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The general aid master cases under case number 22-90341,

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Core Scientific Inc. As always, if you make sure you record your

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electronic appearance, it's a quick trip to the website.

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You can do that at any time prior to the conclusion of the hearing.

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First time that you step up to the lectern, be it the real one or the virtual one,

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if you please state your name and who you represent, that really serves as a good point

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of reference in the event that a transcript request is made.

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And as always, we are recording using court speak.

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We'll have the audio up on the docket shortly after the conclusion of the hearing.

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We do have a number of folks who are on the line.

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I'm going to activate the hand raising feature just so folks aren't interrupted.

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If you know you're going to be speaking, if you go ahead and give me a five star on your telephone.

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Conference muted.

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All right, terrific. Who is taking the lead this morning?

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Oh, Mr. Schrock.

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Good morning, Your Honor. Ray Schrock, Wild Gouchel and Manges,

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proposed council for the debtors.

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Right, thank you.

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Your Honor, my partner, Winniette Berkovich and my colleague, Alex Cohen,

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are going to be taking you through where we are precisely on our new proposed dip.

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But I thought it was worth just a general update to the court parties about where we are in the cases

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and give you a little bit of context for, you know, where we are in these cases.

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Love to hear it.

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Okay, so obviously since we filed, we've seen a pretty dramatic change in the price of Bitcoin.

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Bitcoin was, you know, depending on the time of day you were talking around the petition day,

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right around 16,500, 16,800, you know, as of this morning, somebody will correct me,

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but I believe it's, you know, it's been hovering around 23,000,

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which, you know, depending on your math, you know, 35 to 40% increase in the price from the petition day.

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I think that it's been quite evident that, you know, this has had, you know, a dramatic

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impact on the debtors' prospects.

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You know, essentially the company is, you know, in many respects a levered Bitcoin option.

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So our cash flow is substantially better than when, you know, we had forecasted under the initial dip budget.

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And we did have a very robust post-petition dip marketing process consistent with our fiduciary obligations.

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And so we have the unusual circumstance of presenting to your honor today a replacement

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debtor in possession financing facility.

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A few notes about that. One, it was a good faith process. It was run open, fairly, and, you know,

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we're presenting evidence to that effect. And it's with our partner, B. Riley.

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Just a couple of notes on the company's relationship with B. Riley.

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So B. Riley was running an at-the-market, you know, type of equity raise,

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you know, pre-petition. We also had a loan that was outstanding to them.

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We had significant negotiations with B. Riley leading up to the petition date about an out-of-court

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transaction, as we, you know, highlighted in some of our pleadings.

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Ultimately, we didn't get there. And I wouldn't always say that, listen, it was contentious,

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you know, between the parties. But good faith, but spirited. I mean, we had a lot of

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pre-petitions. You know, Mr. Riley, as firm, then went on to the creditors' committee.

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They're the chair of the creditors' committee. They were not, they didn't, you know, get serious.

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They were not the alternative dip financing provider. I think the convertible note holders

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pleading that they filed this morning referenced they were the alternative. They were the

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alternative dip financing provider. They were the alternative dip financing provider.

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I think the convertible note holders pleading that they filed this morning referenced they were the alternative.

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That's not correct. They were not that alternative dip financing provider.

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But given that B. Riley was on the creditors' committee, I think the committee's done a good job.

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They made sure that B. Riley was recused, you know, kind of walled off from any dip financing discussions.

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And Wilkie Farr, who was counsel to B. Riley pre-petition, they're the creditors' committee

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counsel now. Riley brought in Choate as their dip financing counsel.

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And assuming your honor approves the financing, you know, my understanding is they'd be stepping off

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the creditors' committee at that point. So I note all of that just to make sure that, you know,

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I don't ever want you to think that we're not being anything other than open and transparent.

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There was a relationship here, but we have been completely down the middle and above board about

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the process and how we're running this today. Number one, I know I appreciate transparency.

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The pleadings have told the story from day one. And for those folks who haven't read all the

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pleadings, I think what you've done this morning is just perfect. I think anyone who has an interest

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in the case could not participate and not know that there's a relationship there. So I very much

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appreciate what you're telling me. So let me ask, because at least as I read the pleadings,

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the replacement dip issue is really just down to the termination fee, right? Or are there other

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issues? I think there's a couple of issues, Judge, that may be open. I think between the debtors

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and B. Riley and the convertible note holders, I think we've resolved all of the issues. I think

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the unscored creditors committee and the ad hoc equity committee have raised concerns around the

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termination fee that Your Honor would have to hear this morning. Also, just a note that in

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conjunction with this, prior to closing the financing, we would be terminating the pre-petition

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RSA with the convertible note holders. That's simply because, listen, the company is not under

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any misimpression that we're going to be working with the convertible note holders. We are still

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firmly of the view, the special committee is firmly of the view, we need a substantial deleveraging

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as part of any kind of exit from Chapter 11. That being said, when you have this kind of change in

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value from the petition date and just given the splits that we saw under that existing RSA,

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our judgment was it's appropriate to sit down, reset. And so I want to make clear that the

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company still will and intends to have a good working relationship with the convertible note

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holders throughout these cases. We want to get to a consensual transaction, ensure the company's

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emergence from Chapter 11. It's in the best interest of all stakeholders. And likewise,

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we recognize there's been a change in circumstances since we initially filed these cases. So

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I just wanted to give that context and that assurance to the stakeholders that we're here

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and we're still calling balls and strikes. I got it. This is just the modern digital

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Sarko case, right? We watched, you know, we were in the money, out of the money based on the price

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of copper. And this is just a different commodity. It's a different commodity. I agree with that

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analogy, Your Honor. Let me ask you with, and again, not prejudicing anyone's case,

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but prejudicing anyone's right to get up and make whatever argument. So have you done

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worst case, best case analysis of what the dip looks like with different outcomes on the termination

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fee? Your Honor, I'm going to have to defer to Ms. Berkovich on that particular question.

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But I think that, you know, our position on the termination fee is essentially, listen, we had a

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deal with the converts. The converts, it's part of an initial order. We approved, the court approved

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it. And in our view, it's a deal's a deal. And, you know, we're here, we're standing behind that.

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Right. So let me tell everyone this, and maybe it causes a change in how people are acting

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today, how, you know, how they're, what they're thinking about and how they're thinking about it,

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is no question in my mind that I approved the termination fee that was priced in. And it was,

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you know, and I complained about the cost, or I did it nicely, but I complained about the cost.

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But I also recognize the circumstances. What I, excuse me, what I haven't thought all the way

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through, and I've spent the past three days up in your neck of the woods, you know, 18 days a day,

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I just hadn't had time to work my way through this, is if there are changed circumstances,

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what discretion do I have to move the termination fee? The answer may be none. It may be that I have

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discretion. And then it becomes a question of do I do anything or not? Because I do operate from the

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premise that I assume that people rely on orders that I enter. And if it becomes a habit that I

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don't really mean what I say, then the process doesn't work. And I got all of that. That being

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said is I thought it made some sense to tell everyone that I do believe that there's a

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termination fee that's part of the financing that I approve. Is it somewhere between, you know,

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zero and the max fee that was under the financing? You know, I have my own feeling about that,

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but I'm certainly willing to, I'm certainly willing to hear that argument if folks wanted to,

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if folks wanted to do that. Also a firm believer, you know, when I stood where you're standing,

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I like to control my own destiny. I didn't like the guy who knew the least about the case,

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but who would make the decision making the result unless I just couldn't get there. And so,

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as I was thinking through it, again, my thought was I would tell everyone that I do believe

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that there's a termination fee involved in this. You know, whether it's something less than the 15%,

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I hadn't thought through it. I'm not going to take away anybody's right to make those arguments.

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And what I was really trying to sort out is that's something that folks want to say, you know,

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didn't think that Jones was going to do that. We want to talk about, think about,

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have different arguments on a different day, or do we all want to make the argument today,

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and, you know, we'll just see where it goes. I will go either way. I'm just trying to be fair

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to everybody because not everyone knows exactly how I'm thinking about it. And I'm talking to you,

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but obviously I'm talking to everyone. So I'm more than happy to do, I'm more than happy to do that.

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I'm more than happy. I mean, I think the first ish, or the first item that's on today's doc

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is just easy and non-controversial. I didn't know if it made sense just to get that out of the way.

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So, you know, if there are pending deals, those people can know that those are going to get inked

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and get consummated and we can move on past that because it wouldn't sort of move the case kind of

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money. I know it's real and I know it's a lot of money, but it's not really moving the case money.

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Yeah, I think we had always, all of our forecasts are assuming that it is payable. I think our new

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better proposed DIP lender is prepared to, you know, to make sure that it's paid. I think that

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your question, and parties will get up, one, I think we should decide it today. We'll say that,

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and I think we should deal with it. I do think that the court always has discretion what to put

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in an order. Here in this order, you know, you said that listen, all the obligations and you feel

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fees that are paid or payable are approved. And then I think parties may look to, you know,

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I imagine some parties will say, well, listen, under 364, the code, once you make, you know,

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if we're making loans on that basis and reliance on that, that, you know, we would ask the court to

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uphold that. I imagine that'll be some of the argument and others may say, listen, we think

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you have discretion, but I think that's where it's going to come down to is probably the statutory

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reliance. I'm telling everyone, I mean, I can, when I enter an order, I expect people to abide by it

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until it's reversed. I want people to rely on the orders that I enter. I also recognize, I mean,

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let me pick something that won't apply, but it's an example of what exists in the code. I mean,

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you've got a standard under 328 that I can approve a fee, not as this is a fee, but I can approve

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a fee in advance. And if there are things that I conclude that I couldn't reasonably have

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anticipated at the time, then I can change it. That's written into this action. And so again,

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not trying to take away anyone's right to make any argument that they want to make, you know,

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tell everyone, I do believe that there's a termination fee that's factored into the cost

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of the dip. You know, Hanson's a good lawyer. He's gonna listen to me and I don't know if he

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wants to step out and see if there's a small gift to give certainty or if he wants to roll the dice

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and see what I'll do. I mean, that's his choice. I'm just trying to give him information to the

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extent that I can. But happy to do that. But I understand that that's really the only issue.

