All right, good afternoon everyone. This is Judge Jones. The time is one o'clock central. Today is
October the 10th, 2023. This is the docket for Houston, Texas. On the one o'clock docket, we have
the jointly administered cases under case number 22-90341, Core Scientific, Inc. Everyone, please
don't forget to record your electronic appearance. Such a quick trip to the website. Doesn't matter
whether you're in the courtroom or on a go-to meeting. Following the electronic link is the way
that we note your official appearance this afternoon. For those of you who are in the courtroom,
and Mr. Carlson, you're already there, but I'm going to say it anyway, if you do rise to speak,
please make sure you come to the lectern so that you can both be seen and be heard.
With respect to those folks who are on the go-to meeting, have activated the hand-raising feature.
If you know you're going to be speaking, if you give me a five-star on your telephone,
I'll get you unmuted, and we can do that at any time if you change your mind.
The first time that you do speak, if you would please state your name and who you represent.
It really does help the court reporter do what is a very difficult job these days.
And finally, we are recording this afternoon using court speak. We'll have the audio
up on the docket shortly after the conclusion of the hearing.
Mr. Carlson, I have taken a look at the declaration of Mr. Brose at 1316. I've seen the revised order
at 1315. Not that that should in any way change your presentation. I just want you to know that
I'd read them. Great. Thank you, Your Honor. And with Carlson and Walgash on behalf of the debtors,
go to me in the courtroom here, Christine Calabrese, Evelina Burbridge, and Austin Crabtree.
Ms. Calabrese will be handling the hearing today. All right. Thank you.
Good afternoon, Your Honor. Christine Calabrese from Walgash-Limangi is on behalf of the debtors
on debtor's motion for authority to enter into the Cottonwood II agreements, Your Honor,
docketed at 1260. So, Your Honor, from the debtors, I have Michael Brose joining remotely.
He is the declarant for the debtors on the motion, as you just referenced. I'd like to,
you know, please move Mr. Brose's declaration into evidence, docketed as exhibit eight to the
witness and exhibit list at 1317-8. All right. Thank you. Any objection to the admission
of Mr. Brose's declaration found on the witness and exhibit list at 1317-8? Also,
and just to confirm, it is the same declaration that's found at 1316, correct? That's right.
All right. That's the one I read. I just want to make sure I didn't read something different.
All right. Any objections? Five star on your phone if you wish to be heard and haven't already
done so. All right. It's admitted. Anyone wish to cross-examine Mr. Brose? All right. Thank you,
Mr. Brose. Yes, ma'am. And, Your Honor, if it's okay with the court, may Mr. Brose be
excused for the remainder of the proceeding? Absolutely. Mr. Brose, you're free to go as
you deem appropriate. So, Your Honor, I have a presentation prepared for the court. It's
docketed at 1320. All right. And who would you like to have control? So, Your Honor,
I think in this circumstance where there are no objections filed, rather than walk through
the presentation slide by slide, there are just a few select presentations I'd like to draw the
court's attention to. And since I'm stuck here with the court, I'm going to be able to
answer questions. And since I'm stuck here really with Mr. Crabtree and Mr. Carlson as my options
for remote handling, I think, Your Honor, I'm going to just go with hard copies if that works
for the court. So what I'll do is, hold on, let me see if I can do this. Hold on.
Alternatively, Your Honor, Mr. Crabtree could be prepared to pull it off if that's helpful.
Just let me find it. So, it's at the back of 1320, right?
Yeah, it's at the back of 1320 behind the notice. Okay. Starting at page five.
No, so let's do this. And then what I will do is I will share my screen.
Okay. Everybody can see the PowerPoint. And if you would just direct me to the page,
I will be glad to turn it there. Sure, Your Honor. So we're going to start at slide seven of the
PowerPoint. Thank you, Your Honor. And we're only going to two slides, so this shouldn't be
too much of a run around. But look, the top line, Your Honor, is that the debtors are seeking
authority to enter into and perform under the Cottonwood II agreements, which concern
an existing and operational data center facility that the debtors operate out in Reeves County.
