Hello, Your Honor. For the record, Christopher
DiPompio of Wilmington -Gallagher proposed counsel
for the global debtors. Your Honor, if it's the
same with you, we'd like to move back to the
end portion of the hearing. Yes, yes. That's
what we're doing now. Let me just call the docket.
So we're back on the record in case number 26
-90103. Go ahead. And I think two housekeeping
issues, Your Honor. One is that after reviewing
Amazon's NIP, I know I said before it might be
too fast to just deal with our issues in redirect.
I actually think after reviewing the document,
the court could benefit. It would probably be
more efficient to do just 15 minutes of direct
set the stage, particularly on issues that are
outside the scope of the declaration. So I'd
like to do that if it's okay with the court,
and then turn the witness over for cross -conditions.
Yeah, thank you. I think that would be very helpful.
Great. And then one other just housekeeping matter.
We saw an email from Council of Amazon to the
court with an exhibit list that raised some ceiling
issues. I thought maybe we could address that
now if the court is prepared to do so. I have
not seen any email to me. Oh, here it is. Wait
a second. No, I haven't seen any, I haven't seen
any issue. I haven't gotten anything from...
Your Honor, we filed a... Go ahead. Your Honor,
I believe what Council may be referring to is
we filed a motion to seal certain of our exhibits
that I believe the debtors have a possible confidentiality
can turn over and we emailed debtors council
to ask if they were asserting confidentiality
over them. So we filed the motion to seal in
an abundance of caution and maybe they don't
have it and we don't have to worry about the
ceiling, but I think that's what better councils
are referring to. Okay. All right. I haven't
seen anything, so. Hopefully I can make this
relatively easy for you and I apologize if I
misunderstood. I've been reading a lot during
the hearing. Things get confused at times. The
council for Amazon did submit an exhibit list
I think four of their proposed exhibits. specific
issues. But I do think it's worth noting, and
you'll hear this as we get further in, that I
think these issues are quite a big sideshow from
the issues actually before the court. But the
reality is that there was no Hold Code 2 -only
dip that was never on the table. It was never
a possibility. No one proposed it. There was
no enterprise dip that did not involve Hold Code
2. We had one other proposal which was not actionable
for once it's an appropriate... exhibit less.
Those are LLC agreements that are out there.
The debtors, however, do maintain their objection
to confidentiality with respect to number eight,
which is an appraisal of the flagship property.
And the reason, Your Honor, is Your Honor, may
I be heard? Yes. First, I didn't realize we were
arguing the motion. Just to be clear, Amazon
proposed the hold code two only dip, which you
will hear about. So that statement was not accurate.
In terms of evaluation, it's a little hard for
me to respond until I hear how the debtors are
going to try to justify imposing over two billion
of liabilities on hold code two. I assume they'll
be doing so based on analyzing the benefits of
Holko 2, which I think absolutely will turn on
the value of the flagship property. And so the
appraisal that was done is, I imagine, will be
highly relevant. If the debtors don't want to
have it discussed in open court, we'll find another
way to deal with it. Unless this testimony is
different than I expected, I will be using that
valuation. So we can deal with it however the
debtors like. It is highly relevant to whether
this dip will severely prejudice Holocaust II's
creditors, including just the interim dip itself.
Your Honor, we disagree. Obviously, the only
question for the court right now is a sealing
question. We maintain our objection to disclosure
of those values. All right. So the fact that
it's sealed, that will continue to be sealed.
to the extent that we're going to talk about
it, then subject to any objection, we can deal
with it at the time. And we can deal with it
by not talking about the numbers. They did file
them on the seals on the docket. So I do have
it. So I'm sure we could figure out a way to
do that without. disclosing any proprietary or
confidential information. All right. So that
works. Thank you. One final housekeeping and
Council for Amazon mentioned a proposal which
we'll actually believe was a proposal. But discussions
between Amazon and the debtors. Those discussions
were subject to an NDA. We are prepared to talk
about those discussions. Again, you are just
to be clear is debtors council already referred
to it They referred to a letter to the letter
we sent to them that included this proposal.
So I'm not sure what NBA the debtors council
thinks he's referring to but they already talked
about the letter that contains that Invitation
to do a holocaust only dip I'm not trying to
cut off any questions. I'm just trying to clarify
make clear that when that we're also going to
be able to respond in full. I don't think it's
anything more than that, Your Honor. All right.
OK. That was good. All right. Why don't you call
Mr. Weinstein? Absolutely. Your Honor, the debtors
call Mark Weinstein to the stand. All right.
Mr. Weinstein. You need to move over? OK. All
right. That's it. We're good. We're going to
try to stay in the screen together, your honor,
so you can see both of us. All right. All right.
Mr. Weinstein, would you raise your right hand,
please? Do you solemnly, sir, affirm to tell
the truth, the whole truth, and nothing but the
truth? Yes. All right. Speak up so we can hear
you. Sure. Good afternoon, Mr. Weinstein. Do
you currently hold any positions with the debtors?
Yes, I'm currently the chief restructuring officer.
And do I understand that you're testifying here
in support of the debtor's debtor possession
financing motion, is that correct? Yes. Were
you involved in the debtor's efforts to maintain
debtor possession financing? Yes, I was involved
in some aspects of it. What was your role? So
my role, myself and my team were involved in
sizing the amount of new capital that we believe
was required to operate through the Chapter 11
and exit on the other side. I was actively involved
in diligence calls regarding the business on
a regular basis and then had one -off meetings
regarding questions, follow -up things, things
of that nature. So in the course of your work
with the debtors, did you form a belief as to
whether the debtors need post -position financing?
Yes. My belief was that it was critical and absolutely
necessary if the debtors were going to continue
to operate. Do you think that without the financing
the debtors could operate in Chapter 11? No.
Why not? We don't have enough liquidity. It's
currently a $7 billion organization. We buy billions
of dollars of goods. We pay hundreds of million
in rent. We have very significant payroll obligations.
And so, you know, and given the recent performance
of the business, which has been significantly
below what anyone would want, you know, you need
a significant dip to pay for all the items I
just identified, as well as many more, IT support,
transportation, all those things, and to provide
an opportunity for the operations to get back
to the level that, where there's real value created.
to enter into a liquidity crisis. Could you just
describe at a high level what those events were?
When you say the end of the year? From mid -2025
through the end of the year. OK. So it actually,
the debtors company at that time were facing
liquidity issues actually in early 2025. And
it was largely a result of the capital structure
of the business, the lack of liquidity, as well
as an inability to get new goods. We created
a plan at that time that identified A, a need
to raise more capital, and then look at other
operational opportunities, including establishing
new terms of brands, accelerating synergies,
things of that nature. And the whole idea was
to address the liquidity issues going forward.
The DIP proceeds will be used to fund the operations
of the business and to address the expenses associated
with Chapter 11. The court previously entered
an order approving the motion to pay critical
vendors. Is that an aspect of the DIP financing?
It is an aspect, and no pun intended, it is a
critical aspect. One of the biggest issues facing
Sachs Global was, and it's been stated already,
on the record was the inability to get goods.
If you don't have goods, you have nothing to
sell. Additionally, we have a barring base. We
have an acid -based facility. And if you don't
have inventory to support the acid -based facility,
your liquidity is lower. So a lot of the purpose
of the critical trade motion is to ensure regular
flow of goods. as well as what differentiates
SAX Global in many ways is access to exclusive
goods, access to exclusive brands, providing
an environment that is conducive to the customer
which we're trying to attract and critical trade
motion is very important to ensure the steady
stream and to entice those brands to ship and
support us. Do you think what happened if the
company were not able to pay big payments under
its vendor program to its vendors? I don't believe
we would get the level of goods. We would perpetuate
the issue we already had. Is the company asking
for all of the DIP funding now? No, on an interim
basis. The first draw on the DIP would be about
$400 million. Why do you think interim funding
is necessary? very, very, very low liquidity
at the moment. We have expenses to pay, some
as imminent as tomorrow, and we need, it's desperately
need to get the flow of goods going. We have
many of our biggest brand partners, and I think
council for some of those brand partners, identified
this tonight. They're ready to ship to us, but
they need to see, and we need to demonstrate
an ability to pay. You mentioned, in your answer
just now, some payments that are due tomorrow.
Do you have any sense for how much funding would
have to happen tomorrow? For tomorrow, it's probably
in the 30 to 35 million range, and then there'll
be more payments on Friday, et cetera. And the
quicker we get, I mean, the quicker we get the
funding in, A, it risks, it does a couple things.
A, we need to make the immediate payments. B,
You're always at risk of some functional issue
any time you're going through a funding of this
nature, and the quicker you get it, you de -risk
it by ensuring you get the funding in faster.
And lastly, you know, it's very, very well publicized.
Actually, there were many articles in the springtime
which were actually incorrect, and certainly
a lot of articles recently about the issues facing
SACs and it is... immensely important to us to
be able to project to our brand partners and
other very important partners as well as our
employees that we have sufficient capital to
operate. We have an outstanding team. The people
on the SAX Global team are very highly skilled
and know how to provide the customer experience
that our customers are looking for, so having
this immediately will provide the confidence
of our ability to go forward. You mentioned 30
to 35 million dollars of payments tomorrow. Do
you have any sense for what things those disbursements
are going to pay? Sure, some of it is to cover
payroll, some of it is to cover insurance payments,
some of it is to cover, BitChunk is to cover
taxes, and then there are other associated you
know, important payments that, you know, many
of which were approved earlier today. So payroll,
taxes, other payments approved today. There's
insurance premiums as well. Insurance. What is
your sense of what would happen if those things
were not paid for, if we didn't have the funding
to do so? Oh, I forgot one important one before
I answer that. We have customer refunds outstanding.
Well, the first two, the second that, you know,
you don't pay anybody, it's not a full payroll,
but there's payroll out there. The second that
one person doesn't get paid, it has a multiplicative
effect to the organization and people get really
concerned that irrespective of everything, she's
told them about a path forward, like, oh my God,
I didn't get paid this week. As for customer
refunds, we actually had some bad publicity.
regarding customer refunds several months ago.
And if there was any hint of not making good
on legitimate customer refunds that are owed,
once again, that would likely be highly publicized
and create issues for us with our customer base.
And then the obvious issues with taxes and insurance.
So that's issues that might arise tomorrow, but
let's step back and look more in the short term,
a little more broadly. What would happen if the
initial interim fund control is not approved?
