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Yes. The plan itself is flawed.I am reproducing here the article I had written some time ago. This article is going to answer your question. Since associate banks of SBI are getting merged on April 1, 2017, the question has current relevance.Why our banks should not be merged: an un-unionist perspective.I think it's time to write a little on the topic since the cabinet decision to merge associate banks of SBI with SBI has already been taken and the Order to do so has been issued. Come 1st day of new financial year 2017-18, and there won't be any associate banks of SBI anymore. Though I would say that they were already subsidiaries of SBI getting regulated by SBI subsidiary banks act, 1959 having the same brand 'State Bank', same logo, same recruiter, same head & so on. So their merger with SBI does not evoke as injusticed a feeling as it would have, had they been merged with some other banks but SBI. It's like parts of a single group company coming together to the parent fold.Secondly, I'm least concerned about the amalgamations of banks under section 44A (voluntary consolidation) and section 45 (persuasive consolidation of weak banks in depositors' interest or in the interest of the economy) of Banking Regulation Act,1949 taking place. However I do not support the uncalled for merger seeking refuge under this section 45.My contention is for well performing public sector banks. Being the largest stakeholder of public sector banks doesn't mean Government can do anything it wants at will. All the PSBs are first owned by people. It's all people's money that runs the banks and hence the economy. The government is just a custodian and caretaker manager of people's money. And it is for this reason that Finance Ministry and RBI exist. Government in the 2016-17 budget had proposed for amalgamation of banks, which started rapid activism in this direction. The Bank Board Bureau chief Shri Vinod Rai even chalked out some plan and Govt came out with Six Anchor Banks scheme proposal into which all 27 PSBs would be merged. There has been little progress in other PSBs' case except SBI and its associates. The February 22, 2017 Order is a new development in SBI's case.Therefore, while bank unions and trade unions have already presented their vociferous concerns, I'm going to analyse them and put my own views across.THE GOVT. PLAN==============1. Back in 1991, the year of big financial reforms, one Committee on banking reforms headed by Shri Narasimham put forth its recommendations to reform banking and banks in India. It said that we should have three tier structure of banks. First tier of Three Large International Banks, second tier of eight to ten National Banks and numerous local and regional banks at tier three. In 1998, the committee reiterated its already stated recommendations. Since then the respective governments have been contemplating mergers.2. Though being the seventh largest economy in nominal GDP terms (GDP=$2.25 trillion, per capita PPP GDP of $6,658/-; IMF figure dated July 19, 2016), India doesn't have a place in top 50 banks yet. On the other hand China has 13 banks in top 50 with ICBC being the top most and three others (CCB, ABC & BOC) in top ten for several years. Herfindahl-Hirschman Index (HHI) of 518.53 for Indian banks shows that it's highly 'fragmented' and 'diffused'. Hence a consolidation thought out by the government is inevitable.3. Since industries in India are increasingly becoming large, the requirements of larger finance can not be met by existing capital base of individual banks. To finance large projects and larger businesses, India needs big banks. So, by consolidation this objective can be achieved.4. With large size, the businesses of banks can be hugely diversified ensuring multiple strong sources of income. This way it is envisaged that if having diversified businesses, the loss of one kind of business may be compensated by the other's profit, which will reduce the overall risk of banks' failure.5. From 1st of January, 2019, a regulatory provision of BASEL-III is to be invoked. Like Capital Adequacy Ratio(CAR) or Capital to Risk weighted Asset Ratio(CRAR), one new ratio Total Loss Absorption Capacity Ratio(TLAC) is going to be mandatory for globally systemically important banks(G-SIBs) to comply with. This would mean shrinkage of their free-will expansion. Shrinkage of their businesses so as to meet regulatory capital requirements. It has been worked out to be 16% by 2019 and 18% by 2022. In addition to meeting Capital Adequacy norms of at least 10% of Risk weighted assets they will have to set aside 16% more capital to withstand any untoward hazard. Our government by that time intends to put on global stage some big indigenous players to take benefit of the situation and establish our firm presence globally.6. One final aim of the Government that reflected in the early 2016 financial statement of RBI was to consolidate banks in such a way that they focus on their specialized business more than the unrealized obligations to conform to each regulation of a multidimensional bank. In short, from multidimensional structure to unidimensional structure. For example, the bank with greater presence in rural areas will be made to focus on rural banking rather than stepping into corporate businesses involving large credit demands etc. The bank having huge customer base with minimal deposits & lacking in credit will be made to work as Payment Bank. The bank with greater HNI customer base and considerable urban expansion will be made to work as investment bank. They mean specialized business of banks would reap benefits for one & all.In two words, the phenomenon can be termed as 'Business Consolidation'.REASONS AGAINST THE PLAN========================1. Poor people can not make banks rich. Indian people had in total 1170 million savings bank account in 2015 according to statistics released by RBI on 10th of March, 2016. In banking arena, this savings bank account is seen as the root of all accounts. Given the tendency of customers to have more than one such account in different banks, it is not hard to assume that a large chunk of our 1300 million population is having no access to banking services at all. They are completely out of the financial system. Maybe by next few years they get inside the fold through financial inclusion measures like Jan-dhan yojna etc.Now a little comparison between our biggest bank SBI and Chinese biggest bank ICBC would illustrate the premise. ICBC was established on 01/01/1984, whereas our SBI was established some 200 years back but let's take the nationalisation date which is 1st of July, 1955, way ahead of ICBC. In 1970s China adopted reformist measures under Deng Xiaoping. We in 1991. In 2000s the ICBC driven by its increasingly export oriented industries started expanding globally, while our SBI continued to focus on domestic business. Time passed, today ICBC's business figures shown on its website and The Banker's website state that it has a total assets of $3.55 trillion (more than our national GDP) whereas our SBI will have it around $550 billion after merger with its associates. ICBC has 49 crore customers whereas our SBI will have around 50 crore. Evidently our SBI outnumbers the biggest ICBC by 2% in terms of customers' base becoming the world's largest bank in the same terms. But on the other hand, the ICBC belittles that achievement of SBI by showing the total assets figures, currently at 645% of that of SBI. In short, while the number of customers of ICBC is almost same as the (would-be) number of SBI customers, its assets are a whopping 6.5 times more. It means the people who form the customer base of SBI are poorer than that of ICBC.Secondly, let's take a look at IMF’s World Economic Outlook Data, October 2016. India is second to China in terms of population by not a huge difference. But in terms of economy, the difference is so staggering that it will make you take a frowning sigh. Chinese GDP stands at $11.3 trillion whereas ours at $2.25 trillion. Chinese per capita PPP GDP stands at $15,423/- whereas ours at $6,658/-. Chinese biggest contributors to its GDP are Manufacturing 45%, Services 45% and agriculture 10%. Our biggest contributors to our GDP are Manufacturing 26%, Services 57% and Agriculture 17%. Evidently our generators of wealth are not as much powerful as Chinese. The traditional dependence on Agriculture has decreased considerably since 1991. But still its role dominates in the performance of our economy. About services, I would say we can not be Lee Kuan Yew's Singapore. Lee drove Singapore from zero to top on the vehicle of services. It was a small country, and so it sped with unprecedented speed. Ours is a huge one both in size and diversity. It can not be dependent on either of the vehicles. If we have to make our people wealthy, we shall have to give larger impetus to manufacturing. We shall have to compete with China. There is no other way out. And to those imagining how shall we acquire market share, which is already saturated by Chinese products, I would say to look at Reliance Jio strategy. Though the freebies can not be given like Jio but the prices of consumer goods can be considerably reduced. How? Just like our ISRO. At the cost of Gravity film, a satellite in Mars' orbit. Similarly at the cost of iPhone we shall offer automobile. At the cost of calculator we shall offer smartphone. At the cost of tea-pot we shall offer microwave. At the cost of paper books we shall offer e-book-readers. Unless we do this, we can not bring wealth to our people. And with no wealth to the people, how can a bank be wealthy?But what our government is trying to do is to make banks wealthy and large based on numerical strength of our people rather than their capital strength. What we need to do is to make our peoples' income better, the Banks would automatically become the best.2. Acceptability issue in foreign lands. Since our industries are not major exporters of public goods, the demand of our banks' services would not arise in foreign lands. An example. Here in our own country, there is an American company Procter & Gamble that sells various daily-use goods. Even to small wholesale dealers they ask to remit money in its Bank of America, Mumbai accounts by way of RTGS/NEFT. And why do they do that? Because it's easy for them to collect funds from all those countries where they sell. So prior to have banking business in a certain country it's imperative to have goods business first. The goods businesses, I mean, exports of goods abroad pave the way for its bankers to establish business there. Even today wherever our branches are, they are run because of Indian Diaspora. Completely alien people can not do banking business in an alien land no matter how much TLAC requirements are made mandatory for banks, G-SIBs under BASEL-III.Second issue is of acceptability of our Banks' letters of credit. It is said that except SBI and a few others, the rest of the Indian bank's LC is not accepted abroad. And hence our importers face problems; sometimes giving into the pressure, they open accounts in foreign banks to obtain LCs. I think so long as our banks have not evolved on their own on global platform, the services of Indian Banks like SBI and others should be nationalistically sought without giving in to the pressure otherwise. And the exporter who can not trust SBI and those which figure in top 1000 world banks' list, our importers should not import from them and abandon all their mutual business dealings. It's exporters who are dependent on the importers, not the other way round. After all, the customer ( be it any buyer or importer) is always right.3. 'Too big to fail' fallacy. Banks are very volatile structures if left without certain regulations. These structures stand on basic values of customer confidence, customer loyalty and customer integrity. It is not said that banks have to be large. But it should never be so large that economy can not exist without it. We all saw 2007-08 Global Economic Crisis. The big banks like Lehman Brothers and Merrill Lynch failed. This failure brought America to its knees. A ready reckoning in this regard. Suppose we have ten banks with assets accounting for 90% of our GDP. With so much of money banks would be tempted to give credit at lower cost and relaxed provisions. People would throng banks to avail benefit of the opportunity. Banks would extend them best possible credit. Now borrowers would go and spend for their respective purposes. Let's suppose the moratorium is fixed for one year during which only interest would be serviced. After full disbursements, when banks with bated breath will be waiting for return, customers one by one would start to default- some wilfully and some with even genuine reasons. Now banks would have nothing at hand to payback to its depositors. It would start trembling. Since too big to fail, govt would rush in to action to weather the crisis. It would inject bailouts in the systems of banks. The sheer volume of bailouts would further have implications. Like it would reduce the value of money resulting in rampant inflation. High Inflation would reduce demands. With reduced demands, the manufacturing houses would cease their output. With unavailability of public goods, public outcry would rise resulting in complete political, social and economic chaos. Ultimately the government would realise that the very reason for which they made 'too big to fail' banks has itself failed. And it would be too late by then. Something similar happened to America in 2007-08. But their government's swift acts with sheer visionary Federal Reserve and SEC decisions, the impending failure of economy was averted.4. To meet capital requirements for big industries, it is not that only merger of banks is the way forward. There is something called Consortium Finance. This way their huge credit needs can be met. And our banks have rich experience in this kind of finance. Even the common public know it well thanks to Vijay Mallya's wilful defaults.5. Business diversification to have risk diversification is a good concept. But it does not necessarily necessitate huge pool of capital base and hence banks' merger. There are banks in India having around $10 billion to $100 billion assets and they have every kind of business like Bank of America, Standard and Chartered, HSBC and ICBC. And they have been making profits incessantly. It is not that they do not have risky assets, NPA burden and big provisioning requirements. But they have not failed due to the lack of risk diversification. What is earnestly needed is their proper monitoring and regulation, which is deftly being handled by our RBI.6. Business consolidation. While the proposal looks good on face, but it's injustice to the public bank nature of the PSBs. It is like telling a public bank to finance only auto loans since it has good exposure in it and deny financing housing projects because of not having enough proposals. On 19th July, 1969 those 14 banks were not nationalised based on any particular business they were good at, but capital base. Capital generation doesn't have a single route. It comes from multiple sources. Becoming unidirectional would make it lose its sheen & become vulnerable to risks. Specific services providers would get reduced. Therefore if now Government says that this or that specific bank should stop certain kind of business and focus on something else, it curtails the peoples' right to choose what services to avail from where.Shallow Unionist Reasons=====================There are some people in all the unions who rake up issues which has little relevance practically. They try hard to make ordinary things look behemoth. With