Instruments / Equity Raise: Process

Phase 1: Payclass’ process:

1- Initial review of Instruments / Equity Sellers (issuers) documentation:

· Review Business plan

· Review financial projections

· Executive Team

2- Conduct introductory meetings with principal to assess if this transaction would attract the interest of our funding partners in the capital markets:

· Viability of project

· Experience of principal and executive team in projects of similar scope, size and geography.

· Executive Team dynamics and relationships

· Level of professionalism and commitment from the Principal / Executive team

· Principal’s sophistication and knowledge of capital markets and its processes

· Quality of documentation

· The success probability for the equity Raise

· Establish a working relationship between Payclass’ Executive and Principal.

· Explain and outline the correct expectations to the Principal about the process, cost and time-line to conduct the raise in the capital markets.

· Questions and answers

3- Pursuant to steps above, Principal of the Equity Selling Entity / Issuers consents to Payclass’ Terms and Conditions.

· This step is a pre-requisite for Payclass to invest any further time and resources into the transaction.

· This Consent also outlines Payclass and Seller’s responsibilities, obligations and rights in this process.

· This consent also outlines costs that Seller / Issuer will need to pay to 3^rd parties (not Payclass) as out-of-pocket costs, before Seller / Issuer receives any funding.

· This Consent also outlines success fees that Payclass will receive.

4- After Principal consents to Payclass Terms and Conditions, Payclass will review of transaction for readiness for capital markets:

· Obtain additional information / documentation from Selling Entity / Issuer.

· Review the additional information and interact with Principal / executive team to complete the necessary documentation and verifications.

· For startups, verify that Selling Entity has the funds in place to pay for costs to 3^rd parties (proof of funds).

· For currently operating, cash-flowing / revenue-producing businesses, Payclass uses its sole discretion whether to obtain verification of proof of funds.

· Perform Valuation.

Score the transaction’s Success Chance (1-5 stars).

i. If 2 star or less, Payclass will decline the transaction.

ii. For 3 star scores, Payclass will make an executive / discretionary decision to activate or not.

iii. For 4 or 5 star transactions Payclass most will generally activate.

· Target this transaction for specific Partnering Investment Banks (for transactions over $25 million), or Equity Agents (for Reg D transactions less than $ 25 million). This step is vital and necessary in order to comply with US and International law for Equity transactions. Selection is based upon several factors, such as (but not limited to):

i. current market conditions

ii. current appetite / workload of each Investment Bank / Equity Agent

iii. Performance level in previous transactions

iv. Industry focus

v. Subcategory / instrument / investment stage focus

vi. Geography

vii. Etc.

5- Payclass will activate this transaction in its private exchange:

a. Payclass will send this transaction as a package and links to the targeted Investment banks / Equity Agents

b. Payclass will provide explanations, further documentation if necessary

c. Questions and answers

d. Payclass will obtain Offers from Investment Banks / Equity Agents.

e. Payclass will review offers and applicability.

f. Payclass will send offers to Sellers / Issuers

g. Payclass will arrange meetings between Investment Banks / Equity Agents and Sellers / Issuers

h. Upon Sellers / Isuers accepting their offers, Investment Banks / Equity Agents will enter into direct one-on-one contract / agreements with Equity Sellers / Issuers.

i. Upon signing of the Offers / Contracts, Payclass will monitor the progress of the raise. Often times, Payclass facilitates and conducts weekly progress calls with Seller / Issuer and Bank / Agent.

Phase 2: Investment Bank / Equity Agent process:

1- Negotiate, contract’s legal review and agreement between Bank / Agent and Seller / Issuer.

2- Upon signing the Funding Agreement with the Investment Bank / Equity Agent, Seller will deposit the agreed-upon retainer to the Investment Bank / Equity Agent. Typically this retainer is a minimum of 2 months equivalent.

3- As per their signed Contract, Seller will pay the retainer for the subsequent months in the subsequent months. Some Equity Agents (Reg D only, transactions less than US$ 25 million) split these costs in two stages. 1st Stage is the Agent Retainer deposit, and Stage 2 is the Legal Costs retainer, which would be due later, when Agent receives Investor commitments / term sheets.

