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operation and as always should you need to be heard please use the raise hand

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function and I will be sure and my staff will be sure to spot spotlight you this

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is the BlockFi ink matter we have just what I anticipate is essentially a

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report it seems that you all met all of my expectations as far as productivity

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and efficiency and have reached certain resolutions I'm going to turn to

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debtors council mr. Susberg and ask that you update the court as to what

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resolutions have been reached and what remains out there yes your honor and

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thank you for the record Joshua Susper from Kirkland Ellis on behalf of

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BlockFi first and foremost I want to thank your honor for the status

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conference on Monday and the setting of the hearing on Friday and Monday because

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I think that's really something that spurred everybody into action we did

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something a bit unorthodox for all of us and I could speak for mr. Stark when I

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say this we actually had principals and advisors on a call on Tuesday I had a

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deposition that actually went forward on Wednesday but we were able to cancel the

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remaining depositions because we worked collectively and collaboratively to

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reach an agreement on both the curve as well as the molest retention so we have

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complete agreement on all sides and as you've seen the United States trustee

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withdrew its objection after reviewing the terms of the settlement and mr.

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Howell will walk the court through the proposed order that we reviewed with the

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parties and believe everyone has signed off on so I did again want to take the

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court and obviously want to take the committee and the BlockFi team for

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everybody working collaboratively these are difficult circumstances and not

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everyone's always going to agree but here the process really worked the way

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it's supposed to work and kudos to the professionals involved for helping

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everybody get to a good solution I think we feel comfortable that the curb will

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serve its intended purpose and I think we convey for the committee and its

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members some of the thinking behind that which is frankly what led to a

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productive resolution so thank you your honor for that I did want to address one

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brief issue before I turn it over to mr. Howell it's been the source of some

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unrest on the BlockFi side and it was in the media and unfortunately it was

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reported inaccurately and I'll start by saying that I always tell my kids that

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we have pencils that have erasers on them for a reason and all humans make

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mistakes I know I certainly make several probably each and every day and what

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happened here was purely a mistake and I know mr. Stark and I know mr. Meiji and

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I know everyone involved here and again while we may not always agree on

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everything I know these people could be of the utmost integrity and there was

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nothing nefarious in my view that went on there but as your honor I think is

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aware there was an affidavit from mr. Meiji filed on January 24th at 12 10 a.m.

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and that document was redacted but it was incorrectly redacted and this goes

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beyond my knowledge base but someone was able to access the document that was

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posted and copy the data underneath the redaction later that afternoon there

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was a motion to steal the document which probably got people out there in the

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universe looking at the document and peeling away their redactions and then we

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had an unfortunate CNBC story that broke and that story is wrong the story said

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there are secret financials that weren't otherwise relayed and conveyed in our

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self-is in our schedules and I want to be very clear there are no such secret

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financials the financials that we reported are entirely accurate in fact

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block five numbers showed a net exposure whereas the ones in the end three

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decorations showed a gross and so when block five made the loan to Alameda

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that was the source of an older reporting prior to the Robin Hood shares

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that your honor is well aware of being pledged the pledge collateral was FTT

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points and as everybody who's familiar with FTC those the FTT collateral was

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marked down to zero and the gap that remained was just the hour meet alone

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and so the gap in the end three presentation looks bigger because it

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shows the gross exposure and adds together assets and liabilities and both

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numbers are accurate again no secret financials it just depends on the

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corresponding footnotes I will also note that the CNBC article inaccurately

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reported some management conversation that is outstanding that was wrong and

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it was false we put out a statement as such I know that the document on the

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docket that docket number 363 has been removed we appreciate the court and call

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doing so and 388 is a revised declaration from Mr. Meiji that has in

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fact been redacted appropriately so again Justice Nafoo, Mr. Stark and Mr. Meiji

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called me immediately after realizing this and I totally understand this can

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happen at any time and it's unfortunate but we're moving out understood and as

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you said these things do happen especially with technology that we're

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all not necessarily facile with Mr. Stark do you want to weigh in?