this practice, they ensure their relevance actually. This practice dilutes the real objectives of Unions like standing against any injustice meted out to its brethren, ensuring collective welfare of co-workers and their fair working conditions, raising voice against wrong and illegal practices and exploitation, ensuring discipline and truthfulness among its brethren, motivating and assisting its cadres to rise and work effectively, guarding against unruliness and sycophancy.Now let me list those reasons which have little or no relevance, but are cited as big ones.1. Cultural Problems. India being a country of numerous ethnicities, races, creeds and cultures has offices filled with all these diverse people. And they do not have problems working together as a team. But once they come out of that team and are made to work with other teams, will they have cultural problems? One example. MS Dhoni worked well with Indian cricket team. Whether he failed with Chennai Super Kings or Jharkhand teams? He was and is a good cricketer. He performed (played and captained) equally well with all the teams regardless of the differences in systems, rules and pattern of the formats. The same is true with we bankers. If someone can adapt to the work life with colleagues of way different cultural backgrounds, it is least to assume that he will perform equally sensibly at other teams as well. The corporate culture imbibed during the stint at a certain place can not prohibit him to adapt to the other cultures of different corporates. Simply, the culture of one place can never become obstacle for other place. That too in India, the land of unity in diversity. No way. There are people who work as officers in one bank and go to others to work as executives. Yes, there may be individual genuine problems to some but overall it's not such a big issue.2. Contagious Effect. It's been assumed by some that if weak or loss making bank is merged with well performing bank, the weakness of former gets induced to the later. This is not entirely correct provided the management of the merged entity is carefully done. There are examples of Canara Bank acquiring Lakshmi Commercial Bank in 1985 and Oriental Bank of Commerce acquiring Global Trust Bank in 2004. Both these LCB and GTB were on the brink of being insolvent, but the managements of acquiring banks have to be commended that they managed to make profits only. So, it depends on the management of the acquiring bank whether the merger with weak would make it weak or strong. It can not be said in general that on acquiring sick bank, the healthy bank would become sick itself.3. Heavily Unionized Atmosphere. It is observed by some that since banks are heavily unionized, it can not let mergers take place easily. The driving thought behind this thought is the assumption that Unions are obstructionists. Instead of saying fair, weighty and constructionist reasons, some Union people have put the blame on themselves by uttering this.4. Software difference. It's true that people accustomed to work with a certain kind of software would find it difficult to work with a different one unless they are trained in it. But it is not a hindrance. Recall the early CBS period of 2000s, when banks used to adopt a software for a while and change it with a better one. This adoption and change continued for quite some time before having present systems. Our people adapted to the changes with proper training. The same may be done to the merging bank employees. They will be trained. If they are not trained, the Union may come to their rescue. That is the constructive role of the Union. But since there is difference in CBS systems, the banks should not merge seems more like a lame excuse than a constructionist reason.5. Kill competition. The competition at locations where both merging banks' branches competed would stop but not the overall business competition of banks.6. Lay off of employees. Since two branches would get merged, some employees may be laid off is the perception being promoted by some. But thinking logically, the business which is managed by a certain number of employees can not be managed by the same once the business suddenly shoots up. It will require more people. So the employees of both the banks would have equal number of tasks, yes, under one roof. People say that since technology would be heavily used, banks may not need as much employees. No. I don't agree. Technology can not take decisions. Technology may make execution of documents and other works easier but it can not act on its own. Hence it will necessitate more focussed approach and expertise not lay-offs. With the help of technology, the processing and monitoring will be eased, delivery of services will be prompt and employees' productivity will increase which will take banks to newer heights.7. Privatisation. By merger, some people see the impending privatisation coming up. If such was the case, why would they merge banks? They can straightaway go for privatisation. But there is no such announcement. Some people in the govt do say it as panacea to cure bad loan problem. But they undermine the real consequences and circumstances of doing so. I don't see it happening any time soon.8. Illogical Provisions. Though it may sound illogical, but the same prudential norms of provisioning on standard assets has stood the test of time since its introduction by RBI. It ensures the repayment capacity of banks to its lenders and weathering the crises of various risks. It is in no way detrimental to the health of a merged bank.Profound Unionist Reasons======================1. Bad loan problems. The banks are given targets to achieve. The managements use every method to ensure that the targets of individual branches are achieved. To meet the targets banks start hunting the right borrowers. Sometimes they get some good borrowers but not always. Here the problem is created. Bad loans evolve from here only. And the cycle starts from Bad loans to NPA to Loss to filing of suit to possession of collateral to auction. By the time of auction, the outstanding liability far exceeds the market value of collateral making banks compelled to sacrifice some amount and settle down. This ultimately results in absolute losses. The mergers would raise the targets and hence the bad loan problems would also rise. What is needed to fix this, is stringent and strict laws to ensure immediate recovery.2. Political Interference. Since banks are pressurized to fund big corporates by cunning politicians in power, it is not hard to assume that once the size of banks becomes big, the demand of credit will also be of same proportions. If such was not the case, there would never have been any Vijay Mallya case. Given the cunning prudence of these politicians, quite possibly the plan stated by them might be a proxy for covert corrupt practices and deals with corporates. Once merged, the Vijay Mallyas would not have to knock a dozen windows to avail bulky credits. They could dupe those large-sized jumbos one by one. This will be the biggest bane of mergers. Political interference in lending must go. The political announcement of bank loan waivers must stop. And until these concerns are not addressed, until zero political interference is not ensured, merger of banks would mean danger to the banking system and hence economy.3. Corporates are the biggest defaulters. Those defaulting must be punished. The names of such borrowers must be published and let people know who they are. Moreover the general public should stop using their products and services so as to make them learn a lesson that defaulting on peoples' money (in the form of Credit from PSBs) would result in complete boycott of their business. Unless they learn some stern lessons, they won't mend their ways.Given the reasons above, the merger of banks except SBI must stop and the concerns raised must be adequately addressed.[The views expressed in the article are entirely personal.]

I am posting anonymously obviously to avoid trolls and ensure safety.BJP’s victory was based on fake narrative, character assignation, and propaganda. Add fragmented and incompetent opposition to the mix as well.Below are the 10 strategic posture that BJP adopted and which gave them victory. Each of these postures appeals to a certain section of society barring Muslims and liberals. Given liberals are so fragmented, it is the conservative part of society which constitutes the largest vote bank, and it is the conservatives, who vote diligently, not liberals. BJP targeted to get 100% of conservative and 70% of fence-sitter votes, and it looks like they have done it. When I write BJP, I mean the new BJP. This is not Atal Vihari’s BJP, this is Modi-Shah’s BJP. The main strategist or architect of this victory was Amit Shah.Let’s check out Amit Shah’s 10 key strategies:-1. "Love Jihad", periodic Muslim lynchings, "Hindu Khatre mein Hein", "Muslims will be majority", etc.BJP, a formerly right-wing party is leaning ultra-right and toward fascist concepts. In fascism, an imaginary enemy is created and everything wrong in the country is blamed on them, which it’s supporter can hate and gang up against. For BJP, the communal polarisation attracts bigots to BJP’s party. Not all BJP supporters are bigots, but some are.This narrative like BJP’s other is fake. For example, the whole narrative of "Love Jihad" is based on the premise that a Muslim boy cannot love a Hindu girl, and cherry picks incidents of trafficking to the Middle East and interfaith marriages “gone wrong” as proof of “Love Jihad". Given the size of the country, there a load of those incidents. Furthermore, 90% of all interfaith marriage encounter resistance from families on both sides, regardless of Hindu or Muslim. Sometimes it is deadly. The 10% that make it are target by giving the example of the .001%.The second example, for those who know, the cow smuggling network throughout India is around 40% controlled by Bajrang Dal. The lynching of Muslims is mostly from areas controlled by rival networks of Bajrang Dal and rival transports entering Bajrang Dal area, and these lynchings are meant to force rivals to switch side and help Bajrang Dal gain 100% share.Apart from a few districts Uttar Pradesh and Maharashtra, Lakshwadeep, and in a few districts in East India where Bangladeshis have artificially inflated number of Muslims, and Kashmir valley where Muslims have been the majority, nowhere in India Muslims can or ever be the majority if the current demographic trend continues. By the time India's population peaks in 2065, Muslims will have only increased their share of the population from 14.4% to 16.8%. But explain that to a run of the mill die-hard BJP supporter (“Bhakt”). The propaganda around this is staggering[1] .Around 40% of illegal immigration from Bangladesh are Hindus. Instead of returning both Hindus and Muslim illegal immigrants, the Modi Government is targeting Muslims. Modi Government is also bringing a bill to allow for ANY Hindu from all over the world to be made Indian citizen just on the basis of an asylum application. This would not only make the overpopulation scenario in India worse but also will bring new Hindu voters of Modi and BJP. Modi has made communal politics acceptable. The bigots in the country were like “bas kar pagli, rulaiga kya”?Communal polarisation and communal politics have bought Modi lots of votes. A study has shown, wherever communal tension has been ratcheted up, BJP won.2."Nationalism" or misinterpretation of it, painting BJP as a "nationalist" and others as anti-nationals.While it is true that BJP is that the only “nationalist” party, nationalism is not equal to patriotism and those who oppose nationalism are not anti-nationals. Being not nationalists is good but being unpatriotic is bad. Indians are not aware of this distinction and fall for it. Nationalism is the unwavering support to one's country and its leaders without introspection or critic and forcing of that behaviour on the mass. Patriotism is the support of one's country when the country is in the right direction and criticize and correct when the country is in the wrong direction. Nationalism is accepting the country as it is and unconditional agreement with the leaders and their decisions. Patriotism is taking the good part of the country's character, identify the areas of improvement and evolve. A patriotic person tends to tolerate criticism and tries to learn something new from it, but a nationalist cannot tolerate any criticism and considers it an insult. When a patriotic citizen is told “your country is poor”, the citizen will accept the criticism and vote for someone who works on poverty reduction; while a nationalist citizen when told “your country is poor” will reply “haven’t you seen Yamuna Expressway”, “don’t you see bullet train will run between Mumbai and Ahmadabad”, “don’t you see the tall building or smooth roads of South Mumbai”, or worse “how dare you say the 6th largest economy is poor”? Freedom fighters of India were patriotic, not nationalistic. Nationalistic were the people supporting the Government i.e. British. Nationalism is inherently anti-democratic. The best illustration of Nationalism vs patriotism is below.In fact, nationalism was the reason that Hitler, Mussolini, Hirohito could get the masses to support what they were doing. Nationalism is the opposite of what democracy stands for. Nevertheless, nationalism has given BJP substantial vote share because people don't distinguish between nationalism and patriotism.Another tactic that BJP follows to nudge patriotic Indians towards nationalism is to open handles in social media in support of the army, air force, what not, and then attract tens of thousands of followers, then slowly start preaching pro-BJP messages.Ultimately, nationalism appeals to the emotion of both real nationalists and patriotic Indian who go on for voting for BJP.3. Use of de-humanizing words like “Libtard”, “Khan market gang”, “Tudke Tudke gang”, “Urban Naxals”, “Pseudo-secular” and narrative behind it etc.These dismissive catch-words are meant as ammunition for the die-hard BJP supporters to use against liberals and intellectuals. You can see generous use of this in social media. If no logic holds, these words are now embedded in the psyche of Indian youth to dehumanize the left or anything left of centre. As in real life, social media users also follow the herd mentality. People “develop” and opinion rather than “form” an opinion. Seeing left-liberal bashing and most of the vocal supporters from the BJP, common youth will lean right wing in their opinion as well and that transfers to vote.Like everything else, this is also based on fake narrative. Take the “Tudke Tudke gang” branding for example. Kanhaiya, Anirban and Umar were branded as terrorists’ supporters when, Kanhaiya was indeed asking for “Azadi” but it was freedom from hunger, sanghwaad (RSS-ism), feudalism, capitalism, Brahminism and Manu-ism (casteism). The NewsX/India News video edited these words out, leaving Kumar’s claims for “Azadi” open to interpretation. The channel then ran the video with the subtitle: “Hear Kanhaiya’s ‘seditious’ rant”. Their protest Afzal guru hanging was not specific to saving Afzal guru, but broader demand to end capital punishment and has been going on since long before Afzal guru incident. Then there is enough evidence now that some Kashmiri student shouted "Bharat ki barbaadi tak, jung rahegi, jung rahegi!", not DSU, the left union in JNU. But Kanhaiya Kumar has been permanently smeared and left politics strategically linked to anti-nationalism.Then take the word “pseudo-secular” for example, which is meant to be used against those who claim to be secular but appease a community. It is