the Notes. As a holder of the Notes, you will not have any rights with respect to the Capped Call Transactions. We do not make any representation or prediction as to the direction or magnitude of any potential effect that the transactions described above may have on the price of the Notes or the shares of our common stock. In addition, we do not make any representation that the option counterparties will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice.

The option counterparties are financial institutions, and we will be subject to the risk that one or more of the option counterparties may default or otherwise fail to perform, or may exercise certain rights to terminate, their obligations under the Capped Call Transactions. Our exposure to the credit risk of the option counterparties will not be secured by any collateral. Past global economic conditions have resulted in the actual or perceived failure or financial difficulties of many financial institutions. If an option counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at the time under the Capped Call Transactions with such option counterparty. Our exposure will depend on many factors but, generally, an increase in our exposure will be correlated to an increase in the market price and in the volatility of our common stock. In addition, upon a default by an option counterparty, we may suffer more dilution than we currently anticipate with respect to our common stock. We can provide no assurances as to the financial stability or viability of the option counterparties.

The Notes are our general unsecured obligations and rank senior in right of payment to all of our future indebtedness that is expressly subordinated in right of payment to the Notes, equal in right of payment with all of our current and future liabilities that are not so subordinated, effectively junior to all of our current and future secured indebtedness to the extent of the value of the assets securing such indebtedness, and structurally junior to all indebtedness and other liabilities (including trade payables) of our subsidiaries. In the event of our bankruptcy, liquidation, reorganization, or other winding up, our assets that secure debt ranking senior or equal in right of payment to the Notes will be available to pay obligations on the Notes only after the secured debt has been repaid in full from these assets. There may not be sufficient assets remaining to pay amounts due on any or all of the Notes then outstanding. The indenture governing the Notes does not prohibit us from incurring additional senior debt or secured debt, nor does it prohibit any of our subsidiaries from incurring additional liabilities.

The Notes are our obligations exclusively and are not guaranteed by any of our subsidiaries. Our current and any future subsidiaries are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay amounts due with respect to the Notes or to make any funds available therefor, whether by dividends, loans, or other payments. Our right to receive any assets of any of our subsidiaries upon such subsidiary's bankruptcy, liquidation, or reorganization, and, therefore, the right of the holders of the Notes to participate in those assets, will be subject to prior claims of creditors of the subsidiary, including trade creditors, and such subsidiary may not have sufficient assets remaining to make any payments to us as a stockholder or otherwise. There may not be sufficient assets remaining to pay amounts due on any or all of the Notes then outstanding. In addition, dividends, loans, or other distributions to us from such subsidiaries are subject to contractual and other restrictions and are subject to other business considerations.

Since December 31, 2025, we have incurred substantial additional indebtedness to finance equipment for Project Matador. As of June 30, 2026, we had the following financing facilities and amounts outstanding under each: (i) a $500.0 million Turbine Warehouse Equipment Financing facility, of which $444.9 million had been drawn; (ii) the Keystone Master Loan Agreement providing for equipment-backed advances of up to $120.0 million in aggregate principal, with the potential to increase by an additional $100.0 million subject to lender approval, of which $77.3 million had been drawn; (iii) a $165.0 million Turbine Warehouse II Equipment Financing facility to fund the purchase of six Siemens Energy SGT-800 industrial gas turbines, of which $14.7 million had been drawn; and (iv) an undrawn Promissory Note with a committed principal amount of $156.3 million (reduced to a maximum of $78.1 million). On July 14, 2026, we issued $431.3 million aggregate principal amount of 5.00% convertible senior notes due 2031, including $56.3 million aggregate principal amount of Notes issued upon the exercise in full by the initial purchasers of their option to purchase additional Notes. Net proceeds from the Offering were approximately $416.8 million, after deducting the initial purchasers' discounts and commissions and estimated offering expenses. These facilities contain numerous restrictive covenants and conditions, including: (a) under the Turbine Warehouse Equipment Financing, loan-to-value requirements whereby an event of default will occur if the LTV ratio exceeds the applicable target for more than thirty consecutive days following an updated appraisal reflecting a value more than 2% below the initial appraisal; (b) under the High Voltage Equipment Financing, a minimum liquidity covenant requiring us to maintain at least $20.0 million in liquidity until the facility is repaid or a qualifying customer agreement is executed, and a mandatory prepayment requirement if the Keystone Agent has not received an approved customer agreement by December 31, 2026; (c) under the Turbine Warehouse II Equipment Financing, an exit fee obligation and restrictions on asset dispositions; and (d) under the Promissory Note, mandatory monthly amortization payments beginning thirty days after the first advance, with at least $10.0 million of each payment to be satisfied in shares of common stock. Our ability to comply with these covenants is subject to uncertainty, particularly given the early stage of our development, the absence of signed definitive tenant agreements as of the date of this filing (other than the TensorWave Lease, which remains subject to conditions to commencement), and leadership transition risk. A breach of any covenant or failure to satisfy any condition could trigger an event of default, acceleration of the applicable debt obligation, and potential cross-default under our other financing arrangements, any of which would have a material adverse effect on our business, financial condition, liquidity, and results of operations.

