Financing Options

Please review the Oppoexhibit belowregarding the different options for Oppo Operationss financing, taking into consideration any accounting or tax implications for each option.

Oppo needs to borrow 3 Million

Oppo Operations has several options to establish its capital structure policy. The objective is to provide a stable structure for further growth. The shareholders are also concerned with earnings-per-share implications.

Option 1 Four-year term loan

OPPO Operations can borrow $3,000,000 in a four-year term loan, at 9% interest. This loan would be taken in January 2016 and repayments will commence in the beginning of February 2016, with blended principal-plus-interest payments. The loan will be repaid in full by January 1, 2020.

The loan requires personal guarantees by all shareholders and the bank will hold Desert Valleys capital assets as collateral. In addition, there will be debt-to-equity and current ratio covenants that must be complied with. If OPPO Operations is offside on the covenants, immediate repayment is required.

Option 2 Four-year unsecured debenture

OPPO Operations has the opportunity to issue a 7%, $3,000,000 face-value debenture to a private investor on January 1, 2016. The debenture will be priced at issuance to achieve a yield to maturity of 11%. Coupon payments are made semi-annually on July 1 and December 31, with the first payment to be made on July 1, 2016. The final payment will be made on December 31, 2019. The effective interest-rate method would be used. There are no associated covenants with this lending.

Option 3 Issue preferred shares

A final option is to issue 8,500 voting, non-redeemable, convertible preferred shares for $3,000,000 to a private investor. The shares would include a 4% cumulative dividend. In addition, they would be convertible to 8,500 common shares at the option of the holder.

Other info:

2016 estimated pre-tax income is estimated to range somewhere between $4,000,000 and $5,000,000.

OPPO Operations currently has 23,375 common shares outstanding.