4- Some highlights of functions that Investment Banks will perform:

a. Background checks (financial and legal) on the Principals and their legal entities / businesses.

b. Study and evaluate the Business proposition.

c. Business and asset appraisals

d. Prepare the Private Placement Memorandum for the raise. This is a combination of a business and financial plan, investor returns, and expectations.

e. Prepare Marketing plans and documentation

f. Perform the necessary legal filings with SEC / national regulators and in many countries, files with states / provinces or even localities. These filings are before and after funds are in place.

g. Prepare necessary disclosures to investors.

h. Investment Banks often will hire specialized service provides in certain functions.

i. Investment Banks will hire legal firms to perform legal aspects of this raise.

j. In larger transactions Banks / Agents will partner with and leverage other Investment banks to effectuate the transaction.

k. In larger transactions, Investment Banks may securitize the offering and list the transaction in their proprietary and licensed Alternative Trading Systems, similar to Nasdaq, for but private securities.

l. Investment banks will coordinate multiple investors and aggregate them as Primary and Participatory parties in the transaction.

m. Investment Banks will perform investor accreditation checks.

n. Investment banks will perform background checks on sources of capital, to insure that such sources of funds comply with regulations for avoiding bad-actor, organized crime, embargo, sanctions, and other prohibited sources.

o. Investment banks set up 3^rd party escrow services in routing funds in and out, .

p. The retainer that Sellers / Issuer pays to the Investment Bank covers all these downline service providers and partners.

5- The following is a lengthy checklist of processes and documentation that Investment Banks / Equity Agents will perform in order to raise the funds.

	Due diligence for : XYZ Company			#DIV/0!

Auditor		Item Description	Applicable?	Completed

	A. Organization and Good Standing.

	The Company’s Articles of Incorporation, and all amendments thereto.
	The Company’s Bylaws, and all amendments thereto.
	The Company’s minute book, including all minutes and resolutions of shareholders and directors, executive committees, and other governing groups.
	The Company’s organizational chart.
	The Company’s list of shareholders and number of shares held by each.
	Shareholder contact information
	Board of Directors and Advisors
	Copies of agreements relating to options, voting trusts, warrants, puts, calls, subscriptions, and convertible securities.
	A Certificate of Good Standing from the Secretary of State of the state where the Company is incorporated.
	Copies of active status reports in the state of incorporation for the last three years.
	A list of all states where the Company is authorized to do business and annual reports for the last three years.
	A list of all states, provinces, or countries where the Company owns or leases property, maintains employees, or conducts business.
	A list of all of the Company’s assumed names and copies of registrations thereof.

	B. Financial Information.

	Audited financial statements for three years, together with Auditor’s Reports.
	The most recent unaudited statements, with comparable statements to the prior year.
	Auditor’s letters and replies for the past five years.
	The Company’s credit report, if available.
	A complete and current business plan.
	Any projections, capital budgets and strategic plans. ( 3-5 year)
	Analyst reports, if available.
	A schedule of all indebtedness and contingent liabilities.
	A schedule of inventory.
	A schedule of accounts receivable.
	A schedule of accounts payable.
	A/R and A/P aging reports
	A summary of all bad debt expense.
	A description of depreciation and amortization methods and changes in accounting methods over the past five years.
	Product or Service pricing plans and policies
	Sale commission structure.
	Any analysis of fixed and variable expenses.
	Any analysis of gross margins by product or service.
	The Company’s general ledger.
	A description of the Company’s internal control procedures.

	C. Physical Assets.

	A schedule of fixed assets and the locations thereof.
	All U.C.C. filings.
	All leases of equipment.
	A schedule of sales and purchases of major capital equipment during last three years.

	D. Real Estate.

	A schedule of the Company’s business locations.
	Copies of all real estate leases, deeds, mortgages, title policies, surveys, zoning approvals, variances or use permits.

	E. Intellectual Property.

	A schedule of domestic and foreign patents and patent applications.
	A schedule of trademark and trade names.
	A schedule of copyrights.
	A description of important technical know-how.
	A description of methods used to protect trade secrets and know-how.
	Any “work for hire” agreements.
	A schedule and copies of all consulting agreements, agreements regarding inventions, and licenses or assignments of intellectual property to or from the Company.
	Any patent clearance documents.
	A schedule and summary of any claims or threatened claims by or against the Company regarding intellectual property.