It would be hugely problematic. We have a budget
that's predicated upon bringing in inventory
as quickly as possible and reestablishing our
credibility with our brands. I think our credibility
has been damaged, understandably so, given what's
transpired between the company and the brands.
Nevertheless, we have great brand partners and
other important partners, whether they be transportation
partners, marketing partners. And they're there
to support us, but if we do not have the ability
to pay them immediately to provide the services
and the goods that we need to meet the budget
that we put forth, we'll be dead in the water.
Do you think the company could survive without
interim funding? No. How long do you think the
company could potentially go until it fails?
Based on current liquidity, maybe not past the
end of the week. You know, right now, we're being
funded, frankly, through the good cases of our
ABL who has no, because we're in default, there's
no obligation to fund us, but they've been cooperating,
seeing the DIP out there and understanding that
there's significant dollars coming in. They've
actually been supporting us, even though they
have no obligation to at this point, over the
last several days. I'd like to take a step back
and talk about the DIP process. more generally,
recognizing Mr. Baird also provided a declaration.
We'll talk about that more fully. But were you
involved in the process of selecting the DIP
facility? Ultimately, yes. And were any alternatives
to the DIP facility? There was one definitive
executable. although with a high level of risk
of execution, but there was one other proposal
out there. But given the risk of the actual ability
to execute it and given the close proximity from
an economic standpoint of this, the dip that
we're trying to get approved today to the other
one, it was a fairly easy decision to select
the dip that was in front of us. He said there
was one other potential proposal, just one other
proposal. That I'm aware of. I know that while
I was not active in the solicitation process,
by the time I was getting more involved with
the company, I was certainly aware of the efforts
of the solicitation process. I know that PJT,
who's our investment banker, was talking to anyone
and everyone that they have an interest in providing
any form of dip. And frankly, if there were opportunities
to fund outside of a Chapter 11, but ultimately
these were the two DIP proposals that were actionable.
And just because it's come up today, was that
alternative DIP proposed by Amazon? No. There's
been a lot of talk today about an entity called
HoldCode2. Are you familiar with that entity?
Yes. Can you explain for the court, just at a
very high level, how Holco 2 fits into the debtor's
capital structure? Sure. So Holco 2 is an entity,
the two subsidiaries underneath it. One is called
Flagship, which is where the Flagship store,
Sack Store on Fifth Avenue, sits. And the other
subsidiary is 12 East 49th Street, which has
a ground lease from Flagship. and they have an
operating lease with the SACS operating entity.
Just to make sure that I understand this, because
I think about this more in pictures, but is it
correct that there's hold code 2, then there's
two subsidiaries, one is the flagship, the owner,
the other is probably 49th Street, is that generally
accurate? That's correct. And you mentioned that
there were leases involved in that structure.
Can you describe a little bit how the lease flow
works? Sure. So the entity outside, I can't remember
the exact name of it. Maybe Sax Holdings. I don't
remember the exact name of the entity. But that
has an operating lease to or with 12 East 49th
Street, where it pays rent 12 East 49th Street.
And with that, that's the only source of income
to the best of my knowledge. revenue to 12 East,
12 East 49th Street. So again, subsequently pays
rent to flagship. So just again, to make sure
I understand the flagship owner is in a ground
lease with 12 East 49th Street. 12 East 49th
Street is an operating lease with Saks, the Saks
entity, Saks Globe. Correct. Now we've been talking
about the Saks entity. the flagship store. Can
you tell me a little bit about what the flagship
store is? The flagship store is a historic very
large retail building sitting in a very good
location on 12 East 49th Street where Saks maintains
retail operations. It has somewhat of a unique
purpose in that it is really purpose, you know,
it's utilized as a retail location and, you know,
would be for any other purpose, you know, you
would look at it and there would have to be massive
reconfiguration for other purposes. Yes, there's
CNBS debt roughly of a billion 250. Let's call
level up. So the entity that owns the flagship
store is owned by Holdco 2, I believe you testified.
Is that right? Correct. And are there any additional
claims at Holdco 2? There are. There's various
vendor claims at whole code to somewhere in the
vicinity of 180 million. I believe Amazon has
a claim at whole code to about 475 million and
then there is a Pledge to the SPV notes of approximately
200 million I Know we're talking about the flagship
store. You mentioned it was valuable in the sacks.
Do you do you think it would be as valuable but
we're not the sacks? No, not at all. Objection.
Objection, Your Honor. Objection. Lack of foundation.
This witness is not a valuation expert. He's
not qualified to opine. They have evaluation,
which they apparently don't want people to see.
But the witness here is not a real estate expert
and has any basis to opine on the value of the
flagship property. Your Honor, our witness is
not opining on the value of the flagship property.
He's simply opining on the use of the property
and what its most highest and best use is. The
question literally was, do you think the value
of the property would be less if Saks was an
occupier? That is an issue for a real estate
appraisal to opine on. Right. Why don't you re
-ask your question? I think the way you phrased
it was not objectionable. Yes, thank you, Your
Honor. So Mr. Weinstein, my question was, would
the Saks store be as valuable if it were not
a Saks? I don't believe so. And why not? Me?
My objection? If Saks wasn't there, there would
be no income to 12, 12 East 49th Street. You
would liquidate the store. You would. pair the
value of the SAC's name, which I'm not sure is
volunteer. But if there's no income, it becomes
a dark store ultimately, and it would be worth
a lot less to then as an operating entity, while
not an operating valuation expert, there's typically
higher value associated with properties that
have active tenants. that are paying rent and
a property that is dark and is not receiving
a rent stream. Your honor, I renew my objection
and move to strike. This witness admits he's
not a valuation expert. He's not a real estate
expert. You would need to bring in a real estate
expert to appraise the properties on a dark versus
lit basis to give that testimony. I'm going to
overrule the objection. He's the CRO. He's just
giving his basically business judgment view of
the business judgment of what they did. I'm not
taking it for whether it's value. And again,
as of this moment, the issue of valuation is
not really in front of me at this point. So I'm
going to go ahead and allow the testimony. Mr.
Winston, do you think that without the DIP, the
flagship store could continue to operate as a
SACS? No, it can't because the DIP will support
the operations of SACS Global, including the
flagship store 12 -49. It will allow that store
to be merchandised. It will allow store employees
to be paid. It will have rent to be paid back
to the 12th East 49th subsidiary. So the DIP
will actually help support the operations of
that store concurrently allowing a flow of revenue
into the Holdco 2 subsidiaries. And what do you
think as the CRO would happen to the value of
Holdco 2? if the dip were denied. Just for the
record, I'm repeating my objection to that. All
right, an overall rule. Go ahead. I mean, if
the company, you know, without the dip and the
company are forced into liquidation, I believe
that the value of whole code 2 would be diminished.
Do you think in that context whole code 2 would
be solvent? No. I'd like to go back and talk
about the DIP process again, to the extent you
know it. Did anyone offer to lend only on Holdcode
2's assets? Not that I was aware of during the
process of the DIP solicitation, where we were
in numerous conversations, at least I was in
several of them, where we have daily calls with
Amazon and their advisors anyway. And I don't
recall that coming up. I may have missed that
meeting. But I don't recall that coming up. And
I believe you testified that there were two executable
proposals. One is the proposal accepted. Another
was from a third party, not Amazon. Did either
of those proposals involve an offer to lend only
a whole could use assets? No. Did either of those
proposals involve an offer to lend the financing
without? No. Not that I'm aware of. Yes. Without
that, you know, you would liquidate, the operating
lease would not generate any revenue. So, yes,
I do believe that Whole Codes II benefits from
the dip financing. I believe as CRO, you are
an officer of Whole Codes II, is that correct?
Correct. And in your business judgment as an
officer of Whole Codes II, do you think it was
in Whole Codes II's interest to participate?
I do. Why is that? For the reasons that we just
discussed, by creating value for the entire enterprise,
you are creating value for a whole group, too.
And I believe in the debtor's business judgment,
it was a prudent decision to move forward with
this step. And last question, and deep picture,
just stepping back. do you think would happen
in the short term if the debtors were not able
to obtain the financing on an interim basis today?
I think I stated that earlier. There would be
significant impairment to the business and likely
a liquidation. Your Honor, I have no further
questions. I would like to reserve time for redirect
if necessary. All right. Thank you. All right.
Mr. Harris? Thank you, Your Honor. Would it be
possible to give my colleague, Tiffany Austin,
presenter privileges? Yes. Great. Thank you,
Your Honor. Good evening, Mr. Weinstein. I'm
Chris Harris, on behalf of Amazon. We haven't
met before, and I apologize if this is a little
rough. doing this kind of on the fly. But I'd
like to start by just making sure we're all in
agreement on some terms for the different corporate
identities or entities that we just talked about.
Is that better, Your Honor? Yes, it's better.
Can you hear me now? I can hear you. For some
reason, you're in the system as Simpson Thatcher,
so that's wrong. I'll take it as a compliment.
Well, I am from Lakeland and Watkins, if I didn't
say that before and we represent Amazon. I understand.
Okay. Thank you, Your Honor. So, Mr. Weinstein,
I just wanted to go through some of the names
of the entities that we used before to hopefully
make this examination a little clearer. But again,
I apologize that this is a little rushed because
I'm doing this on the fly. But this is from the
organization chart at the back of your first
day declaration. Do you recognize this document?
Yes. OK. And I just zoomed in on the, can we
zoom in on the part that deals with the hold
code two entity? OK, thank you. So. You see there's
four triangles here and the middle one is called
Saks Fifth Avenue hold code to LLC and that's
the entity we've all been calling hold code to
right sir correct Okay, and beneath it. There's
it has two holy on subsidiaries. There's Saks
Flagship real property LLC on the left and then
12 14 East 49 3 LLC on the right correct Yes
Okay, and if it's already I'm going to use the
term flagship entity to refer to that left triangle
flagship Saks flagship real property LLC that
okay, sir Yes, it is Okay, I think you explained
that that entity the flagship entity owns essentially
the Land and building where the Saks flagship
store on Fifth Avenue is right, sir That's correct
Okay, and just for convenience, I'm gonna call
that the flagship property, all right? Yes. Okay,
and then the right triangle, 12 East 493 LLC,
that leases the flagship property from the flagship
entity, right, sir? Correct. Okay, and I'm gonna
call that right box 12 East, is that okay? Yes.
