1 00:00:00,000 --> 00:00:04,240 All right, good afternoon everyone. This is Judge Jones. The time is one o'clock central. Today is 2 00:00:04,240 --> 00:00:10,080 October the 10th, 2023. This is the docket for Houston, Texas. On the one o'clock docket, we have 3 00:00:10,080 --> 00:00:17,280 the jointly administered cases under case number 22-90341, Core Scientific, Inc. Everyone, please 4 00:00:17,280 --> 00:00:21,440 don't forget to record your electronic appearance. Such a quick trip to the website. Doesn't matter 5 00:00:21,440 --> 00:00:27,440 whether you're in the courtroom or on a go-to meeting. Following the electronic link is the way 6 00:00:27,440 --> 00:00:32,400 that we note your official appearance this afternoon. For those of you who are in the courtroom, 7 00:00:32,400 --> 00:00:36,560 and Mr. Carlson, you're already there, but I'm going to say it anyway, if you do rise to speak, 8 00:00:36,560 --> 00:00:40,320 please make sure you come to the lectern so that you can both be seen and be heard. 9 00:00:40,880 --> 00:00:45,520 With respect to those folks who are on the go-to meeting, have activated the hand-raising feature. 10 00:00:45,520 --> 00:00:49,120 If you know you're going to be speaking, if you give me a five-star on your telephone, 11 00:00:49,120 --> 00:00:54,080 I'll get you unmuted, and we can do that at any time if you change your mind. 12 00:00:54,080 --> 00:00:57,200 The first time that you do speak, if you would please state your name and who you represent. 13 00:00:57,200 --> 00:01:02,000 It really does help the court reporter do what is a very difficult job these days. 14 00:01:02,000 --> 00:01:07,680 And finally, we are recording this afternoon using court speak. We'll have the audio 15 00:01:07,680 --> 00:01:12,000 up on the docket shortly after the conclusion of the hearing. 16 00:01:15,120 --> 00:01:22,400 Mr. Carlson, I have taken a look at the declaration of Mr. Brose at 1316. I've seen the revised order 17 00:01:22,400 --> 00:01:27,680 at 1315. Not that that should in any way change your presentation. I just want you to know that 18 00:01:27,680 --> 00:01:32,640 I'd read them. Great. Thank you, Your Honor. And with Carlson and Walgash on behalf of the debtors, 19 00:01:32,640 --> 00:01:37,680 go to me in the courtroom here, Christine Calabrese, Evelina Burbridge, and Austin Crabtree. 20 00:01:37,680 --> 00:01:41,280 Ms. Calabrese will be handling the hearing today. All right. Thank you. 21 00:01:41,280 --> 00:01:50,480 Good afternoon, Your Honor. Christine Calabrese from Walgash-Limangi is on behalf of the debtors 22 00:01:50,480 --> 00:01:54,000 on debtor's motion for authority to enter into the Cottonwood II agreements, Your Honor, 23 00:01:54,000 --> 00:02:00,800 docketed at 1260. So, Your Honor, from the debtors, I have Michael Brose joining remotely. 24 00:02:00,800 --> 00:02:06,640 He is the declarant for the debtors on the motion, as you just referenced. I'd like to, 25 00:02:06,640 --> 00:02:12,000 you know, please move Mr. Brose's declaration into evidence, docketed as exhibit eight to the 26 00:02:12,000 --> 00:02:18,000 witness and exhibit list at 1317-8. All right. Thank you. Any objection to the admission 27 00:02:18,000 --> 00:02:25,200 of Mr. Brose's declaration found on the witness and exhibit list at 1317-8? Also, 28 00:02:25,200 --> 00:02:29,680 and just to confirm, it is the same declaration that's found at 1316, correct? That's right. 29 00:02:29,680 --> 00:02:33,040 All right. That's the one I read. I just want to make sure I didn't read something different. 30 00:02:33,040 --> 00:02:38,320 All right. Any objections? Five star on your phone if you wish to be heard and haven't already 31 00:02:38,320 --> 00:02:46,160 done so. All right. It's admitted. Anyone wish to cross-examine Mr. Brose? All right. Thank you, 32 00:02:46,160 --> 00:02:51,200 Mr. Brose. Yes, ma'am. And, Your Honor, if it's okay with the court, may Mr. Brose be 33 00:02:51,200 --> 00:02:56,160 excused for the remainder of the proceeding? Absolutely. Mr. Brose, you're free to go as 34 00:02:56,160 --> 00:03:02,880 you deem appropriate. So, Your Honor, I have a presentation prepared for the court. It's 35 00:03:02,880 --> 00:03:10,400 docketed at 1320. All right. And