	F. Employees and Employee Benefits.

	A list of employees including positions, current salaries, salaries and bonuses paid during last three years, and years of service.
	All employment, consulting, nondisclosure, nonsolicitation or noncompetition agreements between the Company and any of its employees.
	Resumes of key employees.
	References of key employees.
	The Company’s personnel handbook and a schedule of all employee benefits and holiday, vacation, and sick leave policies.
	Summary plan descriptions of qualified and non-qualified retirement plans.
	Copies of collective bargaining agreements, if any.
	A description of all employee problems within the last three years, including alleged wrongful termination, harassment, and discrimination.
	A description of any labor disputes, requests for arbitration, or grievance procedures currently pending or settled within the last three years.
	A list and description of benefits of all employee health and welfare insurance policies or self-funded arrangements.
	A description of worker’s compensation claim history.
	A description of unemployment insurance claims history.
	Copies of all stock option and stock purchase plans and a schedule of grants thereunder.

	G. Licenses and Permits.

	Copies of any governmental licenses, permits or consents.
	Any correspondence or documents relating to any proceedings of any regulatory agency.

	H. Environmental Issues.

	Environmental audits, if any, for each property leased by the Company.
	A listing of hazardous substances used in the Company’s operations.
	A description of the Company’s disposal methods.
	A list of environmental permits and licenses.
	Copies of all correspondence, notices and files related to EPA, state, or local regulatory agencies.
	A list identifying and describing any environmental litigation or investigations.
	A list identifying and describing any known superfund exposure.
	A list identifying and describing any contingent environmental liabilities or continuing indemnification obligations.

	I. Taxes.

	Federal, state, local, and foreign income tax returns for the last three years.
	States sales tax returns for the last three years.
	Any audit and revenue agency reports.
	Any tax settlement documents for the last three years.
	Employment tax filings for three years.
	Excise tax filings for three years.
	Any tax liens.

	J. Material Contracts.

	A schedule of all subsidiary, partnership, or joint venture relationships and obligations, with copies of all related agreements.
	Copies of all contracts between the Company and any officers, directors, 5-percent shareholders or affiliates.
	All loan agreements, bank financing arrangements, line of credit, or promissory notes to which the Company is a party.
	All security agreements, mortgages, indentures, collateral pledges, and similar agreements.
	Insurance contracts and agreements.
	All guaranties to which the Company is a party.
	Any installment sale agreements.
	Any distribution agreements, sales representative agreements, marketing agreements, and supply agreements.
	Any letters of intent, contracts, and closing transcripts from any mergers, acquisitions, or divestitures within last five years.
	Any options and stock purchase agreements involving interests in other companies.
	The Company’s standard quote, purchase order, invoice and warranty forms.
	All nondisclosure or noncompetition agreements to which the Company is a party.
	All other material contracts.

	K. Product or Service Lines.

	A list of all existing products or services and products or services under development.
	Future Product Pipeline
	Copies of all correspondence and reports related to any regulatory approvals or disapprovals of any Company’s products or services.
	A summary of all complaints or warranty claims.
	A summary of results of all tests, evaluations, studies, surveys, and other data regarding existing products or services and products or services under development.

	L. Market & Customer Information.

	Addressable market and industry structure.
	All surveys and market research reports relevant to the Company or its products or services.
	Go to market strategies
	Partner information and contacts
	Sales Cycles
	A schedule of the Company’s twelve largest customers in terms of sales thereto and a description of sales thereto over a period of two years.
	Customer Reference Contact Information.
	Any supply or service agreements.
	Current and historical revenue per customer
	A description or copy of the Company’s purchasing policies.
	A description or copy of the Company’s credit policy.
	A schedule of unfilled orders.
	Customer Churn Rate
	A list and explanation for any major customers lost over the last two years.
	The Company’s current advertising programs, marketing plans and budgets, and printed marketing materials.
	A description of the Company’s major competitors.

	M. Litigation.

	A schedule of all pending litigation including potential damages.
	A description of any threatened litigation.
	Copies of insurance policies possibly providing coverage as to pending or threatened litigation.
	Documents relating to any injunctions, consent decrees, or settlements to which the Company is a party.
	A list of unsatisfied judgments.

	N. Insurance Coverage.

	A schedule and copies of the Company’s general liability, personal and real property, product liability, errors and omissions, key-man, directors and officers, worker’s compensation, and other insurance.
	A schedule of the Company’s insurance claims history for past three years.

	O. Professionals.



	P. Articles and Publicity.

	Copies of all articles and press releases relating to the Company within the past three years.

	Q. Proposed Deal Terms

	Summary of Prior raises and provide copies of deal terms
	Current Capitalization Table
	Lead Investors
	Details of current raise
	Reasoning of current valuation
	Use of funds
	Cash on hand
	Current burn