Okay, and then 12 East then subleases the flagship
property to another Sachs entity called Sachs
and Company LLC, right? That is correct. OK.
Does Sachs and Company LLC intend to assume that
lease? We will make that determination right
now. The answer is yes. But there will be an
ultimate decision made at a later point. But
right now, the answer is yes. So if I understand
you're saying tentatively the answer is yes,
but you'll ultimately decide that at a later
point, is that right? My point is there have
been no definitive decisions as today what we're
assuming or rejecting. We have some time that
allows us the ability to make that decision.
But as of today, I would say the answer is yes.
OK. But no definitive decision has been made,
right, sir? We haven't filed anything one way
or the other today. Okay. And what is the term
of that lease between Sachs and Company and 12
East? I don't recall the duration of the lease.
Okay. Do you recall it about a 30 year and then
a 20 year renewal, about a 50 year lease? Do
you recall that, sir? Sounds about right. Okay.
And if the company prepared a business plan showing
that Sachs and Company will have the ability
to perform on that lease for the life of the
lease? We haven't prepared a 50 -year business
plan. Okay. Do you know what percentage likelihood
it is that Sachs & Company is going to perform
on the lease for the life of the lease? Well,
that's partly contingent upon whether we get
a dip, but having said that, you know, if we
receive a dip financing that we are proposing
today, then the obligations under that lease
should be able to be met. Well, my question is
for the life of the lease, the next 40 or so
years. I can't - You know that, Fred? I don't
know the answer to that question. Is it because
Holdco 2, the middle box, and 12 East 49th, those
are both debtors, right? Holdco 2 and 12 East,
yes. Okay, but the flagship entity, the left
box, that's not a debtor, right? That is correct.
Okay, and just one more term that may come up.
I'm going to refer to those three boxes combined
as the flagship silo. Is that okay, sir? Yeah,
that's fine. Now that you've defined it, that's
okay. Okay, and just to back up a bit, when did,
you're employed by BRG, right, sir? That is correct.
Okay, and when did BRG first get involved with
SACS? Late January of 2025. All right, so about
a year at this point? Approximately. Okay, and
you were the interim CFO of SACS starting in
February 25, right sir? That's correct. Okay,
and you're currently the Chief of Structuring
Officer of SACS Global Enterprises LLC, right
sir? That is correct. Okay, and you have fiduciary
duties to that entity, right? Yes. Okay, now
Hold Code 2 is a member -managed LLC, right sir?
I believe so. Hold go to you know if you that's
right sir hold go to Do they know if you've actually
been appointed an officer of hold go to I believe
I have Okay Now whole code 2 is a wholly on subsidiary
of the box above it Saks 5th Avenue hold. Go
LLC, right? Correct Okay, and that box above
it, you know which maybe I'll call Holdco 1.
That's the sole member of Holdco 2, right, sir?
Yes. So, before the bankruptcy, Holdco 1 was
making all the decisions on behalf of Holdco
2, right, sir? I can't speak to that. I don't
know what the, you know, I don't know what the
governance was, sir. You don't know who is making
decisions for Holdco 2? can't speak specifically
to before the before the check alone. Okay. How
about today? Who's making decisions for old go
to? Well, I'm the chief restructuring officer
and there is a restructuring committee of the
board that is making decisions. So the people
making decisions would be you and the restructuring
committee of the board of the top sex entity.
Is that right? I'm sorry, when you say the top
SACS entity, I'm not sure what you're referring
to. Well, you just referred to a restructuring
committee. Restructuring committee of what entity?
The restructuring committee is a committee of
the board of SACS Global. SACS Global, okay.
So the people making decisions for Holocaust
II are yourself, and then the members, the restructuring
committee of SACS Global, is that right? Well,
with the management team, yes. Okay, those are
the same people making decisions on behalf of
all of the debtors, right? Yes. Okay, so there's
no one whose duties solely run to Whole Code
2 that's making decisions on behalf of Whole
Code 2, right sir? No, but there's still fiduciary
obligations there and decisions were made I'm
confident of that. But just to be clear, there's
no one who's only fiduciary duty is a Holocaust
II, right, sir? Not that I'm aware of. Okay.
Now you... In your declaration, you noted that
two independent managers had been appointed to
the Board of Managers of HBCGPLLC. Do you recall
that, sir? Yes. Okay. And you noted that those
independent managers were appointed at each subsidiary
global debtor that is not member managed. Do
you recall that, sir? Yes. So those independent
managers have fiduciary duties to each of the
global debtors that are not member managed, right,
sir? I'm sorry. Can you repeat the question?
Yeah, those independent managers, there's two
new independent managers. They have fiduciary
duties to each of the global debtors that are
not member -managed. Right, sir? I believe so.
Okay. Hold code two and those other two boxes,
they are member -managed. Right, sir? No, 12
East 49th Street is not member -managed. Your
day is not member managed. Okay, okay Okay, okay
to his member manage, right? Yes Okay, so those
independent managers do not have a fiduciary
duty the whole co2, right? Wait, I'm sorry. I'm
getting lost a little bit which independent managers
The two new independent managers They were appointed
to the board of managers of HBCGPLC. Yes. OK.
So I want to talk then a little bit. So just
to be clear, the record's clear. Those two independent
managers do not have fiduciary duty to hold Code
2, right, sir? Objection, Your Honor. Objection,
Your Honor. Calls for legal conclusion. The state.
Your Honor, it's right in his declaration. He
said that these people were appointed. He seemed
to have that factually in his declaration. He
can speak to what the governance is at these
entities. He can speak to the facts. Your Honor,
he can speak to the governance. Yeah. He could
justify as to the facts. I think he has. I don't
think there's any dispute on that. But then the
next question was, then that means they don't
have fiduciary duties. That does call for a legal
conclusion, and I'm going to sustain the objection.
OK. Let me ask this, sir. Has anyone told those
independent managers that they have a fiduciary
duty to Holocaust II? Attention, Your Honor,
to the extent it goes into privileged information.
Yeah, so if you can answer the question without
divulging any privileged information, you may.
Otherwise, I'm going to sustain the objection.
I'm sorry if you repeat your question, please.
Has anyone? inform those independent managers
whether they have a fiduciary duty to hold Code
2? I don't know. Okay. A few more questions on
the bottom left entity, the flagship entity.
I couldn't tell from the papers that were filed
whether the flagship entity is becoming a guarantor
or otherwise becoming obligated under the DIP.
What is the situation? I believe I would defer
to Mr. Baird on that question who is more involved
with the structure. Let me make sure I understand.
You don't know whether the flagship entity is
becoming a guarantor or otherwise obligated under
the dip? I'm trying to remember at the moment.
I apologize. Do you know if the flagship entity
is providing a mortgage on the flagship property?
There is a mortgage on the flagship property.
So that was a bad question. Do you know if under
the DIP, the flagship entity is providing a mortgage
on the flagship property to the DIP lenders?
Again, I don't recall. Okay. Now hold code two
is the manager of the flagship entity, right,
sir? Correct. Okay. So it made all the decisions
on behalf of the flagship entity, right? Yes.
Okay. And so it has sole discretion, for instance,
to decide whether to flagship entity will enter
into a financing or provide a mortgage, right,
sir? I believe so, yes. Okay. And there's no
independent fiduciary at the flagship entity
to decide whether transactions are beneficial
to the flagship entity, right, sir? Again, Your
Honor, objection to the extended calls for liquid
pollution as to the extent of the fiduciary duties.
Good. So, Stan, you can answer the question,
but go, but... Yeah, I don't believe there's
independent person at Holcomb, too. Okay, and
then on the right box 12 East And I write that
whole code to makes all the decisions on behalf
of its holy on subsidiary 12 East Lack of foundation
that that question has not been asked with us
Yeah, rephrase your question. I don't understand
justified that hope that 12 East was not member
managed Well, who's making the decisions for
12 East, sir? 12 East is manager managed. You
said it is manager managed? Yes. Okay. So who
is making decisions for 12 East? The manager
is HBC Garden City, I believe. Okay. And who's
the actual person making those decisions? I forget.
The person was recently installed. That's the
person who is the independent manager there,
right? I'm trying to understand the witness's
testimony. Rephrase your question. Sure. You
mentioned that some entity is making decisions
on behalf of 12 Easts. I'm trying to find out
who that is. So can you tell us again who that
is? It is the manager who is the manager. who
is managing is HPC garden city. As the LLC agreement
for 12 he's been amended recently. Yes. When
was that? I believe it went effective yesterday.
I see. Copies of that been provided any creditors
or any other constituency? I believe so. Oh,
who received those? I think the Exonic received
copies of it. I'm not sure if others may have.
I don't know who else. OK. You aware that my
client, Amazon, has asked for all relevant agreements
and does not receive them? I'm not aware of what's
been asked for. Okay. We'll get to that in a
minute, but I want to talk about advisors to
the different debtor entities now. In the Chapter
11 cases, the debtors are all proposing to retain
the same legal counsel, Wilkie, right, sir? That
is incorrect. I believe 12 East 49th has separate
counsel. Who is that, sir? The Bradley firm.
OK. Does Holdco 2 have separate counsel? I'm
not sure. OK. Are the debtors all using the same
financial advisor, BRG? Yes. Debtors are all
using the same bankers, PJT? Yes. So there's
no advisors whose duties run only to Holocaust
II, right sir? Not only to Holocaust II, but
certainly in consideration of Holocaust II. And
just to be clear, when was Bradley retained by
12 East? By the way, I may have mis - I'm trying
to remember. I know, I believe it would have
been recently as well. Okay. Also in the last
couple days, you think? Last few days? Yeah.
Yes. Okay. I want to talk about the cash needs
of this flagship silo. Does a hold code two or
a flagship silo cash flow budget exist? I have
not seen a separate cash flow budget for that
entity. Okay. And presumably if one existed as
a CRO, you would have knowledge of it, right,
sir? Yes. Okay. Your knowledge, has anyone? Analyze
what expenses Hold Code 2 or this silo has over
the next 30 days? Analyzed, no. I know that there
are definitely payments due under the CNBS and
other payments, but specifically analyze that,
no. Looked at rent in the aggregate, of which
that's part. Okay. Well, let's let's talk about
what you do know about them. So, um, first of
you, you mentioned, um, just focusing on whole
code to itself and not the subsidiaries. Does
whole code to itself have any expenses in the
next 30 days? Whole code to, I do not believe
has any, um, specific expenses. in the next 30
days. How about annually? Does it have any expenses?