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The only other, sorry to interrupt you, Judge, just the only other issue I believe that's out

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there is that shortly before we came to court, there was still an outstanding issue on the 506C

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waiver and the 552B waiver to the convertible note holders. We have language that basically what we,

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the debtors have agreed to do as part of this order is that so long as there's a consensual use

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of cash collateral up through the termination date of cash collateral, that we would give a 506C

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waiver during that time, the logic of it being, you know, that if we were going to have a surcharge,

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it would be, you know, someone could say, well, listen, if that's under an approved budget,

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it would be roughly equal to, you know, that use of cash collateral at that time. And so that would

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be a fair exchange of, for the consensual use of cash collateral. I think the other side of it is

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just, you know, how does that interact with any 507B claim that could be later asserted? And, you

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know, we see those as separate issues. We actually had the pleasure of litigating this in Sears up

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through the Second Circuit. And so we have some intimate familiarity with it. I hope we never

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get there because that would be a bad outcome for the case if we're arguing over 507B claims. But

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we did resolve that. And I think the committee and the Addock-Sherowish group still have an issue

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around that particular issue, my understanding. But they can tell you if there's anything else

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outstanding. We've been trying to play the middle. I'll tell everyone. My view of that is

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those are debtor rights. And I know that sometimes debtors don't really have a choice, and that's

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when I pay a lot more attention to it. But when debtors are freely exercising their business

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judgment because they have the big view of the case, they, you know, we're, they're not, you're

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not just fighting issues. You've got to play the long game and you've got to figure out how to get

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to an end result as efficiently and as quickly and with minimum risk as you can. And, you know,

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if that's the evidence that I'm going to hear, I'm just going to tell everyone. Again, I had

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someone make the argument to me that this is not a debtor right. It's a creditor right. And it was

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a long hearing and they lost me from the very beginning. You know, it's one thing to say that

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it's a debtor right, but the debtors can't exercise it because of, pick your issue. That I get,

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and I know that that exists because I've been exactly where you are. And I've been told that

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if you want this, you don't have any discretion. And I know that goes on. But when I've got a

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debtor in a position where they've done, look, we've made, we've thought through this, we've

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been down all the branches of the decision tree and this is how we think our right ought to be

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used or not used. I'm going to pay an awful lot of attention to that. So again, I'm sort of talking

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to everybody on that. Fair enough. Thanks very much, Your Honor. So, you know, with that, I

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propose to turn the podium over to my partner, Ms. Berkvich, and give you some more of the specifics.

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Absolutely. I want to give everyone else a chance to make opening comments. And part of those comments

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could be, you know, we'd like five minutes to think about what you've said. And I'm certainly,

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I would certainly entertain that if it's, you know, we knew you were going to say that one

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form or another we're ready to proceed. And, you know, terrific because, you know, my News and

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Action only going to last so long. You gave me a cold during my mediation. But all is fine.

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Let me ask, anyone else want to make opening comments?

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Okay. Oh, you know what I didn't do? Anyone on GoToMeeting wish to make comments? Yes, Ms. Hardy,

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come on up. That one's actually turned on their video camera, so I'm going to assume that everyone's

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just watching. Thank you, Your Honor. Jennifer Hardy at Wilkie, Farr & Gallagher as proposed

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counsel of the Unsecured Creditors Committee. I just wanted to introduce some of my colleagues

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in the courtroom because this is the first time we've appeared as counsel to the Creditors

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Committee. We have Brad Miller, who I believe you know from previous matters, and Jim Dugan,

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Todd Gorin as well. And as Mr. Schrock mentioned, and as the court knows, B. Riley was a former

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client of Wilkie Farr. So that's why we have Mr. Bruckner of Gray Reed as conflicts and efficiency

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counsel in the courtroom as well. Always good to see you. Thank you, Your Honor. All right.

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Thank you. All right. There are no other comments? Yes, ma'am. If you want to come up.

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Very briefly, Noel Reed for the Abhoc Group of End-Wear Holders. Yes, ma'am. Just wanted to

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introduce ourselves. We anticipate we'll be filing a motion for appointment by the official committee

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within maybe the next 24 hours. With me is my partner, Long Weisler, and one of our associates,

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Ms. Belks, and Mr. Panagopoulos, Mayor MacCabean. Got it. I hadn't seen him yet, but obviously I know

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him and I welcome his participation. What I would ask that you do, if you decide that you're going

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to, that you're going to seek official recognition, talk to everybody, because I assume that's not a

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30-minute hearing. Talk to everybody and then reach out to Mr. Alonso and get a setting that

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as much as it can works for everybody. I assume that that will probably be an in-person hearing,

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but just have that conversation with everybody. Certainly will. And just for your record,

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we did file an objection to your original and of course that's moving forward. Thank you.

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All right, no other takers. Good morning. Good morning, Your Honor. For the record,

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Ronit Berkovich from Weill-Gotshal, proposed council of speed debtors. We need to find a way to lower

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that screen, don't we? Lower the... I was just... No, no, no. That's my fault.

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I do have another option. So it's really helpful. Now I have to tell you a story. So every year

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around Christmas time, I have a Cub Scout group come in and they're learning about the law. And of

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course, to a bunch of nine and 10 year olds, the law is the marshals come down and they tase one

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another. And so they think that's super cool. And I don't get them until after they do that.

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So I bring them in and obviously this is a bankruptcy court and that's an impossible

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abstract thought. So we have a criminal case and it's always a Santa Claus related thing.

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And someone stole cookies and Santa's accused of committing a crime. And so I have a little

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small person's robe. And so we have a judge and then I get a couple of lawyers and they

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tell people what to say and they have an argument. And I have to put a box of copy

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paper right there for folks to stand on, which is what made me think of that. And I had one

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advocate get so excited that he fell off the box. It was a message to this. So please be careful.

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I'm wearing flats. Next time I'll wear my orange shields.

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I'm going to... I just hadn't noticed that before. I'll figure out a way to deal with that. I'll move

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it to the side or figure out how to lower it. Thank you, Your Honor. I think we have an interim

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solution. Joining me today in the courtroom is John Singh from PJT Partners, the proposed banker

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to the debtors. Rodie Block from Alex Partners, the proposed financial advisor to the debtors.

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And Russell Cann, who's the head of mining and executive vice president of the debtors.

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Also joining us today... Find a way to put him on the screen.

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I knew you'd like that. You mentioned it from the very beginning, Your Honor, but unfortunately,

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as I'll get to... Unlikely to need Mr. Cann's testimony today. Also joining us online via Zoom

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is Michael Broz, the senior vice president of capital markets and acquisitions, of course,

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scientific, who is our first-day declarant. And we have a few other of our colleagues from

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Weill Goshell. We have my partner, Ted Sekarides, and my colleagues, Jeremy Kane and Alex Cohen.

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Good morning to the entire team. And if she left you out, she didn't mean it.

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It did not mean it. Your Honor, we filed a revised agenda, Docket 426, today. We are very happy to

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be in front of you seeking approval for the proposed replacement interim dip order and the

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terms for the consensual use of cash collateral to provide maximum notice of our change in

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circumstances. The second we had a deal, we filed the proposed order in the wee hours of Monday,

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January 30th, at Docket 378. And we attached a red line of the interim order that was entered by

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this court on December 23rd, which had been Docket number 130, as well as the term sheet.

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V. Riley is funding under a term sheet, given the speed with which we needed to reach a deal with

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them. We subsequently filed our motion to approve the order at Docket number 385. And while we had

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coordinated with both the ad hoc group of secured note holders and the creditors committee prior to

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filing the initial order, we continued to work with those groups, as well as our dip lenders and

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our equipment lenders, around the clock to make changes to the proposed order to get the consensus

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among all the parties. Just about an hour before the hearing, we were able to reach a fully

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consensual deal between the debtors, the ad hoc group, and the dip lenders. So again, we have

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consensual use of cash collateral. I believe, based on email discussions, that the equipment lenders

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are also not objecting to the interim dip order. They're reserving their rights with respect to the

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final order. As a result of those changes that we made in the version that we filed, and we have

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some extra copies of the black line in the courtroom in case people were not able to access it,

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given the late filing, we're not 100% sure, as Mr. Schrock said, whether any of the last-minute,

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second changes would be acceptable to the creditors committee. And the revised order was filed this

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morning at ECF 424. My colleague, Alex Cullen, will walk the court through the relevant changes.

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So before I summarize for the court the benefits in terms of our replacement dip order, I would

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like to move the court to enter into evidence two of the three declarations that we filed on January

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31st in support of our motion. First is the declaration of John Singh at ECF number 390,

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and second is the declaration of Rodie Block at ECF 391. As I mentioned, they're both in the

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courtroom today and available for cross-examination. All right, thank you. Anyone have an objection,

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again, for purposes of today's hearing only, Mr. Singh's declaration at CME-CF number 390,

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Mr. Block's declaration at 391? Any objection? All right, they're admitted.

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Anyone wish to cross-examine either one of those two gentlemen?

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You okay? All right, thank you folks. Oh, Mr. Hanson, sorry, I just didn't see you.

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No, it's all right, Your Honor. So Chris Hanson with Paul Hayes Things on behalf of the ad hoc

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group and the existing DIP lenders, Your Honor. We would just reserve, to the extent that you

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permit the committee to put their witnesses on with respect to comps, et cetera, regarding the fee,

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we would like to cross the debtors' witnesses because obviously they were declarants in

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connection with the original DIP. So if we're going to get the time machine and go back to when we

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were here originally, we need to have them on the stand to walk the court back through their

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original testimony. And of course, we would like to elicit further testimony from them about the

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circumstances at the time of the original DIP. I don't see a reason to cross them now, but I

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wanted to make sure that you understood that if the committee does, if you allow the committee to

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call its witnesses, which we think you shouldn't, but if you do, then our position is that we may

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have questions with those witnesses. Got it. It seems an efficient way to proceed. Any objections?

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Your Honor, Brett Miller, Wilkie Farr and Gallagher propose counsel to the creditors' committee.

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We have no objection to that. We would just like to be subject to the same reservation in case we do

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go forward on, I'll call it a contested hearing with witnesses, because Mr. Singh did have some

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testimony regarding, in deposition, regarding what ex-cuse might be reasonable. Sure. And at some point,

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I don't want this to be, I don't want this to be in any shape or form a surprise. I'm going to,

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I'm going to ask you the question, I assume it's unreasonable. Tell me why it is. I, because I have

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to put the process first, tell me why it is, having done what I did, even if you convince me

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that it's unreasonable. And it wouldn't take a lot. Why should I change it? You want me to start now?

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If you, if you would like to, you're only going to get to do it once, so would you like to hear

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everything that's said and then make the argument, or want to make the argument now? I'll let Wile

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make their case and then. Fair enough. All right. Thank you. And you have the same reservation.

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Thank you. Yes, sir.

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We did file a third declaration in support of the dip motion from Russell Cann. That's a docket 392.

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But as I mentioned earlier, we will not be putting that evidence in today, given the equipment

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lenders, I believe their agreement to not to object. Do you need, you said given your belief,

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do you need to get confirmation of that or? There were many of them. We just filed the final order.

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If any of them were to, I see Mr. Lohan, who's been sort of an informal leader for the group.

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I don't know if he has the views of everybody, but. Mr. Lohan, do you have your line unmuted?

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I believe I do, Your Honor. Can you hear me? Absolutely.

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Good morning, Your Honor. For the record, Brian Lohan on behalf of Baring.

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Mr. Perkovich is correct. We did file a limit objection, docket number 291. Several other

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equipment lenders joined that objection, but we think it makes sense, given the positive

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developments in the case, to just reserve our right to the final hearing and really streamline

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the issues that need to be decided at interim, at this interim hearing. Right. And we support entry

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if that does the order and are not pressing for an objection. All right. Thank you for the announcement.

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Your Honor, if I may, Dennis Tumey, can you hear me okay? Mr. Tumey, absolutely. Thank you, sir.

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Thank you, Your Honor. Good morning, and Dennis Tumey with Sidley Austin on behalf of 98 ABL LLC.

