Illustrative sizing · $5mm net to Project

Illustrative Terms Detail

Face $41.92mm · growth capital $5.00mm · coupon $178,101/yr (0.425%) · constant yield 2.1264% · unit allocation $2.00mm warrant + $1.35mm cell participation.

Terms

Issuer / Borrower: The Project — the operating company raising growth capital. It issues a single five-year senior note and a warrant, together sold as one unit.
Lender: The holder of the unit — private credit fund, family office, or insurance balance sheet. The Lender may be several investors, each holding the unit through a separately managed account with its RIA acting for it. The Lender advances the full face amount at closing. The RIA's advisory fee is paid by the Lender outside the structure — never from the raise or the Insurance Company cell — as a fixed annual fee of 0.20% of the amount invested, set in dollars at inception, unchanged by any claim, stop or success put, and no higher than the RIA's rate on the Lender's other assets. It is not reflected in any return shown.
Note / Term: Five-year bullet. No amortization, no cash sweep, no mandatory prepayment. Principal is due in a single payment at maturity and is collateralized 1:1 by U.S. Treasury STRIPS maturing on the same date.
Unit Price / Raise: One unit is priced at the note's face amount. Face equals raise equals STRIPS face: every dollar advanced is covered by the Note and collateralized at par value at maturity. The unit price is allocated three ways by appraisal — to the Warrant, to the founding participation, and to the note issue price.
Funds Flow at Closing: Of each $1.00 advanced: 79.50¢ to UST STRIPS for the Insurance Company cell, executed by the Dealer and held in a segregated account at the Custodian; 11.93¢ of growth capital for the Project in two equal tranches (5.96¢ released at closing and 5.96¢ into the milestone escrow at the Custodian); 5.45¢ of policy premium; 2.12¢ to the coupon reserve escrow at the Custodian; 0.50¢ Insurance Company fee; and 0.50¢ custody and administration fee shared by the Custodian and the Administrator. No broker or RIA fee is paid out of the raise. The Dealer is paid only through its execution of the STRIPS purchase. No portion other than the growth capital advance is ever paid to, held by, or property of the Project.
Threshold Characterisation — Who Acquires the STRIPS: One unresolved question drives three tax consequences, and it is answered once here rather than three times elsewhere. The question: is the Project treated as having borrowed the full note issue price and directed its application (the conduit view), or is the Lender treated as purchasing the STRIPS directly as cell capital, with the Project receiving only the growth capital (the direct-purchase view)? Consequence 1 — issue price and OID: on the conduit view the issue price is 92.01 per $100 and the OID is 7.99 per $100, exactly the unit allocation to the Warrant and the founding participation. Issue price is symmetrical between holder and issuer, so any characterisation that reduces it raises the Lender's OID income by the same amount, and the coupon reserve is sized for that OID only. Consequence 2 — deduction and basis: on the conduit view the amount applied to cell capital is a capital expenditure creating basis in the cell interest, not a deduction; on the direct-purchase view there is neither. Consequence 3 — forfeiture loss: basis determines whether forfeiting the cell interest on a maturity default produces a recognised loss. The tension is plain — the funds-flow insolvency protection rests on the direct-purchase view while the stated issue price rests on the conduit view. Counsel selects one characterisation and carries it consistently, delivered as a closing-condition opinion.
Lender Interest: A stated cash coupon of 0.425% per annum (qualified stated interest) plus original issue discount accreting on a constant-yield basis at 2.1264%. The OID accrual chain terminates exactly at face.
Collateral: U.S. Treasury STRIPS with face equal to the note face, purchased at 79.50¢ through the Dealer and held in a segregated account at the Custodian for the Insurance Company cell — held for the cell's benefit, excluded from the Custodian's estate, and never lent or rehypothecated. The STRIPS accrete to par at the note's maturity date.
Policy: An insurance policy written by the Insurance Company cell permitting the Lender to claim any fraction of the STRIPS at any time — no default, no consent, no sale process. Claims settle in kind: the Administrator delivers the claimed STRIPS from the segregated account at the Custodian, and they satisfy the Note at full maturity value.
Policy Premium: 5.45¢ per dollar advanced, paid at closing to the cell as a tax prefund. It is not available as compensation. Unearned premium is returned pro rata on any claim.
Wrapper Protections: The cell is a segregated, bankruptcy-remote account of the Insurance Company. Cell assets are not available to creditors of the Project or of other cells, and are not commingled with the Project's estate.
Coupon Reserve: 2.12¢ per dollar advanced, escrowed at closing and sized to fund all five stated coupons. The reserve is held at the Custodian, outside the Project, and is paid out by the Administrator to the Lender on each coupon date.
Growth Capital Tranching & 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 by the Administrator against KPIs agreed at closing between the Project and the RIA. The interval between the tranches is not fixed by the structure: the test date is agreed at closing between the Lender and the Project, sized to the time the first tranche needs to produce measurable results. If the KPIs are met, tranche 2 releases, the warrant stands at the full 20%, and the structure runs unchanged to maturity. If they are not, the RIA has a one-time option on that test date: a 50% claim is filed matching the undeployed half of the capital, half the STRIPS are delivered by the Administrator, the escrowed tranche 2 is returned in full, half the unused coupon reserve and half the unearned premium are released, and the Lender keeps half the warrant — 10% of fully diluted. The Project's cell option and the founding participation are each halved, not forfeited. Tranche 1 stays deployed with the Project, and the other half of the position runs to maturity, still covered 1:1 by the STRIPS left in the cell under the policy.
