Illustrative sizing · $5mm of growth capital · taxable class

Illustrative Terms Detail

Face $35.31mm · growth capital $5.00mm · coupon $371,836/yr (1.053%) · constant yield 5.720% · unit allocation $6.99mm warrant · STRIPS face $35.31mm pledged as collateral.

Terms

Issuer: The Project — the operating company raising growth capital. It issues a single note with a term of five years or less and a warrant. The collateral is held by the Vehicle, a Bermuda orphan SPV, one per Project, owned by a professional trustee under a purpose trust, which grants a pledge over it and issues no security to the investor. No insurance is written or bought anywhere in the structure.
Investor and the unit: The holder of the unit — private credit fund, family office, insurance balance sheet, or an account that pays no US tax on interest — each holding the unit directly or through an adviser of its own choosing. The unit is three things: the Note; an irrevocable right, as a term of the Note, to require prepayment in kind at any time out of pledged UST STRIPS; and a 20% Warrant at nominal strike carrying no anti-dilution protection. The investor holds no participation in the Vehicle. The unit is issued in two classes: a taxable class carrying a small coupon and a coupon reserve, and a tax-exempt class issued as a zero-coupon note with no reserve.
Note and Term: A bullet note with a term of five years or less, measured from issue, and face equal to the raise. No amortization, no cash sweep, no mandatory prepayment. How the dates are set. The collateral line is chosen first, for depth and price; the Note's maturity is then set 45 to 90 days before the collateral matures, and the closing date is set so that the term is five years or less measured from issue. That ceiling is a hard constraint, not a convention: a term of more than five years would bring the Note within the high-yield discount obligation rules, which would defer and in part permanently disallow the Project's interest deduction. The gap between the two maturities is deliberate and is never eliminated — it is what keeps the repayment and the participation as separate settlements on separate dates.
Unit Price and Raise: One unit is priced at the Note's face amount. The unit price is allocated between the Warrant and the note issue price by appraisal, and the two sum to face. 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 the allocation is appraised rather than assumed. The program floor is stated in growth capital, not face: no Project is financed below $5,000,000 of growth capital, and the face that delivers it follows from the investor class.
Funds Flow at Closing: Taxable class, of each $1.00 advanced, in 8 legs: 79.00¢ ust strips securing the prepayment right; 7.08¢ growth capital - tranche 1, at closing; 7.08¢ growth capital - tranche 2, milestone escrow; 5.28¢ coupon reserve - investor tax-matching escrow; 0.28¢ structuring company - diligence, independent warrant appraisal and technology, flat, per project; 0.85¢ vehicle formation and administration - flat, per vehicle; 0.01¢ retained by the vehicle - its own benefit from the transaction; 0.42¢ administrator and custodian - $25,000 once + $25,000/yr escrowed. The STRIPS are purchased through the Dealer and held at the Custodian. The Dealer buys the collateral and deals with no investor. The Structuring Company's diligence, independent Warrant appraisal and technology platform cost $100,000 flat per Project. The Vehicle costs $50,000 at closing plus $50,000 a year escrowed for the term, $300,000 in all, and does not scale with the raise. The combined Administrator and Custodian is paid a fixed amount escrowed at closing for the term — $25,000 once plus an annual amount of $5,000 per $1,000,000 of growth capital advanced, floored at $25,000 and capped at $150,000 a year. No adviser fee is paid out of the raise and no fee in the structure is a percentage of face; where a placement agent is engaged, its fee is paid at closing out of the proceeds, set as a multiple of growth capital and stated before subscription.
Warrant — Exercise, Expiry and Change of Control: The Warrant is exercisable in whole or in part at any time from issue until 90 days after the maturity date, by payment of the nominal strike or by net exercise at the Investor's election, so the right cannot fail for want of a cash payment. On a change of control — a sale of the Project, a merger, a sale of substantially all its assets, or an initial public offering — the Warrant becomes immediately exercisable in full, immediately prior to and conditioned upon the event, so that the Investor participates in the consideration on the same terms as the common stock. If it is not exercised, the acquirer assumes it on economically equivalent terms, or it is cashed out at the per-share consideration less the strike. The Project gives the Investor 20 business days' written notice of any such event. Exercising the Success Put does not affect the Warrant, which survives in full and remains immediately exercisable: repaying the Note early is not a termination event for the equity. These terms are load-bearing rather than boilerplate, because a Project that reaches 20x the Note face has usually been sold or taken public, and a warrant that could not