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Just confirming what Mr. Perkovich said, we also are not signing an objecting today,

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but do reserve our rights for the final hearing. We do believe we have an agreement we've spent

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a lot of time in, and thanks to Ms. Perkovich and her team, over the last several weeks,

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we do think we have a resolution and expect that we'll be, a motion will be filed here in the next

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day or two on that. And in the meantime, we're not going to be objecting today. And hopefully,

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our resolution will ultimately get finalized and approved, and we won't be objecting to the final

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hearing. But in the meantime, we do ask that we be permitted to reserve our rights for that final

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hearing. Mr. Tumey, thank you for the announcement, and absolutely. Thank you, Your Honor.

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All right. Ms. Perkovich. All right. Your Honor, on the first day hearing, I told you, Mr. Schrock

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told you that we would be seeking replacement dip financing, and that's what we've been doing for

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the last month plus, and working tirelessly to find financing that would eliminate the rollup,

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eliminate the linkage to the RSA and related milestones, remove the restrictions on selling

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assets to improve our liquidity, and provide overall better terms. When we entered into

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bankruptcy, the debtor's liquidity was in dire condition. And I can say that the original dip

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lenders, the ad hoc group, saved this company by being the only party at that time willing to provide

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financing. At the same time, some of the terms of that dip, and it's been very well in our papers,

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really, were not the most favorable to the debtors. So we were looking for a replacement dip

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facility that could provide greater value to all stakeholders than that of the original dip credit

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agreement. We understand that the debtor's constituents, other than the pre-petition

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secured note holders, are thrilled with our new dip. We've received no objections to it.

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We know that the creditors' committee is supportive. They filed their statement at ECF 397.

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The ad hoc committee of equity holders has told us they are supportive, and same thing with the

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equipment lenders. Our marketing process for this dip was very robust, and the Singh declaration

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provides a great deal of detail about the negotiations with the various lenders we were

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talking to over the last week. But at the end of the day, the proposal that we were able to negotiate

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with B. Riley, our largest unsecured creditor, was the superior proposal. We kept all of our

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stakeholders informed throughout the process. The major groups were not surprised when we reached

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a deal. We sent all of our dip proposals to the UCC and the ad hoc group, and we were in touch

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throughout with the equipment lenders as well. We did ask the ad hoc group whether it was willing

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to provide a dip more in line with the terms of the B. Riley dip, and while they were potentially

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amenable to improving some of the terms, they were not willing to go all the way through.

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So unless your honor has any questions about the process, I would like to summarize the key terms

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of the dip. It's actually a very simple dip, one of the things we like about it. It's a 70 million

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dollar multiple draw term loan facility. Today we're seeking interim approval for a draw of

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35 million of that facility. We will use those funds, along with cash on hand, to repay the

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original dip facility and for general operating purposes. And we did have a budget attached to

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the proposed interim dip order. The maturity is 12 months with a three month extension. That compares

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to the six months with three month extension we had under the original dip. The interest rate is

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the same, 10 percent paid in kind. The exit treatment is, total payment at exit is 105 percent

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of the then outstanding debt as compared to the 115 percent under the original debt facility.

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We are permitted to use the net proceeds of any asset sale to to conduct asset sales and to use

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the net proceeds of any asset sales to pay down the dip, whereas that permission was very restricted

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in the original dip facility. No roll-up, no RSA link, no real milestones except for final dip order.

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And your honor, the one I guess negative of this new dip is that we do have to pay the termination

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fee. And I'll get to a little more about our views of that in the end, but you did ask the question

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about how that impacts our liquidity. And I was passed a note by our financial advisor,

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the takeaway that the termination fee does not impact our cash or liquidity forecast.

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And also that the new dip is still superior to the old dip, even when taking into account

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that we have to pay these termination fees. Also these termination fees would have been payable

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at any time anyway for the refinancing of that dip, whether it's now or later.

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As noted in the block declaration, this replacement dip facility will provide the debtors with the

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liquidity necessary to pay off the original dip facility, fund payroll, and satisfy other working

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capital and general corporate purposes. And it is the debtor's business judgment that we

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have to pay off the old dip facility. As noted, we reached agreement with the ad hoc group over the

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terms for the consensual use of cash collateral. Their adequate protection package is for the most

353
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part similar to what we had included in the original interim order, replacement liens,

354
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507B claims, and the payment of professional fees. There were some complicated issues relating to

355
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the different lien priorities by different parties over the last few years. And we have

356
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some complicated issues relating to the different lien priorities by different parties over different

357
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assets and how that would all work by layering the dip in there. The dip is non-priming as to

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the existing liens, but taking a first lien and unencumbered asset. But we are grateful again to

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all the parties, the dip lenders, the equipment lenders, and the ad hoc group for working through

360
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these issues to get to a final resolution. We do have an exhibit five to the proposed order

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that provides an illustrative chart of how the lien priorities work with respect to different

362
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assets. There's up to six different liens that are applied to each different group of assets.

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And unless your honor has any questions before turning the podium over to Mr. Cohen,

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I want to reiterate the debtor's position on the termination payment. We do not agree with

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the committee's position. Those fees were properly disclosed to the court and all parties in interest

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in both our written and oral submissions to the court and were approved in the interim order.

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We also believe they were reasonable under the circumstances as part of the overall package of

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terms in the original dip facility, which at the time was the only financing facility,

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financing option available to the debtors. This was supported in the Singh declaration at

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Docket 98. Your honor mentioned changed circumstances. There were no changed circumstances.

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We were in front of you like 40 days ago saying we want to find a replacement dip. If we find

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that dip in four weeks, these are the fees that will be paid. That's exactly what happened.

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And one more point, you know, I mostly represent debtors or firm debtors. And, you know, I

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personally worry about the chilling effect to the ability of a company in distress to be able to

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get a dip loan if the dip lenders have to worry that what they negotiate with the debtor and

376
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get approved by the court is later subsequent to the challenge. So those are our views.

377
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Those are our views. Your honor, have any questions? I do. So I just, I think what I heard you say,

378
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and I just want to confirm it, is you're telling me that the debtors exercised their business judgment

379
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in deciding to go forward with this, believing they were going to have to pay the termination fee.

380
00:37:48,720 --> 00:37:50,960
Yes, your honor. Okay, I got it.

381
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Anything else? Nothing else. Thank you, your honor. Thank you.

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All right.

383
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Good morning, your honor. Alex Cohen, Wild Gosh, and the managers for the debtors.

384
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Yes, sir. Thank you. Good morning.

385
00:38:16,320 --> 00:38:21,760
Morning. First, I want to say that next time you do the Boy Scout trip, I would suggest that

386
00:38:21,760 --> 00:38:27,680
the Santa Obtains Replacement dip financing could be a good topic. I'd be more than happy to write

387
00:38:27,680 --> 00:38:34,320
a problem for you. I'm going to keep that in mind. Thank you, your honor. And second, I always,

388
00:38:34,320 --> 00:38:38,320
whenever people walk through these orders, I think it kind of gets a bit tedious to go through every

389
00:38:38,320 --> 00:38:42,560
single change. So I think what's probably more useful for the court, and please correct me if

390
00:38:42,560 --> 00:38:49,200
you disagree, is to highlight some of the high-level changes. So I think I started reading,

391
00:38:49,200 --> 00:38:54,480
and then I stopped. What I'd like to do, and you'll just have to take a deep breath,

392
00:38:54,480 --> 00:39:02,560
because you'll know this far better than I do, is let me get 424-2 up. And then as you walk me

393
00:39:02,560 --> 00:39:11,840
through, if you could give me a page reference using 424-2, that would be helpful. And so I have

394
00:39:11,840 --> 00:39:16,960
it up. Okay. Where would you like to start? So I think first, I'll note that it looks a lot

395
00:39:16,960 --> 00:39:21,680
blue, and more blue, and more red than the changes actually are. A lot of the changes

396
00:39:21,680 --> 00:39:26,320
are clarifying to make sure that some of them are defined term fixes, some of them are

397
00:39:26,320 --> 00:39:30,320
just technical corrections. But I think the place that we should start is

398
00:39:33,520 --> 00:39:43,840
on page 15 of the red line. Okay. So I can go 15 of 101. That's right. Should be able to, yep.

399
00:39:43,840 --> 00:39:49,040
It's, this is the top, it says cash collateral. Is that what Yorick did it shows? No. Different

400
00:39:49,040 --> 00:40:04,400
page numbers. It's a, you want to see what I'm looking at? There we go. If you scroll down to

401
00:40:04,400 --> 00:40:12,400
the next page, yep, down more, 15 at the bottom. I'm sorry, I'm referring to page numbers at the

402
00:40:12,400 --> 00:40:19,280
bottom. There we go. 15 at the top. So this clarifies, there we go, the definition of cash

403
00:40:19,280 --> 00:40:24,720
collateral. Just clarifying the definition of cash collateral after discussions with the ad hoc

404
00:40:24,720 --> 00:40:30,720
group. All parties agree with this definition. Just minor changes to ensure the proper scope.

405
00:40:30,720 --> 00:40:43,920
Okay. Next is a page 19 at the bottom. It stills with approval of the budget. So the ad hoc group

406
00:40:43,920 --> 00:40:48,640
has consent rights over the budget as well as the replacement of lenders. However, there's a

407
00:40:48,640 --> 00:40:52,880
disagreement between the two parties. So if somebody says yes, somebody says no to approving

408
00:40:52,880 --> 00:40:58,400
the budget, then the provision at the bottom and then the top of page 20 clarifies that in

409
00:40:58,400 --> 00:41:03,280
the event of a conflict, the judgment of the replacement tip lender would govern. However,

410
00:41:03,280 --> 00:41:09,200
the ad hoc group has the right to come back to court on an emergency basis to dispute any issues

411
00:41:09,200 --> 00:41:16,000
and your honor can hear them in a budget resolution event. All right. The next page I go to is 21,

412
00:41:17,040 --> 00:41:23,600
the last paragraph of page 21. This is the 506C, 552B and marshaling waivers. Here's a couple

413
00:41:23,600 --> 00:41:29,520
places throughout, but this is the first place and at Mr. Schrock previewed, the 506 and 552B

414
00:41:29,520 --> 00:41:35,360
waivers are granted, but to the extent that there's a cash collateral termination event,

415
00:41:35,360 --> 00:41:38,960
those would burn off and there's a paragraph at the end of the order to that effect.

416
00:41:40,400 --> 00:41:43,840
Make sure you reference that for me if you would. Yes, your honor.

417
00:41:46,080 --> 00:41:49,920
And then the rest of the changes on page 22 reflect that change as well.

418
00:41:49,920 --> 00:41:57,520
Okay. The next place I go, it's page 28 of the red line at the bottom.

419
00:42:05,680 --> 00:42:10,480
This is clarifying that the debtors will pay all of the reasonable documented fees of both the ad

420
00:42:10,480 --> 00:42:16,480
hoc group and the replacement dip lenders regardless of when they arose related to the

421
00:42:16,480 --> 00:42:26,160
dip financing. Okay. Next place is top of page 30. This paragraph relates to any modifications

422
00:42:26,160 --> 00:42:31,360
or amendments or changes to dip loan documents. Effectively, this limits the ability of the

423
00:42:31,360 --> 00:42:36,480
debtors and replacement dip lenders from making modifications without asking the ad hoc group and

424
00:42:36,480 --> 00:42:41,280
in certain cases getting consent or if they can't get consent coming to court and asking you for

425
00:42:41,280 --> 00:42:53,040
material modifications. Okay. The next place is the footnote at the bottom of page 36.