I'm not sure. Can you tell the court any specific
expenses you know that Whole Coat II has? I can't
speak to specific expenses of Whole Coat II.
Although it would, as a debtor, it would be responsible
to throw out a share of expenses of the case
and other, but I don't know exactly what those
are. But you would certainly allocate expenses
of the entire case to HOCO 2 as well. No attempt
has been done to do that today, right, sir? Today,
no. Okay. All right. Now I want to wrap on the
subsidiary, because I think you were going to...
The two subsidiaries, I think you mentioned that
there's a CNBS loan that has monthly payments
due, right, sir? Correct. And that's about $4
.6 million per month, right? It sounds about
right. Were there any other monthly cash needs
if we included the subsidiaries? There's... Well,
there are other expenses of the flagship that,
you know, that need to be maintained, but I can't
quantify those for you at the moment. The only
thing you can quantify is the $4 .6 million monthly
CNBS payment, right, sir? Yes. Okay. And then
let's talk about the revenues that come in. We
talked about how SACS operating LLC makes the
lease payments at 12 East, right, sir? Correct.
And that lease payment is $7 .7 million, right
sir? Correct. And then 12E makes a payment on
its lease to the flagship entity which he uses
to pay the CNBS loan, right sir? Yes. And it's
more than the amount of the CNBS loan, right
sir? It's more, but there are other expenses
as well. But you can't tell me what they are
right now? specific right now. Okay, and you
know those expenses are in fact also covered
by SACS and company under the triple net lease
it has. Yes. Okay, so as long as SACS and company
pays on the operating lease, that's going to
more than cover all the cash needs of HoldCo2
and its subsidiaries, right sir? It should be
equal to yes. Okay, now kind of focusing on the
assets of HoldCo. two. Um, it obviously owns
these two entities, right, sir? Yes. So it indirectly
owns the flagship property, right? Yes. Okay.
Does it also have any cash on hand? Uh, I don't
know what cash on hand is today. Okay. Not something
you've looked at, I guess. I may have at one
point, but I didn't, I didn't today. Okay. Now,
you're aware there was an appraisal of the flagship
property done in 2024 by JLL, right? I know there
have been several appraisals done of the property.
Okay. Well, that specific appraisal was used
in SACS' SEC filings, right? I'm not sure what
appraisal was used in SEC filings. You're not
aware that it was... relied upon and cited in
the offering memorandum? I wasn't. I wasn't with
a company at the time. OK, have you seen the
2024 flagship property appraisal by JLL? I may
have. I don't recall. I just know that in conversations
with employees of the real estate side of the
house, there are multiple appraisals for multiple
values. I just want to make sure you think there's
been. other appraisals of the flagship property
since the 2024 JLL valuation? Is that right,
sir? I don't know if they were before or after.
I just know there's more than one. OK, so in
doing whatever work you were doing and analyzing
the benefits to Holco 2, you didn't focus on
that appraisal, I guess? I... I think the whole
lot of questions is presuming the fact that it's
not evidence, which is that there's some lack
of identity of interest within this organization.
The witness testified on direct that the entire
operation exists to preserve operations of facts,
and that there's a unity of interest there because
that's what protects the asset. So I think this
whole lot of questions that tries to create a
divergence of interest I just think is all based.
Can I ask the council to limit his objections
and not be speaking objections? I would also
just note in this direct testimony, he literally
testified the value of Hulko 2 would diminish
if SACS closed. So clearly he is providing some
amount of testimony about the impact on the value
of the property. I'm going to overrule the objection.
I think the question was fairly limited to, you
know, Did he use this appraisal in connection,
or any appraisal, in connection with his determination?
I think it was a fairly limited question. Go
ahead. You want to rephrase the question. Just
re -ask the question so that we have a clean
record. Yes. Sir, did you use the 2024 JLL appraisal
of the Flagship property, or any other appraisal
of the Flagship property, in making decisions
about HOCO 2? in relation to the DIP or the bankruptcy
filing? There, I'm not sure which appraisal it
was, but there was a dark appraisal that, there
was appraisal we used to, you know, run various
scenarios if there was a liquidation and, but
I'm not sure which appraisal was used. Okay.
I want to make sure I want to have you look at
the document that I think you're referring to.
It is the one that's filed under seal. And for
the court's benefit, we filed that at ECF 145.
I believe it's probably dash four, although I
don't have access to whatever number system the
court used. And maybe your counsel could show
it to you. We do have a copy. I'm trying to do
this without saying numbers, because I understand
the data is of a concern. So let me know, Your
Honor, when you're ready and witness as well,
obviously. All right. So it is 145 -4. I'm ready.
OK. And it should say JLL on the cover, if everyone
has that. Sir, if you look at page, if you look
at the cover page and then if you look at page
four, you see this is a JLL appraisal and it
has value conclusions including a go dark value
on page four in a chart. Yes. Do you see that,
sir? Yes. Okay. Is this the valuation you were
thinking of? The go dark value is? The Godark
value is the value you were thinking of, right,
sir? Yes. OK. And I don't want to say the number
out loud, but you see it there right on the far
right of this. Your Honor, I would like to lodge
an objection to this document as hearsay, to
the extent we're using numbers or things that
are in this document as evidence of the truth
of the matter, sir. I don't think that's appropriate.
I think the only question was, is this the document
that he used, that he testified that he used
in connection with the Go Dark scenario? I think
that's the only question. I don't think there's
been any testimony offered as to the actual value
of it. I think it's just a question, is this
the document that he used? OK. Thank you, Your
Honor. So I did not use it directly, but members
of my team used it and also in conjunction with
the real estate team at Sachs Global. I'm sorry,
if he's talking, I can't hear him. There may
be a mic or phone issue again, Your Honor. I'm
sorry. Mr. Harris, can you say something? I can't
hear you, and I didn't do anything this time.
No, we can't hear you. Think you may have disconnected
yourself No Did you dial back in dial back in
All right dial back in yes Hit five star All
right, can you hear me now Yeah, can you hear
me your honor I can I don't know what happened
but the I had I changed you to Latham conference
room and it disappeared so I don't know what
happened there Okay, well, my audio is on a cell
phone and here's the video, so hopefully this
will work for your honor. All right, no problem.
Okay, so I think when I stopped being heard,
I was just asking the witness to confirm that
he sees the Go Dark value at the bottom right
of this chart. All right, I do. Okay, and you
understand that Go Dark means... If the property
is vacant and unencumbered, in other words, if
the fax lease is canceled, right, sir? Yes. OK.
I want to now talk about Whole Coaches' liabilities.
So if you could go through them. And I have a
demonstrative chart I just want to show you.
If we could, you can take this one down and put
up the demonstrative. And it pretty much reflects
what you said. If I cheat, I can swap them out.
I'm sorry. Do you hear me? Are you able to pull
down that chart instead, pull up the demonstrative?
Can you zoom in on that? Okay, thank you. So,
on the left side, under pre -petition, you know,
we've listed what we believe to be the liabilities
at Whole Code 2 or at subsidiaries. I think you
testified to most of these already, but you see
there's a CNBS loan down at the Whole Code entity
of $1 .25 billion, right, sir? Yes. And we listed
a potential make -hole. claim a $30 million there.
Is that the mayor to you, sir? Uh, yes. Okay.
And then we lifted the $200 million SBB notes
that holds Code 2 is guaranteed. Do you see that,
sir? Yes. And do you recall that Exxonic also
has a lien on the equity of 12 East? Uh, yes.
$480 million. Okay. So I just lifted all those
up in a bonus of caution. And the total of claims
that would be ahead of my client, Amazon, are
about $1 .6 billion, right, sir? Yes. OK. And
then you also mentioned vendor claims that are
about $180 million, right, sir? Yes. So that
would bring us to a little under $1 .8 billion
of claims at hold code two at subsidiaries, right,
sir? Correct. Are you aware of any other material
liabilities of hold co -tour subsidiaries? Currently,
no, although there would be additional liabilities
and expenses if you were actually to go down
the point of having to monetize, which aren't
reflected there. But current liabilities, no.
OK. So as long as the flagship property on a
dark basis is worth more than 1 .6 billion Amazon
could receive some recovery, right, sir? That
presumes a treatment under a plan that hasn't
filed yet. Well, I think he's just asking him.
I just think he's asking him, does the math work?
I mean, I think he's just asking him a math question.
I don't think it has any particular legal ramifications.
So I'll let him answer. No, I think that's incorrect.
I mean, it's possible, but on the face of it,
it's not definitive because their cost to market
the building, their expenses incurred while you're
marketing the building, their risk to things,
you know, actions the CNBS could take that would
require payments to them, which obviously wouldn't
affect the ultimate recovery, but it certainly
in the near term would have to come up with incremental
cash and there's a cost associated with that.
So just because the building... you know, a building
might be worth more doesn't mean that Amazon
would see a recovery because you have to account
for all those costs. All right. Well, so you
have made no attempt to estimate those costs,
right, sir? Actually, we have in certain scenarios.
And the other point I would add is that We also
believe in consultation with the real estate
team at Sachs Global believe that you know there
in this scenario That we're currently contemplating
where you shut down a liquid date There could
easily be a discount against the dark value which
would further bring down the value recovery so
That that I wouldn't necessarily use the value
and here's the starting point Well, sir, you
did use the value here when you were analyzing
scenarios for Holco 2. You testified earlier,
right, sir? I'm just sure that that's sustained
the way this is testified. Sustained. That's
the question, right? I'm just asking a question.
You did use that dark value when you were analyzing
Holco 2 interest. You said earlier, right, sir?
I didn't say the user should be looked at it,
but that's not the number we actually think would
ultimately be a recovery if you were to attempt
marketing. Do you have another estimate evaluation
if you were to liquidate the flagship property?
I think there's been a recurring theme. We're
using the same word value. We're talking about
two very different things. I think council is
using value to refer to numbers. We're not doing
that. We're not relying on the value of the property.
We're not relying on an equity question. We don't
think it's appropriate. We talked about value.
We're talking about general value, highest and
best use, the kind of things a CRO would know.
And I think trying to match up those two concepts
with numbers that are, frankly, not in evidence
and are... He testified the value of the property
would diminish. If he's walking away from that,
then I don't need to ask any more questions.