true Congress and many other parties appease Muslims, but BJP appeases Hindus as well. So, who is secular? Both are pseudo secular. But pseudo secular is used in 99% of cases as a dehumanizing phrase to describe Congress, not BJP. For the remaining 1%, BJP has another explanation - “Secularism in India is a myth. India has never been secular”. This sentence is used to inject an idea or assure anxious fence sitters that don’t worry, nothing is changing, as was before so will be after Hindu Rashtra. This sentence mixes true pseudo-secularism of “some” political parties with true secularism of other parties and individuals and discredits them in one go.Don’t forget the “Hinduphobic” card. Previously, used to hear only Muslim cleric and Islamic terror apologists using the word “Islamophobic”. Never thought the day would come when communal and regressive aspects of BJP, when attacked, would generate a reaction - “Hinduphobia”.Now, once a narrative is built against (pseudo) secularism and paint all parties other than BJP as pseudo secular and “Hinduphobic”, who will want to vote for those who support terrorists, or want to break up India or anti-Hindu?When social media banned posts with de-humanizing content, BJP played the victim by saying Facebook is anti-Hindu, Twitter is anti-Hindu etc. Social media companies were called in before the election in closed-door hearing blackmailing and accusing them of anti-right-wing. Result? Only “for show” action against dehumanizing comments and cyber bullying in Social media.4. Vote for BJP, The “anti-dynasty" party.The truth is BJP is almost as much dynastic as Congress. Since 1999, Congress had 36 dynastic MP's elected to Parliament while BJP had 31. Most of BJP’s allies are also dynastic parties. The only difference between BJP and Congress in terms of dynasty politics is that the PM candidate of BJP is not dynastic while that of Congress is. Moreover, ordinary people are not able to understand that there is some amount of dynasty built into India system. A family with a history of army men will have more army men; a doctor’s son or daughter has more chance of being a doctor, etc. But the ordinary voters wouldn’t care to think otherwise, as dynasty is painted as untouchable and BJP’s image is that of a party that is anti-dynastic.5. Vote against “casteist parties”This is one of the biggest lies. A casteist party is one which exploits the divisions based on caste, exploits the resentments against another caste, gives benefits or favours certain caste and thereby appeal to them, or simply preach on the basis of caste.BJP's primary support base is the upper cast to whom they appeal by saying that they do not follow the cast politics of SP or BSP, that they are against reservation etc. They speak empty words knowing very well that just merely speaking they are against caste-based politics will get them upper caste votes. So, instead of removing caste-based reservation and replacing with means-based reservation BJP has started reservation for General category. Modi once said he will not end reservation even though Ambedkar comes today and ask him to end caste-based reservation. BJP routinely campaign for new communities to be added to reserved categories -for example, the Jats in Haryana. BJP administration in the past and present have chosen to deal with caste violence and discrimination inconsistently and often lightly when the perpetrator is from the upper caste. BJP leaders in OBC dominated areas, like its OBC Morcha in Bihar, gave speeches and produced pamphlets targeting OBC's explaining why OBC's should vote for BJP, what Modi will do in next 5 years for OBC’s, explaining to them that parties like BSP are for Yadavs so OBC’s should vote BJP. BJP now has the largest OBC vote share as well, apart from Upper caste vote while parties like SP and BSP have a large chunk of SC votes. Therefore, BJP is no less casteist than BSP and caste politics has given BJP votes and the impression that BJP is not casteist have given BJP even more votes.6. “Modi is making India proud”. Vote for Modi.This is another lie. The supporting evidence presented are world leaders warmly welcoming Modi and rock star type reception of Modi abroad. The truth is, as the third-largest economy by PPP, no world leader will ever ignore India, rather will woe India and its leaders irrespective who is in power. Modi was blacklisted for US visa before he becomes PM but removed from blacklist once he became PM. Modi is immensely popular among the NRI's, but NRI's do not represent world view. In fact, world media and press clearly label Modi as a controversial character who divides, not unites India, as someone under whose rule Hindu fundamentalists are emboldened to threaten and lynch and under whose leadership, the economy is fumbling. The most routine news that comes of India abroad is of increased communal clashes, lynching and how Modi is part of a trend across the world of rising ultra-nationalism approval of leaders with fascists tendencies, like Trump, Duterte, etc.But, who would want not to vote for someone who is making India proud?7. BJP is not corrupt. Therefore, vote for BJP.This is another lie. First, let me define "corruption". Corruption: Dishonest or fraudulent conduct by those in power, typically involving bribery.The biggest scam pulled off by anyone in independent India was and is demonetization. Demonetization enabled cash black money held by individuals and organisation to be converted into white, but only one establishment found it hard converting cash black into white, i.e. opposition parties, for as soon as they would declare the cash, they would have come in the radar of ED, CBI and what not. They were too ashamed to risk that. Demonetization was done to break the opposition parties while BJP themselves remained unaffected (forewarned), in the crucial period before UP election. New evidence emerging that RBI advised against demonetization saying it will do little to solve the black money problem. Hundreds of people died after demonetization and their blood is on Modi to make BJP win in UP election.Then, Modi is also asking SC not to ask for CBI probe in Rafale deal scam on "national security ground". This is the first time in independent India where defence scams are defended on "national security" ground. I really hope other parties don't get ideas from this.Another ploy adopted by BJP under Modi-Shah is to control the media in a manner where you don't hear of scams. Have you heard of the 20,000 crores Gujrat State Petroleum Corporation scam under Modi's Gujrat? Have you heard of Adani Coal import scam to the tune of 50,000 crores and how BJP helped Adani to avoid bankruptcy? Have you heard of 1200 crore Vyapam scam? Heard of the PDS scam? Heard about Karnataka mining scam? Housing scam in Goa - heard of that? Or BJP leaders involved in Karnataka Ponzi schemes? Farm waiver scam in MP during BJP rule? No? Did you ever wonder how could so many industrialists with loan defaults be able to escape during BJP rule?BJP also has some of the most corrupt people among its leadership, like G Janardhana Reddy in Karnataka, or Mukul Roy in Bengal, a former TMC leader who joined BJP. Then Vasundhara Raje, Amit Shah and his genius son who multiples his money faster than anyone else on earth, to name a few. There dozens more mid-level BJP leaders whose name came forward in some form of corruption.BJP is also a party which allows a CM to withdraw cases on himself. Look at the abuse of power, then try to think that he is a hero in BJP. He is Yogi Adityanath. He owns guns, gaushalas and of course, works 19 hours per day, 1 hour less than Modi’s 20 hour day. These are the heroes of BJP today, wrong numbers of this age, and Gods of the future.Furthermore, the compromise and control by Modi led BJP of SC, CBI, ED, EC, RBI are dishonest behavior which is dangerous for democracy.Modi is also soft on corruption. Before 2014, he vowed setting up fast track courts for MP’s with criminal cases, vowed of bringing back black money from abroad (which accounts for 95% of black money), but did nothing.BJP passed Finance Bill 2017 which made it non-mandatory for companies to declare donations to political parties. Talk of Fascism - early signs can be seen already!Then, think of a party that starts the system of electoral bonds where individuals and companies can invest in a party anonymously and then the same party goes on to get 95% of all investment. It is BJP. Not only this is anti-democratic, but it is also open to exploit by foreign powers and non-state actors. Worse, as per the system “officially”, the receiver does not know the donor. Imagine Monsanto calling up BJP asking for an account number and promising to donate 5 crores and giving it. Tomorrow if bribery charges are investigated, BJP “officially” does not know the 5 crores came from Monsanto. It’s the legalization of bribery. Do you see or hear media talking about it?BJP spend 27,000 crores for election 2019 or about 45% of all money spent by all parties combined…clean money? You must be joking.As the narrative of clean BJP is so successful, who would not vote for an incorruptible party?8. “If not Modi, then who”, Rahul Gandhi is of course ‘Pappu’ and Kejriwal ‘Khujliwaal’ and Mamata “Jehadi didi”.Rahul Gandhi in the past no doubt made immature statements, but he has matured with time. If he has made a joke of politics in pants, made fun of himself in front of Arnab Goswami, then Modi also has told tea sellers to use gas from nullah to heat water, he also advises air force to attack based on cloud cover as ‘apparently’ it will stop radar. He was also that poor tea seller who used mobile phone and Email in 1988. He says to cheering fans “a plus b square into bracket square is equal to a square plus b square plus 2ab. Extra 2ab milta hai yai nahi milta hai?” *more cheers*”. I mean he can say whatever and get away with it.Rahul Gandhi at least takes questions from the press and has the courage to answer spontaneously, unlike the prepared show for Modi. An interview walkout like what Modi did with Karan Thapar would end the career of Rahul, but look where Modiji is today!Let alone press, Modi also attended parliament session 20 times in his last 5 years, 4 times per year. And he works 20 hours per day! He is really the paradoxical Prime Minister.So why Modi is not “Pappu” and Rahul Gandhi “Pappu”? It is the power of BJP’s PR campaign and social media influence.There is a whole gamut of name calling and character smearing tactics for any and all major opposition leaders. People first laughed, then participated in name-calling, then believed in the slander, and finally voted against them.9. The illusion of prosperity, competency and happinessIf people do not look at bad news and only focus on good news, a bubble can be created where everyone is happy. If someone is not happy is inspired via other issues to vote for BJP.Look at the situation with data:Job data “leaked” indicate India is going through a job crisis worsts in 45 years, quietly admitted after the election was over.Just before election, it came out that India dropped from its 6th place in the world economy to 7th place. But that news was suppressed by all major media house and newspapers except NDTV. The news soon got overshadowed by Balakot.GDP ranking (GDP) | Data CatalogPost-election Government admitted that India shot down its own helicopter after Balakot strike.Data on farmer distress and farmer suicide were censored. Farmers themselves feel the pain. But look at the irony here. Many farmers voted BJP going above their instinct to survive because BJP workers told them if you vote for other parties, you vote for anti-Hindu (where the farmer is Hindu), or anti-national, and that other parties do not take care of the army and is soft with Pakistan.A key element of censoring is BJP’s IT cell who manufactures petrol and fire for use of BJP’s army of vitriolic supporters in social media. If something is not spoken about, written about (for fear of cyberbullying), people cannot educate themselves about it.Another key element is the silencing of RTI activists. Officially, 67 RTI activists have been murdered since Modi’s win and hundreds more attacked. Data accumulated by non-government entities put the combined number of murders, attacks and threats at 438 for RTI activists, 76% by BJP goons. It is really shameful that this was not an issue in Indian election. Not only BJP’s PR muscle, but also weak opposition with no strategy is responsible for media silence on this. Strategically placed, this single issue should have been enough to bring down Modi-Shah. [Edit July 2019: As one of Modi’s biggest post-2019 election move, Modi with help of TRS and BJD made RTI officers susceptible to pay cuts, transfers etc, making the RTI Act effectively dead.]BJP perfected the art of timing with publicity. So testing ASAT weapons before election, which was ready for years; coordinating with BJP sympathetic production houses to release movies like Accidental Prime Minister (almost a caricature of Manmohan Singh) to cement the idea that any PM candidate from Congress will be controlled by Sonia; announcing payouts days or months before the election was also very effective.Then consider that a GDP calculation was done based on output from companies 38% of which are either shell companies or invalid entities and they contributed positively to the GDP figures. What an idea Modiji.The hype of progress was also projected by cherry picking success stories like the Train-18, competitiveness indicator ranking (which BTW is calculated by sampling Delhi and Mumbai), bullet train agreement (going to be a one-off white elephant).This illusion of progress is amplified by the worthless opposition who fell under BJP trap of discussion on Nehru and Rajib, Mandir and Masjid, and what not. The opposition should bring up facts and figures, like Modi Government giving 4.3lakh crore tax corporation to big businesses, and that tax break failing to improve the job situation; they should avoid the BJP trap to talk on perception and talk numbers instead- on all issues, not just this.Modi and Amit Shah duo created a hate-filled and negative narrative for all sections of the society to identify with, consume, believe and ultimately vote. The opposition was smeared. Those who didn’t buy BJP’s story in this category were told ‘then who?’ The last resort has been data manipulation or censoring and over representing the little success that was achieved. Result? Votes for BJP.10. Schemes, schemesThis is a story with at least some success and some truth. However, many of Modi’s big flagship schemes are a failure or on the brink of failure.Namami Ganga: Only a fraction of work is done despite a vast amount of money spent. Pollution increased in the last 5 years in many stretches – with one of the worst pollution in Varanasi, Modi’s own constituency.Swachh Bharat: ODF free districts and villages continue to have open defecation as per CAG report. CAG also found many SBM toilets are lying unused after construction. This contrast with the Government’s own report of 93% of villages ODF. It seems a large percent of villages were declared ODF without audit let alone periodic audits. Further, a RICE survey in UP, Bihar, MP, Rajasthan found 43% of village people still defecate in open contrasting Government reports.Beti Bachao: No quantifiable progress on this which can link any success to this scheme. On the contrary, 56% of the fund allocated to Beti Bachao has been allocated to advertisements alone.Make in India: Manufacturing sector is struggling. Apart from one or two smartphones factory opened in India due to India applying tariff on imported phones, no success to boast off from this re-branded “Made in India” scheme.Jan Dhan Yojna: 91% of accounts opened are without any balance. This is a huge liability for the banks.PM-Kisan: The focus could have been on building storage, providing advisory on yield and quality, ensuring minimum guaranteed price and loan at zero interest or loan payment relief for a few years. Instead, 3 payouts of INR 2000. totalling INR 6000 per year which is better than nothing but not nearly enough, and I thought BJP is against payouts/handouts. Ironically, when any non-BJP government gives payouts, they are defamed as handouts which do not help in the bigger schemes of things, but when any BJP government gives payouts (like in UP by Yogi), they are celebrated as master-stroke.Mudra Yojna (PMMY): The scheme had some initial success, but there is no mechanism to stop frauds. Many fraud cases are being uncovered and many cases of loan to undeserving people or SME are being discovered every day and Mudra loans are turning out to be bad debt by PSU banks. This is a budding crisis as now banks have no idea how much of the money lent will become NPA.Atal Pension Yojna: Met only 11.2% of target. The scheme remains unpopular because Governments own NPS bond gives higher interest.Some schemes with decent starts are AB-PMJAY, PMUY, though both have detractors and it is too early to comment. As for Saubhagya, before even it was launched most works on village electrification was completed in UPA-I and UPA-II era. In 10 years of Manmohan Government, 1,082,280 villages were connected to grid compared to 18,452 by Modi Government. Similarly, NREGA, the continuation of MNREGA has been a success. NPS seems to be good model as well.They will give a view of data in a manner that everything appears as a success, catchy numbers et al, but when you look deep, many are rotting.BJP’s PR machinery has successfully hidden the failures, promoted the success of schemes and gained votes.So what’s next?BJP under Modi and Amit Shah are have embarked upon a project to enforce Hindutva on Indians. Hindutva is a political manifestation of a struggle to make India a Hindu nation. Even 5 years back, the very mention of India being a Hindu nation would have drawn laughs, but more and more demand of Hindu nation is becoming mainstream. BJP is waging psychological warfare on Indians to push the idea of Hindutva. The idea being, to prevent Muslim appeasement or Muslims demanding “Azadi” or prevent “Islamic terrorism”, Hindu nation is the only answer. That day someone told me “What do you care if India becomes a Hindu nation?” If I had any respect for Christian nations of the middle ages, the Islamic nations of the 20th and 21st century, I would not have cared. If I had any respect for Pragya Thakur and Pratap Sarangi, I would not have cared. If I had anything to like about lynchings and riots and Indian mindset regressing to the middle ages, I would not have cared. The guy nevertheless strongly defended the idea. Imagine Congress having a Muslim minister with a charge of terrorism. There would be nationwide riots if a Muslim with terrorism charge gets elected. Get the point?A new norm is catching random people suspected of being thieves or Muslims and thrashing them if they do not chant “Jai Shri Ram”. This is the same thing the world saw in Talibanised Afghanistan where Kafirs were forced to chant “Allah Hu Akbar” and asked to recite verses from the Quran.Sakshi Maharaj once boasted that after 2019, there will be no more elections in India. That’s the worst-case scenario, but it is now somewhat likely that elections will be reduced to formality only. Already there is a push to sell the China model to Indian voters showing China as an example of a successful country with an authoritarian regime. People are buying it. As long as the majority is misled to vote for the wrong causes, a mix of democratic authoritarianism can prevail. So in future India may be a democracy by name, but will be an authoritarian fascist regime with political Hinduism as the driving force.Also, there is a danger of a huge riot instigated by BJP and where BJP will ultimately appear as “saviour” of Hindus from the backlash of Muslims. This can cement BJP’s position for years if not decades.Someone said if you hate someone to your core, your will to defeat them will make you do acts which will rob you of what you are. In its hate of Pakistan, many Indians are demanding another Pakistan, albeit, Hindu.Another trend will continue - manufacture fake history where Sardar Patel and Subhash Bose were nationalistic of the RSS kind and Vivekananda was pro-Hindutva and manufacture a role of RSS in Indian independence. The magic of Modi will also continue wherein amid a job crisis, unemployed educated youths will say “Modiji is right about jobs, I am polishing shoes and an entrepreneur”. That you can never expect from any other leader from any other party. It is a charisma built on illusion, on hate and on the dangerous cocktail of political Hinduism. What’s going on is nothing short of a grand brainwashing experiment of gigantic scale, perhaps the largest since the end of the Cold War. The world does not know that, just like the Indians.I agree on one thing – the uselessness of the opposition. They don’t know what hit them. So unless the other parties unite and understand what’s at stake, Modi will be PM in 2024 and maybe someone from BJP forever. Unless they reach out to public and explain whats happening to India under Modi-Shah, things will not change for the next 20 years.Edit: People, read Jayanta Guha’s comment. He is exhibit one for Amit Shah’s prime strategy (first point), or what happens when one falls for it.P.S.: I am not a Muslim as someone commented below. I was born Hindu, but I am agnostic now, otherwise referred to as “libtard” by Bhakts. I have read the Vedas, Bhagavad Gita, several Puranas, Quran, texts from the Old and New Testament and decided to leave all religion. Now I am living with my pseudo secular, commie, libtard, sometime anti-national status.Footnotes[1] MP Giriraj Singh blames Muslims as he calls for a law to control population

Term sheets are a way to make sure that everyone who is party to an agreement is on the same page before lawyers spend a lot of time and money writing the actual paperwork for a transaction.To give you an example, check out the Model Legal Documents from the National Venture Capital Association (NVCA). Their sample Term Sheet is 16 pages, and covers all of the important issues that an investor and an early stage company need to agree on before they consummate an investment transaction.However, at that same link you will see nine other documents that will ultimately be drafted and agreed on by the parties and their attorneys, covering all the tiny details of the transaction. Taken together, they amount to 120 pages of paperwork. As you can imagine, negotiating 16 pages is much easier, cheaper and faster than negotiating 120 pages.For a perfect example of why we use term sheets, take a look at the following provision from the NVCA term sheet:Representations and WarrantiesStandard representations and warranties by the Company. [Representations and warranties by Founders regarding technology ownership, etc.]Now take a look at the expanded, detailed language that is actually contained in the Stock Purchase Agreement that all parties will ultimately sign:1. Representations and Warranties of the CompanyThe Company hereby represents and warrants to each Purchaser that, except as set forth on the Disclosure Schedule attached as Exhibit C to this Agreement, which exceptions shall be deemed to be part of the representations and warranties made hereunder, the following representations are true and complete as of the date of the Initial Closing, except as otherwise indicated. The Disclosure Schedule shall be arranged in sections corresponding to the numbered and lettered sections and subsections contained in this Section 2, and the disclosures in any section or subsection of the Disclosure Schedule shall qualify other sections and subsections in this Section 2 only to the extent it is readily apparent from a reading of the disclosure that such disclosure is applicable to such other sections and subsections.[1] For purposes of these representations and warranties (other than those in Subsections 2.2, 2.3, 2.4, 2.5, and 2.6), the term the “Company” shall include any subsidiaries of the Company, unless otherwise noted herein.2.1 Organization, Good Standing, Corporate Power and Qualification[2] The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to carry on its business as presently conducted and as proposed to be conducted. The Company is duly qualified to transact business and is in good standing in each jurisdiction in which the failure to so qualify would have a Material Adverse Effect.2.2 Capitalization.[3] (a) The authorized capital of the Company consists, immediately prior to the Initial Closing, of:(i) [__________] shares of common stock, $[____] par value per share (the “Common Stock”), [_________] shares of which are issued and outstanding immediately prior to the Initial Closing. All of the outstanding shares of Common Stock have been duly authorized, are fully paid and nonassessable and were issued in compliance with all applicable federal and state securities laws.[4] [The Company holds no Common Stock in its treasury.](ii) [__________] shares of Preferred Stock, of which [__________] shares have been designated Series A Preferred Stock, none of which are issued and outstanding immediately prior to the Initial Closing. The rights, privileges and preferences of the Preferred Stock are as stated in the Restated Certificate and as provided by the Delaware General Corporation Law. [The Company holds no Preferred Stock in its treasury.](b) The Company has reserved [__________] shares of Common Stock for issuance to officers, directors, employees and consultants of the Company pursuant to its [Plan Year] Stock [Option] Plan duly adopted by the Board of Directors and approved by the Company stockholders (the “Stock Plan”). Of such reserved shares of Common Stock, [__________] shares have been issued pursuant to restricted stock purchase agreements, options to purchase [__________] shares have been granted and are currently outstanding, and [__________] shares of Common Stock remain available for issuance to officers, directors, employees and consultants pursuant to the Stock Plan. The Company has furnished to the Purchasers complete and accurate copies of the Stock Plan and forms of agreements used thereunder.(c) Subsection 2.2(b) of the Disclosure Schedule sets forth the capitalization of the Company immediately following the Initial Closing including the number of shares of the following: (i) issued and outstanding Common Stock, including, with respect to restricted Common Stock, vesting schedule and repurchase price; (ii) granted stock options, including vesting schedule and exercise price; (iii) shares of Common Stock reserved for future award grants under the Stock Plan; (iv) each series of Preferred Stock; and (v) warrants or stock purchase rights, if any.[5] Except for (A) the conversion privileges of the Shares to be issued under this Agreement, (B) the rights provided in Section 4 of the Investors’ Rights Agreement, and (C) the securities and rights described in Subsection 2.2(a)(ii) of this Agreement and Subsection 2.2(b) of the Disclosure Schedule, there are no outstanding options, warrants, rights (including conversion or preemptive rights and rights of first refusal or similar rights) or agreements, orally or in writing, to purchase or acquire from the Company any shares of Common Stock or Series A Preferred Stock, or any securities convertible into or exchangeable for shares of Common Stock or Series A Preferred Stock. All outstanding shares of the Company’s Common Stock and all shares of the Company’s Common Stock underlying outstanding options are subject to (i) a right of first refusal in favor of the Company upon any proposed transfer (other than transfers for estate planning purposes); and (ii) a lock-up or market standoff agreement of not less than one hundred eighty (180) days following the Company’s initial public offering pursuant to a registration statement filed with the Securities and Exchange Commission under the Securities Act.(d) None of the Company’s stock purchase agreements or stock option documents contains a provision for acceleration of vesting (or lapse of a repurchase right) or other changes in the vesting provisions or other terms of such agreement or understanding upon the occurrence of any event or combination of events, including without limitation in the case where the Company’s Stock Plan is not assumed in an acquisition. The Company has never adjusted or amended the exercise price of any stock options previously awarded, whether through amendment, cancellation, replacement grant, repricing, or any other means. Except as set forth in the Restated Certificate, the Company has no obligation (contingent or otherwise) to purchase or redeem any of its capital stock.(e) [409A. The Company believes in good faith that any “nonqualified deferred compensation plan” (as such term is defined under Section 409A(d)(1) of the Code and the guidance thereunder) under which the Company makes, is obligated to make or promises to make, payments (each, a “409A Plan”) complies in all material respects, in both form and operation, with the requirements of Section 409A of the Code and the guidance thereunder. To the knowledge of the Company, no payment to be made under any 409A Plan is, or will be, subject to the penalties of Section 409A(a)(1) of the Code.][6] (f) The Company has obtained valid waivers of any rights by other parties to purchase any of the Shares covered by this Agreement.2.3 Subsidiaries[7] The Company does not currently own or control, directly or indirectly, any interest in any other corporation, partnership, trust, joint venture, limited liability company, association, or other business entity. The Company is not a participant in any joint venture, partnership or similar arrangement.2.4 Authorization[8] All corporate action required to be taken by the Company’s Board of Directors and stockholders in order to authorize the Company to enter into the Transaction Agreements, and to issue the Shares at the Closing and the Common Stock issuable upon conversion of the Shares, has been taken or will be taken prior to the Closing. All action on the part of the officers of the Company necessary for the execution and delivery of the Transaction Agreements, the performance of all obligations of the Company under the Transaction Agreements to be performed as of the Closing, and the issuance and delivery of the Shares has been taken or will be taken prior to the Closing. The Transaction Agreements, when executed and delivered by the Company, shall constitute valid and legally binding obligations of the Company, enforceable against the Company in accordance with their respective terms except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, or other laws of general application relating to or affecting the enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies, or (iii) to the extent the indemnification provisions contained in the Investors’ Rights Agreement and the Indemnification Agreement may be limited by applicable federal or state securities laws.2.5 Valid Issuance of Shares[9] (a) The Shares, when issued, sold and delivered in accordance with the terms and for the consideration set forth in this Agreement, will be validly issued, fully paid and nonassessable and free of restrictions on transfer other than restrictions on transfer under the Transaction Agreements, applicable state and federal securities laws and liens or encumbrances created by or imposed by a Purchaser. Assuming the accuracy of the representations of the Purchasers in Section 0 of this Agreement and subject to the filings described in Subsection2.5(b) (ii) below, the Shares will be issued in compliance with all applicable federal and state securities laws. The Common Stock issuable upon conversion of the Shares has been duly reserved for issuance, and upon issuance in accordance with the terms of the Restated Certificate, will be validly issued, fully paid and nonassessable and free of restrictions on transfer other than restrictions on transfer under the Transaction Agreements, applicable federal and state securities laws and liens or encumbrances created by or imposed by a Purchaser. Based in part upon the representations of the Purchasers in Section 0 of this Agreement, and subject to Subsection 2.5(b) below, the Common Stock issuable upon conversion of the Shares will be issued in compliance with all applicable federal and state securities laws.