426
00:42:57,600 --> 00:43:02,960
Now, because of the timing of how this all sequences, the refinancing will happen no

427
00:43:02,960 --> 00:43:09,280
later than five business days after your honor enters the order. So there's a small gap period

428
00:43:09,280 --> 00:43:14,880
in which we have to pay off the pre-petition secured parties and this provision clarifies that

429
00:43:15,520 --> 00:43:18,640
during that gap period, there are certain things that the debtors can't do.

430
00:43:19,840 --> 00:43:22,320
Basically preserving the status quo under the original dip order.

431
00:43:24,000 --> 00:43:29,280
Okay. And then next place is middle of page 38 of the red line.

432
00:43:32,880 --> 00:43:37,040
This is another reference to the pay down and the refinancing within five business days of the entry

433
00:43:37,040 --> 00:43:43,440
of the order. Again, this is all to protect the status quo in this gap period and also making

434
00:43:43,440 --> 00:43:50,560
sure that it's clear that adequate protection rights continue. Bottom of 38, top of 38,

435
00:43:50,560 --> 00:43:55,440
excuse me, top of 39. This is the same, similar provision, except for to the extent that we're

436
00:43:55,440 --> 00:43:59,760
selling, the debtors are selling pre-petition secured parties collateral. There are certain

437
00:43:59,760 --> 00:44:07,440
procedures we have to follow and making sure that they don't consent that we have to come to your

438
00:44:07,440 --> 00:44:11,840
honor or otherwise follow the provisions of this interim order. So a lot of these provisions

439
00:44:11,840 --> 00:44:16,000
throughout, you'll see we can't sell their collateral outside of the provisions of the

440
00:44:16,000 --> 00:44:20,560
order. There are certain guardrails baked in and you're seeing that throughout a lot of these

441
00:44:20,560 --> 00:44:30,320
paragraphs. The next is bottom of page 40. It also relates to the budget consent rights. The

442
00:44:31,360 --> 00:44:39,040
spillover middle of page 41 says that notwithstanding anything in here that dip

443
00:44:39,040 --> 00:44:45,280
professional fees, notwithstanding anything that professional fees will get paid, even if there's

444
00:44:45,280 --> 00:44:50,080
an issue with the budget and also that the replacement dip obligations and dip professional

445
00:44:50,080 --> 00:44:54,400
fees are not included in variance testing of the approved budget. And then finally that the

446
00:44:54,400 --> 00:44:59,760
repayment, the payment of replacement dip obligations is not in and of itself a cash

447
00:44:59,760 --> 00:45:04,240
collateral termination event. This is again protecting against an issue of a dispute with the budget.

448
00:45:06,880 --> 00:45:12,880
Next is a middle of page 43. You'll also see a lot of these provisions throughout and I won't

449
00:45:12,880 --> 00:45:17,360
highlight it everywhere, but this effectively what we did in the order is preserve the current

450
00:45:17,360 --> 00:45:22,960
waterfall as Ms. Berkovich mentioned, but layer in the addition of the dip liens and the dip

451
00:45:22,960 --> 00:45:33,920
obligations. So that's a lot of these changes. Page 13, or excuse me, page 48 paragraph 13.

452
00:45:34,480 --> 00:45:39,680
Again, this is the mechanics of the refinancing. You'll see a reference in the order of a to a

453
00:45:39,680 --> 00:45:44,880
payoff letter and that's in process. It's almost done. There's only a couple terms that are being

454
00:45:44,880 --> 00:45:49,520
discussed at this point. So we intend to file a revised form of order with that attached as an

455
00:45:49,520 --> 00:45:54,400
exhibit. Right now we just have a slip page, but the parties are all working together on that payoff

456
00:45:54,400 --> 00:46:19,200
letter. Page 58 at the bottom says paragraph 20. Diaz and Bravo 58. Oh, this is more clarifying

457
00:46:19,200 --> 00:46:30,800
changes regarding the refinancing. Yep. And then the 58. There we go. So another thing that we did

458
00:46:32,320 --> 00:46:37,120
to compromise and come to an agreement here is to allow that the ad hoc group, the pre-petition

459
00:46:37,120 --> 00:46:43,760
secured parties have certain rights in the event of default or similar type provisions in this

460
00:46:43,760 --> 00:46:48,080
agreement. We spell it out in a couple of paragraphs and effectively if there's a cash

461
00:46:48,080 --> 00:46:52,880
collateral termination event, then it triggers a similar remedies notice period to a dip. And

462
00:46:52,880 --> 00:46:57,520
it's also the two Southern District rules regarding coming in and trying to seek to lift the stay.

463
00:46:57,520 --> 00:47:18,400
And you'll see that in pages 60 through 63. That's all that blue.

464
00:47:27,520 --> 00:47:43,840
Okay. Thank you. Okay. Next page 73. We skip a lot of pages here.

465
00:47:51,680 --> 00:47:56,320
Page 73 and then it spills over into the next couple of pages. This is all related to the

466
00:47:56,320 --> 00:48:01,040
challenge and everyone's right to challenge and making sure that it's clear who can challenge

467
00:48:01,040 --> 00:48:06,720
what and when. Effectively, everyone has the right to challenge everybody else's liens, claims,

468
00:48:06,720 --> 00:48:12,480
obligations, basically just preserving parity for all parties to have similar rights to challenge.

469
00:48:13,440 --> 00:48:17,360
You'll see that a lot of the challenge provisions that we initially baked into the dip order have

470
00:48:17,360 --> 00:48:20,640
not changed. This is mostly clarifying who can challenge what and when.

471
00:48:20,640 --> 00:48:37,920
Okay. Next is a page 80. This is again the 506C, 552B equity to the case and then the marshalling

472
00:48:38,480 --> 00:48:41,840
provisions. This is similar to what we discussed earlier, just flagging again that it's here.

473
00:48:41,840 --> 00:48:51,600
And then paragraph 28, 80 and 81 pages are respect to credit bid rights of the parties.

474
00:48:52,320 --> 00:48:54,720
Clarifying everybody has the right to credit bid with respect to the

475
00:48:55,360 --> 00:49:03,040
obligations that are set in this order. Okay. Next is page 83.

476
00:49:05,040 --> 00:49:09,680
Another protection against material amendments or modifications to the order or any documents.

477
00:49:09,680 --> 00:49:15,120
Again, if there's any dispute or disagreement, everything is set out here in pretty granular

478
00:49:15,120 --> 00:49:27,200
detail. Okay. I think there's only a couple left. The next is page 95, paragraph 43.

479
00:49:29,040 --> 00:49:33,680
This is the technology that Mr. Schrock was referencing when we spoke about earlier that

480
00:49:33,680 --> 00:49:38,480
in the event of a cash collateral termination event that the equities of the case and the

481
00:49:38,480 --> 00:49:53,920
506C waivers burn off. And this last set of blue that you'll see, paragraph 44, it's a lot

482
00:49:53,920 --> 00:50:00,080
meatier and longer than it actually is. It effectively preserves intercreditor rights

483
00:50:00,640 --> 00:50:04,880
with respect to certain rights, obligations, liens, et cetera. Everything that Ms. Berkovich

484
00:50:04,880 --> 00:50:09,600
and I have spoken about regarding the status quo, but layering in the dip obligations to make sure

485
00:50:09,600 --> 00:50:16,080
it's clear what happens to whom and who has rights over what in the event of any occasion that could

486
00:50:16,080 --> 00:50:25,600
occur. So we tried to take those protections in and preserve the status quo. And then the final

487
00:50:25,600 --> 00:50:33,680
portion of the order is just setting a date for the final hearing. And we have a proposed date in

488
00:50:33,680 --> 00:50:38,960
mind, but I don't know if you prefer that we reach out to your chambers and schedule or if you just

489
00:50:38,960 --> 00:50:46,480
want to do it live. What date were you looking for? February 27th is what we were targeting. It's on

490
00:50:46,480 --> 00:50:56,800
Monday. Do you have a time in mind? Afternoon works better.

491
00:50:56,800 --> 00:51:09,360
So I would have 2 27 at 3 p.m. Central available if that works. I'm assuming that we get to the end

492
00:51:09,360 --> 00:51:13,600
today. That sounds good, Your Honor. We'll put it in this order whenever we submit the revised.

493
00:51:13,600 --> 00:51:18,160
All right. And nothing further. Thank you, Your Honor.

494
00:51:18,160 --> 00:51:30,640
All right. Thank you. All right. Yes, sir. Hello, Your Honor. My name is John Ventola from

495
00:51:30,640 --> 00:51:36,320
Chote Hall and Stort, counsel to B. Riley in their capacity as a proposed replacement dip lender.

496
00:51:36,320 --> 00:51:40,080
I really just wanted to introduce myself to the court, Your Honor. And of course, if you have

497
00:51:40,080 --> 00:51:45,600
questions, happy to answer anything we can. My firm is new to this. We only got involved

498
00:51:45,600 --> 00:51:51,760
about eight days ago. That seems longer, candidly. But we've been working very cooperatively with the

499
00:51:51,760 --> 00:51:55,200
parties in interest to get to where we are today. And again, if you have any questions, Your Honor,

500
00:51:55,200 --> 00:51:59,920
please let me know. Number one, welcome to the dance. Thank you very much.

501
00:52:00,720 --> 00:52:06,320
I don't at present. And I just want to confirm Mr. Chirac mentioned in his opening remarks

502
00:52:06,320 --> 00:52:10,720
B. Riley's intention is, in fact, to resign from the committee if this is approved. That's kind of

503
00:52:10,720 --> 00:52:16,720
a given to me. So I appreciate you saying that for everyone. All right.

504
00:52:18,960 --> 00:52:23,680
Mr. Hanson. Yes, Your Honor. Chris Hanson and Paul Hayes-Dings on behalf of the ad hoc group

505
00:52:23,680 --> 00:52:27,840
and the existing dip lenders. Your Honor, did you want to hear on the affirmative side or did you

506
00:52:27,840 --> 00:52:32,320
want to hear from the committee first from an argument perspective? I want to deal, I want to

507
00:52:32,320 --> 00:52:38,640
understand the evidentiary presentation. You'll certainly have time to come back on argument.

508
00:52:38,640 --> 00:52:46,560
And I want to understand what the committee is proposing to do and given where the record is

509
00:52:46,560 --> 00:52:52,880
now, where they think whatever it is that they want to present is going to be persuasive. So let

510
00:52:52,880 --> 00:52:56,640
me do that and then we'll circle back around. Yeah, fair enough, Your Honor. And obviously,

511
00:52:56,640 --> 00:53:00,880
we reserve because our view is we don't think they should be. I have it in sound, but I'll come back.