be exercised into that transaction would be worth nothing in precisely the case the structure exists to reward. They also align the documents with the appraisal, which values the Warrant as a participation in the Project's equity however that equity is realized. The Investor may elect to take non-voting common on exercise, on economically identical terms. That election exists for a particular holder: a private foundation and its disqualified persons may hold no more than 20% of a corporation's voting stock under Code section 4943, and a 20% Warrant exercised into voting stock lands exactly on that line — with no grace period for holdings acquired by purchase. Non-voting stock is a permitted holding. The election costs the Project nothing and no holder who does not need it need make it.
Right to Require Prepayment: A term of the Note itself. The investor holds an irrevocable right to require prepayment in kind, in whole or in part, at any time, satisfied out of the pledged collateral by an independent collateral agent through delivery of STRIPS with face equal to the principal prepaid. Delivered STRIPS satisfy the Note at their full maturity value. The right is secured by a first-priority perfected security interest in the securities account under a control agreement, is not conditioned on any default, and requires no consent, no sale process and no claims adjustment. The Vehicle grants a pledge, not an option, and issues no security to the investor at all.
Why it is not a guarantee: Under §861(a)(9), amounts received directly or indirectly from a US person for providing a guarantee of that person's indebtedness are US-source and taxable to a foreign recipient at 30%, and Bermuda has no US income tax treaty. The prepayment right is not a guarantee: it is exercisable whether or not the Project has defaulted, and the Vehicle's only obligation is to deliver securities it already holds, with no recourse beyond them. The Structuring Company's participation is compensation for structuring and arranging, not for credit: a fixed multiple of the growth capital, paid only if the Project repays, subordinated to the prepayment right. The Vehicle is paid a flat $300,000 for its running costs and nothing else.
Collateral: UST STRIPS purchased through the Dealer at 79.00, maturing 45 to 90 days after the Note, face $35,305,619, costing $27,891,439. The collateral is a single line. The Dealer is instructed to price both the generic interest component and the available principal components for the chosen date and to execute the better of the two on a best-execution basis, subject to the pool remaining one identifier — which is what keeps a partial exercise a simple transfer of face rather than a question of which security is delivered. Interest components are fungible across the securities they were stripped from, which deepens supply at a single date and makes the line far harder to squeeze than a principal component, for which reconstitution demand creates a natural scarcity bid; principal components are the more liquid line in the secondary market, and that trade-off is resolved at pricing rather than in advance. Either way the credit, the tax treatment and the government-securities analysis are identical. The line is chosen once, at closing, and there is no right of substitution afterwards, so the pool is fixed for Rule 3a-7 purposes. Held in a securities account at the Custodian for the Vehicle and pledged to an independent collateral agent for the Investors under a first-priority security interest perfected by a control agreement over the account and all financial assets credited to it. At each closing the Structuring Company represents that the Dealer is unaffiliated with it, with the Vehicle, with the Administrator and Custodian and with the Project. The Dealer prices both the interest and the principal components for the chosen date and executes the better of the two. Its compensation is the dealer spread and nothing else, and no part of it is shared with any other party to the transaction. If that ever ceases to be true for a given Project, it is disclosed before subscription.
The Vehicle: A Bermuda orphan special purpose company, bankruptcy-remote and dedicated to this Project alone. Its shares are held by a professional trustee under a Bermuda purpose trust, so that no party to the transaction owns it. It is a separate legal person with independent directors, dedicated to one Project, and no US person holds its shares — which is what keeps a foreign corporation whose assets are Treasuries outside the passive foreign investment company regime and outside the controlled foreign corporation rules. It writes no insurance, issues no security to the investor and takes no deposit: it holds the collateral, grants the pledge and does nothing else. The Vehicle costs $50,000 at closing and $50,000 a year, escrowed for the term. It covers Bermuda government fees, the registered office and resident representative, corporate secretarial work, two professional independent directors, the purpose trustee, economic substance and anti-money-laundering filings, and accounting. It is a cost, not a margin: an orphan vehicle that cannot pay its directors or its trustee stops being independently governed, and the whole structure depends on it remaining so for the full term. It does not scale with the raise; the Vehicle also retains $5,000 as its own benefit from the transaction, so its directors can conclude it is entering the transaction for value. Each Vehicle stands alone, and no investor holds an interest in any Vehicle but its own.