But if he's sticking to it, I get to find out
what the basis for that is and to challenge it
with the only appraisal that exists. Your Honor,
the witness has testified this is not the only
appraisal that exists. And again, we're not walking
away from any testimony. We're talking about
value in terms of highest and best... The question
is, have you quantified... Sorry. Go ahead, ask
your question. So have you quantified how much
less than the bark value appraisal in the JLL
appraisal that the debtors believe the flagship
property would receive in a liquidation? We ran
scenarios from 25 and more. as to what that would
look like. The debtor's view was that ultimately
the best decision, the value maximizing decision
was to obtain the dip because the likelihood
of the creditors in HOCO 2 getting nothing in
the event of a liquidation was fairly significant.
That wasn't my question. Have you quantified
what the value of the flagship property would
be in a liquidation? I just said we ran various
scenarios for 25 and above discount to the 2
.1. Okay, so you run scenarios where there's
a 25 % discount. Have the debtors formed a view
that that is the appropriate discount? The debtors
didn't form a view of the appropriate discount.
The debtors formed a view that the risk of that
happening was significant. We didn't land on
a specific number, but understood that there's
significant risk in the appraisal number that
was used. And therefore, in the debtor's business
judgment, took a discount against that and recognized
that with the other items I mentioned to market,
the expense of winding down, you know, running
that process, there's a very good chance of ending
up with no recovery whatsoever. And that's the
decision to enter into the diff would create
a situation, increase the likelihood of getting
a recovery. Have you quantified this in a way
you can produce to me in response to the document
request? I haven't seen it, I mean, I'm not sure
what document request you're referring to. Well,
assuming I serve a document request in the next
day or two, there'll be an actual, I think you're
saying there's not an actual written document
that shows the analysis you just asserted? I'm
sorry, I didn't understand the question. I saved
it in the microphone issue. Is there an actual
document that shows this quantitative analysis
you just asserted? I'll have to say, we definitely
ran the analysis. I don't know the format it's
currently in. OK. Have the debtors performed
a liquidation analysis for hold code 2? We performed
a liquidation analysis of the entity which included
hold code 2. That's not my question. Have the
debtors performed the liquidation analysis of
hold code 2 itself? That was part of the analysis
I just referred to. When you do a liquidation
analysis of the whole entity, you have to look
at the waterfall at different entities and to
the extent there were specific claims at HOCA
too, that would be part of the overall analysis.
Do you do have a liquidation analysis you can
produce in response to a document request, you're
saying? Like I said, I don't know the current
form of it. But we could sort of go through it.
Okay. Do the debtors agree that Whole Co. 2 is
currently solvent? Solvent as long as the rent
payments from Sachs and Co. continue, yes. Without
those, no. Do the debtors have decided if the
rent payments stop? Polco 2 is not solvent? Well,
part of solvency is the ability to meet your
obligations. It depends what the definition of
solvency is. But under that definition of solvency,
no, they wouldn't be able to meet their obligations.
I put on a balance sheet. It depends. There's
a good chance it wouldn't be. Today, with the
rent payments, I would argue uh, their solvency
without those rent payments? Um, perhaps not.
Perhaps they're, perhaps Holco 2 is insolvent.
I think that's what you said. If the rent payments
were to stop, but today the rent payments are
actually being made. And why is Holco 2 in bankruptcy?
is in bankruptcy because at the end of the day,
we needed to get a dip. In order to get a dip,
we needed to pledge certain assets, and that
was required in order to get the lien to satisfy
the dip lenders. And without that, as I stated
earlier, the enterprise would likely liquidate.
And we believe that the creditors at HOCO 2 would
receive little, if anything, and very likely
nothing, regarding their claims. And this was
the best opportunity to go forward. Sorry, sir.
I say including all constituents, including those
in Holkoff 2, or parties in interest, I should
say. I believe you indicated Holkoff 2 was put
in bankruptcy because that was required in order
to get the zip. Is that right, sir? Yep. Yes,
he does. And who authorized the bankruptcy filing
on behalf of Holco 2? Myself and the board. Was
that part of a standalone meeting for Holco 2
or was it the same meeting for all the debtors?
It was the same meeting for all the debtors.
I'm sorry, Your Honor. I think there's a lack
of clarity. I'm not sure. The witness testified
the board. I'm not sure which board he means.
There's lengthy resolutions. I'm not sure I would
call them board resolutions. There's lengthy
resolutions attached to the petition, which show
what was done in order to put it in bankruptcy
and to authorize the dip. I've reviewed those
in connection with preparing for this hearing.
So I'm not sure, you know, that this testimony
is particularly relevant. Was there any meeting
or analysis just to analyze Whole Code 2's decision,
not the other donors? There was not a specific
meeting. regarding Whole Code 2, but there was
definitely consideration of Whole Code 2 in the
decision in that meeting. For 12E, is that entity
solvent? Same. As long as it receives rent payments,
yes. If it doesn't receive rent payments, I would
say it's not because it doesn't have the ability
to meet its obligations. Timely. If it doesn't
receive the rent payment, is it solvent on a
balance sheet basis? On a balance sheet, again,
it may or may not be, but solvency requires multiple
tests and, you know, it would definitely fail
that one test. Therefore, I would say it's insolvent
without the rent payments. And who authorized
the bankruptcy filing for 12 East? Same. I'm
sorry, just a lack of foundation. I don't think
we know whether the witness knows off the top
of his head who authorized the accuracy calling.
As Your Honor mentioned, there are lengthy resolutions,
and I think those speak for themselves. I've
relied on advice from council as my understanding.
It was better to keep it out. And so the decision
was made that way. Is there anything that doesn't
reveal, President, you can tell me about why
that decision was made? I don't want to get into
your advice to council. I'm not certain. OK.
Let me talk about the debt burden of the DIP
and start with the interim DIP itself. So the
debtor's interim DIP has, so they're just taking
on a total of $400 million of new money debt,
right, sir? Yes. Okay. And HoldCo 2 is guaranteeing
all of that debt, right? Yes. Okay, and that
none of that is paying an interim expense of
whole code two, right sir? I think the witness
has testified that whole code two is part of
the enterprise and it's receiving benefits This
is really getting it appropriately speaking objections.
You want to object a floor on or whatever that's
fine, but like he shouldn't be testifying Yeah
Try to limit your objections But what was the
objection? I'm sorry, Your Honor, I've forgotten
the question. I remember the question. I believe
that that would be incorrect, because the DIP
is allowing for the operating lease to continue,
which is serving to pay for the expenses of Holco
2. So the DIP is necessary for that to occur.
So Holco 2 has no expenses, right, sir? Well,
the subsidiaries as well, I'm including those
as well. Okay, so you're saying the DIP is needed
so Dax and Co. can make payments if obligated
to make. Is that what you're saying, sir? To
12E49, who turns around and makes payments to
the flagship. Right, okay. And the proposed interim
DIP also includes a $359 million roll -up of
the pre -sufficient SBD notes, right, sir? Yes.
Okay, and only 200 million of that pre -petition
FDV debt was, is currently debt of whole code
2, right? Uh, correct. So 159 million of that
pre -petition FDV debt was solely a debt of other
debtors currently, right sir? I'm sorry, can
you repeat that? 159 million of the pre -petition
FDV debt was solely a pre -petition liability
of other debtors, not Whole Coat II, right? I
would disagree with that because Whole Coat II
was a beneficiary of that financing at the time.
So I would say they were a beneficiary of that
financing. Well, that went into my question,
my question about liabilities. Whole Coat II
is not currently liable on $159 million of the
SPV notes that are intended to be rolled up,
right, sir? Correct. Okay. And then the interim
dip would also convert $751 million of pre -petitioned
second out notes into dip obligations, right,
sir? Yes. Okay. And none of that $751 million
is currently debt, a liability of HOCO 2, right,
sir? It's not a liability, but again, it was
a beneficiary of it. Okay, so it's effectively
sort of like another roll -up. That's $751 million,
right, sir? Yes. Okay, so that's about the $1
.1 billion pre -petition debt roll -up in the
interim trip order, right, sir? Uh, yes. Okay,
and right, sir, there's a debtor's obligation
to participate in that $751 million second -out
notes program is irrevocable upon entry of the
dip order, right, sir? Objection, Your Honor,
that the documents speak for themselves. I don't
think this witness has the basis to make that
conclusion. Distinct. He testified he made decisions
on the Apple over two. I need to know if he was
aware of that when he made that decision. Well,
you can ask him if he was aware. OK. Yeah. Are
you sure he's aware that the debtor's obligation
to participate in the $751 million Pre -petition
second note purchase is irrevocable upon entry
of the disorder? I'm sorry. I just object to
the use of the word irrevocable. I think that's
a legal term and will be determined by the interpretation
of the documents themselves. I'm going to go
ahead and let him answer. Overruled. Go ahead.
You can answer the question. That's my understanding.
OK. So in total, the interim dip order will impose
more than $1 .5 billion in liabilities on Holocaust
II when entered, right, sir? Yes. Okay. And $1
.3 billion of those are liabilities that don't
currently exist on Holocaust II, right, sir?
No, but again, it would be the beneficiary of
those liabilities. Okay. So you haven't quantified
how much Holocaust II will benefit? from the
continuation of Sachs, right? I haven't quantified
it, but if I think the alternative is the whole
code two claimants get nothing, then I believe
it's a better alternative and the debtor's business
judgment to get the dip and on the basis that
with significant value being created in Sachs
Global, that ultimately those claims would be
addressed. If the option in the debtor's business
judgment is zero, the alternative is better.
The longer that... Go ahead. I didn't mean to
cut you off. Sorry, sir. That's it. I'm done.
Okay. Do you have a quantification that shows
the benefit to Whole Co2 is more than $1 .5 billion,
please? Not with me today, no. But again, when
I'm looking at quantifying greater than zero
is, well, whatever the expected value is, as
long as it's greater than zero, that's a benefit.
So you'd agree that a roll -up of $1 .1 billion
today would make it more difficult to find an
alternative DIP provider to come in at the final
hearing, right, sir? Well, if maybe objection
to lack of foundation, I don't think any of the
assumed several facts that are not evidence Overruled
that way I let him I don't know I don't know
if it would be more difficult, but what I do
know is there would not be an opportunity to
come in and refinance without this interim financing.