512
00:53:00,880 --> 00:53:09,520
I'm going to get this on the table because I want to understand it. All right. Mr. Miller.

513
00:53:09,520 --> 00:53:12,960
Thank you, Your Honor. Brett Miller, Wilkie Farr and Gallagher, proposed counsel to the

514
00:53:12,960 --> 00:53:23,120
creditors committee. Your Honor, as you know more than most people, it's your order. And

515
00:53:23,120 --> 00:53:30,480
having spent the last three years in a case across the hall with Judge Isger, the Sanchez case, we've

516
00:53:30,480 --> 00:53:37,360
been fighting over a dip order that is long since approved and have had multiple hearings,

517
00:53:37,360 --> 00:53:42,320
multiple mediation sessions. And at least here, we're only five weeks later. We're not three years

518
00:53:42,320 --> 00:53:49,040
later. And Judge Isger said something during the multiple hearings that he wants to get it right.

519
00:53:49,040 --> 00:53:54,080
And there were a lot of words in the dip order there and a lot of people interpreting the words

520
00:53:54,080 --> 00:54:02,560
how as favorably as they can for their party. Here, I think we have a little bit of a different

521
00:54:02,560 --> 00:54:12,480
scenario. Both sides seem to focus on 30D of the dip order and whether the termination payment

522
00:54:12,480 --> 00:54:21,360
the termination payment is actually part of the package that I'm sure Mr. Hanson will say

523
00:54:22,160 --> 00:54:32,560
was part of the pricing of the dip. Because I disagree with the statement in the ad hoc group's

524
00:54:32,560 --> 00:54:39,840
pleading filed this morning that a finding that if we open up the termination payment provision,

525
00:54:39,840 --> 00:54:45,440
and the committee does not dispute a termination payment can be paid here. It's a question of the

526
00:54:45,440 --> 00:54:53,840
reasonableness. And that's so using the replacement dip as a basis and I think Ms. Berkowitz said a

527
00:54:53,840 --> 00:55:00,480
105 percent, I'll call it a 5 percent termination fee, that's about $2 million. Whereas the interim

528
00:55:00,480 --> 00:55:09,760
order included a 15 percent payment or $6 million. So we're talking about a $4 million delta here.

529
00:55:09,760 --> 00:55:16,320
And if you look at the comps that are in the various in the declaration submitted by the committee,

530
00:55:17,760 --> 00:55:25,520
15 percent is out of whack, 5 percent is around normal. And I believe if we actually went forward

531
00:55:25,520 --> 00:55:31,040
and put our witness on the stand it would be hard to find otherwise. And I think if Mr. Singh was

532
00:55:31,040 --> 00:55:35,760
put on the stand and cross-examined he would find the same because we've seen a dip comparison chart

533
00:55:35,760 --> 00:55:43,840
that he's prepared. So to your point the 15 percent fee is unreasonable. And the question now turns

534
00:55:43,840 --> 00:55:51,040
back to how can we, should we, be determining whether an interim order that approved a termination

535
00:55:51,040 --> 00:55:57,520
fee on 24 hours notice without a committee being formed satisfies the requirements of

536
00:55:58,320 --> 00:56:08,720
Bankruptcy Rule 4001C2, Section 364, and perhaps most importantly 30D of the interim order.

537
00:56:08,720 --> 00:56:14,560
Because 30D says two things, well it says multiple things, but two things that are highlighted,

538
00:56:14,560 --> 00:56:21,120
one by the ad hoc committee and one by us. And I don't know if we can put that on the screen.

539
00:56:21,120 --> 00:56:26,400
You can actually I think use the version that Mr. Cohen was just going through because I think

540
00:56:26,400 --> 00:56:33,200
30D stayed the same. Sure I can do it either way. I can give your person control. I can put back up

541
00:56:33,200 --> 00:56:48,000
what we were just looking at. I think why don't we why don't we put back up what was just on.

542
00:56:48,000 --> 00:56:52,240
No change.

543
00:56:52,240 --> 00:57:09,040
30D I think page 86 a really long order.

544
00:57:22,640 --> 00:57:35,920
So the the ad hoc group in its statement focuses on too little i. The validity or

545
00:57:35,920 --> 00:57:42,560
enforceability of any obligation indebtedness or liability incurred under this interim order or

546
00:57:42,560 --> 00:57:52,960
the replacement dip loan documents etc. Question was or is the termination payment incurred at the

547
00:57:52,960 --> 00:57:58,880
outset as opposed to the other fees that the committee doesn't challenge. There were the

548
00:57:58,880 --> 00:58:04,720
upfront fees that have been paid that no one is seeking to discourage. We are simply looking at

549
00:58:05,360 --> 00:58:10,400
the termination payment and as I said it's approximately a four million dollar delta from

550
00:58:10,400 --> 00:58:16,000
what we think is reasonable versus what is being requested. But when you look at four little i

551
00:58:17,760 --> 00:58:24,800
it talks about or the payment of any fees costs expenses or other amounts to the replacement dip

552
00:58:24,800 --> 00:58:32,000
secured parties blah blah blah in the case prior to the actual receipt of the written notice of any

553
00:58:32,000 --> 00:58:39,760
replacement dip agent or the pre-petition agent on if as of the effective date of such reversal

554
00:58:39,760 --> 00:58:49,520
stay or modification or they could tour. I really have to question whether the payment these fees

555
00:58:49,520 --> 00:59:00,000
were not payable at the interim hearing. They are contingent payments that could might may become

556
00:59:00,000 --> 00:59:08,320
payable later and quite simply we believe that's the purpose of having an interim order and a final

557
00:59:08,320 --> 00:59:15,200
order two weeks four weeks five weeks later. That's what is intended by the bankruptcy rules that is

558
00:59:15,200 --> 00:59:23,360
intended by the bankruptcy code and where the ad hoc group thinks this is going to turn dip

559
00:59:23,360 --> 00:59:29,840
financing on its head. I actually think it's the reverse because how if this is approved now and

560
00:59:29,840 --> 00:59:36,080
the committee is basically neutered in any future discussions regarding reasonable reasonableness

561
00:59:36,080 --> 00:59:41,840
of fees then the next lender might as well throw in a hundred percent termination fee

562
00:59:42,480 --> 00:59:48,960
because the debtor has no choice. I think what uh Mr. Barkovitz said was that the the fee

563
00:59:49,680 --> 00:59:56,320
was reasonable under the circumstances. Well and yes the circumstances changed and we understand

564
00:59:56,320 --> 01:00:01,520
that the debtor made the deal. We don't dispute that the debtor cut this deal. They cut the best

565
01:00:01,520 --> 01:00:06,640
deal they could do but they ran to court with a deal that upon scrutiny by a creditors committee

566
01:00:07,200 --> 01:00:13,120
upon if we were to put on witnesses they'd show it is unreasonable by approximately four million

567
01:00:13,120 --> 01:00:18,960
dollars. Then what is the purpose of a whole bunch of sections of the bankruptcy code and

568
01:00:20,080 --> 01:00:29,280
laws and rules regarding finding things reasonable before you use estate funds because the use that

569
01:00:29,280 --> 01:00:37,120
the approval of this will deprive unsecured creditors other stakeholders other secured

570
01:00:37,120 --> 01:00:43,200
creditors of four million dollars because that's what this comes down to. It is a I'll call it a

571
01:00:43,200 --> 01:00:49,840
upfront smash and grab of four million dollars here above what's reasonable and what will happen

572
01:00:49,840 --> 01:00:54,960
I think is the next lender is going to do the same and then after that the same and before we

573
01:00:54,960 --> 01:01:01,680
know it the chart that that our witness and Mr. Singh would put up of comps it's going to be littered

574
01:01:01,680 --> 01:01:08,320
with 15 percent across the board and that's going to become the new mean and median for

575
01:01:09,440 --> 01:01:14,240
dip termination fees and it really really shouldn't be because today should be the day

576
01:01:14,240 --> 01:01:21,360
that it stops and just like Judge Isger you should say I want to get it right and right is to limit

577
01:01:21,360 --> 01:01:28,000
the termination payment to what is reasonable and we would put on evidence if asked that something

578
01:01:28,000 --> 01:01:34,240
in the neighborhood of a two million dollar payment is reasonable and with that I'll rest

579
01:01:34,240 --> 01:01:40,640
and I'll say your honor if I think we need to decide on the order first and if you completely

580
01:01:40,640 --> 01:01:46,400
disagree with me which is your order again then we will not put on any evidence if this has opened

581
01:01:46,400 --> 01:01:51,920
the door for putting on evidence or for Mr. Hanson and I going in the hall room and in the hallway

582
01:01:51,920 --> 01:01:58,320
and having a conversation then we're happy to do that because this can be litigated it can be

583
01:01:58,320 --> 01:02:05,360
settled but but we we defer to your honor it's your order again and I just do think for the sake of

584
01:02:05,360 --> 01:02:16,960
the bankruptcy code and this case we should get it right thank you thank you all right Mr. Hanson

585
01:02:16,960 --> 01:02:17,520
thank you your honor

586
01:02:20,640 --> 01:02:24,400
again your honor Chris Hanson I'm Paul Hastings on behalf of the ad hoc group and the existing

587
01:02:24,400 --> 01:02:32,080
translators um Donald start where Mr. Miller left off it was not a smash and grab the concept

588
01:02:32,080 --> 01:02:37,760
of that ignores the reality of how the debtor came to this courtroom when it filed for bankruptcy

589
01:02:38,400 --> 01:02:45,200
if you look at 401c2 you have to determine whether the debtor is going to be the subject of immediate

590
01:02:45,200 --> 01:02:50,800
irreparable harm and you have that from an evidentiary showing both in the brose declaration

591
01:02:50,800 --> 01:02:56,480
and in the sing declaration you also had it based on the presentation provided by the debtors council

592
01:02:57,200 --> 01:03:01,920
the council pointed out at that point in time that there was a single dip lender that was prepared

593
01:03:01,920 --> 01:03:07,440
to lend to this company and if we look at that moment in time that the debtor filed the price

594
01:03:07,440 --> 01:03:12,080
of bitcoin and and you actually your honor step back for a second you complimented the debtors

595
01:03:12,080 --> 01:03:17,760
on the first day on the persuasiveness of the first day declaration and it was a great read

596
01:03:17,760 --> 01:03:22,480
because it explained the debtor's business in pretty easy to understand terms and these are not

597
01:03:22,480 --> 01:03:26,960
the easiest businesses to understand many of them have filed for bankruptcy they do different things

598
01:03:26,960 --> 01:03:33,040
but they are connected across the i won't say i won't use it they're they're connected by their

599
01:03:33,040 --> 01:03:40,720
digital currencies so the point being your honor that at the moment that the debtor found itself

600
01:03:40,720 --> 01:03:46,400
here bitcoin was somewhere in the range of sixteen thousand dollars and this business as mr brose's

601
01:03:46,400 --> 01:03:51,760
declaration pointed out is singularly tied to the volatility of that underlying currency

602
01:03:51,760 --> 01:03:56,320
i don't want to address the cops in the sense that i would like to cross examine the witness if that

603
01:03:56,320 --> 01:04:01,840
happens and we'll go through them comp by comp but it's obvious that none of them are a digital