who would you like to have control? So, Your Honor, 36 00:03:10,400 --> 00:03:14,640 I think in this circumstance where there are no objections filed, rather than walk through 37 00:03:14,640 --> 00:03:19,120 the presentation slide by slide, there are just a few select presentations I'd like to draw the 38 00:03:19,120 --> 00:03:24,720 court's attention to. And since I'm stuck here with the court, I'm going to be able to 39 00:03:24,720 --> 00:03:30,240 answer questions. And since I'm stuck here really with Mr. Crabtree and Mr. Carlson as my options 40 00:03:30,240 --> 00:03:35,280 for remote handling, I think, Your Honor, I'm going to just go with hard copies if that works 41 00:03:35,280 --> 00:03:41,600 for the court. So what I'll do is, hold on, let me see if I can do this. Hold on. 42 00:03:48,560 --> 00:03:52,560 Alternatively, Your Honor, Mr. Crabtree could be prepared to pull it off if that's helpful. 43 00:03:52,560 --> 00:03:58,720 Just let me find it. So, it's at the back of 1320, right? 44 00:04:01,120 --> 00:04:07,760 Yeah, it's at the back of 1320 behind the notice. Okay. Starting at page five. 45 00:04:07,760 --> 00:04:23,120 No, so let's do this. And then what I will do is I will share my screen. 46 00:04:23,120 --> 00:04:41,920 Okay. Everybody can see the PowerPoint. And if you would just direct me to the page, 47 00:04:41,920 --> 00:04:48,240 I will be glad to turn it there. Sure, Your Honor. So we're going to start at slide seven of the 48 00:04:48,240 --> 00:04:59,360 PowerPoint. Thank you, Your Honor. And we're only going to two slides, so this shouldn't be 49 00:05:00,800 --> 00:05:05,520 too much of a run around. But look, the top line, Your Honor, is that the debtors are seeking 50 00:05:05,520 --> 00:05:11,120 authority to enter into and perform under the Cottonwood II agreements, which concern 51 00:05:11,120 --> 00:05:18,560 an existing and operational data center facility that the debtors operate out in Reeves County. 52 00:05:18,560 --> 00:05:26,560 So, if we take a look at slide seven, you could see at the bottom right-hand corner of the slide, 53 00:05:26,560 --> 00:05:32,960 this is the Cottonwood I property. This is an existing facility that the debtors own and 54 00:05:32,960 --> 00:05:39,440 currently operate. They host over 12,000 miners at this facility and made a significant investment 55 00:05:39,440 --> 00:05:45,280 in developing and building out this facility. You'll also notice, Your Honor, at the upper 56 00:05:45,280 --> 00:05:54,480 left-hand corner, there's a TNMP electrical power station. And it's from that TNMP station that the 57 00:05:54,480 --> 00:06:01,760 debtors need to run a transition line to get energy from that TNMP substation to the Cottonwood 58 00:06:01,760 --> 00:06:08,960 substation, which is in the bottom-hand right corner on the Cottonwood I property. And on this 59 00:06:08,960 --> 00:06:14,960 demonstrative, you can see that the transmission line is noted in red. And that transmission line 60 00:06:14,960 --> 00:06:20,880 runs over attractive land that is owned by a landlord. So, debtors approached landlord for 61 00:06:20,880 --> 00:06:28,960 an easement over that land and landlord was willing to enter into an easement agreement subject to the 62 00:06:28,960 --> 00:06:33,280 debtors also leasing the Cottonwood II property, which you see in the middle of this demonstrative 63 00:06:33,280 --> 00:06:38,560 here. And in addition to the lease of the Cottonwood II property to make that property 64 00:06:38,560 --> 00:06:43,360 usable, the debtors need a distribution easement, which is that line running in green, which would 65 00:06:43,360 --> 00:06:48,480 take electricity energy from the Cottonwood II property, from the Cottonwood I property and 66 00:06:48,480 --> 00:06:53,680 substation to Cottonwood II. And then this little blue access easement, which gives the debtors 67 00:06:54,720 --> 00:07:01,760 ingress and egress to the Cottonwood II property. So, as a bundle, Your Honor, just to recap all of 68 00:07:01,760 --> 00:07:08,080 that, we have four operative agreements bundled into the Cottonwood agreements. It's the lease 69 00:07:08,080 --> 00:07:14,560 agreement for the Cottonwood II property, the easement needed to