So, if we take a look at slide seven, you could see at the bottom right-hand corner of the slide,
this is the Cottonwood I property. This is an existing facility that the debtors own and
currently operate. They host over 12,000 miners at this facility and made a significant investment
in developing and building out this facility. You'll also notice, Your Honor, at the upper
left-hand corner, there's a TNMP electrical power station. And it's from that TNMP station that the
debtors need to run a transition line to get energy from that TNMP substation to the Cottonwood
substation, which is in the bottom-hand right corner on the Cottonwood I property. And on this
demonstrative, you can see that the transmission line is noted in red. And that transmission line
runs over attractive land that is owned by a landlord. So, debtors approached landlord for
an easement over that land and landlord was willing to enter into an easement agreement subject to the
debtors also leasing the Cottonwood II property, which you see in the middle of this demonstrative
here. And in addition to the lease of the Cottonwood II property to make that property
usable, the debtors need a distribution easement, which is that line running in green, which would
take electricity energy from the Cottonwood II property, from the Cottonwood I property and
substation to Cottonwood II. And then this little blue access easement, which gives the debtors
ingress and egress to the Cottonwood II property. So, as a bundle, Your Honor, just to recap all of
that, we have four operative agreements bundled into the Cottonwood agreements. It's the lease
agreement for the Cottonwood II property, the easement needed to run from the TNMP substation
to the Cottonwood substation, which we call the transmission easement, the easement to run from
the Cottonwood I property to Cottonwood II property, which we call the distribution easement in the
motion, and then that access easement, which was that little blue line granting ingress and egress
to the property. So, Your Honor, if I could direct you to slide 11 of the deck.
And I should say briefly before moving on, with respect to the Cottonwood II property,
having that extra property gives the debtors the optionality to expand its already existing
mining operations onto that additional nearby tract of land.
So, you can see from slide 11, these are the terms of the agreement. They have uniform terms
across all four. It's a 99-year lease term. It's consideration of $1 million for the 99-year lease
for all four agreements and the easements. And if you go to the next slide, Your Honor, slide 12,
you'll see that if the debtors are not given approval by the court to enter into these
agreements by October 16th, the landlord may elect to remove the debtor's option or, you know,
terminate its end of the bargain. So, Your Honor, our view is that entering into these
agreements is a sound exercise of the debtor's business judgment, and Mr. Rose's declaration
supports that. These agreements will allow the debtors to continue energizing the data
center facility located on Cottonwood I, which is where, as I said, the debtors currently host over
12,000 miners and made a substantial investment in developing that property. The debtors also
have permission to energize up to 234 megawatts across the Cottonwood facility from ERCOT and TNMP.
In addition to energizing Cottonwood I, the Cottonwood II agreements will also provide
debtors with the optionality, as I said, of expanding their operations to the Cottonwood II
property. And in this circumstance, the $1 million consideration under the Cottonwood II agreements
is reasonable and for a really extended lease and easement agreement term.
Your Honor, I tried to keep it brief for you. I'm happy to address any questions
that the Court may have. Thank you, and I appreciated the visual helps. It helped a ton.
Anyone else wish to be heard? All right, I have the opportunity to read through the motion.
I, this is just a business judgment question. I have no reason to other, to do anything other
than to conclude that this is just good business sense. It, consideration seems rational to me,
and the optionality makes perfect sense in terms of future opportunities. I, there are no other,
or there are no other outstanding objections or anyone having another opinion. I will grant the
motion. I have taken a look at the revised form of order, which is 1315-1. Let me get that up.
I'm not going to make you wait. It's being slow this afternoon. I'll sit here and wait until he
pops it up on the screen for me. Anything else we need to talk about today? That's all from our
right, Your Honor. All right, terrific. Anyone else have anything they need to raise? All right,
and we'll be adjourned. Thank you, everyone, and we're adjourned until two o'clock.