(b) No “bad actor” disqualifying event described in Rule 506(d)(1)(i)-(viii) of the Securities Act (a “Disqualification Event”) is applicable to the Company or, to the Company’s knowledge, any Company Covered Person, except for a Disqualification Event as to which Rule 506(d)(2)(ii–iv) or (d)(3), is applicable.,[10]2.6 Governmental Consents and FilingsAssuming the accuracy of the representations made by the Purchasers in Section 0 of this Agreement, no consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state or local governmental authority is required on the part of the Company in connection with the consummation of the transactions contemplated by this Agreement, except for (i) the filing of the Restated Certificate, which will have been filed as of the Initial Closing, and (ii) filings pursuant to Regulation D of the Securities Act, and applicable state securities laws, which have been made or will be made in a timely manner.2.7 Litigation.[11] There is no claim, action, suit, proceeding, arbitration, complaint, charge or investigation[12] pending or to the Company’s knowledge, currently threatened [in writing] (i) against the Company or any officer, director or Key Employee of the Company [arising out of their employment or board relationship with the Company][; or] (ii) [to the Company’s knowledge,] that questions the validity of the Transaction Agreements or the right of the Company to enter into them, or to consummate the transactions contemplated by the Transaction Agreements[; or (iii) to the Company’s knowledge, that would reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect]. Neither the Company nor, to the Company’s knowledge, any of its officers, directors or Key Employees is a party or is named as subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality (in the case of officers, directors or Key Employees, such as would affect the Company). There is no action, suit, proceeding or investigation by the Company pending or which the Company intends to initiate. The foregoing includes, without limitation, actions, suits, proceedings or investigations pending or threatened in writing (or any basis therefor known to the Company) involving the prior employment of any of the Company’s employees, their services provided in connection with the Company’s business, any information or techniques allegedly proprietary to any of their former employers or their obligations under any agreements with prior employers.2.8 Intellectual Property[13] [The Company owns or possesses or [believes it] can acquire on commercially reasonable terms sufficient legal rights to all Company Intellectual Property without any known conflict with, or infringement of, the rights of others.] To the Company’s knowledge, no product or service marketed or sold (or proposed to be marketed or sold) by the Company violates or will violate any license or infringes or will infringe any intellectual property rights of any other party. Other than with respect to commercially available software products under standard end-user object code license agreements, there are no outstanding options, licenses, agreements, claims, encumbrances or shared ownership interests of any kind relating to the Company Intellectual Property, nor is the Company bound by or a party to any options, licenses or agreements of any kind with respect to the patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information, proprietary rights and processes of any other Person. The Company has not received any communications alleging that the Company has violated, or by conducting its business, would violate any of the patents, trademarks, service marks, tradenames, copyrights, trade secrets, mask works or other proprietary rights or processes of any other Person. The Company has obtained and possesses valid licenses to use all of the software programs present on the computers and other software-enabled electronic devices that it owns or leases or that it has otherwise provided to its employees for their use in connection with the Company’s business. To the Company’s knowledge, it will not be necessary to use any inventions of any of its employees or consultants (or Persons it currently intends to hire) made prior to their employment by the Company. Each employee and consultant has assigned to the Company all intellectual property rights he or she owns that are related to the Company’s business as now conducted and as presently proposed to be conducted. Subsection 0of the Disclosure Schedule lists all Company Intellectual Property.[14] The Company has not embedded any open source, copyleft or community source code in any of its products generally available or in development, including but not limited to any libraries or code licensed under any General Public License, Lesser General Public License or similar license arrangement.[15] For purposes of this Subsection 0, the Company shall be deemed to have knowledge of a patent right if the Company has actual knowledge of the patent right or would be found to be on notice of such patent right as determined by reference to United States patent laws.2.9 Compliance with Other Instruments2.6.. The Company is not in violation or default (i) of any provisions of its Restated Certificate or Bylaws, (ii) of any instrument, judgment, order, writ or decree, (iii) under any note, indenture or mortgage, or (iv) under any lease, agreement, contract or purchase order to which it is a party or by which it is bound that is required to be listed on the Disclosure Schedule, or (v) [to its knowledge,] of any provision of federal or state statute, rule or regulation applicable to the Company, the violation of which would have a Material Adverse Effect. The execution, delivery and performance of the Transaction Agreements and the consummation of the transactions contemplated by the Transaction Agreements will not result in any such violation or be in conflict with or constitute, with or without the passage of time and giving of notice, either (i) a default under any such provision, instrument, judgment, order, writ, decree, contract or agreement; or (ii) an event which results in the creation of any lien, charge or encumbrance upon any assets of the Company or the suspension, revocation, forfeiture, or nonrenewal of any material permit or license applicable to the Company.2.10 Agreements; Actions2.7..[16](a) Except for the Transaction Agreements, there are no agreements, understandings, instruments, contracts or proposed transactions to which the Company is a party or by which it is bound that involve (i) obligations (contingent or otherwise) of, or payments to, the Company in excess of [_________], (ii) the license of any patent, copyright, trademark, trade secret or other proprietary right to or from the Company, (iii) the grant of rights to manufacture, produce, assemble, license, market, or sell its products to any other Person that limit the Company’s exclusive right to develop, manufacture, assemble, distribute, market or sell its products, or (iv) indemnification by the Company with respect to infringements of proprietary rights.(b) The Company has not (i) declared or paid any dividends, or authorized or made any distribution upon or with respect to any class or series of its capital stock, (ii) incurred any indebtedness for money borrowed or incurred any other liabilities individually in excess of [___________] or in excess of [__________] in the aggregate, (iii) made any loans or advances to any Person, other than ordinary advances for travel expenses, or (iv) sold, exchanged or otherwise disposed of any of its assets or rights, other than the sale of its inventory in the ordinary course of business. For the purposes of(a)and(b)of this Subsection2.6, all indebtedness, liabilities, agreements, understandings, instruments, contracts and proposed transactions involving the same Person (including Persons the Company has reason to believe are affiliated with each other) shall be aggregated for the purpose of meeting the individual minimum dollar amounts of such subsection.(c) The Company is not a guarantor or indemnitor of any indebtedness of any other Person.(d) [The Company has not engaged in the past [three (3) months] in any discussion with any representative of any Person regarding (i) a sale or exclusive license of all or substantially all of the Company’s assets, or (ii) any merger, consolidation or other business combination transaction of the Company with or into another Person.][17]2.11 Certain Transactions2.8..[18](a) Other than (i) standard employee benefits generally made available to all employees, (ii) standard director and officer indemnification agreements approved by the Board of Directors, and (iii) the purchase of shares of the Company’s capital stock and the issuance of options to purchase shares of the Company’s Common Stock, in each instance, approved in the written minutes of the Board of Directors (previously provided to the Purchasers or their counsel), there are no agreements, understandings or proposed transactions between the Company and any of its officers, directors, consultants or Key Employees, or any Affiliate thereof.(b) The Company is not indebted, directly or indirectly, to any of its directors, officers or employees or to their respective spouses or children or to any Affiliate of any of the foregoing, other than in connection with expenses or advances of expenses incurred in the ordinary course of business or employee relocation expenses and for other customary employee benefits made generally available to all employees. None of the Company’s directors, officers or employees, or any members of their immediate families, or any Affiliate of the foregoing are, directly or indirectly, indebted to the Company[ or, [to the Company’s knowledge], have any (i) material commercial, industrial, banking, consulting, legal, accounting, charitable or familial relationship with any of the Company’s customers, suppliers, service providers, joint venture partners, licensees and competitors, (ii) direct or indirect ownership interest in any firm or corporation with which the Company is affiliated or with which the Company has a business relationship, or any firm or corporation which competes with the Company except that directors, officers, employees or stockholders of the Company may own stock in (but not exceeding two percent (2%) of the outstanding capital stock of) publicly traded companies that may compete with the Company; or (iii) financial interest in any [material] contract with the Company].[19]2.12 Rights of Registration and Voting Rights2.9..[20] Except as provided in the Investors’ Rights Agreement, the Company is not under any obligation to register under the Securities Act any of its currently outstanding securities or any securities issuable upon exercise or conversion of its currently outstanding securities. To the Company’s knowledge, except as contemplated in the Voting Agreement, no stockholder of the Company has entered into any agreements with respect to the voting of capital shares of the Company.2.13 Property2.10.. The property and assets that the Company owns are free and clear of all mortgages, deeds of trust, liens, loans and encumbrances, except for statutory liens for the payment of current taxes that are not yet delinquent and encumbrances and liens that arise in the ordinary course of business and do not materially impair the Company’s ownership or use of such property or assets. With respect to the property and assets it leases, the Company is in compliance with such leases and, to its knowledge, holds a valid leasehold interest free of any liens, claims or encumbrances other than those of the lessors of such property or assets. The Company does not own any real property.2.14 Financial Statements2.11..[21] The Company has delivered to each Purchaser its [unaudited] [audited] financial statements as of [_______ __, 20_] and for the fiscal year ended [_______ __, 20_] [and its unaudited financial statements (including balance sheet, income statement and statement of cash flows) as of [_______ __, 20_] and for the [_____]-month period ended [_______ __, 20_] (collectively, the “Financial Statements”). The Financial Statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) applied on a consistent basis throughout the periods indicated[, except that the unaudited Financial Statements may not contain all footnotes required by GAAP]. The Financial Statements fairly present in all material respects the financial condition and operating results of the Company as of the dates, and for the periods, indicated therein, subject in the case of the unaudited Financial Statements to normal year-end audit adjustments. Except as set forth in the Financial Statements, the Company has no material liabilities or obligations, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent to [___________]; (ii) obligations under contracts and commitments incurred in the ordinary course of business; and (iii) liabilities and obligations of a type or nature not required under GAAP to be reflected in the Financial Statements, which, in all such cases, individually and in the aggregate would not have a Material Adverse Effect. The Company maintains and will continue to maintain a standard system of accounting established and administered in accordance with GAAP.2.15 Changes2.12..[22] Since [date of most recent financial statements/date of incorporation if no financial statements] there has not been:(a) any change in the assets, liabilities, financial condition or operating results of the Company from that reflected in the Financial Statements, except changes in the ordinary course of business that have not caused, in the aggregate, a Material Adverse Effect;(b) any damage, destruction or loss, whether or not covered by insurance, that would have a Material Adverse Effect;(c) any waiver or compromise by the Company of a valuable right or of a material debt owed to it;(d) any satisfaction or discharge of any lien, claim, or encumbrance or payment of any obligation by the Company, except in the ordinary course of business and the satisfaction or discharge of which would not have a Material Adverse Effect;(e) any material change to a material contract or agreement by which the Company or any of its assets is bound or subject;(f) any material change in any compensation arrangement or agreement with any employee, officer, director or stockholder;(g) any resignation or termination of employment of any officer or Key Employee of the Company;(h) any mortgage, pledge, transfer of a security interest in, or lien, created by the Company, with respect to any of its material properties or assets, except liens for taxes not yet due or payable and liens that arise in the ordinary course of business and do not materially impair the Company’s ownership or use of such property or assets;(i) any loans or guarantees made by the Company to or for the benefit of its employees, officers or directors, or any members of their immediate families, other than travel advances and other advances made in the ordinary course of its business;(j) any declaration, setting aside or payment or other distribution in respect of any of the Company’s capital stock, or any direct or indirect redemption, purchase, or other acquisition of any of such stock by the Company;(k) any sale, assignment or transfer of any Company Intellectual Property that could reasonably be expected to result in a Material Adverse Effect;(l) receipt of notice that there has been a loss of, or material order cancellation by, any major customer of the Company;(m) to the Company’s knowledge, any other event or condition of any character, other than events affecting the economy or the Company’s industry generally, that could reasonably be expected to result in a Material Adverse Effect; or(n) any arrangement or commitment by the Company to do any of the things described in this Subsection2.11.2.16 Employee Matters2.13..