604
01:04:01,840 --> 01:04:07,760
currency business none of them are so singularly tied to the underlying volatility associated with

605
01:04:07,760 --> 01:04:12,080
the currency here so the debtors went out they ran a process mr sing pointed out his declaration

606
01:04:12,080 --> 01:04:17,520
that there were 24 parties that they approached they had nine confidentiality agreements

607
01:04:17,520 --> 01:04:24,000
executed they had two indications of interest and they had one party prepared to lend i think as you

608
01:04:24,000 --> 01:04:30,880
can also divine from the motion that was filed to approve the dip financing even the dip lenders

609
01:04:30,880 --> 01:04:35,840
the members of the ad hoc group they weren't all in on the dip if you recall when we were here at

610
01:04:35,840 --> 01:04:39,280
the interim hearing there was going to be a syndication process run between the interim

611
01:04:39,280 --> 01:04:43,760
hearing and the final hearing to try to find more the debtors had asked for a higher commitment

612
01:04:43,760 --> 01:04:48,320
amount and the members of the ad hoc group didn't get there initially and the reason they didn't get

613
01:04:48,320 --> 01:04:53,600
there was the volatility associated with this company it's pretty scary dip and so what you

614
01:04:53,600 --> 01:04:59,280
also have is endless testimony about the arms length negotiation and the good faith nature of

615
01:04:59,280 --> 01:05:04,080
those negotiations there was nothing there to demonstrate that there was a smash and grab or

616
01:05:04,080 --> 01:05:09,280
there was some type of untoward influence exercised over the debtor you heard miss burkovich just say

617
01:05:09,280 --> 01:05:14,240
it the interim dip saved this company without that interim dip financing again go to the

618
01:05:14,240 --> 01:05:19,120
declarations there were the debtors said they had four million dollars of liquidity as they entered

619
01:05:19,120 --> 01:05:25,280
bankruptcy we can ask the debtor if we get to that if that number might have even been lower as of the

620
01:05:25,280 --> 01:05:29,920
day that it was here in the court before it was able to get authorization to borrow on the interim

621
01:05:29,920 --> 01:05:35,360
dip and it borrowed right away on the interim dip that money helped to save the business so that it

622
01:05:35,360 --> 01:05:40,720
could ride to where it is now and really what's happened is the debtors have exercised their

623
01:05:40,720 --> 01:05:45,520
business judgment twice they exercise their business judgment soundly and reasonably at the

624
01:05:45,520 --> 01:05:52,000
beginning to enter into the first dip and now given where bitcoin prices are today and no one

625
01:05:52,000 --> 01:05:56,160
right there is no forward curve for bitcoin it's not like the power curve we don't get to look off

626
01:05:56,160 --> 01:06:01,280
into the future we wake up every day and wish there were one right yeah we wake up seriously we wake

627
01:06:01,280 --> 01:06:06,240
up every day and and these prices are up or down and we really don't know where they're going and

628
01:06:06,240 --> 01:06:10,800
sometimes we really don't even know what they're driven by and so your honor the debtor is making

629
01:06:10,800 --> 01:06:16,400
another business judgment call and that business judgment call is i'm going to enter into a new dip

630
01:06:16,960 --> 01:06:22,160
and i am going to repay the old dip which takes us back to where i was going to start your honor

631
01:06:22,160 --> 01:06:28,400
which is there's an agreed upon deal that deal was set forth before the court and candidly even

632
01:06:28,400 --> 01:06:32,880
your honor said i'm aware this is expensive but i'm also aware of the volatility associated with

633
01:06:32,880 --> 01:06:38,320
this business and i get it and you said to the folks in the courtroom most notably b riley's

634
01:06:38,320 --> 01:06:45,120
attorney i hope you come back with a less expensive dip so uh or a less onerous dip you know what those

635
01:06:45,120 --> 01:06:51,040
were circumstances that all were foreseen at the time that you approved the initial dip and so the

636
01:06:51,040 --> 01:06:56,960
dip lenders on my side they made their commitment they said we will advance out of the dip and

637
01:06:56,960 --> 01:07:03,120
they said we will advance our funds based upon the documents that we've negotiated and the order

638
01:07:03,120 --> 01:07:07,840
that your honor will enter that protects the promise that they made to advance those funds

639
01:07:07,840 --> 01:07:13,840
to the debtor the debtor took those funds moved forward saved their business and allowed them to

640
01:07:13,840 --> 01:07:18,640
come before the court with the motions they asked the court to prove today and beyond the multitude

641
01:07:18,640 --> 01:07:22,880
you know mr miller likes to focus on 30 d and says let's singularly look at that it's really

642
01:07:22,880 --> 01:07:27,440
important and i'm going to come back to that in a second but the entirety of the order when you go

643
01:07:27,440 --> 01:07:32,560
through there are only certain sections that say subject to entry of the final order right those

644
01:07:32,560 --> 01:07:37,360
are things like the roll-up those were things like the 506c waiver and the waiver on 552b equities

645
01:07:37,360 --> 01:07:43,200
of the case things like that say subject to entry of the final order but the the other and it's far

646
01:07:43,200 --> 01:07:48,560
too long all these dip wars far too long at this point but the rest of the dip order itself is

647
01:07:48,560 --> 01:07:55,280
replete with provisions that say all of the dip documents are approved the obligations that are

648
01:07:55,280 --> 01:07:59,920
created there under are approved the debtors are authorized to enter into those this is an

649
01:07:59,920 --> 01:08:05,920
encyclopedic document which approves the dip deal that the debtors entered into but most importantly

650
01:08:05,920 --> 01:08:11,520
those are also protected by the concept of good faith and when you look at section 364e it's there

651
01:08:11,520 --> 01:08:16,400
for a reason and your honor knows that and you've incorporated it into this order in multiple places

652
01:08:16,400 --> 01:08:20,800
it protects the super priority administrative expense claims it protects the priority of the

653
01:08:20,800 --> 01:08:26,480
liens and it protects the underlying aspects of the dip financing in toto and so when you look at

654
01:08:26,480 --> 01:08:35,840
364e parties have to rely on that and to just put this one to bed the order says whether it's

655
01:08:35,840 --> 01:08:41,680
overturned on appeal or otherwise and the or otherwise would be a collateral attack your

656
01:08:41,680 --> 01:08:46,080
honor we would go so far as to say that this order having been entered candidly based on all of the

657
01:08:46,080 --> 01:08:50,960
findings that were before it is a lot of the case at this point in time too and to overturn that order

658
01:08:51,520 --> 01:08:56,000
i i guess you'd have to prove that somebody defrauded the court or that somebody defrauded

659
01:08:56,000 --> 01:09:01,360
the debtors the standard can't really be that well today because the underlying currency that

660
01:09:01,360 --> 01:09:06,800
dictates the value of this business is 30 or 40 higher than it was on the day we filed we should

661
01:09:06,800 --> 01:09:13,120
go back and tear up and rewrite the promises upon which everybody relied when they entered the court

662
01:09:13,120 --> 01:09:21,600
in good faith your honor i would also point out that if you think about it again the circumstances

663
01:09:21,600 --> 01:09:27,040
that the debtors entered weren't just the lack of liquidity in those declarations you can look and

664
01:09:27,040 --> 01:09:32,880
see they defaulted on their equipment loan debt pre-petition they weren't paying anybody they

665
01:09:32,880 --> 01:09:36,720
issued a press release the way that the ad hoc committee was organized was they woke up to find

666
01:09:36,720 --> 01:09:40,560
a press release by the debtors saying that they were no longer in a position to be able to pay

667
01:09:40,560 --> 01:09:45,440
their equipment lenders and that they were they might not be able to survive as a going concern

668
01:09:45,440 --> 01:09:51,520
so the ad hoc group quickly organized to engage in negotiations at the request of the debtor and

669
01:09:51,520 --> 01:09:56,720
they did but during that time the debtors were not paying the equipment lenders and one of the

670
01:09:56,720 --> 01:10:02,160
equipment lenders actually accelerated and then crossed the fault of the convertible notes on top

671
01:10:02,160 --> 01:10:10,480
of that the debtors had as reported in their declarations an endless amount of unpaid loans

672
01:10:10,480 --> 01:10:15,520
on all of their construction facilities which resulted in mechanics liens so this wasn't like

673
01:10:15,520 --> 01:10:20,080
a debtor that the ad hoc committee had over a barrel and i think i pointed out at the first day

674
01:10:20,080 --> 01:10:24,960
to your honor the members of the ad hoc committee are the original purchasers of these notes this is

675
01:10:24,960 --> 01:10:30,800
nor this is not a situation where you know a sophisticated distressed community is trying to

676
01:10:30,800 --> 01:10:35,520
take advantage of a debtor these convertible note holders were hoping that they would be able to

677
01:10:35,520 --> 01:10:40,480
they would be able to convert their notes into equity at some point and ride the wave of great

678
01:10:40,480 --> 01:10:46,000
returns associated with those notes so when again your honor putting things in the context that we

679
01:10:46,000 --> 01:10:50,880
have to look at them which is where were we when you approved the dip and we entered this courtroom

680
01:10:52,720 --> 01:10:57,840
the circumstances may be different today but that doesn't allow us to overturn the order that you

681
01:10:57,840 --> 01:11:02,720
entered based upon all the factors that everyone foresaw at that time and again when i come back

682
01:11:02,720 --> 01:11:08,640
to the point that this is not the business judgment of the convertible note holders that's

683
01:11:08,640 --> 01:11:14,000
being imposed on the debtors the debtors it was their business judgment to enter into the dip and

684
01:11:14,000 --> 01:11:19,120
it's now their business judgment to eliminate the rsa and to move into this current dip

685
01:11:20,800 --> 01:11:26,400
we don't from an ad hoc committee perspective we're a little bit nervous about that we now have no

686
01:11:26,400 --> 01:11:29,920
way out of this case we're all going to sit down and we're going to negotiate and see if we can

687
01:11:29,920 --> 01:11:36,800
get there but bitcoin can go down just as much as it can go up and the ad hoc committee is fearful

688
01:11:36,800 --> 01:11:42,160
that as the largest secured creditor and you know depending upon where abilities are maybe a very

689
01:11:42,160 --> 01:11:46,160
large unsecured creditor as well that we're going to suffer the risk of that volatility

690
01:11:47,360 --> 01:11:52,720
more than most and so from our perspective we understand we chose not to fight with the

691
01:11:52,720 --> 01:11:57,120
debtors today we said fine if you'd like to refinance us honor your obligations we'll

692
01:11:57,120 --> 01:12:02,480
negotiate an order with you moving forward from a cash collateral perspective and let's get to it

693
01:12:02,480 --> 01:12:06,960
let's try to find a way to get out of this bankruptcy case pretty quickly so at a reasonableness

694
01:12:06,960 --> 01:12:11,600
level the ad hoc committee and the existing dip lenders have been about as reasonable as they

695
01:12:11,600 --> 01:12:16,000
possibly can be they extended credit they saved the company they allowed the company to get to

696
01:12:16,000 --> 01:12:20,080
where they are now they've stepped out of the way to allow b riley to come in they've negotiated a