Diligence and Appraisal: The Structuring Company performs transaction diligence on the Project — financial, legal, cap table and the KPI test that governs the milestone tranche — and engages and pays the independent valuation firm that appraises the Warrant. These are covered by a flat $100,000 fee per Project, paid at closing out of the raise, which does not scale with the raise and is not a percentage of face. The Structuring Company is the right party to engage the appraiser because it is the only party whose economics are unaffected by the appraised number: its participation is a fixed multiple of the growth capital and its fees are flat, so no appraisal outcome changes what it receives, while the Project and the investor sit on opposite sides of the allocation. The engagement is joint with the Project, the Structuring Company has no discretion over methodology, and reliance letters run to the Project, the investor and the Vehicle. Because the fee is funded out of the raise and the Structuring Company's participation is set in dollars on the growth capital, the fee does not change the Project's cost of capital, which remains 10% a year after tax; it is borne by the investor through a marginally larger face for the same Warrant.
Participations: Only two parties hold participations, set in dollars, not as shares of the collateral: the Structuring Company, a US corporation incorporated in South Dakota, takes 1.7728x the growth capital as compensation for structuring and arranging, the Project's entitlement is the matured face less the Structuring Company's requirement, and the Structuring Company takes the residual. That fixes the Project's cost of capital at 10% a year after tax (12.133% before tax) at any collateral price and in either class; percentages of face are derived outputs. Both are capped contractual rights with no votes, no liquidation rights and no right to acquire shares. They vest on repayment in full, are distributed when the collateral matures, reduce pro rata on any exercise of the prepayment right, and are extinguished on a maturity default. The investor holds no participation.
Why not a capital contribution: The Project does not subscribe for shares in the Vehicle and makes no capital contribution. Its payment at closing is consideration for its contractual participation and sits as a liability of the Vehicle, which keeps it off the share register and so outside the passive foreign investment company regime.
Investor Interest: Taxable class: a stated cash coupon of 1.053% per annum (qualified stated interest) plus original issue discount accreting on a constant-yield basis at 5.720%. The OID accrual chain terminates exactly at face.
Coupon Reserve: 5.28¢ per dollar advanced, escrowed at closing at the Custodian and sized to fund all five stated coupons. Paid to the investor on each coupon date; on any exercise of the prepayment right the matching unused reserve is released to the investor.
Settlement, Set-Off and Timing: The Note and the participations settle gross, on different dates, between different parties. The Project funds the repayment from a refinancing arranged in its own name; its participation arrives 45 to 90 days later when the collateral matures. There is no right of set-off, combination or netting.
Growth Capital Tranching and the Milestone Gate: Growth capital is advanced in two equal tranches: the first at closing, the second held at the Custodian in a milestone escrow and released on the milestone test date against KPIs agreed at closing. The test date is agreed at closing between the investor and the Project. If the KPIs are missed, the stop option is a 50% exercise of the prepayment right: half the STRIPS are delivered, the escrowed tranche 2 is returned, any matching unused coupon reserve is released, and the Warrant and both participations are reduced by half.
Success Put at 20x: If the Project's enterprise value reaches 20x the note face at any time before maturity, the investor may require repayment at par plus accrued interest, at the Investor's option and not automatically. The Note is repaid and the participations vest; the Warrant is unaffected — it survives in full and remains immediately exercisable, and a change of control accelerates it.
Default at Maturity: If the Project does not repay the bullet, the investor exercises the prepayment right in full. The delivered STRIPS satisfy the Note at full maturity value and the Warrant is retained in full. Both participations are extinguished.
Warrant Terms: 20% of fully diluted capitalization at closing, nominal strike, exercisable from issue until 90 days after maturity and immediately on a change of control, retained in full on a maturity default, and carrying no anti-dilution protection: later financing rounds dilute it like any other holding. Later Projects in the program carry a 15% warrant.