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I do your honor, I don't want to...

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Do you want to hear me okay?

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Yes.

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Thank you. I do want to confirm a couple things on the record although I think Mr. Sussberg

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stated the facts on the ground quite well this was a late night drafting and

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the redaction unfortunately did not have the encryption software we've all seen

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this encryption issue before where our late-night mistake by somebody lowering

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the chain on a redaction that the software was not used we didn't find out about it

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the problem of not using the redaction is that it can be reversed engineered and

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the person inadvertently files it doesn't realize because of a failure to

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use the encryption software that they inadvertently put out there or something

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that could be reverse engineered as soon as we found that out we pulled the

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pleading we notified chambers we called Kirkland and Ellis and called them and

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replaced it with the encryption redaction but in that intervening

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window the CNBC reporter was able to reverse the pleading and reverse

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engineer it so we couldn't stop that all we could do is come up to the error

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which I fully take responsibility for I think the report as Mr. Sussberg and

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quite aptly said sensationalize something that's a bit of a long and and so but

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you never wanted it's kind of fallen for me that an error like that happens in any

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event as soon as I figured it out I found out about it I called Mr. Sussberg

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who could not have been more gracious and professional about that I'm not

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surprised that's how he is and but I do think it's important to acknowledge and

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recognize that that conversation happened in the heat of a very

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significant battle between our respective clients so again I'm not

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surprised by the professionalism but I'm quite thankful for it we don't have an

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issue to resolve but I do want to acknowledge and be thankful for it in front of

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you all. Thank you Mr. Stark I appreciate those comments and everything

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I've seen is really as I've said matched if not exceeded expectations about the

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quality and the efforts going on in this case. Mr. Sussberg I do have a question

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just before we get into the details and it was my understanding that the US

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trustee has lack of a better term signed off on the resolution the kerp

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resolution I thought it was still an open issue on the mollusk retention has

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something developed that I'm unaware of in other words I thought they had until

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Sunday at certain Sunday afternoon right before game start to file objections.

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Yes my understanding is that we are resolved with the US trustee for today

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so the objections to the kerp and to the stealing of information have been

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withdrawn as it relates to mollusk we will circulate if we haven't already a

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copy of the revised mollusk order to reflect the settlement with the

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committee and the US trustee has until Sunday to object to the mollusk

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retention and to the extent there's an objection we will of course respond and

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then be in a position to deal with it on Monday. All right that comports with my

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understanding well that's great. Let's then proceed and let's hear of the

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resolution that's been reached. Mr. Howell. Yes thank you your honor.

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Rush Howell from Kirkland and Ellis. Can you hear me okay? Yes fine thank you.

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Okay first I want to echo Mr. Susberg's comment and thank the court for its time

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and assistance in helping us get to the resolution that we've reached as well as

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to thank the committee and the office of the United States trustee for its

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professionalism and the sometimes hard-fought battle that led to where we

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are now. I'll take us through the agenda today briefly which of course we're

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happy to say is entirely uncontested and so I'd like to start with the debtors

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motion to seal at socket 351 to seal certain confidential information related

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to Ms. Crowell's declaration in support of the retention programs motion. As Mr.

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Susberg indicated all objections to this motion have been withdrawn and it is

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highly important to the company and to its employees to keep their personal

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information confidential. So unless your honor has any questions we ask that

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that motion be granted and I can turn to the retention programs motion which

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would be the last item on the docket. Well before we do that there is the

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committee's motion docket at 311 which is referenced in the agenda which

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essentially sought redaction of their pleadings in opposition to the CURP. Are

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we treating those in the same fashion? In other words is the court being asked to

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grant their motion to redact and to seal?