Well, if there's interim financing without a
roll -up, it'd be a lot easier to refinance in
an interim financing with this $1 .1 billion
roll -up, right, sir? Correct, but the roll -up
is a condition of the new money, so it goes part
and parcel, and it's fairly standard than Chapter
11 cases to have a roll -up associated with new
money coming in. Okay. And you agree there's
no creditors committee appearing today to, you
know, advocate for the interest of unsecured
creditors like Amazon or vendors. Right, sir?
No, there's not been a committee formed yet.
Okay. And then in terms of the remaining $600
million commitment, I assume there are contingencies
and conditions precedent and closing conditions
in the dip agreement. Is that right, sir? There
are some, but there Fairly standard, I would
say that there's nothing out of the ordinary
or onerous there. But until those contingencies
are met, it's not guaranteed that 600 million
will come in, right, sir? No, it's not guaranteed.
The only thing that's, but like I said, they
were, they're reasonable milestones. Debtors
do the judgment. They believe they're attainable
and You know are not concerned at this moment
in time about the ability to meet those milestones
Okay, it's really possible that hold code incurs
its additional 1 .5 billion of liabilities and
It ends up only extending the operating company's
business for another 30 days, right? So that's
possible It's possible Sorry go ahead I'd say
it's punishable, but again, the alternative is
worse. I see. And you haven't done an analysis
to determine the likelihood that that happens,
right, sir? I'm not sure what that analysis would
look like. We're ascertaining milestones and
the company's ability to meet them. And the management
team and the board of the company, or the debtors,
are comfortable with our ability to meet those
milestones and secure the additional funding.
If we weren't comfortable with those milestones,
we would not have entered into this agreement
because it would have been probably a bad decision
in that case. So we're quite comfortable of our
ability to meet those milestones. Okay. And SACS
is also not today committing to assume the lease
on the flagship property, right, sir? If we don't
have CF, it would be fairly abnormal to assume
that any lease on day one. So it's possible that
Holco incurs this $1 .5 billion of new obligations
and is still faced with a dark property, right
sir? It's possible, but the likelihood is reduced.
because if we get the whole premise of getting
the funding is to allow us to continue to operate,
to assume that lease, and to move forward without
the funding, that becomes less likely. Okay,
so now let's talk about the proposed final dip.
So the final dip has Holocaust II taking on another
$600 million of new money debt, right, sir? Correct.
And another $449 million roll -up, right, sir?
Correct. And that entire $449 million additional
roll -up is of debt that is not currently at
Holocaust II, right, sir? That is correct. OK.
So that's a total of $2 .6 billion of additional
obligations that would be imposed on Holocaust.
team, right, sir? Uh, yes. Okay. And all that
would have to be repaid before whole co twos
existing creditors get anything, right, sir?
Uh, I think that assumes, um, that whole co two
is the only source of payment for the dip. I
don't think it's never You could just object
not enough. You don't need a speech. Refresh
your question, please. 2 .6 billion would come,
would be an obligation of HOCO 2 before HOCO
2's existing unsecured creditors, right sir?
Correct. Okay. Um, so, and I'm just going to
do some hypothetical numbers here. If the flagship
property is worth, say, $3 billion, currently,
whole court, two creditors could be repaid in
full, right, sir? On a dark basis. I'm sorry,
did you say it's worth 3 billion? 3 billion,
yep. Which would be... significantly more than
the appraisal you referenced earlier but by just
doing that math that's correct okay but at that
value they might still receive nothing once the
dip is put in place right sir it's possible it's
also possible they wouldn't even a three billion
depending on how long it would take to actually
receive the three billion If you were talking
hypotheticals, it's possible at a $3 billion
valuation, they wouldn't receive anything either.
Okay. You agree, sir, there's an evaluation where
the flags, where they, where an immediate liquidation
is better for a whole code creditor than a good
facility, right, sir? I did not agree with that
at all. An immediate liquidation we don't believe
is better than for a whole code, too, and I've
never said that. Well, that wasn't my question.
There is a valuation somewhere above this 1 .6
billion of existing debt where focal cutters
are better off with immediate liquidation, right,
sir? There is a value where that would be true,
right, sir? There is some value, but again, in
the realm of hypotheticals, you know, as a debtor,
it needs to risk assess the likelihood of obtaining
those values and doesn't believe that the opportunity
to attain those values reasonably exists and
therefore going down the path of obtaining the
diff is the better course of action for HOCO2
as well as the rest of the SAX global entities.
Okay, but there's no quantification you've done
that you can point me to to show that HOCO2 benefits
by two and a half billion dollars as a result
of this diff rate? As I said, if you think the
outcome is zero, anything above that is better,
or the opportunity is better. And the opportunity
for the company to continue to exist presents
opportunities to create much more value for the
claimants it will go to. OK. You're aware, sir,
that Amazon has a consent right over any new
debt secured by the flagship property? or guaranteed
by those flagship silo entities? You aware of
that, sir? Objection counter calls for a legal
conclusion. No, I'm asking if he's aware of it.
Yeah. I'm aware. Go ahead. I'm aware that there
are consent rights, but I'm not sure those consent
rights, as I understand them, preclude the debtors
from seeking the liens and the dip. uh, you know,
the diff and the leads associated with the diff.
You mean because of bankruptcy? Is that what
you mean, sir? I, in consultation with council,
my understanding is that in the manner in which
the decision, you know, the authority was sought,
we did not need to seek the consent of Amazon.
Okay. Did anyone sign dip agreements on behalf
of The DIP agreement is on behalf of any of these
communities? Again, Your Honor, I think we've
discussed this before, but I believe you said
that consent and everything are in the record
and should be for themselves. I don't know that
Mr. Weinstein remembers at the moment, although
he can tell me if he does. I thought it was a
different question. I thought the question was,
has there has anyone actually signed the DIP
agreement? Was that the question? Did I mishear
it? Yes, your honor. Yes, your honor. I'm trying
to think. I believe you've been executed. I'm
not, sir. I still recall. OK. And you're aware,
sir, that Amazon informed SACS that Amazon did
not consent to new debt procured by the flagship
property. Are you aware of that, sir? I am aware.
OK. And are you aware that, did you consider
that under the LLC agreement, the flagship entity
is barred from taking on new debt? Do you consider
that a new alpha? Again, in consultation with
advisors, it's my understanding that it was not
barred, and therefore we're seeking the dip that
we're seeking. Are you aware that the 12 -eat
LLC agreement, it's also barred from taking on
new debt? Is that something you considered? Similarly,
my understanding is that we... ultimately were
not barred based on consultation with the advisors
for seeking the dip financing and including Toby's
49th. Before today, were you aware that Amazon
offered to provide a dip to Holdco 2 to finance
any cash needs of Holdco 2? That's actually an
assumed fact, not evidence. I think he's aware
of it. He's aware of it, yeah. I believe there
was some reference to it in the letter. However,
given the timing that we're on, I can't see how
that was possibly actionable. And given the fact
that we were in regular daily conversations with
Amazon and its advisors for weeks, and this never
came up, the fact that it came up in a letter
on the eve of a filing. seem to indicate that
it was highly unlikely that it was actionable.
The debtors never even responded to Amazon's
proposal to discuss a whole person's debt, right?
I don't know. Are you aware of the debtors ever
responding to Amazon's proposal? I'm not aware
of it, no. Are you aware that Amazon asked for
financial information regarding Whole Code II's
expenses, but they could size it up. Do you wear
that, sir? I'm not aware of it, and to go back
for a second, I'm not sure what constitutes a
proposal. In my mind, a proposal is an actual
term sheet with proposed terms, not a passing
reference to, hey, we would do, we propose that
possibly we would do this. Okay. Well, why don't
we pull up the letter then that we've all been
talking about. It's ECF 144 -9. Maybe if you
could pull that up. It's Oscar, I'm sorry. Okay.
I guess blow up the first paragraph. because
it's really hard to see. I'm sorry. Can I just
give a hard copy to the witness so that you can
look at the whole document? Yes. Thank you. Mr.
Harris. Okay. Do you see that the letter is from
Latham and Watkin, who will be far? And then
the first paragraph it says we request you immediately
share this letter with Mr. Aaronson, Mr. Tracy,
and then SACS Chief Restructuring Officer, which
is yourself? Yeah. Okay. And could we go to the
third page, Ms. Austin? And, um, the principal
paragraph starts, if HOCO 2 requires financing,
if we could blow that up if possible. There it
is. Do you see? Thank you. Do you see, sir, that
Amazon is asking, um, in the third line for information
about HOCO 2's expenses for purposes of sizing
of the proposal? Do you see that? Yep. Okay,
and then, and SACS never responded to this request,
right, sir? I don't know if it responded, but
even if it had, given the timing of our Chapter
11, I'm not sure how this possibly could have
been actionable. But I don't know if anybody
responded to it. This letter dated January 9th,
sir, right? Yes. Okay. Was there anyone who was
acting only on behalf of HoldCo2 that considered
Amazon's proposal or an idea of providing a dip
just for HoldCo2? There was nobody singularly
looking out for a whole course, too, but in the
fiduciary responsibility towards all the entities,
it was considered. Okay. A couple questions about
the debtor's ZIP budget then, and I think then
we'll be done. So, thank you for your patience.
So, actually, I'm sorry, my colleague has something
to... Okay. You did say you were involved in
preparing the debtor's 13 -week ZIP budget, right,
sir? My team was. I reviewed it. Okay. Um, uh,
Ms. Hawking, can we display that? I think it's
the last page of the dig motion, but it's also,
I think, a separate document. So this is the
entire budget, right, sir? It looks like it.
I know it's kind of hard to read from here, but
it certainly looks like it. OK. Are you aware
that Amazon asked the debtors to provide the
13 -week budget and advance the filing, but didn't
get it? I don't recall if it was in the letter,
perhaps, but I don't recall specifically a request.
OK. Now, you see there's one line item for total
disbursements. It's row number two. Is that right,
sir? Yes. And it shows that, you know, over 700
million of disbursements in the first four weeks.
Right, sir? I can't read it, but that sounds
about right from memory. But it doesn't tell
anyone what those disbursements are. Right, sir?
Correct. Doesn't show the amount of professional
fees, or critical vendors, or utilities, or insurance,
or any other details, right sir? No, this is
a pretty standard form to file. You think it's
pretty standard to a DIP budget not to provide
any details about what the cash is being used
for? In conjunction with a DIP, yeah. And a DIP
motion, yeah. This is a pretty standard format.