Transfer: The unit transfers as a whole and only to accredited investors and qualified institutional buyers. Transfers between separately managed accounts are permitted, so an investor needing liquidity may sell rather than exercise and keep the warrant it has earned.
How the Investor holds it, who advises it, and what that adviser is paid: The Investor may hold the unit directly, or through an adviser of its own choosing. The program neither selects an adviser for any Investor nor refers any Investor to one. Where an Investor does use an adviser, the account must be non-discretionary and the Investor must direct each purchase, and that is represented at subscription. The adviser may advise on the Note; it may not subscribe for it on a discretionary basis. What the Investor pays its adviser is set by that adviser's own agreement and is not a term of this Note. The program does not set it, does not publish it and does not fund it. No advisory fee is paid out of the raise, and none is funded by the Project, the Vehicle or the Structuring Company. An Investor who holds the Note without an adviser pays none. No fee in this structure is a percentage of face.
The Representative's interest - a conflict the program discloses rather than denies: One member of the Structuring Company intends to become a registered investment adviser representative of an independent RIA. He is not registered today, he has no advisory clients, and no Investor comes through him. Whether he ever registers depends on a firm associating with him and approving the arrangement, which is that firm's decision and not the program's; it may not happen. What follows describes the conflict that would arise if it does, set out now rather than later so that an Investor meets it before it exists rather than after. He holds a non-voting, economic-only equity interest in the Structuring Company — not in the Vehicle, not in the Project, and not in any participation. He advises Projects at a high level and the detail is not his — each Project's documentation, diligence, administration and appraisal belong to the company's other members. Were he registered and were a client of his to subscribe, his economics would improve, and that prospective conflict is disclosed here, would be disclosed in his firm's Form ADV, and would be disclosed again at subscription. He is paid three ways and the Investor should know all three. The Structuring Company pays him a fixed fee for that role, set by reference to the work it involves, which does not vary with any Project closing, with the capital raised or with the number of Projects and is met from member capital rather than out of any raise. It is payable whether or not any Project ever closes. As an owner he receives his share of that company's distributions, contingent on Projects repaying. And his clients pay him his firm's ordinary advisory arrangement across his whole book, the same whether a client holds Notes or anything else — not a fee for this instrument, and not set by the program. Four things limit the conflict. His interest is in the company and is never a share of any participation: no per-Project accounts, classes or series, and his return does not move with any single transaction. It does not vest, accelerate or increase on any closing. His sponsor-side pay is fixed, carries no bonus tied to a raise and comes from member capital rather than out of any raise. And no lead passes from the Structuring Company to him or to his firm — his advisory clients are his own and pre-date the program. Any such RIA must be independent of the program: holding no interest in the Structuring Company, the Vehicle, any Project or any participation, with nothing passing between them in either direction. Until he is registered and his firm has approved the arrangement in writing, he advises no investor in any capacity. If he registers, he may advise a Project whose Note a client of his acquires, and four conditions govern that case. Disclosure and written consent from both sides before he acts. He negotiates no term for either — the terms of this instrument are derived rather than negotiated, so there is no price between the two sides for anyone to set. No part in the appraisal on any Project, which is the one input on which the Project and the Investor genuinely sit on opposite sides. And no introduction in either direction: no client to any Project, no Project to any client. A per-Project record of which side he acted on and which of his clients were in the deal is kept at the time.
ERISA plans and IRAs - who may advise one into the Note: No ERISA plan and no IRA may be advised into the Note by any person holding an interest in the Structuring Company. A plan or IRA investor must come through a channel in which the recommending or discretionary fiduciary holds no interest, direct or indirect, in the Structuring Company, the Vehicle, the Project or any participation, and the subscription documents take that as a representation from the plan's fiduciary. Disclosure cannot cure this one. ERISA section 406(b) prohibits a fiduciary dealing with plan assets in its own interest, and the section 408(b)(2) services exemption does not reach it; Code section 4975 applies the same rule to IRAs. Where the Advisers Act manages the conflict in the row above by disclosure and consent, section 406(b) is a flat prohibition, so the program removes the conflict instead of disclosing it. This restricts who may advise a plan, and nothing else. A plan or IRA may acquire the Note on exactly the same terms as any other Investor, at the same price, through the same instrument. The program sets no advisory fee for anyone. There is no other eligibility condition of any kind. The Note is debt, so a plan's purchase does not make the Vehicle's assets plan assets.