697
01:12:20,080 --> 01:12:25,440
good order and we're prepared to move forward none of that is a record where this court should

698
01:12:25,440 --> 01:12:30,400
revisit its initial decision to put the dip in place and that dip should be honored and from a

699
01:12:30,400 --> 01:12:39,280
policy perspective i couldn't disagree more with mr miller your honor if the sanctity of an order

700
01:12:39,280 --> 01:12:45,680
is to be relied on which is what we're all talking about here it needs to be relied on that's not

701
01:12:45,680 --> 01:12:51,520
going to turn around and let predatory lenders suddenly say to a debtor who might be an extremist

702
01:12:51,520 --> 01:12:56,960
aha i can charge whatever fee i want and as long as i get it approved on an interim basis i'm good

703
01:12:56,960 --> 01:13:01,680
because the reality is there should be a competitive process that results in the dip that's being

704
01:13:01,680 --> 01:13:06,000
presented to the court and you your honor if somebody walked in and said i want 100% fee might

705
01:13:06,000 --> 01:13:10,720
say you know what creditors might be better off if this company liquidates than if it takes your dip

706
01:13:10,720 --> 01:13:15,360
financing and that's within your discretion to determine at the time and your discretion

707
01:13:15,360 --> 01:13:20,480
at the time that this dip was presented to you was to approve this dip with its termination fee

708
01:13:20,480 --> 01:13:25,920
and when we go to the provision that mr miller looks at in the dip order just for for good purpose

709
01:13:25,920 --> 01:13:38,080
of going to that on paragraph 30 you go to d and it says in roman at one i'm sorry roman at two the

710
01:13:38,080 --> 01:13:45,840
validity and forcibility of any obligation incurred under the interim dip order or the loan dip loan

711
01:13:45,840 --> 01:13:51,520
documents the obligation which is a fee associated with the repayment of something that's borrowed

712
01:13:51,520 --> 01:13:56,400
occurs at the time that you enter into the contract that provides for it so that obligation was

713
01:13:56,400 --> 01:14:01,360
incurred as of the time of entry and obviously there's the whole point about the payments which

714
01:14:01,360 --> 01:14:06,480
are protected by the good faith standard too when they're made so your honor on that record which

715
01:14:06,480 --> 01:14:11,520
was the record before the court at the interim hearing and the arguments that are presented

716
01:14:11,520 --> 01:14:16,000
and the arguments that are presented today we ask that the court continue to enforce the interim order

717
01:14:16,000 --> 01:14:21,200
let the debtors go where they need to go next and stop what's happening here and and let everybody

718
01:14:21,200 --> 01:14:25,200
rely on the sanctity of the order that you entered and we'll see where we can get hopefully get the

719
01:14:25,200 --> 01:14:29,680
case out quickly we don't believe that evidence should be taken because we think putting in

720
01:14:29,680 --> 01:14:34,160
evidence would open up the evidentiary record associated with the interim order which was closed

721
01:14:34,160 --> 01:14:38,000
and we would have to revisit that but again your honor we reserve our rights to the extent that

722
01:14:38,000 --> 01:14:42,080
evidence would be taken not only to cross examine the committee's witnesses and call the debtors

723
01:14:42,080 --> 01:14:47,520
witnesses but potentially to call our own thank you your honor yes sir

724
01:14:56,560 --> 01:15:02,000
good morning or morning honor good afternoon at this point uh true enough i'm tempted to take

725
01:15:02,000 --> 01:15:09,360
miss burkovich's binder so i can get it a little taller over here your honor uh brown meisler of

726
01:15:09,360 --> 01:15:13,920
scadden arps on behalf of the ad hoc group of equity holders representing approximately 70

727
01:15:13,920 --> 01:15:19,760
million shares or nearly 20 percent of the outstanding amount of shares including insider

728
01:15:19,760 --> 01:15:26,080
shares your honor we're going to be brief and that's going to be consistent with with what

729
01:15:26,080 --> 01:15:31,680
we're seeking generally in these chapter 11 cases your honor we support the creditors committee's

730
01:15:31,680 --> 01:15:40,240
view uh we heard what you said the fee is unreasonable 544 percent irr is unreasonable

731
01:15:40,240 --> 01:15:48,480
maybe it's punitive uh one thing's for sure it's an unfortunate use of money um and we recognize

732
01:15:48,480 --> 01:15:53,760
it's not material to the overall liquidity of the business but we're trying to stay focused is it a

733
01:15:53,760 --> 01:16:02,320
good use of money probably not your honor we think that there's two maybe three issues one due process

734
01:16:03,360 --> 01:16:08,400
fundamentally it due process they got it approved on december 22nd the day after the petitions were

735
01:16:08,400 --> 01:16:16,080
filed i wasn't here your honor that my the clients that i represent they didn't have counsel to

736
01:16:16,080 --> 01:16:21,920
represent them it's a due process issue maybe it's binding on the debtors maybe it's binding on other

737
01:16:21,920 --> 01:16:26,720
people that that appeared in these cases but your honor we do think it's a it's a due process issue

738
01:16:27,360 --> 01:16:33,360
um your honor with respect to business judgment um that that's a that's a fair point one that we

739
01:16:33,360 --> 01:16:38,480
acknowledge but let's remember judge wiles decision in pacific drilling in september 2018

740
01:16:39,040 --> 01:16:45,840
no one objected to the fees associated with the rights offering nonetheless judge wiles took the

741
01:16:45,840 --> 01:16:52,320
position that the fees were excessive and therefore he denied the request um the other thing your honor

742
01:16:52,880 --> 01:16:58,880
quite candidly business judgment did the special committee know specifically about the termination

743
01:16:58,880 --> 01:17:05,520
fee and what it would cost and the return to the lenders if the dip was replaced 40 days later i

744
01:17:05,520 --> 01:17:10,080
don't know but if they didn't i don't really know how they could have exercised business judgment

745
01:17:10,080 --> 01:17:18,880
with respect to that punitive fee your honor the the other issue is i think as you have suggested

746
01:17:18,880 --> 01:17:25,680
at the beginning thoughtful consideration of this issue including whether such an incredibly high

747
01:17:25,680 --> 01:17:32,080
rate of interest is enforceable under applicable law i think for that reason it's worth taking

748
01:17:32,080 --> 01:17:38,080
that break parties should brief it we on behalf of the ad hoc group we would coordinate with the

749
01:17:38,080 --> 01:17:44,320
creditors committee because if there's no reason for us to brief it we won't so again i i know you

750
01:17:44,320 --> 01:17:49,440
don't know me your colleague does when when i suggest taking a break i measure that in terms

751
01:17:49,440 --> 01:17:55,840
of minutes not days understood your honor if the minutes are sufficient for parties to brief it

752
01:17:55,840 --> 01:18:02,160
that would be great if they're insufficient your honor of course this group defers to your judgment

753
01:18:02,160 --> 01:18:07,840
and with that your honor those are my comments and thoughts thank you thank you all right let

754
01:18:07,840 --> 01:18:18,320
me do this and number one i very much appreciate the arguments i appreciate great lawyers doing

755
01:18:18,320 --> 01:18:25,760
great things and it quite frankly makes my job a lot easier when i don't have to round off the

756
01:18:25,760 --> 01:18:33,120
edges this is actually relatively simple for me there are a number of competing concerns that

757
01:18:33,120 --> 01:18:39,680
that drive everything i do number one the process comes first and if parties can't rely on the

758
01:18:39,680 --> 01:18:48,080
process then given how fragile the process is and the responsibilities that you all have then it

759
01:18:48,080 --> 01:18:54,400
doesn't work this is not like being in district court with a defendant it's just very very different

760
01:18:55,360 --> 01:19:02,160
you've also got a huge number of involuntary participants who don't understand the process

761
01:19:02,160 --> 01:19:08,400
who try and make sense of it along the way and again my orders have to mean something

762
01:19:09,200 --> 01:19:14,880
i'm aware of what judge ischor said in the sanchez case i've i think i've mediated it twice

763
01:19:15,600 --> 01:19:21,760
i understand the issues i understand what he meant when he said i just want to get it right and that's

764
01:19:21,760 --> 01:19:29,600
because he's interpreting various provisions that he put his name on and i i know which provisions

765
01:19:29,600 --> 01:19:39,840
there are and this is so far afield of that that it's not really a an appropriate analogy of course

766
01:19:39,840 --> 01:19:44,640
we all want to get it right there's no other reason that we sit here other than to get it right

767
01:19:45,920 --> 01:19:52,240
um i also want to make it clear about business judgment business judgment doesn't mean that i

768
01:19:52,240 --> 01:19:57,920
decide what i would have done that's not the definition of business judgment at all business

769
01:19:57,920 --> 01:20:07,200
judgment is a party being well informed recognizing the obligations that they owe making a thoughtful

770
01:20:07,200 --> 01:20:13,360
considered decision you can exercise proper business judgment and be flat out wrong it's

771
01:20:13,360 --> 01:20:20,240
the process that you go through that is the business judgment evaluation and i agree with

772
01:20:20,240 --> 01:20:26,640
i agree with the comment uh that was made i think it was by mr hansen is that business judgment has

773
01:20:26,640 --> 01:20:33,440
been exercised twice once when faced with a set of circumstances the debtor exercises business

774
01:20:33,440 --> 01:20:39,840
judgment and says if i want to see tomorrow here's what i'm going to do it got that opportunity it's

775
01:20:39,840 --> 01:20:48,640
now seen tomorrow and it's rosier than perhaps it thought it was going to be obviously there could be

776
01:20:48,640 --> 01:20:55,280
a sunset today and a new day tomorrow and there could be a further exercise of business judgment

777
01:20:55,280 --> 01:21:00,640
uh that calls into question the decisions that got made previously that's the whole concept of

778
01:21:00,640 --> 01:21:06,240
business judgment it's the process it's the thoughtfulness it's the being aware it's the

779
01:21:06,240 --> 01:21:12,800
being educated it's making sure that you understand not only the issues that run in your favor but

780
01:21:12,800 --> 01:21:19,600
those that run against you there's also another fundamental tenant that i just believe in just

781
01:21:19,600 --> 01:21:26,000
to my core and that's for for every action there has to be a consequence sometimes those consequences

782
01:21:26,000 --> 01:21:33,520
are positive sometimes they're negative the fact that the debtor has exercised its business judgment

783
01:21:33,520 --> 01:21:40,000
and i believe in a proper fashion there's a consequence to having exercised that business

784
01:21:40,000 --> 01:21:49,440
judgment and it's the payment of that fee um again do i wish that i had questioned it more i mean i

785
01:21:49,440 --> 01:21:56,480
i didn't like the deal when i got it i thought it was incredibly expensive and i was just looking

786
01:21:56,480 --> 01:22:05,120
at it from sort of an outsider's viewpoint called wow is this really where we are um and i i spent

787
01:22:05,120 --> 01:22:15,600
a lot of time talking to my intern about how you actually view these things uh and how you have to

788
01:22:15,600 --> 01:22:23,840
really make a decision whether it's right or wrong and i think i said it on the record i said i also