(a) As of the date hereof, the Company employs [________] full-time employees and [________] part-time employees and engages [________] consultants or independent contractors. [Subsection2.12(n)of] the Disclosure Schedule sets forth a detailed description of all compensation, including salary, bonus, severance obligations and deferred compensation paid or payable for each officer, employee, consultant and independent contractor of the Company who received compensation in excess of $[________] for the fiscal year ended [____ __, 20_] or is anticipated to receive compensation in excess of $[________] for the fiscal year ending [____ __, 20_].[23](b) To the Company’s knowledge, none of its employees is obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would materially interfere with such employee’s ability to promote the interest of the Company or that would conflict with the Company’s business. Neither the execution or delivery of the Transaction Agreements, nor the carrying on of the Company’s business by the employees of the Company, nor the conduct of the Company’s business as now conducted and as presently proposed to be conducted, will, to the Company’s knowledge, conflict with or result in a breach of the terms, conditions, or provisions of, or constitute a default under, any contract, covenant or instrument under which any such employee is now obligated.(c) The Company is not delinquent in payments to any of its employees, consultants, or independent contractors for any wages, salaries, commissions, bonuses, or other direct compensation for any service performed for it to the date hereof or amounts required to be reimbursed to such employees, consultants or independent contractors. The Company has complied in all material respects with all applicable state and federal equal employment opportunity laws and with other laws related to employment, including those related to wages, hours, worker classification and collective bargaining. The Company has withheld and paid to the appropriate governmental entity or is holding for payment not yet due to such governmental entity all amounts required to be withheld from employees of the Company and is not liable for any arrears of wages, taxes, penalties or other sums for failure to comply with any of the foregoing.(d) To the Company’s knowledge, no Key Employee intends to terminate employment with the Company or is otherwise likely to become unavailable to continue as a Key Employee, nor does the Company have a present intention to terminate the employment of any of the foregoing. The employment of each employee of the Company is terminable at the will of the Company. Except as set forth in Subsection2.12(n)of the Disclosure Schedule or as required by law, upon termination of the employment of any such employees, no severance or other payments will become due. Except as set forth in Subsection2.12(n)of the Disclosure Schedule, the Company has no policy, practice, plan or program of paying severance pay or any form of severance compensation in connection with the termination of employment services.(e) The Company has not made any representations regarding equity incentives to any officer, employee, director or consultant that are inconsistent with the share amounts and terms set forth in the minutes of meetings of the Company’s board of directors.(f) Each former Key Employee whose employment was terminated by the Company has entered into an agreement with the Company providing for the full release of any claims against the Company or any related party arising out of such employment.(g) Subsection2.12(n)of the Disclosure Schedule sets forth each employee benefit plan maintained, established or sponsored by the Company, or which the Company participates in or contributes to, which is subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). The Company has made all required contributions and has no liability to any such employee benefit plan, other than liability for health plan continuation coverage described in Part 6 of Title I(B) of ERISA, and has complied in all material respects with all applicable laws for any such employee benefit plan.(h) [The Company is not bound by or subject to (and none of its assets or properties is bound by or subject to) any written or oral, express or implied, contract, commitment or arrangement with any labor union, and no labor union has requested or, to the knowledge of the Company, has sought to represent any of the employees, representatives or agents of the Company. There is no strike or other labor dispute involving the Company pending, or to the Company’s knowledge, threatened, which could have a Material Adverse Effect, nor is the Company aware of any labor organization activity involving its employees.](i) [To the Company’s knowledge, none of the Key Employees or directors[24] of the Company has been (a) subject to voluntary or involuntary petition under the federal bankruptcy laws or any state insolvency law or the appointment of a receiver, fiscal agent or similar officer by a court for his business or property; (b) convicted in a criminal proceeding or named as a subject of a pending criminal proceeding (excluding traffic violations and other minor offenses); (c) subject to any order, judgment or decree (not subsequently reversed, suspended, or vacated) of any court of competent jurisdiction permanently or temporarily enjoining him from engaging, or otherwise imposing limits or conditions on his engagement in any securities, investment advisory, banking, insurance, or other type of business or acting as an officer or director of a public company; or (d) found by a court of competent jurisdiction in a civil action or by the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated any federal or state securities, commodities, or unfair trade practices law, which such judgment or finding has not been subsequently reversed, suspended, or vacated.]2.17 Tax Returns and Payments2.14.. There are no federal, state, county, local or foreign taxes due and payable by the Company which have not been timely paid. There are no accrued and unpaid federal, state, country, local or foreign taxes of the Company which are due, whether or not assessed or disputed. There have been no examinations or audits of any tax returns or reports by any applicable federal, state, local or foreign governmental agency. The Company has duly and timely filed all federal, state, county, local and foreign tax returns required to have been filed by it and there are in effect no waivers of applicable statutes of limitations with respect to taxes for any year.2.18 Insurance2.15..[25] The Company has in full force and effect fire and casualty insurance policies with extended coverage, sufficient in amount (subject to reasonable deductions) to allow it to replace any of its properties that might be damaged or destroyed.2.19 Employee Agreements2.16.. Each current and former employee, consultant and officer of the Company has executed an agreement with the Company regarding confidentiality and proprietary information substantially in the form or forms delivered to the counsel for the Purchasers (the “Confidential Information Agreements”). No current or former Key Employee has excluded works or inventions from his or her assignment of inventions pursuant to such Key Employee’s Confidential Information Agreement. Each current and former Key Employee has executed a [non-competition and] non-solicitation agreement substantially in the form or forms delivered to counsel for the Purchasers. The Company is not aware that any of its Key Employees is in violation of any agreement covered by this Subsection2.15.2.20 Permits2.17.. The Company has all franchises, permits, licenses and any similar authority necessary for the conduct of its business, the lack of which could reasonably be expected to have a Material Adverse Effect. The Company is not in default in any material respect under any of such franchises, permits, licenses or other similar authority.2.21 Corporate Documents2.18.. The Restated Certificate and Bylaws of the Company are in the form provided to the Purchasers. The copy of the minute books of the Company provided to the Purchasers contains minutes of all meetings of directors and stockholders and all actions by written consent without a meeting by the directors and stockholders since the date of incorporation and accurately reflects in all material respects all actions by the directors (and any committee of directors) and stockholders with respect to all transactions referred to in such minutes.2.22 [83(b) Elections2.19.. To the Company’s knowledge, all elections and notices under Section 83(b) of the Code have been or will be timely filed by all individuals who have acquired unvested shares of the Company’s Common Stock.][26]2.23 [Real Property Holding Corporation2.20..[27] The Company is not now and has never been a “United States real property holding corporation” as defined in the Code and any applicable regulations promulgated thereunder. The Company has filed with the Internal Revenue Service all statements, if any, with its United States income tax returns which are required under such regulations.]2.24 Environmental and Safety Laws2.21.. Except as could not reasonably be expected to have a Material Adverse Effect [to the best of its knowledge] (a) the Company is and has been in compliance with all Environmental Laws; (b) there has been no release or [to the Company’s knowledge] threatened release of any pollutant, contaminant or toxic or hazardous material, substance or waste or petroleum or any fraction thereof (each a “Hazardous Substance”), on, upon, into or from any site currently or heretofore owned, leased or otherwise used by the Company; (c) there have been no Hazardous Substances generated by the Company that have been disposed of or come to rest at any site that has been included in any published U.S. federal, state or local “superfund” site list or any other similar list of hazardous or toxic waste sites published by any governmental authority in the United States; and (d) there are no underground storage tanks located on, no polychlorinated biphenyls (“PCBs”) or PCB-containing equipment used or stored on, and no hazardous waste as defined by the Resource Conservation and Recovery Act, as amended, stored on, any site owned or operated by the Company, except for the storage of hazardous waste in compliance with Environmental Laws. The Company has made available to the Purchasers true and complete copies of all material environmental records, reports, notifications, certificates of need, permits, pending permit applications, correspondence, engineering studies and environmental studies or assessments.For purposes of this Subsection 2.24, “Environmental Laws” means any law, regulation, or other applicable requirement relating to (a) releases or threatened release of Hazardous Substance; (b) pollution or protection of employee health or safety, public health or the environment; or (c) the manufacture, handling, transport, use, treatment, storage, or disposal of Hazardous Substances.2.25 [Qualified Small Business Stock2.22..[28] As of and immediately following the Closing: (i) the Company will be an eligible corporation as defined in Section 1202(e)(4) of the Code, (ii) the Company will not have made purchases of its own stock described in Code Section 1202(c)(3)(B) during the one (1) year period preceding the Initial Closing, except for purchases that are disregarded for such purposes under Treasury Regulation Section 1.1202-2, and (iii) the Company’s aggregate gross assets, as defined by Code Section 1202(d)(2), at no time between its incorporation and through the Initial Closing have exceeded $50 million, taking into account the assets of any corporations required to be aggregated with the Company in accordance with Code Section 1202(d)(3); provided, however, that in no event shall the Company be liable to the Purchasers or any other party for any damages arising from any subsequently proven or identified error in the Company’s determination with respect to the applicability or interpretation of Code Section 1202, unless such determination shall have been given by the Company in a manner either grossly negligent or fraudulent.]2.26 Disclosure2.23..[29] The Company has made available to the Purchasers all the information reasonably available to the Company that the Purchasers have requested for deciding whether to acquire the Shares, including certain of the Company’s projections describing its proposed business plan (the “Business Plan”). No representation or warranty of the Company contained in this Agreement, as qualified by the Disclosure Schedule, and no certificate furnished or to be furnished to Purchasers at the Closing contains any untrue statement of a material fact or[, to the Company’s knowledge,] omits to state a material fact necessary in order to make the statements contained herein or therein not misleading in light of the circumstances under which they were made. The Business Plan was prepared in good faith; however, the Company does not warrant that it will achieve any results projected in the Business Plan. It is understood that this representation is qualified by the fact that the Company has not delivered to the Purchasers, and has not been requested to deliver, a private placement or similar memorandum or any written disclosure of the types of information customarily furnished to purchasers of securities.2.27 [Small Business Concern2.24..