run from the TNMP substation 70 00:07:14,560 --> 00:07:19,040 to the Cottonwood substation, which we call the transmission easement, the easement to run from 71 00:07:19,040 --> 00:07:23,600 the Cottonwood I property to Cottonwood II property, which we call the distribution easement in the 72 00:07:23,600 --> 00:07:28,480 motion, and then that access easement, which was that little blue line granting ingress and egress 73 00:07:28,480 --> 00:07:39,280 to the property. So, Your Honor, if I could direct you to slide 11 of the deck. 74 00:07:46,320 --> 00:07:50,560 And I should say briefly before moving on, with respect to the Cottonwood II property, 75 00:07:50,560 --> 00:07:55,280 having that extra property gives the debtors the optionality to expand its already existing 76 00:07:55,280 --> 00:08:00,160 mining operations onto that additional nearby tract of land. 77 00:08:03,600 --> 00:08:08,320 So, you can see from slide 11, these are the terms of the agreement. They have uniform terms 78 00:08:08,320 --> 00:08:17,120 across all four. It's a 99-year lease term. It's consideration of $1 million for the 99-year lease 79 00:08:17,120 --> 00:08:25,200 for all four agreements and the easements. And if you go to the next slide, Your Honor, slide 12, 80 00:08:25,200 --> 00:08:31,840 you'll see that if the debtors are not given approval by the court to enter into these 81 00:08:31,840 --> 00:08:39,600 agreements by October 16th, the landlord may elect to remove the debtor's option or, you know, 82 00:08:39,600 --> 00:08:50,160 terminate its end of the bargain. So, Your Honor, our view is that entering into these 83 00:08:50,160 --> 00:08:54,720 agreements is a sound exercise of the debtor's business judgment, and Mr. Rose's declaration 84 00:08:54,720 --> 00:08:59,280 supports that. These agreements will allow the debtors to continue energizing the data 85 00:08:59,280 --> 00:09:04,720 center facility located on Cottonwood I, which is where, as I said, the debtors currently host over 86 00:09:04,720 --> 00:09:10,240 12,000 miners and made a substantial investment in developing that property. The debtors also 87 00:09:10,240 --> 00:09:17,200 have permission to energize up to 234 megawatts across the Cottonwood facility from ERCOT and TNMP. 88 00:09:18,720 --> 00:09:23,040 In addition to energizing Cottonwood I, the Cottonwood II agreements will also provide 89 00:09:23,040 --> 00:09:28,000 debtors with the optionality, as I said, of expanding their operations to the Cottonwood II 90 00:09:28,000 --> 00:09:33,440 property. And in this circumstance, the $1 million consideration under the Cottonwood II agreements 91 00:09:33,440 --> 00:09:39,200 is reasonable and for a really extended lease and easement agreement term. 92 00:09:43,280 --> 00:09:48,000 Your Honor, I tried to keep it brief for you. I'm happy to address any questions 93 00:09:48,000 --> 00:09:54,160 that the Court may have. Thank you, and I appreciated the visual helps. It helped a ton. 94 00:09:54,160 --> 00:10:00,800 Anyone else wish to be heard? All right, I have the opportunity to read through the motion. 95 00:10:00,800 --> 00:10:07,440 I, this is just a business judgment question. I have no reason to other, to do anything other 96 00:10:07,440 --> 00:10:14,320 than to conclude that this is just good business sense. It, consideration seems rational to me, 97 00:10:14,320 --> 00:10:21,920 and the optionality makes perfect sense in terms of future opportunities. I, there are no other, 98 00:10:21,920 --> 00:10:29,040 or there are no other outstanding objections or anyone having another opinion. I will grant the 99 00:10:29,040 --> 00:10:39,840 motion. I have taken a look at the revised form of order, which is 1315-1. Let me get that up. 100 00:10:51,200 --> 00:10:55,200 I'm not going to make you wait. It's being slow this afternoon. I'll sit here and wait until he 101 00:10:55,200 --> 00:11:00,880 pops it up on the screen for me. Anything else we need to talk about today? That's all from our 102 00:11:00,880 --> 00:11:06,320 right, Your Honor. All right, terrific. Anyone else have anything they need to raise? All right, 103 00:11:06,320 --> 00:11:26,160 and we'll be adjourned. Thank you, everyone, and we're adjourned until two o'clock.