This Confidential Memorandum of Terms Is being issued by: Spotlight Innovation ("Company") ____________________

Nevada		46-0549098
State of Register		I.R.S. Employer Identification Number

 

Ref #: «Equity_Cusip_»

CONFIDENTIAL

 

 

 

 

 

Notes:

 

 

 

 

 

The management team of the Company, as determined by the Advisor, will be issued a Value Added Model (“VAM”) as shown in Figure 4. Each series of VAM must be preceded by the fulfillment of the completed Milestone, Breakout and/or warrant series exercise for that VAM disbursement period as detailed in Figure 4. Such bonus pool will be divided according to any Company incentive stock plan or management bonus plan approved by the Investor(s), and reported to the market. Bonus amounts will be paid quarterly as follows:

 

 

 

 

 

 

The total invested cash release is divided into that number of cash Breakouts as described in Figure 1, (“Breakouts”). Once those requirements detailed in Section 2 and Section 3-3.3 have been accomplished, apportioned "Breakouts" of cash from the Company Account would begin according to the Breakout requirements as described in Section 3.4-8.

 

Each Breakout will comprise any amount of time necessary to meet the requirements set in Section 3.5. Breakouts must always be delivered in numerical order.

 

 

These items must be accomplished prior to Breakout start:

 

1.	Completed Registration on the Breakout Shares

2.	Conversion of the Preferred Shares to freely traded Common Shares

3.	Common Shares are electronically deposited with Intermediary

4.	Previous Breakout has completed

5.	Company is in compliance with all instruments

6.	Company is not notified of any non-compliance with applicable securities regulations

 

 

 

 

 

 

 

Breakout Cash Workout metrics will be accounted as follows:

So if given the following theoretical parameters the release for a theoretical Workout Period would be as follows:

 

 

1. Company determines pricing for the Breakout

2. Advisor recalculates Breakout metrics for the Breakout utilizing the new Trade Price

3. Amendment to the Original USA and AMA signed by all parties

4. Amendment delivered to Intermediary to adjust current instructions

 

 

 

Any downward adjustment of the Breakouts Trade Price will simultaneously adjust the Volume metric upwards. The Advisor will calculate the volume metric adjustment and the adjusted volume metric will replace the metric described in figure 7 for that Breakout only.

 

Expending any Cash transferred from the Company Account to the Working Account will be prioritized in the following order:

 

 

The Company will adhere to the Use of Proceeds set forth in Exhibit D. The Company agrees not to use funds from this offering for any purpose not listed in the Use of Proceeds ("UOP") without previous approval in writing from the Advisor. Company further agrees that any significant deviance from this UOP, will be approved in writing by the Investor(s), through the Advisor, prior to such deviation. The Advisor will be the sole arbiter of the significance of the deviation. The Company understands that any such deviation from the UOP may alter the valuation metrics used to evaluate the risk of this offer and increase the risk metrics beyond what the Investors are agreeing to bear. Nothing in this document would restrict the Company from utilizing funds not included in the UOP, or received from a separate offering previously approved by the Investor(s), for purposes as the Company sees fit.

 

 

The Company will ensure that its officers, directors, employees, affiliates and consultants agree not to communicate directly with the Investor(s) at any time. Any verbal communications to the Investor(s) may entail unintentional dissemination of inside non-public information, material representations, or, material disclosures, and, must therefore be avoided.

 

The Company understands that the Investor(s) have retained Catwalk Capital, LLC, (the "Advisor") as their Purchase Advisor to perform Due Diligence, opine on the investment opportunity and monitor the investment process. All communications with the Investor(s), or, Intermediary, shall be conducted through the Advisor. Any discussion of items needed, document delivery or general questions would be directed to Advisor. Any additions or modifications which may be requested or suggested by the Company, must be provided in writing to the Advisor who will communicate such requests to the Investor(s) and Intermediary for their approval.