[30] The Company together with its “affiliates” (as that term is defined in Section 121.103 of Title 13 of the Code of Federal Regulations (“CFR”), is a [“small business concern”][“smaller business”] within the meaning of the Small Business Investment Act of 1958, as amended (the “Small Business Act”), and the regulations promulgated thereunder, including [Section 121.301 of Title 13 of the CFR][Section 107.710 of Title 13 of the CFR]. The information delivered to each Purchaser that is a licensed Small Business Investment Company (an “SBIC Purchaser”) on SBA Forms 480, 652 and 1031 delivered in connection herewith is true and complete. The Company is not ineligible for financing by any SBIC Purchaser pursuant to Section 107.720 of the CFR. The Company acknowledges that each SBIC Purchaser is a Federal licensee under the Small Business Act.]2.28 [Foreign Corrupt Practices Act2.25.. Neither the Company nor any of the Company’s directors, officers, employees or agents have, directly or indirectly, made, offered, promised or authorized any payment or gift of any money or anything of value to or for the benefit of any “foreign official” (as such term is defined in the U.S. Foreign Corrupt Practices Act of 1977, as amended (the “FCPA”)), foreign political party or official thereof or candidate for foreign political office for the purpose of (i) influencing any official act or decision of such official, party or candidate, (ii) inducing such official, party or candidate to use his, her or its influence to affect any act or decision of a foreign governmental authority, or (iii) securing any improper advantage, in the case of (i), (ii) and (iii) above in order to assist the Company or any of its affiliates in obtaining or retaining business for or with, or directing business to, any person. Neither the Company nor any of its directors, officers, employees or agents have made or authorized any bribe, rebate, payoff, influence payment, kickback or other unlawful payment of funds or received or retained any funds in violation of any law, rule or regulation. The Company further represents that it has maintained, and has caused each of its subsidiaries and affiliates to maintain, systems of internal controls (including, but not limited to, accounting systems, purchasing systems and billing systems) to ensure compliance with the FCPA or any other applicable anti-bribery or anti-corruption law. Neither the Company, or, to the Company’s knowledge, any of its officers, directors or employees are the subject of any allegation, voluntary disclosure, investigation, prosecution or other enforcement action related to the FCPA or any other anti-corruption law (collectively, “Enforcement Action”).]2.29 [Data Privacy2.26.. In connection with its collection, storage, transfer (including, without limitation, any transfer across national borders) and/or use of any personally identifiable information from any individuals, including, without limitation, any customers, prospective customers, employees and/or other third parties (collectively “Personal Information”), the Company is and has been[, to the Company’s knowledge,] in compliance with all applicable laws in all relevant jurisdictions, the Company’s privacy policies and the requirements of any contract or codes of conduct to which the Company is a party. The Company has commercially reasonable physical, technical, organizational and administrative security measures and policies in place to protect all Personal Information collected by it or on its behalf from and against unauthorized access, use and/or disclosure. The Company is and has been[, to the Company’s knowledge,] in compliance in all material respects with all laws relating to data loss, theft and breach of security notification obligations.][See ADDENDUM at end of this document with sample Founders Representations and Warranties.][31]3. Representations and Warranties of the Purchasers.[32]Each Purchaser hereby represents and warrants to the Company, severally and not jointly, that:3.1 Authorization. The Purchaser has full power and authority to enter into the Transaction Agreements. The Transaction Agreements to which the Purchaser is a party, when executed and delivered by the Purchaser, will constitute valid and legally binding obligations of the Purchaser, enforceable in accordance with their terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and any other laws of general application affecting enforcement of creditors’ rights generally, and as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies, or (b) to the extent the indemnification provisions contained in the Investors’ Rights Agreement may be limited by applicable federal or state securities laws.3.2 Purchase Entirely for Own Account.[33] This Agreement is made with the Purchaser in reliance upon the Purchaser’s representation to the Company, which by the Purchaser’s execution of this Agreement, the Purchaser hereby confirms, that the Shares to be acquired by the Purchaser will be acquired for investment for the Purchaser’s own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that the Purchaser has no present intention of selling, granting any participation in, or otherwise distributing the same. By executing this Agreement, the Purchaser further represents that the Purchaser does not presently have any contract, undertaking, agreement or arrangement with any Person to sell, transfer or grant participations to such Person or to any third Person, with respect to any of the Shares. The Purchaser has not been formed for the specific purpose of acquiring the Shares.3.3 Disclosure of Information. The Purchaser has had an opportunity to discuss the Company’s business, management, financial affairs and the terms and conditions of the offering of the Shares with the Company’s management and has had an opportunity to review the Company’s facilities. The foregoing, however, does not limit or modify the representations and warranties of the Company in Section2of this Agreement or the right of the Purchasers to rely thereon.3.4 Restricted Securities. The Purchaser understands that the Shares have not been, and will not be, registered under the Securities Act, by reason of a specific exemption from the registration provisions of the Securities Act which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of the Purchaser’s representations as expressed herein. The Purchaser understands that the Shares are “restricted securities” under applicable U.S. federal and state securities laws and that, pursuant to these laws, the Purchaser must hold the Shares indefinitely unless they are registered with the Securities and Exchange Commission and qualified by state authorities, or an exemption from such registration and qualification requirements is available. The Purchaser acknowledges that the Company has no obligation to register or qualify the Shares, or the Common Stock into which it may be converted, for resale except as set forth in the Investors’ Rights Agreement. The Purchaser further acknowledges that if an exemption from registration or qualification is available, it may be conditioned on various requirements including, but not limited to, the time and manner of sale, the holding period for the Shares, and on requirements relating to the Company which are outside of the Purchaser’s control, and which the Company is under no obligation and may not be able to satisfy. [The Purchaser acknowledges that the Company filed a registration statement for a public offering of its Common Stock, which was withdrawn effective [_____ __, 20_]. The Purchaser understands that this offering is not intended to be part of the public offering, and that the Purchaser will not be able to rely on the protection of Section 11 of the Securities Act.[34]]3.5 No Public Market. The Purchaser understands that no public market now exists for the Shares, and that the Company has made no assurances that a public market will ever exist for the Shares.3.6 Legends. The Purchaser understands that the Shares and any securities issued in respect of or exchange for the Shares, may be notated with one or all of the following legends:“THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH TRANSFER MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.”(a) Any legend set forth in, or required by, the other Transaction Agreements.(b) Any legend required by the securities laws of any state to the extent such laws are applicable to the Shares represented by the certificate, instrument, or book entry so legended.3.7 Accredited Investor. The Purchaser is an accredited investor as defined in Rule 501(a) of Regulation D promulgated under the Securities Act.3.8 Foreign Investors. If the Purchaser is not a United States person (as defined by Section 7701(a)(30) of the Code), the Purchaser hereby represents that it has satisfied itself as to the full observance of the laws of its jurisdiction in connection with any invitation to subscribe for the Shares or any use of this Agreement, including (i) the legal requirements within its jurisdiction for the purchase of the Shares, (ii) any foreign exchange restrictions applicable to such purchase, (iii) any governmental or other consents that may need to be obtained, and (iv) the income tax and other tax consequences, if any, that may be relevant to the purchase, holding, redemption, sale, or transfer of the Shares. The Purchaser’s subscription and payment for and continued beneficial ownership of the Shares will not violate any applicable securities or other laws of the Purchaser’s jurisdiction.3.9 No General Solicitation. Neither the Purchaser, nor any of its officers, directors, employees, agents, stockholders or partners has either directly or indirectly, including, through a broker or finder (a) engaged in any general solicitation, or (b) published any advertisement in connection with the offer and sale of the Shares.[35]3.10 Exculpation Among Purchasers. The Purchaser acknowledges that it is not relying upon any Person, other than the Company and its officers and directors, in making its investment or decision to invest in the Company. [The Purchaser agrees that neither any Purchaser nor the respective controlling Persons, officers, directors, partners, agents, or employees of any Purchaser shall be liable to any other Purchaser for any action heretofore taken or omitted to be taken by any of them in connection with the purchase of the Shares.][36]3.11 Residence. If the Purchaser is an individual, then the Purchaser resides in the state or province identified in the address of the Purchaser set forth onExhibit A; if the Purchaser is a partnership, corporation, limited liability company or other entity, then the office or offices of the Purchaser in which its principal place of business is identified in the address or addresses of the Purchaser set forth onExhibit A.3.12 [Consent to Promissory Note Conversion and Termination. Each Purchaser, to the extent that such Purchaser, as set forth on the Schedule of Purchasers, is a holder of any promissory note of the Company being converted and/or cancelled in consideration of the issuance hereunder of Shares to such Purchaser, hereby agrees that the entire amount owed to such Purchaser under such note is being tendered to the Company in exchange for the applicable Shares set forth on the Schedule of Purchasers, and effective upon the Company’s and such Purchaser’s execution and delivery of this Agreement, without any further action required by the Company or such Purchaser, such note and all obligations set forth therein shall be immediately deemed repaid in full and terminated in their entirety, including, but not limited to, any security interest effected therein.[37]][1] The purpose of the Company’s representations is primarily to create a mechanism to ensure full disclosure about the Company’s organization, financial condition and business to the investors. The Company is required to list any deviations from the representations on a Disclosure Schedule, the preparation and review of which drives the due diligence process on both sides of the deal. For subsequent closings, changes to the Disclosure Schedule are sometimes simply referenced on the Compliance Certificate. The introductory paragraph to this Section2may be modified to permit an update to the Disclosure Schedule that would be reasonably acceptable to each of the Purchasers. If this modification is made, a closing condition should be added to indicate that the updated Disclosure Schedule will be delivered and that each of the Purchasers may refuse to close if the updated Disclosure Schedule is reasonably unacceptable to that Purchaser. If there is to be a Milestone Closing, specific representations and warranties to be true as of the Milestone Closing date may need to be negotiated. Some practitioners prefer to deliver the Disclosure Schedule separately, instead of as an exhibit to the Stock Purchase Agreement, so that the Disclosure Schedule will not have to be publicly filed in the event the Stock Purchase Agreement is filed as an exhibit to a public offering registration statement.[2] The purpose of this representation is to ensure that basic corporate maintenance has been properly carried out by the Company. Note that the Company is required to disclose failure to qualify in other jurisdictions where it does business only if failure to do so could have a “Material Adverse Effect”; the purpose of this language is to eliminate the time and expense of doing a state-by-state analysis to determine whether the Company should technically be qualified. If the Company has material connections to states in which it is not qualified, these states must be investigated by counsel to determine whether qualification is necessary and whether there are potential adverse effects of having failed to qualify.[3] Subsection2describes the Company’s capital structure and can be stated either immediately prior to or upon the Initial Closing of the financing. This description details any outstanding rights or privileges with respect to the Company’s securities. In later round financings, this description would also list any co-sale rights and rights of first refusal granted to investors in prior rounds. In later round financings, consider adding representations that there have been no conversions of previously-issued preferred stock to common stock, the number of shares that would be outstanding on an as-converted-to-common stock basis and the current conversion ratios of each series of preferred stock.[4] Note that the amendments to Rule 506 effective September 23, 2013 added additional requirements for offerings relying on the Rule 506 safe harbor, namely, the absence of “bad actors” affiliated with the issuer and, for offerings involving general solicitation under Rule 506(c), accredited investor certification. Accordingly, investors may wish to conduct additional due diligence on these matters with respect to offerings consummated after September 23, 2013[5] Some practitioners prefer to delete this representation, provided the capitalization table is a separate document.[6] It should be noted that the consensus among the NVCA drafting group was that the 409A issues are better dealt with as a diligence item, rather than a company rep. Nevertheless, this rep is included here because it is in any case important that the issue be surfaced as part of the financing, to ensure that the company is mindful of the obligations and potential penalties imposed by 409A as it makes future equity grants. Inserting the rep in the first draft, as a discussion item, is one way to ensure that the issue is not neglected.[7] The purpose of this representation is to require the Company to fully disclose its structure, including other corporations, if any, that it controls. If the Company does have subsidiaries, you should (i) add to Subsection2.2(f)a representation with respect to the subsidiaries of the Company modeled after Subsection0regarding the organization, good standing and qualification of each such subsidiary, and (ii) add a reference to subsidiaries where appropriate in Section2. Some formulations include subsidiaries in the definition of the Company, this approach works if careful attention is given to representations where the effect of such inclusion requires additional language (for example, the representation in Subsection2would require either the exclusion of subsidiaries or a separate paragraph regarding the capitalization of subsidiaries).[8] In certain jurisdictions, ancillary agreements executed in connection with the financing, such as noncompetition provisions or voting agreements, may be subject to some question regarding their enforceability, and the representation should be modified accordingly.