Our ability to make scheduled payments of the principal of, to pay interest on, or to refinance our indebtedness, including the Notes, depends on our future performance, which is subject to economic, financial, competitive, and other factors beyond our control. As of June 30, 2026, the Company had not generated any revenues, had incurred recurring losses from operations and negative cash flows from operating activities since inception, and had substantial near-term capital expenditure obligations under existing equipment purchase, construction, lease, and other project-related commitments, in addition to recurring operating expenses that must be funded. Our business may not generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt, or obtaining additional debt financing or equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations. In addition, any of our future debt agreements may contain restrictive covenants that may prohibit us from adopting any of these alternatives. Our failure to comply with these covenants could result in an event of default which, if not cured or waived, could result in the acceleration of our debt.

We and our subsidiaries may incur substantial additional debt in the future, subject to the restrictions contained in our debt instruments, some of which may be secured debt. We will not be restricted under the terms of the indenture governing the Notes from incurring additional debt, securing existing or future debt, recapitalizing our debt, or taking a number of other actions that are not limited by the terms of the indenture governing the Notes that could have the effect of diminishing our ability to make payments on our debt, including the Notes, when due.

Holders of the Notes will have the right, subject to certain conditions, to require us to repurchase all or any portion of their Notes upon the occurrence of a fundamental change (as defined in the indenture governing the Notes) at a fundamental change repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any. In addition, upon conversion of the Notes, unless we elect to deliver solely shares of our common stock to settle such conversion (other than paying cash in lieu of delivering any fractional share), we will be required to make cash payments in respect of the Notes being converted. However, we may not have enough available cash or be able to obtain financing at the time we are required to make repurchases of Notes surrendered therefor or pay cash with respect to Notes being converted. In addition, our ability to repurchase the Notes or to pay cash upon conversions of the Notes may be limited by law, by regulatory authority, or by agreements governing our future indebtedness. Our failure to repurchase Notes at a time when the repurchase is required by the indenture or to pay any cash payable on future conversions of the Notes as required by the indenture would constitute a default under the indenture. A default under the indenture or the fundamental change itself could also lead to a default under the agreements governing the indebtedness of our subsidiaries and/or agreements governing our future indebtedness. If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase the Notes or make cash payments upon conversions thereof.

In the event the conditional conversion feature of the Notes is triggered, holders of the Notes will be entitled to convert their Notes at any time during specified periods at their option. If one or more holders elect to convert their Notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock (other than paying cash in lieu of delivering any fractional share), we would be required to settle a portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity.

The conversion of some or all of the Notes may dilute the ownership interests of our shareholders. Upon conversion of the Notes, we have the option to pay or deliver, as the case may be, cash, shares of our common stock, or a combination of cash and shares of our common stock. If we elect to settle our conversion obligation in shares of our common stock or a combination of cash and shares of our common stock, any sales in the public market of our common stock issuable upon such conversion could adversely affect prevailing market prices of our common stock. In addition, the existence of the Notes may encourage short selling by market participants because the conversion of the Notes could be used to satisfy short positions, or anticipated conversion of the Notes into shares of our common stock could depress the price of our common stock.

We used approximately $34.5 million of the net proceeds from the Offering to pay the cost of the Capped Call Transactions and intend to use the remainder of the net proceeds for general corporate purposes, including, but not limited to, funding our expected capital expenditures with respect to Project Matador, our continuing operations, our procurement and installation of equipment, our power generation milestone payments, and our pipeline development projects. We have not determined the specific allocation of the net proceeds among these potential general corporate uses. Our management has broad discretion over the use and investment of the net proceeds of the Offering and our cash resources generally, and, accordingly, investors will need to rely upon the judgment of our management with respect to the use of proceeds, with only limited information concerning our specific intentions. These proceeds and our cash resources generally could be applied in ways that do not improve our operating results or increase the value of an investment in our securities.

The Notes were initially issued in the form of one or more global notes registered in the name of Cede & Co., as nominee of The Depository Trust Company ("DTC"). Beneficial interests in global notes are shown on, and transfers of global notes are effected only through, the records maintained by DTC. Except in limited circumstances, we will not issue certificated notes. Accordingly, a holder of a beneficial interest in a global note is not considered an owner or holder of the Notes; instead, DTC or its nominee is the sole holder of the global notes. Unlike persons who have certificated notes registered in their names, owners of beneficial interests in global notes do not have the direct right to act on our solicitations for consents or requests for waivers or other actions from holders. Instead, those beneficial owners are permitted to act only to the extent that they have received appropriate proxies to do so from DTC or, if applicable, a DTC participant. The applicable procedures for the granting of these proxies may not be sufficient to enable owners of beneficial interests in global notes to vote on any requested actions on a timely basis. In addition, notices and other communications relating to the Notes will be sent to DTC, and we expect DTC to forward any such communications to DTC participants, which in turn would forward such communications to indirect DTC participants, but we can make no assurances that holders will timely receive any such communications.