Success Put — Automatic Early Repayment at 20x Coverage: If the Project's enterprise value reaches 20x the note face at any time before maturity, the Lender may put the Note to the Project, and the Project must repay at par plus accrued interest. The right is automatic on the trigger and exercisable at the Lender's option; it is not a maturity acceleration and it is not a default remedy. What is put and what is not: the Note is repaid, and the Warrant survives in full and runs to maturity. That distinction is the point of the feature — the Lender retires the credit leg once the credit risk has effectively disappeared, while keeping the equity leg running; a put that also closed out the Warrant would cap the upside at the trigger and destroy more value than the early repayment creates. On exercise: coupons cease, the unused coupon reserve returns to the Lender, and the policy terminates. The cell interests vest and are distributed at once, in kind — the Administrator delivers the Project's 40% and the founding investors' 9% share of the STRIPS at their accreted value on the put date, maturing to face at year 5, while the Insurance Company's 51% remains in the cell. Because the cell no longer carries the distributed STRIPS, the unearned prefund for their later accretion is returned to the Lender, on the same basis as on a claim. The Project therefore receives liquid Treasuries at the moment it refinances. Why the Project accepts it: at 20x coverage the Note is about 5% of enterprise value and refinanceable on conventional terms, and early repayment stops the interest accrual. Trigger mechanics — valuation basis, observation dates, and what evidences enterprise value — are counsel items, as is the interaction with Liquidity Events.
Claims / Forfeiture: A claim delivers STRIPS in kind at their accreted value, cancels the matching fraction of warrant coverage and of the remaining coupons, and returns matching unused reserve plus unearned premium to the Lender. The Project's cell option and the founding participation are reduced pro rata by any claims filed. Exercise of the milestone gate is a 50% claim and takes effect under these same pro-rata rules.
Default at Maturity: If the Project does not repay the bullet, the policy auto-files a claim for the full remaining STRIPS. The Lender receives full principal at par plus all five coupons, and retains the 20% warrant in full. The Project's cell option and the founding participation are forfeited.
Warrant Terms: 20% of the Project's fully diluted capitalisation at closing, nominal strike, vesting at maturity or on default. Under §1273(c)(2) the unit price is allocated by appraisal among the Warrant, the founding participation and the Note: warrant 4.77, founding participation 3.22 and note issue price 92.01 per $100. A non-voting board observer applies from closing, upgrading to a board seat on warrant exercise.
Liquidity Events / Change of Control: The warrant participates in any sale, merger, recapitalization or IPO on the same terms as common equity, without cap and without regard to the Note's repayment status. On a sale that repays the Note in full, the cell interests vest and are distributed at once in kind, as on the Success Put.
Covenants / Reporting: No financial maintenance covenants. Quarterly financial statements, annual audited accounts, capitalization table on request, notice of any liquidity event or change of control, reporting against the milestone KPIs, and a non-voting board observer from closing. No consent rights beyond the negative covenants.
Founding-Investor Participation: The investors in the program's first Project are its founding investors. They receive a 9% participation in the Insurance Company cell of their own Project and of every other Project that closes in the program's first two years, pro rata to their holding of the first Project's units. Each participation vests only if that Project repays in full — at maturity, through the success put, or on a sale — and is forfeited if it defaults. For the first Project the participation is part of the investment unit: Note + Warrant + Policy + founding participation. Investors in later Projects hold no cell participation. At the $5mm sizing, each further first-two-year Project of the same size that exits adds about $3,543,243 to the founding investors — about $84,517 for each $1,000,000 of the first Project's units.
Cell Interests at Maturity: Measured on the matured STRIPS at face. The Insurance Company retains 51% in all cases. The program's first Project and every other Project closing in the first two years carry Project 40% and founding investors 9%, the 9% held by the first Project's Lenders; Projects closing after the second anniversary carry Project 49% with no founding share. No other party holds an interest. Interests vest only on repayment in full — at maturity, or earlier on the success put or a sale, when they are distributed at once in kind — are forfeited on a maturity default, and are reduced pro rata by claims.
Tax Intent: The unit is intended to be treated as an investment unit under §1273(c)(2), with the price allocated among the Note, the Warrant and the founding participation, and the note carrying OID accreting on a constant-yield basis. The Lender's participation is purchased property with basis equal to its allocation, not compensation. The stated coupon is sized to exactly 21% of each year's interest income so the instrument is cash-neutral to the Lender on a federal corporate basis.

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. Principal is collateralized 1:1 by Treasuries with an anytime claim, so credit performance does not drive recovery.	Collateral · Policy
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 & Milestone Gate
Security interest in the Project's assets	Not required. Recovery sits in the segregated cell, not in the Project's estate; the Lender never depends on foreclosure.	Wrapper Protections
Amortization or cash sweep	Declined. The bullet is what allows the capital to compound for the full term; the STRIPS handle repayment risk.	Note / Term
Higher cash coupon	Declined. The coupon is a tax-matching mechanism sized to 21% of interest income, not a yield component. Return comes from the warrant.	Lender 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.	Covenants / Reporting · 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 policy auto-files a claim for full principal; there is no workout, no negotiation, no committee.	Claims / Forfeiture · Default at Maturity
MFN or anti-dilution ratchet	Declined. Dilution is fixed at 20% of the fully diluted capitalisation at closing, which is what makes the paper standardizable.	Warrant Terms
Tax opinion	Provided as a closing condition. Unit treatment under §1273(c)(2), the threshold characterisation of who acquires the STRIPS, and the constant-yield OID schedule are opined on by counsel.	Tax Intent · Threshold Characterisation

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, insurance, or investment advice.