[9] The representations in Subsections2.3and2.4are intended to ensure that the Company has taken all steps necessary to issue the preferred stock in accordance with applicable corporate law. This means that, before the closing, the Company must (A) obtain the requisite stockholder and board approvals to amend the Certificate of Incorporation and issue the stock; (B) file the Restated Certificate; and (C) obtain any other stockholder consents or waivers required pursuant to the Restated Certificate, Bylaws, and existing agreements with securityholders (most importantly, waivers to any existing rights of first offer or refusal). Subsection2.4also requires the Company to disclose any restrictions on transfer other than those contained in the Transaction Agreements (such as any contained in the Restated Certificate and Bylaws, or any preemptive rights contained in agreements with other securityholders).[10] Even if the Company is not relying on Rule 506 for the offering under this Agreement, this representation is included so that investors can determine whether the Company will be entitled to rely on Rule 506 in future offerings by the Company.[11] The litigation representation will often be unqualified in Series A financings. The bracketed materiality qualifiers are more common in later rounds of financings. In subsequent rounds it is no longer appropriate to have the Company make representations regarding directors (as opposed to employees), since directors will include investor representatives.[12] It may be appropriate to include a knowledge qualifier as to investigations since it would be difficult for the Company to know of an investigation unless it had been notified. Some investors nevertheless feel the risk is appropriately borne by the Company.[13] Subsection 2.8 gives the Purchasers assurances that the Company has the intellectual property rights necessary to conduct its business, or has disclosed its need to acquire further rights. Although Purchasers prefer an unqualified representation, this provision is often heavily negotiated, and may be impossible for the Company to make with certainty for a product in a very early stage of development. Under a common compromise, the Company provides an unqualified representation with respect to everything but patents, on the theory that potential patent conflicts cannot always be uncovered even after reasonable investigation, and that patent conflicts therefore represent an unknown risk that is fairly borne by both parties.[14] If you represent the Company, you may seek to use a more specific list of items (a subset of the broader definition of Company Intellectual Property) to be set forth on the Disclosure Schedule: “patents, patent applications, trademarks, trademark applications, service marks, service mark applications, tradenames, copyrights, and licenses to and under any of the foregoing.”[15] This representation regarding non-use of open source software is intended to elicit disclosure of publicly available, third-party source code that the Company has incorporated, or intends to incorporate, into its products. In most cases, the Purchasers should be concerned primarily about use of third-party source code distributed under a license that requires the Company to disclose and distribute its own source code, that grants licensees rights under the Company’s patents, or that contains other provisions that relinquish or may compromise the Company’s intellectual property rights or commercial prospects. Much publicly available source code is distributed under licenses that permit it to be freely used and redistributed without imposing onerous obligations upon those that use it to develop their own software. Note also that the General Public License (“GPL”) and other so-called “viral” open source licenses impose potentially onerous obligations upon licensees only if code distributed under them is incorporated into a product that is actually released to the general public. Some proprietary software companies experiment with code distributed under the GPL during the development process with no intention of retaining GPL code in the products ultimately released to their customers. (This experimentation typically is done in a separate “branch” of the source code of a product in development.) The Company may wish to consider narrowing this representation to include use of third-party source code distributed under any license that imposes specified obligations upon the Company, and perhaps then only if the third party source code has been included in a product that the Company has released. An example of a reduced-disclosure open source representation is as follows: “The Company has not embedded, used or distributed any open source, copyleft or community source code (including but not limited to any libraries or code, software, technologies or other materials that are licensed or distributed under any General Public License, Lesser General Public License or similar license arrangement or other distribution model described by the Open Source Initiative at News | Open Source Initiative, collectively “Open Source Software”) in connection with any of its products or services that are generally available or in development in any manner that would materially restrict the ability of the Company to protect its proprietary interests in any such product or service or in any manner that requires, or purports to require (i) any Company IP (other than the Open Source Software itself) be disclosed or distributed in source code form or be licensed for the purpose of making derivative works; (ii) any restriction on the consideration to be charged for the distribution of any Company IP; (iii) the creation of any obligation for the Company with respect to Company IP owned by the Company, or the grant to any third party of any rights or immunities under Company IP owned by the Company; or (iv) any other limitation, restriction or condition on the right of the Company with respect to its use or distribution of any Company IP.”[16] Subsections2.7and 2.102.7require the Company to disclose material contracts as well as other agreements or arrangements that might be important from a due diligence standpoint regardless of dollar amount (such as intellectual property licenses or a proposed acquisition of the Company). The disclosure thresholds are negotiable.[17] This representation is not standard, but is sometimes requested by investors concerned that the Company might be considering a business combination transaction.[18] This representation requires disclosure of situations which could create a conflict of interest. This is an item of particular concern in the first round of venture capital financing, since loans among the Company and its founders and their families (which may not be well documented) are especially common prior to the first infusion of outside capital.[19] The bracketed portion of this sentence may be a broader representation than the Company is comfortable giving. In addition, it is appropriate to include directors throughout this section only at the first financing round. In subsequent rounds the directors will include investor representatives, and it should not be incumbent on the Company to make disclosures as to them.[20] Prior registration rights may conflict with those currently being negotiated among the investors and the Company. Therefore, any such rights must be carefully reviewed and any conflicts resolved. It is common to have any previous registration rights agreement amended to include the new investors, or replaced by a new agreement including the old and new investors and clarifying their rights relative to each other as well as the Company. It is preferable to have all registration rights relating to the Company’s securities set forth in one document. Having several different sets of rights outstanding can be a significant (and confusing) complication when the Company goes public.[21] For early stage companies without financial statements, it may be appropriate to have an alternative provision, such as the following:Material Liabilities. The Company has no liability or obligation, absolute or contingent (individually or in the aggregate), except (i) obligations and liabilities incurred after the date of incorporation in the ordinary course of business that are not material, individually or in the aggregate, and (ii) obligations under contracts made in the ordinary course of business that would not be required to be reflected in financial statements prepared in accordance with GAAP.[22] The purpose of this representation is to “bring down” the financial statements from the period covered thereby. Therefore, the blank in Subsection2.11should be filled with the last date covered by the financial statements provided to the investors, and any of the changes listed in this section must be disclosed on the Disclosure Schedule. While the itemization in this section serves as a useful due diligence checklist, this section can be replaced by a much shorter section reading simply, “[To the Company’s knowledge], since [______,] there have been no events or circumstances of any kind that have had or could reasonably be expected to result in a Material Adverse Effect.”[23] Many practitioners prefer not to list employee compensation in the Disclosure Schedule, particularly if employees are participating in the round. Even if there is no employee participation, however, employee compensation is a sensitive matter for many companies, and there is always a risk of the Disclosure Schedule inadvertently winding up in the wrong hands.[24] See footnote31– same point as to investor directors.[25] The investors may negotiate life insurance coverage in favor of the Company for certain founders or other key employees. If such coverage is in effect prior to the closing, it may be appropriate to add to this representation a statement of the covered individuals and amount of coverage for each.[26] This representation is fairly standard in West Coast venture financing transactions; it is much less common in financings originating on the East Coast.[27] This representation is appropriate if there are foreign investors (i.e., nonresident aliens) involved in the financing, since they are subject to the Foreign Investment Real Property Tax Act of 1980 (“FIRPTA”). Under FIRPTA, a transfer of an interest in a U.S. Real Property Holding Corporation (a “USRPHC”) by a foreign investor is subject to tax withholding, notwithstanding the general rule that sales of stock by foreigners are not subject to U.S. taxation. A corporation is USRPHC if more than fifty percent (50%) of its assets consist of U.S. real property. While very few, if any, venture capital investors are USRPHCs, it is customary to provide this representation in order to ensure that any foreign investors will not be subject to tax withholding. Regardless of FIRPTA, if a foreign person or entity is, directly or indirectly, acquiring a ten percent (10%) or greater voting interest in the Company, it must file Form BE-13 with the U.S. Department of Commerce unless an exemption applies.[28] Section 1202 of the Internal Revenue Code provides for a fifty percent (50%) exclusion (subject to certain limitations) from taxable income of gains recognized on the disposition of certain stock in qualifying corporations that has been held for at least five years. Although investors may ask for such a representation, companies may resist on the theory that the analysis regarding current compliance is complex, and that many elements of the test are outside the Company’s control. In any event, compliance with numerous other requirements during the time the investor holds the stock is needed for the investor to qualify for the benefits of Section 1202.[29] There is no consensus position on what should be included in the “Disclosure” representation. Purchasers will generally try to obtain an unqualified representation that none of the written information and business plan information provided to them by the Company contains a material misstatement or a materially misleading omission. The Company will generally try to resist such a broad representation, on the basis that a 10b-5 type representation, commonly found in an IPO prospectus, is inappropriate for a private financing in which a prospectus-type due diligence process has not occurred. The language shown represents a compromise position. It is important to note that the investors’ right of recovery for a breach of this rep may be broader than under Rule SEC 10b-5, because in order to prevail in a Rule 10b-5 securities fraud action, the purchaser must establish that the seller acted with scienter. That is, a purely innocent misrepresentation normally does not give rise to civil liability under 10b-5. Another issue for a Series A investor to consider is the relative utility of this rep to the Series A investor at this stage, versus the risk of giving such a broad rep to investors in later rounds (who, in a worst case, may be looking for a rep on which to “hang their hat” if they decide they want out of the investment).[30] The Small Business Concern representation is only necessary if one or more Purchasers is a SBIC.[31] Founders’ representations are controversial and may elicit significant resistance as they are found in a minority of venture deals. They are more likely to appear if Founders are receiving liquidity from the transaction, or if there is heightened concern over intellectual property (e.g., the Company is a spin-out from an academic institution or the Founder was formerly with another company whose business could be deemed competitive with the Company), or in international deals. Founders’ representations are even less common in subsequent rounds, where risk is viewed as significantly diminished and fairly shared by the investors, rather than being disproportionately borne by the Founders. A sample set of Founders Representations is attached as an Addendum at the end of this Model Stock Purchase Agreement.[32] The main purpose of the Purchasers’ representations and warranties in Section0are to ensure that the investors meet the criteria for private placement exceptions under applicable state and federal securities laws.[33] Occasionally, a venture capital fund will allow its employees and principals to co-invest through a special entity as a nominee. Assuming these employees and principals meet the accreditation or sophistication standards necessary for the private placement exemption being relied on, and assuming the special purpose entity is not formed solely for the purpose of this investment, the language of this provision can be tailored to carve out that special entity.[34] Include the bracketed language if the private placement exemption is based on the safe harbor in Rule 155(c) under the Securities Act for private offerings following an abandoned public offering.[35] In September 2012 and pursuant to the Jumpstart Our Business Startups Act (the “JOBS Act”), the SEC proposed new rules amending Rule 506 of Regulation D and Rule 144A which would provide that the Rule 502(c) prohibition against general solicitation and general advertising would not apply to offers and sales of securities made pursuant to Rule 506 where all purchasers of the securities are accredited investors. Until these rules are finalized, any disclosures made under Section 3.9 in reliance on the JOBS Act should be carefully scrutinized by counsel.[36] This provision is intended to protect the lead investor from claims of reliance by other investors.[37] This eliminates any issues resulting from possible miscalculation of the amount owed to investor noteholders (miscalculations that can result from, for example, application of conversion discounts).