 

 

The management of the Company agrees to provide a written report to the Advisor quarterly. This Milestone report will include the Milestones identified in the design of the Use of Proceeds. The report will discuss the Company’s achievement of any milestones and/or its progress towards achievement of milestones. These reports should be delivered no later than 10 days following the filing of the Company’s quarterly, or, annual financials. If the Company is not yet fully reporting, these reports will be due 10 days following the completion of the Company’s quarterly or annual financial statement review.

 

 

During the Investment Term, the Company will bear all expenses for the preparation, negotiation and management of this offering including, but not limited to: document creation, due diligence management, escrow, accounts, registrations, filings, professional fees, document processing, account management services and wire and bank fees.

 

During the Investment Term, the Investors will bear their own expenses for investigating this offering and its merits, risks and potential.

 

During the Investment Term, the Intermediary will hold back portions of the deliverable capital to cover any expenses and/or fees which may be billable to the Investors or, the Intermediary during the course of the Offering. These expenses are outlined in Figure 3 and Figure 5. Any cash Holdback is non-refundable.

 

During the Investment Term, the Intermediary will charge monthly and annual fees for the Account maintenance. Intermediary will also charge fees for share deposit, transfer, cash transfers and accounting statements. Bank and wire fees are subject to change.

 

The Company understands that:

 

 

At close, the Company shall deposit 500,000 super voting Preferred Shares Described in Exhibit C with an attorney of the Advisors and Company's choosing under an escrow and compliance agreement (the "Company Compliance Agreement" or the "CCA"). The escrow will be accompanied by stock powers for transfer of the super voting shares to the Compliance Attorney in the event the Compliance Attorney is forced to compel the Company to act should any of the following circumstances described in Section 4.5.1 and/or 4.5.2 below continue unresolved and the Compliance Attorney is forced to take those actions described in this Section 4.5.3 below:

During the Investment Term, the Company understands that:

 

 

 

 

 

During the Investment Term, the Company agrees not to use funds from this offering for any of the following items unless previously agreed to and/or included in the Use of Proceeds referred to in Exhibit D of this Memorandum of Terms:

a. Leasing vehicles, aircraft or boats for senior management's or consultant's personal use

b. Legal or G&A not related to corporate operations, public company listing or those items contained in the Closing Documents, or, this Agreement

c. Loans to management, shareholders or non-owned entities

d. Settlement of legal liabilities

e. Severance package or past due salary payments

f. Payment of license fee's, royalties or any billing which will ultimately be paid to management, directors, their heirs, family, trusts, estates or businesses.

 

At no time during the Investment Term, without the written consent, or, affirmative vote of the Investor(s) who have subscribed to this offering, the Corporation shall not, either directly or indirectly, affect the powers, preferences, or special rights, of any class of stock or security described in this Agreement.

 

The company will be in compliance with the following items during the Investment Term. If such items are out of compliance, the company agrees it will not have access to the funds in their account and may be subject to the CCA, until the compliance issue is remedied or a workaround is mutually agreed to with the Advisor.

4.7.1. Company will at all times during the Investment Term, maintain corporate compliance with applicable jurisdictional regulations.

4.7.2. Company will at all times during the Investment Term, provide and maintain full corporate authority evidenced by:

 

i.

Issuance of Preferred Shares A & C

     
4.10.2. The Company plans to accomplish the following items prior to Breakout 1:

(These are in addition to other compliance items listed in this document)

 

i.

Completion of Bridge Funding.

ii.

Adjustment of Series A Preferred Certificate of Designation to amend: (a.) the redemption value from $73.44 to $78.80 per share, (b.) removal of all language which would consolidate the Series A Preferred Shares or alter the conversion rate at which the Series A Preferred Shares convert into common shares due to any consolidation of the common shares.

ii.

Registration on the underlying shares for Breakouts 1-3.

4.10.3. The Company plans to accomplish the following items within the given time frames:

1. Retail investor support

2. Analyst coverage support

3. Uplisting strategy & support

4. Aid in secondary offering structure

5. Aid in Acquisitions and or Mergers

6. Management acquisition, strategy & support

7. Deal optics improvement

8. Road show support

9. Industry research coverage and strategy

10. Sarbanes Oxley strategy and transparency increase

 

iii.