Who may offer and sell the Note — and what the Structuring Company is not: The Structuring Company is not a registered broker-dealer, is not a registered placement agent, and is not registered in any capacity under the Securities Exchange Act of 1934 or with FINRA or any state. It has given no undertaking to become registered and may never do so. Its role is confined by written agreement with each Project to issuer-side services — designing the instrument and the collateral mechanics, documentation, procuring the independent appraisal, the technology platform, Project diligence, administration and reporting. That agreement expressly excludes every investor-facing function: identifying, contacting, soliciting or negotiating with any investor or prospective investor, preparing or transmitting subscription documents, confirming accreditation, and allocating capacity among investors. It receives no compensation, in any form, for finding or introducing an investor. The Project offers and sells its own Note, through its own officers, who are salaried and are not paid any commission or other remuneration based directly or indirectly on transactions in securities. That is so whether an Investor comes on its own or through an investment adviser: the adviser advises its client and the client subscribes directly from the Project, on a non-discretionary, client-directed basis. An adviser does not offer or sell the Note and holds no selling agreement; the advisory firm receives nothing from the Project, the Vehicle or the Structuring Company and is paid by its own client. One case would be different, and it does not yet exist. A member of the Structuring Company intends to become a representative of an independent RIA and is not one today. If he does, and the adviser is that firm, that representative may also be advising the Project in the same transaction, and he is paid by the Structuring Company for that work. The advisory firm would still be on the Investor's side and would still sell nothing; the person may be on both sides, which is why the four conditions above govern that case — consent from both, no term negotiated by him, no part in the appraisal, no introduction either way. Until then he advises no investor at all. Only one case puts the selling function anywhere other than the Project. Where a Project instead requires a placement agent, an unaffiliated registered broker-dealer is engaged for that Project. Its fee is a multiple of the growth capital, not a percentage of what is raised — 10% of the first $10,000,000 of growth capital, 7.5% of the next $15,000,000 and 5% above that, capped at $3,500,000 per Project — so no fee in this structure is a percentage of face, and the fee is the same number in both investor classes. Nothing is payable to the agent before closing: no retainer, no work fee and no expense advance — a condition of engagement rather than a negotiating position, and one the program expects will leave an agent unavailable for most Projects. The fee is paid at closing out of the proceeds, which enlarges the face; the Project's cost of capital is unchanged at 10.0% a year after tax and the growth capital it receives is unchanged, because the Structuring Company's entitlement is denominated in dollars on the growth capital rather than as a share of the collateral. The cost falls on the Investor, through a larger face for the same Warrant. Whether a placement agent has been engaged for a Project, and on what terms, is stated before subscription.
Investment Company Act: The Vehicle holds only US Treasury obligations, does not trade, manage or reinvest, and exists for one Project. Government securities are excluded from "investment securities" for the 40% test, and the Vehicle is built to Rule 3a-7: a fixed pool of eligible assets, no acquisition or disposition for gain, an independent collateral agent, and issuance only to accredited investors and qualified institutional buyers. The redeemable-securities condition is met by design: the Vehicle issues no security to the investor at all. §3(c)(1) is the fallback, and the program is a series of financings, not a fund.
Project Economics: The Project receives the growth capital, repays the Note face on the maturity date, and receives its participation — the matured face less the Structuring Company's requirement — 45 to 90 days later. The net cost is fixed at 10% a year after tax on the growth capital; the liquidity it must arrange is the gross amount.
Tax Intent: The unit is allocated between the Note and the Warrant by appraisal. A taxable investor accrues OID on a constant-yield basis, with the tax funded by the coupon over the term; the tax-exempt class carries no coupon. The Vehicle accrues no US tax on the STRIPS, relying on the portfolio interest exemption with W-8BEN-E certification and FATCA documentation.