So how much of the interim budget is for professional
fees? Um, I'd have to go back to the underlying
detail. I believe there's a funding of a carve
out early on, but besides that, I don't know
that there are any other additional professional
fees since there's, um, you remember? Excuse
me. I didn't mean to interrupt you. Sorry. That
was it. OK. Do you remember what the amount of
that target was being funded? I think approximately
$40 million. OK. And that's being funded in the
interim period? Yes. OK. And how much of the
interim budget is being used to pay pre -petition
claims of critical vendors? I believe requested
about, I want to say, I don't know if I had maybe
120 initially, and the dollars are spent over
a 10 -week period pretty easily. Okay. Can you
tell us what post -petition obligations are coming
due in the next 14 days? The next 14 days, you
would have So you only have payroll. You'd have
rent. You'll have goods, merchandise that we
need to pay for. We have marketing contracts
we need to pay for. We have transportation we
need to pay for. We have insurance programs we
need to pay for. We have benefit programs we
need to pay for. And there will be disbursements
on all of those over the next 14 days. So how
much are those? post -petition obligations that
will need to be paid the next 14 days. According
to the budget, there's a fairly significant amount.
Now, do I think that the number will come in
less than that? Yes, but it's a fairly significant
amount. Well, you say according to the budget.
I mean, I can't tell. There's just a total disbursements
line. I know that doesn't tell me how much of
those is the post -petition obligation. So that's
what I'm asking you, sir. Can you tell the...
Most of it is post -petition. There's not much
pre -petition in there. Sir, if you only pay
post -petition obligations, do you know if you
need to draw on the dip in the next 14 days?
Yes. By how much? A significant amount. I don't
know the exact amount off my head, but it's a
significant amount. We are actually largely out
of liquidity. And we are incurring post -petition
expenses as we speak. And we need to start receiving
product. And some of that, you know, I don't
know what terms we're going to get. And we're
going to have to pay for that product. And so
we need to start making significant disbursements
in very short order. And because we have almost
no liquidity at the moment, We need to draw on
the dip. Okay. And then just focus on hole code
two, kind of last point. Hole code two doesn't
have any operations, right, sir? Well, it's subsidiaries
do. Well, one subsidiary just owns real property
and the other subsidiary just passes it through
on a lease, right, sir? Yeah, but there are expenses
associated with that. That's why I consider that
operation. Well, none of those have any vendors
providing goods and services to them, right,
sir? Certainly the store has, you know, the flagship
has services provided to it. But those services
are provided to SACS, not to any of the three
entities we've been talking about, right, sir?
Well, you know, I... the store would incur, I
mean, ultimately they'll get funded through the
lease, but there are expenses at the flagship
that subsequently get paid for, but they have
to get the cash. So my question is, the vendors,
there are no vendors who provide goods and services
to these three entities, right, sir? Well, services,
yes, goods, not their worth. What services do
you think are being provided to these three entities
by a vendor? The flagship has legal services
that it is the beneficiary of. 12 East 49th Street
has legal services that it is the beneficiary
of. There's accounting services which they are
the beneficiary of. So there are incurring services.
Can you tell me how much those are on a monthly
basis? I don't. I can't. Do you know whether
any of the critical vendors provide good news
services to HOCO 2? We haven't fully identified
the critical vendors yet, but indirectly, yes,
because to the extent that the DIP provides for
paying for critical vendors and other critical
services, HOCO 2 is the beneficiary, so it is
the indirect beneficiary of those payments. I
see. But they're not directly vendors to Holocaust
II, right, sir? That's correct. OK. And Holocaust
II is not obligatory for those critical vendors,
right? Yes, Your Honor. Close for legal conclusion.
Well, I think the question is, do they have a
contract? Does the entity that owns the real
estate have contracts with trade vendors? I think
that's the question. No. Yes, sir. OK. So can
you tell the court how much liability Polco 2
is incurring to pay pre -petition claims of other
debtors just on an interim basis? Well, the liabilities
it's incurring are the ones you outlined earlier.
Just one second, Your Honor. I think I may be
done. Okay. Thank you, Your Honor, and thank
you, sir, for your patience. Okay, thank you.
Does anyone else wish to cross examine Mr. Weinstein?
Yes, Your Honor. It's Jim Ducaille. Can you hear
me? Yes, I can. Okay. Good evening, Your Honor.
Jim Ducaille from Sidley Austin on behalf of
Exonic. I do have a few questions. May I proceed?
Yes. Your Honor, can I just raise one? I think
we've gone on the record about two hours. If
council has significant amount of questions,
it may make sense to take a break. If not, I'm
happy to go through. I just want to raise that
with the court. Yeah. Good point. Mr. DuPay,
how long do you think you're going to be? I don't
think it's very long, Your Honor. Maybe 10 minutes.
OK. We'll only push through, and then we'll take
a break before any redirect. OK. Thank you, Your
Honor. May I proceed? Yes. Thank you. Mr. Weinstein,
my name is Jim Ducaille. I represent Exonic.
I just have a few questions for you and I'll
try to keep this relatively brief. I want to
focus, sir, in particular on the 12 East 49th
entity. We've been talking about that over the
past couple of hours. That's the entity that
holds the ground lease for the flagship store,
correct? Correct. And you're aware of the fact
that Exonic has a security interest in the form
of a pledge of all of the LLC interests that
are held by Holdco 2 of 12 East 49th Street.
You aware of that? Yes. And you understand that
the debtors here are asking for authorization
for 12 East forty -ninth street to be a dip uh...
borrower under the proposed it right and in connection
with that uh... twelve eastwood pledge its assets
uh... at collateral connection that that right
are you aware of an estoppel certificate that
prohibited SACs from amending or modifying the
ground lease that is held by 12 East or modifying
the operating lease payments? I'm not certain,
but what I do know is that in consultation with
advisors that we had the ability to change the
terms of the operating lease. Did you do that,
sir? Has that happened recently? Yes. Yes. How
recently? Within the last year or two. And what
was the nature of that modification, sir? There
was a reduction in the rent paid. In the debtor's
judgment, given the fact we were on the verge
of Chapter 11, it made sense to try to preserve
cash in the Sachin Co -entity and otherwise would
have rejected that lease because the amounts
being paid under the operating lease were excessive.
So either A, modify it or B, reject it. So we
opted to modify it. Did you seek Exonic's consent
to do that? We did not. Okay. Are you aware of
the fact that the pledge that I just described
that Exonic holds of the Holdco 2's interest
in 12 East 49th Street prohibits Holdco 2 from
taking action that would materially impair the
rights of my client, Exonic? And as I just stated,
based on consultation with advisors, it was my
understanding that we could do this and should
do this, and therefore went ahead for the reasons
previously stated, as well as, well, no. OK.
Let me just ask you a little bit more about the
12 East 49th Street entity. uh... i think you
just testified a few minutes ago that entity
doesn't have any employees it doesn't have any
vendors correct uh... correct uh... it doesn't
purchase or sell inventory of any kind right
it does not and prior to this it does not but
it is the beneficiary of entities that do but
it doesn't itself does it okay and and uh...
prior to the petition date uh... there wasn't
any funded debts uh... that uh... twelve east
forty ninth street at water i don't believe so
in connection with the bankruptcy filing was
there ever any sort of stand -alone liquidation
analysis done that specifically in respect of
twelve east forty ninth street It would have
been part and parcel with the broader liquidation
analysis I referred to earlier. And what did
it show, sir? Do you know? I don't recall. Top
of my head. Now, it's true, sir, that the dip
proceeds of the dip that's being sought here,
those are not in any way specifically earmarked
for 12 East 49th Street Fuse, are they? No. not
specifically, but 12 East 49th Street is a beneficiary
of those dip proceeds by maintaining the ability
to operate the 12 East 49 flagship store, and
therefore it is a beneficiary of it. Well, just
to be clear though, 12 East 49th doesn't operate
the store. It simply holds the lease, right?
Yes, but there wouldn't be any lease payments
to it in the absence of the store functioning.
in the ordinary course. Did you, in preparation
for the bankruptcy, ever perform any sort of
valuation of 12 East 49th Street specifically?
I did not. And do you know if that was done by
any of your advisors? I'm not aware of that entity
specifically, no. Are you familiar with the terms
of the dip credit agreement that was just filed
with the court this afternoon? The basic terms,
yes. In reviewing this, there's a provision in
there I just wanted to ask you if you know anything
about. Section 5 .17 of the credit agreement
has a bunch of affirmative covenants that relate
to the flagship material agreements, which is
a defined term that includes the ground lease.
But the footnote in the version that was filed
with the court says, to revise, to reflect business
agreements with respect to treatment of the flagship.
Do you know what that business agreement is,
sir? I'm not specifically sure what agreement
that's referring to. Give me a second. I may,
I actually may be done. Can you tell me, sir,
what are the cash needs of 12 East 49th Street
over the next 30 days? At a minimum they need
to pay the rent back to the flagship entity.
So that would be, first and foremost, that expense.
OK. But that's money that would be paid as a
result of a payment from the lessor, right? Correct.
OK. I don't have anything further. Thank you.
All right, thank you. All right, Mr. Lahane?
I just wanted to technical issue, and Mr. Ghilardi
has asked me to put, you know, he's been trying
to get your attention to know about. Oh, I'm
sorry. All right. I'm sorry, Mr. Ghilardi. Mr.
Ghilardi, go ahead. I'm sorry. All right. Did
you hit five star? I can't hear you. Are you
muted on your side? Say something. No, I can't
hear you. And there's nobody. If you hit five
star, I've unmuted everybody. Say something again.
Why don't you dial back in and can you hear me?
Okay, go ahead, Mr. Haynes. Thank you, your honor.
Mr. Weinstein, Robert Lee Hayne, Kelly Dry and
Warren, as you know, we represent a number of
landlords. What I'd like to try to get at is
if you know the total amount of the monthly rent
obligations portfolio wide. Total rent is 35,
49. And thank you. And do you know whether that
rent was paid for the month of January? A little
bit of it. You have an approximate amount of?
Between two and five, probably. Between two and
five million was paid, leaving approximately
30 million unpaid? Approximately. Thank you.
And are you familiar with the concept of stub
rent or the portion of the rent applicable from
the first day of the case being today through
the end of this month? Yes, I am. And do you
know whether that rent that accrued during that
stub period is in the budget that we had up on
the screen previously? It is in the budget. I
don't believe it's in the 13 week period that
was on the screen, but it is accounted for in
the overall budget and it's certainly expected
to be paid before exit. Thank you. That's all.
