So meet kevin. Just posted this on twitter saying that elon musk is not obligated to buy twitter even with the bot situation because of rule 10, b5 of the securities exchange act of 1934, basically saying that, because important information was not provided was not disclosed, basically, he can walk out Of the deal now, what was cool about this tweet beyond the legal analysis is that elon actually replied to it and kevin had a whole like spasm about it, which is understandable. I mean i would do the same thing now. Kevin is talking about rule 10.

B5. It's a very famous rule, i'm just going to say right now before i start i'm not in my capacity as a lawyer here i was admitted to the new york state bar, but i'm no longer a member of the bar. I stopped paying the fees. I have never practiced in new york.

This has been like 15 years ago, i'm not a lawyer, but i do have legal backgrounds, so i also worked in the industry so understand these things. These are like the basics of securities laws and regulations. So this is kind of um an everyday thing for me. So let me show you what we talk about here, so rule nb5 basically says, as you can see, on the screen, something very simple: i'm not going to read through the entire rule, but i want you to see here.

What's not allowed is to make any untrue statement of material fact or to omit basically not make a statement about an important fact that the person should have known. Essentially, this rule says hey. If you sold me a car, you should have told me: you know about hidden defects in the car which you knew about or should have known about, or vice versa. If you told me, the car is amazing, while the fact you knew that the car is a lemon, that's also not allowed its basic commerce laws apply to the way public companies are are being viewed in the eyes of the legal system.

Basically, this would be actionable if a company either said something fraudulent or inaccurate and changed material facts or did not say important things that they should have disclosed. Then you can actually sue and, in this case, basically terminate the merger agreement. Now. Speaking of this is the actual merger agreement.

I want you to pay attention to this thing. Delaware, pay attention to this delaware. Twitter is a delaware corporation, okay, okay, now, let's go back i'll. Show you something else! I will go back to the merger argument in a second, so basically, this is a letter that elon's lawyers, scott arps, which is one of the leading firms in the u.s.

It's like a top five leading firm. I have friends who actually work there, um and basically, they sent out this letter and in the letter, they're saying something really really important, they're, basically showing their cards or what kind of arguments they're going for. Basically, if you read through this thing, i'm not going to do this right here, but right here you say: twitter is required to provide data and information to mr marsk requests in connection with the consummation of the transaction. So basically they're saying in this letter hey we asked for important information to go over the bot issue ourselves and analyze it and we have not received it through twitter.

So twitter is not cooperating with our procedures of getting basic information about the company and if twitter is basically telling us to off in the corporate talk sense of the world and basically saying hey, we did our test et cetera, et cetera. Then this is a breach and we want to terminate you know in in contracts laws. You have a couple remedies when you have a breach against you, either compensation enforcement or termination, so they're seeking termination right. So basically they're saying here, mr mox, believes the company is actively resisting and thwarting his information right, blah blah blah and it's a material breach of twitter's obligations under the merger agreement, so he's going for material breach for not providing information which is kind of unusual.

Now. This is the actual deal and if you go to page four, which is in in the deal, there's always like a lot of pages before the actual pages start. So you're gon na see me scroll quite a lot. So in page four, they have a definition that i want you to see, but trust me you're not going to learn a lot from it.

It's called company material adverse effect. So this is what needs to happen for this deal to be viewed as cancellable by elon. Essentially - and i'm sorry for the long legal analysis, but i feel it needs to be done because i don't think it can be summarized in the tweet. Sorry kevin.

I love you, but this is way more nuanced, and this is just i'm just scratching the surface here. So basically, company material adverse effect means any change event or effect or circumstance which individually or in aggregate, has resulted or would reasonably be expected to result in material address effect. Now, if you notice material address effect, is not in caps because it's not defined in the agreement, so the agreement does not define what material adverse effect is. So you don't know.

Well that's if you're, not a geek. If you are geek like me, you can go to the new york law journal from 2019, where they have. Basically, what is a very good summary of the way to look at whether something is a material adverse effect, because this is the key for this whole thing. The key for the question: if elon can back away from the deal is, do we have material adverse effect? So here's the thing i do want to point out one important fact, and that fact is that twitter actually actively disclosed the bot issue.

It's not like they haven't disclosed, they said: hey, we think we have. You can see it on the screen. Now we think we have under five percent. This is the level of testing we did but also pay attention to the fact they're saying we're not sure.

If that's in fact the case it could be much higher or sorry it could be higher than we have estimated, so they covered their ass. Pretty good. With this highlighted section, so the recovery ass part of this is pretty strong, they're, basically saying well, we think it's under five percent. These are the tests we did and we're not sure if the numbers are accurate or not.

So it's going to be very hard to claim that there's a material adverse effect with this paragraph in existence in their public filings, but that doesn't mean it's not doable. If you go through the new york law journal, there's a definition here, there's a whole bunch of you know cases which you can read, but i think this definition will be a good starting point for you and - and this is kind of where you can start the Analysis so by the way they use mae, that's short for material address effect, okay, so basically they're saying here: oh that's, a good yeah! So wait. Let me find this. There is an important okay.

This is the one i was looking for, although there is no one definition or sorry, although there is no one definitive benchmark to establishing an mae material address effect, parties to purchase or merge transactions like we have here with new york or delaware. Remember twitter is a delaware corporation. I just showed you, delaware, a choice of low provisions, blah blah blah, and this is kind of the the cases that they're showing here so they're, showing a bunch of cases and then they're saying something here. So the chance record found and may had occurred that there was a failure of the bring down condition because acorn's regulator, compliance representations were inaccurate and would reasonably be expected to result in a in in nmae now.

Basically, this is the part i want you to read in acorn in acorn story, chancellor laster relied on the standards established by the seminole delaware cases that an mae must substantially threaten the overall earnings potential of the target in a durationally significant manner. So what we're talking about it has to be something that substantially threatens the overall earnings potential of a target in a durationally significant matter. Unfortunately, there are no hard lines for establishing such a material long-term impact. For example, the lower chance record has found a decline in targets a bit of three percent, not constituting an mae, while in another case a 50 um of the consecutive quarters likely did constitute me, so the borders are very, very wide here.

Three percent is no 50. Is yes anything in between who knows now you can go ahead and read this whole thing. I'm going to put it in the you know in the description. Go right ahead.

Read it what i'm saying in this video, it's not clear cut it's actually very, very complicated, because the crux of it is going to be around. Is this thing material adverse effect twitter is going to rely on their basically filing saying: hey, we don't know it's five percent. We think we tested it this way, we're not sure it might be more and they're going to say, there's absolutely no material adverse effect since we posted this illinois is going to say well, they understated it by like 10-fold. So it's 50, whatever i don't know, and then it's going to be a very hard battle.

I'm just here to explain to you that this is going to be a tough battle for both sides. It's not like elon is going to be losing here. It's not a layup for any party here, which is why i think this is leading to a settlement. I think this is leading to a settlement, because both parties are probably not interested in spending a decade in court, paying so much legal fees that they'll probably settle.

But in this case i mean who knows um, but this is just to show you how complicated this is. It's not like ellen has a layup or twitter has a lab. You know just doing my two cents, my contribution to the community. I hope this helps share this with people who, i guess, need to hear this about.

What's going on with the twitter deal, see you in the next video much much appreciated. If you want to become a patreon channel member, the link is going below five bucks per month. You'll be part of a community. Thank you.

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