How the program is reached

No Note is offered through this site and no subscription is taken here.

Today there is one channel: a Project offers and sells its own Note through its own officers, and an investor may come on its own or through an adviser of its own choosing. Where a Project needs demand found, an unaffiliated registered broker-dealer is engaged for that Project, and the fact is stated before subscription. The Structuring Company does not approach investors, does not take subscriptions and is paid nothing for finding one.

An investor may hold the unit directly, or through an adviser of its own choosing. The program does not select an adviser or refer investors to one, and nothing is paid to any adviser out of the raise. One member of the Structuring Company intends to become a representative of an independent RIA and is not one today; the conflict that would create is disclosed in the terms, and he could advise no ERISA plan or IRA into the Note.

Counsel items

Whether the Vehicle falls outside the Investment Company Act under Rule 3a-7, with §3(c)(1) as fallback, and whether the program could be recharacterized as a pooled vehicle.
Whether the orphan SPV, owned by a professional trustee under a Bermuda purpose trust, achieves non-consolidation and sits outside the controlled foreign corporation rules and the Investment Company Act.
Whether the participations are respected as contracts rather than equity.
Whether the prepayment right is outside §861(a)(9).
Whether the Note is debt under the section 385 factors given the discount.
Perfection and enforceability under Bermuda and New York law.
Portfolio interest documentation, FATCA and W-8BEN-E.
Bermuda economic substance.

Structuring dispositions

How the standard asks are handled, and where in the terms they sit.

Standard structuring asks and their disposition in the Leading Edge Note terms.
Standard ask	Disposition	Where
Financial maintenance covenants	Not required. The right to require prepayment in kind out of pledged Treasuries is exercisable at any time, so credit performance does not drive recovery.	Right to Require Prepayment
Milestone conditionality on the capital	Provided. Half the growth capital sits in escrow to a KPI test at a date agreed at closing, with a one-time stop option if it is missed.	Growth Capital Tranching and the Milestone Gate
Security interest in the Project's assets	Not required. The investors hold a first-priority perfected security interest in the STRIPS account under a control agreement, held by an independent collateral agent.	Right to Require Prepayment · The Vehicle
Amortization or cash sweep	Declined. The bullet is what allows the capital to compound for the full term; the STRIPS handle repayment risk.	Note and Term
Higher cash coupon	Declined. The coupon is a tax-matching mechanism, not a yield component. Return comes from the warrant.	Investor Interest · Coupon Reserve
Consent rights or board seat	A non-voting board observer from closing, upgrading to a board seat on warrant exercise. No consent rights beyond the negative covenants.	Warrant Terms
Warrant cap or return cap	Declined. Upside is uncapped and survives a maturity default; that asymmetry is the instrument.	Warrant Terms · Default at Maturity
Sale process or standstill on default	Not applicable. The investor exercises the prepayment right in full; there is no workout, no negotiation, no committee.	Right to Require Prepayment · Default at Maturity
MFN or anti-dilution ratchet	Declined. The warrant is 20% of fully diluted capitalization at closing and carries no anti-dilution protection; later rounds dilute it like any other holding.	Warrant Terms
Tax opinion	Provided as a closing condition. The unit allocation, the constant-yield OID schedule and the Vehicle's portfolio interest position are opined on by counsel.	Tax Intent

Standard structuring asks and their disposition in the Leading Edge Note terms.

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