All right. Thank you. All right. Mr. Gallardi.
All right. I don't see Mr. Gallardi. All right.
Here we go. All right, Mr. Gallardi, I think
I hear you. And I hear you, Your Honor. Thank
you very much. But I was happy to defer to Mr.
Mahaney. Okay. Go ahead. Has Mr. Mahaney already
finished so I can? Yes, he has. Thank you, Your
Honor. Mr. Weinstein, as you know, I'm Greg Gallardi,
and I know we've known each other a number of
years. I have a few questions to ask you. First,
Was any separate dip ever solicited for holdings,
too? Well, there was a separate dip that had
the same treatment to hold a whole code, too.
But there was not a specific dip solicited, to
my knowledge. But having said that, the PJT investment
bankers ran a fairly open process to allow anybody
that wanted to come present to the debtors dip
options. And I'm not, to my knowledge, there
wasn't a, aside from the reference in the letter
that Amazon referenced earlier, I'm not aware
of anybody offering a whole code to specific
dip. I'm going to just ask a very simple yes
or no question. Did anybody authorize PJT to
solicit a dip solely for the purpose of Holdings
2? Well, yes, on the basis they were authorized
to solicit dips on any basis available. So by
definition, that would include whole code 2.
And did they provide or have materials ready
to anybody who was interested in providing a
dip solely to Holdings 2? I don't know. You have
to ask them that question. I don't know. OK.
And it is the case that Holdings 2 is giving
first -leaning priority debt, securing the DIP
with first -leaning priority debt. Is that correct?
Correct. And are you aware that anybody solicited
on behalf of Holdings 2 unsecured debt? I'm sorry,
can you repeat that question? I'm not sure I
understood it. I'm asking you, in determining
whether there was a DIP for Holdings 2, I'm going
to go through the code and ask you the question,
one, was own secure credit for Holdings 2 ever
solicited? I don't know. Again, there was an
open solicitation for any financing. So once
again, that would have been certainly considered
in part of the solicitation process. I don't
know if anybody stepped up and made that offer
but but there was no specific holdings to materials
prepared in this general process to solicit dips
for holding tubes that's your testimony correct
that's not my testimony my testimony was i don't
know if pjt had those materials but if somebody
had asked for them i'm sure they could have been
provided do you think that anybody at the board
of the committee on which you sat ever requested
PJT to look for or consider a Holdings 2 -only
DIP. Are you aware of that ever happening? I'm
not aware of that happening. And when did the
DIP solicitation process actually begin? I believe
the process of, I'll call it financing solicitation
because it wasn't necessarily DIP solicitation
starting in November before I began to re -engage
with the company. So it was any financing, not
just DIP, because at that point in time, there
was not a commitment to go down a Chapter 11
path. OK. And I think you've used the word beneficiary
of the financing about nine times in your testimony.
I could be wrong. When you say that Holdings
2 or what's been called the flagship entities
are the beneficiary of the DIP, what do you actually
mean by that phrase? that by, first I didn't
say they would be beneficiaries, they were beneficiaries
or are beneficiaries. So to be clear, I'm not
trying to suggest that they're the sole beneficiaries
of doing the DIP. But by maintaining the operations,
the ongoing retail operations of SAX Global,
they are beneficiaries and the Holdco 2 is a
beneficiary. because there are unsecured creditors
in Whole Code 2 who are trade vendors who may
be the beneficiary of critical trade dollars.
Don't know yet, but they could be. Those same
trade vendors could also be the beneficiaries
of ongoing business with Sachs Global. And therefore,
without the dip, those unsecured claims would
that whatever they would get in a liquidation,
as opposed to as an ongoing business, they would
very likely continue to do business with Sachs,
may get pre -petition payments on account of
that through the critical trade, and continue
to make money by selling goods to Sachs Global,
who now has the financial wherewithal to pay
for those goods. Let me start with a premise
question. You have testified there's about $180
million of unsecured trade debt at Holdings 2.
Is that correct? That's correct. That's my understanding.
And you've also testified that Holdings 2 doesn't
really have operations. So how did that $180
million of unsecured debt become an obligation
of Holdings 2? It was... I was not, as I understand
it, because I wasn't there at the time, but it
was an inducement for trade vendors to shift,
understanding they would get a claim at whole
code two. And do you understand that there were
representations made to those vendors that that
was because that was a sovereign entity and that
would be serving as credit support for those
claims? I actually don't know what representations
were made. And at the time, it was solvent. But
as I testified earlier in the liquidation, I
don't believe it would be solvent. But at the
time, I think that's a fair characterization.
And do you have an understanding that some of
those agreements were entered into as late as
December, the end of December of 2025? I actually
don't know when those agreements were entered
into. I'm not aware. I just know the aggregate
amount. As I said, my greater involvement with
Sachs Global occurred in mid to late December
and became CRO in January 1st. I was not aware
of when those took place. And you've done credit
support agreements in your history as a CRO,
correct? Yes. And when you said the credit support
agreements of Holdco 2, they thought that Holdco
2 was a separate entity outside of the other
entities with which they did business, you would
presume that too, correct? I would not presume
anything. I have no idea what they were assuming
at the time. Well, if you got a guarantee from
Holdco 2, did you believe it was the same as
having the claim against the entity with which
you did business? I don't know what they would
think. Well, what would you think if you offered
a guarantee? Would you think that's the same
thing as the primary obligation or an obligation
of the second entity that may be solvent? I would
think the latter. Okay, and is it your testimony
today that by adding $1 .5 billion of additional
debt, you are not undermining their ability to
recover from holdings too? No, with that particular
constituency, I actually think they're greatly
enhancing their ability to recover the amounts
owed, that 180, by continuing to do business
with the debtors. They're uniquely positioned,
actually, to continue to do business, potentially
get critical trade, and to ongoing sales to Sachs
Global make margin on a go -forward basis. So
I actually think that their position is dramatically
enhanced through the dip. With respect to go
forward, what about with respect to the outstanding
amount? I just said that. I refer to the critical
trade. about they could be considered for that.
I don't know that those commitments haven't been
arrived at yet, but that could be, but without
a dip, there is no critical trade. Okay, so it's
your testimony that they're going to benefit
on by critical vendor on where they will get
funds under the dip, not from the holdings too,
but on the other terms where they're actually
doing business. It is my testimony that, A, they
will continue to be able to do business and ostensibly
make margin by selling to the debtors. And secondly,
they remain in a position to potentially receive
critical trade dollars to offset their prepetition
plans. Now, I have not seen, because I have not
privy to it, There's been talk about an appraisal.
Who did that appraisal? I believe it was JLO.
Yes. And what is the date of that appraisal?
March 27, 2024. OK. And is it your testimony
that the company discounted that appraisal by
about or did range? I don't know if it discounted
it. But in determining whether or not to give
the dip, it was at least in consideration that
the company believes that the Go Dark value could
be as much as 25 % less than what is in that
appraisal? If not more. In addition to other
expenses associated with monetizing that asset.
And is it your testimony that the JLL Go Dark
value didn't include those expenses? As a Go
Dark, to be honest, I'm not 100 % sure, but we
believe there would be incremental because we
believe that with the liquidation of the business,
it will be a harder property to sell and therefore
will take longer and incur additional expenses
as well as the equity issue. potentially posed
by a default of the CMBS. And as you sit there
giving that testimony, are you familiar with
the JLL appraisal to say that they didn't consider
those things? I'm certain they didn't consider
the payment of the CMBS on a potential default.
I'm not as certain regarding what expenses they
included with the Godard value. And do you know
if that was based on a go dark of SACS in general
or just that particular location? That location.
And only that location? I believe so. And going
back to the phrase the beneficiary, you're saying
they are a beneficiary, but they would not, they
being the hold code too, it would not be legally
obligated though it is a beneficiary, right?
They're now being legally obligated to repay
the additional $1 .5 billion, correct? I just
didn't understand the question. I wonder if the
council would agree. Sorry. It was pretty inarticulate,
so I'll agree with that, and I'll try to raise
it again. Before the DIP is approved, or before
there was a DIP, you said that... the vendors
or whole code 2 is a beneficiary of the operations
of SACS, correct? Yes. Okay. And so now you're
testifying that they are a beneficiary of the
DIP because SACS will continue as a going concern
company, correct? Correct. And if all of the
DIP was on all the other companies, they would
still remain a beneficiary of the dip, correct?
Or would it go to? The answer is yes, but that
was not a viable option because we did not have
an executable dip that provided for that. Therefore,
you either allow this or you don't have a dip.
So that wasn't a viable option. Okay, and so
now you add 1 .5 billion dollars of debt on Holdings
2, correct? Yes. And are you saying that Holdings
2 is getting 1 .5 billion dollars of benefit
for that? That's not what I'm saying. What I
said is that without the dip, the likelihood
of any claim in Holdcode 2 recognizing on that
claim is likely zero and through the dip, you
create the opportunity to provide recovery, maybe
in full, maybe partial, to those claimants at
Holdco 2. And were you party to any negotiations
where the debtors pushed back on the roll -up
aspects of the dip being encumbering Holdings
2? I was not part of the negotiations. I was
aware they were taking place, not just for Hold
Co. 2, but more broadly. OK. So are you aware
of any specific negotiations on behalf of Hold
Co. 2 to either limit the roll -up or limit the
amount of new money that it would be burdened
with as a result of the dip? As I said, I wasn't
specifically involved in those negotiations,
so I would defer to others that were. I don't
know the answer. I have no further questions.
All right. Does anyone have any questions of
Mr. Weinstein? All right. So why don't we take
a 10 -minute recess? come back at 9 20 9 9 25
and then to the extent you have redirect and
then we'll have short closing argument thank
you all right so we're in recess till 9 25 actually
your honor just one point we do have another
witness we have another witness with mr. bear
Okay. All right. Well, then, do you want to do
redirect now and then we'll take the break after
that? I would actually prefer to do. Okay, I
prefer to take the break now with Ken. Okay,
we'll do that. We'll take the break and we'll
be back. Thank you. The witness just be reminded
he's under oath and cannot be spoken with. Yes,
Mr. Weinstein, you're under oath now and you
cannot talk about your testimony with anyone
until you come back. Understood. Alright, thank
you.