789
01:22:23,840 --> 01:22:31,600
think i said you know i'm somewhat amazed about how folks are able to quantify risk given at least

790
01:22:31,600 --> 01:22:38,960
what i knew at the time but i wouldn't know where to begin given where the market was when i put

791
01:22:38,960 --> 01:22:47,840
that together again it's parties have to be have to rely on my on my orders if my orders are always

792
01:22:47,840 --> 01:22:53,920
subject to somebody coming in and saying something different in an effort to get me to change it then

793
01:22:53,920 --> 01:23:01,920
the process just fails if i got it wrong then i'll do a better job next time of trying to provide more

794
01:23:01,920 --> 01:23:07,520
avenues i'll encourage the u.s trustee to add this to the list of things that they look at when they

795
01:23:07,520 --> 01:23:12,800
look at these in our orders because that's the voice at that point in time that's speaking for

796
01:23:12,800 --> 01:23:19,920
those parties that aren't here um i just again that i got it that it's six million dollars but

797
01:23:19,920 --> 01:23:26,720
the process is far more important than six million dollars your ability to go out and say i have this

798
01:23:26,720 --> 01:23:32,800
order and jones signed it and it's final is far more important than six million dollars if six

799
01:23:32,800 --> 01:23:39,280
million dollars turns out to be the price of success versus failure in this particular case

800
01:23:40,000 --> 01:23:44,720
and it's failure then i'm prepared to live with that because the process has to be bigger

801
01:23:45,360 --> 01:23:51,600
than any particular case so i am based upon a record that i've got based upon just looking at this

802
01:23:53,040 --> 01:24:01,440
i i endorsed the debtors business judgment it's made the decisions that it thought was appropriate

803
01:24:01,440 --> 01:24:09,520
under the circumstances that it now faces um again i appreciate being walked through the red line

804
01:24:10,080 --> 01:24:14,400
this is just a it's a better deal it's a more commercial deal and that is going to pay the

805
01:24:14,400 --> 01:24:19,760
consequence of not having been able to get it the first time around which i think that we would all

806
01:24:19,760 --> 01:24:24,800
acknowledge it wasn't available so i'm again and i appreciate the committee bringing it to my

807
01:24:24,800 --> 01:24:29,520
attention it's a learning experience for me i have no doubt it will be a learning experience

808
01:24:29,520 --> 01:24:35,520
and on the list of those things that the u.s trustee looks at on first day pleadings but i'm

809
01:24:35,520 --> 01:24:42,160
going to overrule the objection i'm going to approve the refinancing the new dip you've got

810
01:24:42,160 --> 01:24:46,640
your hearing date i understand that there were a few more tweaks that needed to be made i assume

811
01:24:46,640 --> 01:24:52,480
that you will circulate them to all the parties that want to see them and then you'll let mr

812
01:24:52,480 --> 01:25:02,320
alonzo know once that order has been uploaded that's correct yes your honor uh you're back

813
01:25:02,320 --> 01:25:09,360
on back on my binder uh that is that is correct um we will submit a revised order for the process

814
01:25:09,360 --> 01:25:15,840
that your honor mentioned um so let me in again just i know that you probably need that today

815
01:25:15,840 --> 01:25:24,320
today yes so i wanted to i feel awful i've got one more hearing and then i see a nap in my future

816
01:25:24,320 --> 01:25:29,040
somewhere in the courthouse so if you would just make sure you coordinate with mr alonzo i'll take

817
01:25:29,040 --> 01:25:33,520
my computer home i'll do it from wherever i am but you need to make sure you talk to him because

818
01:25:33,520 --> 01:25:38,400
i'm not going to look for it yes your honor and we we understand the process and we will coordinate

819
01:25:38,400 --> 01:25:44,160
with mr alonzo and um with the honest feeling well just two quick uh quick points first i want

820
01:25:44,160 --> 01:25:51,520
to make it clear for the record that just because we've terminated the rsa and we're um we're not

821
01:25:51,520 --> 01:25:55,760
going to keep our eye off the ball here which is to try to get this company out of chapter 11 but

822
01:25:55,760 --> 01:26:00,640
we're going to try to do so with a good process and with input from all of our stakeholders so

823
01:26:00,640 --> 01:26:06,720
that's our next next task at hand here until we got to look it's the it's the respect that i have

824
01:26:06,720 --> 01:26:13,760
of for the entire you're all going to do exactly what you're what you do better than anybody else

825
01:26:14,480 --> 01:26:20,000
i mean everybody's got a role to play everybody's got a position and it's those flashing positions

826
01:26:20,000 --> 01:26:26,880
that give me confidence that the right result will come out of that whatever that is i i took

827
01:26:26,880 --> 01:26:34,240
mr hanson at face value he doesn't like where he is i i got that but i also know that given his

828
01:26:34,240 --> 01:26:40,240
skill set he'll figure out a way to maximize whatever it is he has and i know that your team

829
01:26:40,240 --> 01:26:45,600
will be the same i know that the committee is going to fight hard for those folks who are probably

830
01:26:45,600 --> 01:26:54,160
currently out of the money or not not much in the money and i again i've known i i don't know

831
01:26:54,160 --> 01:26:58,720
miss reid's colleague but i do know this really she's one of the finest lawyers i've ever seen

832
01:26:58,720 --> 01:27:04,560
in the courtroom they're going to advocate for equity that's exactly what should happen and

833
01:27:04,560 --> 01:27:10,240
i'll make the calls based upon the record that i get hopefully the results that we get at the end

834
01:27:10,240 --> 01:27:17,200
of the day honors the bankruptcy code it recognizes the economics both inside the company as well as

835
01:27:17,840 --> 01:27:24,240
industry in the nation whatever those happen to do and the process will work it'll be transparent

836
01:27:24,240 --> 01:27:28,960
and people may not like the result no one says you have to like it you just have to be able to

837
01:27:28,960 --> 01:27:35,360
understand it to see through it that's that's the goal agree your honor and there is one last item

838
01:27:35,360 --> 01:27:40,240
on the agenda we'll keep it brief and my colleague mr cain will handle that motion perfect

839
01:27:40,240 --> 01:27:45,360
okay

840
01:27:49,680 --> 01:27:53,280
good afternoon your honor good afternoon jeremy cain of wild goshel and mangy's

841
01:27:54,080 --> 01:27:57,760
proposed counsel for the debtors yes sir i'll be brief and i will not use the stuff

842
01:27:58,320 --> 01:28:00,640
i don't want you to be brief i want to see your a-game i don't know

843
01:28:02,880 --> 01:28:07,920
your honor the debtors have moved for authorization to sell all of their bitmain coupons free and clear

844
01:28:07,920 --> 01:28:14,640
of all encumbrances pursuant to section 363 after the bankruptcy code that motion is at docket number

845
01:28:14,640 --> 01:28:20,880
346 in support of the motion the debtors have submitted the declaration of mr russell can

846
01:28:20,880 --> 01:28:27,120
at docket number 393 this motion has been unopposed and we think that it's non-controversial

847
01:28:27,120 --> 01:28:33,280
for at least three reasons first the debtors do not plan to use these coupons which are only valid

848
01:28:33,280 --> 01:28:39,520
for a specific model of bitcoin miners from bitmain second if no action is taken all these

849
01:28:39,520 --> 01:28:44,480
coupons will expire worthless in the next two to three months with the vast majority expiring on

850
01:28:44,480 --> 01:28:51,600
march 22nd the the third reason is that if the motion is granted the debtors will have an

851
01:28:51,600 --> 01:28:56,160
opportunity to sell these coupons on the market if they move quickly and they've made the business

852
01:28:56,160 --> 01:29:02,320
judgment that it is prudent to do so at this time we move to admit the declaration of russell can

853
01:29:02,320 --> 01:29:08,880
in support of this motion docket number 393 and mr can is available here today is available in

854
01:29:08,880 --> 01:29:14,560
case the court or other parties have questions all right anyone have an objection to the

855
01:29:15,120 --> 01:29:19,040
mr kanz declaration found that it's doctor number 393

856
01:29:20,960 --> 01:29:26,960
all right then it's admitted anyone wish to cross-examine mr i have such an inclination to call it

857
01:29:26,960 --> 01:29:33,680
but i would i take it no one else is going to either all right then with that i'll accept

858
01:29:34,320 --> 01:29:42,720
mr kanz tech declaration i have read the declaration at 393 i appreciate the argument

859
01:29:42,720 --> 01:29:48,400
you said exactly what you needed to say in the last sentence this is practical applications

860
01:29:48,400 --> 01:29:57,120
business judgment if we do nothing it's worth nothing if we do something then we maximize value

861
01:29:57,120 --> 01:30:02,800
all right anyone else wish to be heard all right again i find the request to relief just makes a

862
01:30:02,800 --> 01:30:09,200
good practical sense we all wish you could get more but i understand that uh the market is what

863
01:30:09,200 --> 01:30:15,840
the market is for these things i think it's a good decision i'll grant the motion i want to make sure

864
01:30:15,840 --> 01:30:21,920
i got did we have revised form of orders or was it just the original order that was submitted with

865
01:30:21,920 --> 01:30:26,400
the motion it was just the original form of order that was submitted i will get that signed and on

866
01:30:26,400 --> 01:30:33,280
the docket i've got a noon which i need to deal with but i'll get that done early afternoon thank

867
01:30:33,280 --> 01:30:40,000
you your honor all right thank you anything else we need to address nothing else your honor thank

868
01:30:40,000 --> 01:30:45,200
you very much for your time thank you let's just one thing committee see things coming down the

869
01:30:45,200 --> 01:30:53,360
pipe that we need to plan for or you're still investigative planning talking i just want to

870
01:30:53,360 --> 01:31:01,600
make sure you have access uh your honor brett miller will committee uh because the ad hoc group is

871
01:31:01,600 --> 01:31:06,880
not the dip lender therefore the immediate challenge deadlines have been removed from the

872
01:31:06,880 --> 01:31:12,720
new quarter so there will be time to look at some of the things that we outlined in our initial

873
01:31:12,720 --> 01:31:17,840
objection so there's nothing timely other than getting up to speed and hopefully watching bitcoin

874
01:31:17,840 --> 01:31:24,400
go up to 100 000 that would be great um and i assume that you everyone's working together on

875
01:31:24,400 --> 01:31:30,000
exchanging documents and making sure that committee has access to those things that it is

876
01:31:30,000 --> 01:31:35,520
having spent the better part of 30 years working opposite while and members of this team as well as

877
01:31:35,520 --> 01:31:40,960
mr ansen and his team for a long time everything has gone very smoothly very professionally and

878
01:31:40,960 --> 01:31:45,680
there's been no complaints over that terrific gareth you need me and again miss reed just to

879
01:31:45,680 --> 01:31:51,920
reiterate when you folks are ready just coordinate with the major constituents reach out to mr

880
01:31:51,920 --> 01:31:59,520
lanzo get your hearing date and we'll take that up just as soon as you're ready okay all right

881
01:31:59,520 --> 01:32:05,600
then everyone i've got a new hearing so i'm not going to step down uh please as expeditiously as

882
01:32:05,600 --> 01:32:11,840
a way that you can gather up