The indenture governing the Notes does not contain any financial or operating covenants or restrictions on the payments of dividends, the incurrence of indebtedness, or the issuance or repurchase of securities by us or any of our subsidiaries. The indenture contains no covenants or other provisions to afford protection to holders of the Notes in the event of a fundamental change or other corporate transaction involving us except to the limited extent set forth in the indenture. The increase in the conversion rate for Notes converted in connection with a make-whole fundamental change or a notice of redemption may not adequately compensate holders for any lost value of their Notes as a result of such transaction or redemption. If a make-whole fundamental change occurs prior to the maturity date or if we deliver a notice of redemption, we will, under certain circumstances, increase the conversion rate by a number of additional shares of our common stock for Notes converted in connection with such make-whole fundamental change or Notes called (or deemed called) for redemption that are converted during the related redemption period. The increase in the conversion rate will be determined based on the date on which the make-whole fundamental change occurs or becomes effective, or the date we deliver the notice of redemption, as the case may be, and the price paid (or deemed to be paid) per share of our common stock in the make-whole fundamental change or determined with respect to the notice of redemption, as the case may be. The increase in the conversion rate for Notes converted in connection with a make-whole fundamental change or notice of redemption may not adequately compensate holders for any lost value of their Notes as a result of such transaction or redemption. Furthermore, if we call only a portion of the outstanding Notes for redemption, only those Notes called (or deemed called) for redemption will become convertible as a result of such call for redemption and only the conversion rate of Notes converted in connection with such notice of redemption will be increased. In addition, if the "stock price" (as defined in the indenture governing the Notes) is greater than $60.00 per share or less than $7.32 per share (in each case, subject to adjustment), no additional shares will be added to the conversion rate. Moreover, in no event will the conversion rate per $1,000 principal amount of Notes as a result of this adjustment exceed 136.6120 shares of common stock, subject to adjustment in the same manner as the conversion rate. Our obligation to increase the conversion rate for Notes converted in connection with a make-whole fundamental change or Notes called (or deemed called) for redemption that are converted during the related redemption period could be considered a penalty, in which case the enforceability thereof would be subject to general principles of reasonableness and equitable remedies.

The conversion rate of the Notes is subject to adjustment for certain events, including, but not limited to, the issuance of certain stock dividends on our common stock, the issuance of certain rights or warrants, subdivisions, combinations, distributions of capital stock, indebtedness, or assets, cash dividends, and certain issuer tender or exchange offers. However, the conversion rate will not be adjusted for other events, such as a third-party tender or exchange offer or an issuance of common stock for cash, that may adversely affect the trading price of the Notes or our common stock. An event that adversely affects the value of the Notes may occur, and that event may not result in an adjustment to the conversion rate.

We do not intend to seek a rating on the Notes. However, if a rating service were to rate the Notes and if such rating service were to lower its rating on the Notes below the rating initially assigned to the Notes or otherwise announces its intention to put the Notes on credit watch, the trading price of the Notes could decline.

The conversion rate of the Notes is subject to adjustment in certain circumstances, including the payment of certain cash dividends and in connection with a conversion upon a make-whole fundamental change or notice of redemption. Adjustments (or failures to adjust or to adjust adequately) that have the effect of increasing the proportionate interest of a holder of the Notes in our assets or earnings and profits may, in some circumstances, result in a deemed distribution to such holder for U.S. federal income tax purposes even though no cash is received. Adjustments to the conversion rate made pursuant to a bona fide, reasonable adjustment formula that has the effect of preventing the dilution of the interest of the holders of the Notes, however, will generally not be considered to result in a deemed distribution. In addition, if we do not adjust (or adjust adequately) the conversion rate after an event that increases a holder's proportionate interest in us, the holder could be treated as having received a deemed taxable dividend. If a holder is subject to backup withholding, or is a non-U.S. holder subject to U.S. federal withholding tax, such withholding may be withheld from or set off against subsequent payments on the Notes or our common stock owned by such holder or from any proceeds of any subsequent sale, exchange, or other disposition of such Notes or such common stock or other funds or assets held by such holder. The IRS has issued proposed regulations addressing the amount and timing of deemed distributions, obligations of withholding agents, and filing and notice obligations of issuers, which, if adopted, could affect the U.S. federal income tax treatment of a holder of the Notes deemed to receive such a distribution.

Prior to the close of business on the business day immediately preceding April 15, 2031, holders may convert their Notes only if specified conditions are met. If the specific conditions for conversion are not met, holders will not be able to convert their Notes, and may not be able to receive the value of the cash, common stock, or a combination of cash and common stock, as applicable, into which the Notes would otherwise be convertible.

In general, as market interest rates rise, notes bearing interest at a fixed rate generally decline in value because the premium, if any, over market interest rates will decline. Consequently, if market interest rates increase, the market value of the Notes may decline. We cannot predict the future level of market interest rates.