If, at any time, following 18 months after the close of this offering, the market price of the common shares is less than $5.00 per share, the board will approve and then present for shareholder approval an authorization to perform a share consolidation sufficient to allow the market price to meet or exceed $5.00 per share.

iv.

If during the period comprising 60 months following the close of this offering, the price of the common shares in the market is greater than $30 per share, the board shall approve and present to the shareholders an authorization for the company to perform a forward split of the shares such that the market price is maintained at or near the $20 per share basis.

 

i.

No more than 45% dilution in the Convertible Preferred Round

ii.

No more than 55% full dilution with warrant exercise

iii.

Registration required

iv.

Use of Proceeds model to be developed by Advisor

v.

VAM issued to management for performance

vi.

Compliance controls in place

vii.

Combination Entity will be required to become public through either an IPO or a direct listing

viii.

Combination Entity will be required to maintain a fully reporting status at all times, whether public or private

 

Section V. Acceptance of Terms

 

By issuing this Memorandum of Terms, the Company signifies that it will enter into such offer with the Investor(s). This is an offer to sell securities under these terms by the Company to the Investor(s).

This Memorandum of Terms is good for acceptance for 7 business days after the signature Date located on the signature line for the Company below. If at that time, the Advisor has not received signatures, this Memorandum of Terms would become invalid. Upon full commitment of capital, these terms will be implemented into the offering documents (The Unit Subscription Agreement ("USA") and the corresponding Account Management Agreement ("AMA")).

By signature below, the Investor signifies their intent to subscribe to that number of Units for such amount as is detailed in the name block. Nothing in this document or in the location of signatures signifies any pooling of interest or common share sales agreement. The Investor(s) represent(s) that they are purchasing for their own account and not for the account of others and not with a view to redistribute such securities. Further, each Investor(s) certify and herby represent that they are an "Accredited Investor" as defined in the US Securities Act of 1933 under Regulation D, Rule 501 (a copy of which is included in Exhibit G.).

 

 

 

 

 

 

 

 

 

 

 

 

Rule 501 -- Definitions and Terms Used in Regulation D

As used in Regulation D, the following terms shall have the meaning indicated:

A. Accredited investor. Accredited investor shall mean any person who comes within any of the following categories, or who the issuer reasonably believes comes within any of the following categories, at the time of the sale of the securities to that person:

1. Any bank as defined in section 3(a)(2) of the Act, or any savings and loan association or other institution as defined in section 3(a)(5)(A) of the Act whether acting in its individual or fiduciary capacity; any broker or dealer registered pursuant to section 15 of the Securities Exchange Act of 1934; any insurance company as defined in section 2(a)(13) of the Act; any investment company registered under the Investment Company Act of 1940 or a business development company as defined in section 2(a)(48) of that Act; any Small Business Investment Company licensed by the U.S. Small Business Administration under section 301(c) or (d) of the Small Business Investment Act of 1958; any plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if such plan has total assets in excess of $5,000,000; any employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974 if the investment decision is made by a plan fiduciary, as defined in section 3(21) of such act, which is either a bank, savings and loan association, insurance company, or registered investment adviser, or if the employee benefit plan has total assets in excess of $5,000,000 or, if a self-directed plan, with investment decisions made solely by persons that are accredited investors;

2. Any private business development company as defined in section 202(a)(22) of the Investment Advisers Act of 1940;

3. Any organization described in section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000;

4. Any director, executive officer, or general partner of the issuer of the securities being offered or sold, or any director, executive officer, or general partner of a general partner of that issuer;

5. Any natural person whose individual net worth, or joint net worth with that person's spouse, at the time of his purchase exceeds $1,000,000;

6. Any natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person's spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year;

7. Any trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person as described in Rule 506(b)(2)(ii) and

8. Any entity in which all of the equity owners are accredited investors