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Well the US TRFTE has withdrawn objections to any of those motions. I do

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think it's moved with respect to the for instance the declaration that won't be

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put into the evidentiary record on behalf of the part of the retention

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programs motion but yes all of that should remain under seal. Well that's

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fine. For our records and for the docket I want this reflect that the motions are

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granted and that ensures that the documents remain sealed and not either

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returned or unsealed. So we'll then mark as well the committee's motion to

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seal at docket 311 is granted. And Mr. Spondor, Ms. Bielski who was ever weighing

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in you'll let me you'll advise if the US

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trustee is taking or has any additional concerns as we go along. Good morning to

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both of you. Thank you your honor yes we will advise. All right thank you. Mr. Howell

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please continue. Thank you your honor. So turning to the debtors motion for entry

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of an order approving the debtor retention program and granting related

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relief. We're pleased to say that we've reached the settlement with the

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official committee of unsecured creditors and that that settlement also

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allowed the United States trustee to resolve and withdraw its objection and

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as Mr. Susberg said it's thoughtful right now that that settlement with the

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official committee also addressed the molus issues as was just discussed. But

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the debtors have proposed two retention programs one key employer retention

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program for Kirk and one targeted retention program for Terp and in

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support of those motions I'd like to now offer two supporting declarations. One

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from the debtors chief people officer Megan Kroll that's a docket 350 and the

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other from Josephine Gar-Trel a senior director at Willis Powers Watson and

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that is that a docket 349. Your honor Maddie Hurst. Yes please. The committee most

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assuredly does not object to the admission of those declarations. I only

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asked if we can sort of a first evidentiary issue kind of matter where I

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asked the court if we're going forward contested matters there's sort of a rule

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that what we admit in one contested matter is not necessarily applicable in

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the next contested matter so we have to worry about things like that. We haven't

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sort of gone through any declarations with that in mind it's just sort of the

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normal rules of the road I understand them. If your honor is willing to appear.

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I don't have any issue with that approach we're limiting the evidence to

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the discrete motions that are before the court. Parties reserve their rights

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obviously for impeachment purposes down the road what's in a file sworn

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declaration is going it will retain its relevance but for purposes of today we

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understood we the court understands that given the consensual nature of

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the resolution they're being offered and for purpose of support of the

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resolution itself. Thank you. You're welcome and unless I unless I hear

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another objection the court will accept the declarations into evidence. Thank you

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your honor. So as laid out in the declarations as well as in our pleadings

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both of these plans the curb and the turf are retention plans and neither

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includes any of the debtors insiders. These are sound exercises of the debtors

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business judgment and justified based on the facts and circumstances of these cases.

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And in the end I'll come to the specific alterations that were made as a result

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of settlement but I did want to say your honor that in particular the facts and

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circumstances of this case are somewhat remarkable. These employees have faced a

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remarkable storm of events over the past year that have created friction already

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and high risk of further attrition. These employees have already seen three major

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downsizing events since last January including a reduction of force of nearly

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two-thirds of the total workforce immediately preceding the petition date.

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Most of these employees had legacy retention payments that were wiped out

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by the filing of the bankruptcy and all of them had lost equity in the company.

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In short this was a perfect mix for potential attrition and unfortunately

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the debtors have seen that attrition including 11 exits since the petition

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date alone nearly 10% of the remaining workforce. So against that backdrop it's

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essential that the debtors institute these retention programs to keep

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critical workers with the company. Now anyone reviewing this ProHills

185
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declaration or frankly anyone listening to Ms. Kohl's deposition would recognize

186
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the depth of effort that went into designing these programs and the depth

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of knowledge and passion that she and her team brought to understanding the

188
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debtors workforce and making sure the right skeleton crew remained to go

189
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forward and these employees that are part of these retention programs are

190
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critical to the debtors success no matter what the path forward whether

191
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that be through a sales process a standalone reorganization or otherwise

192
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and when I say success I mean maximizing recoveries to stakeholders here of

193
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course critically to the blocked by customers or clients as they call them

194
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and so I'm happy to walk through the data factors your honor but I thought

195
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given it's uncontested I would move through quickly that support is laid out

196
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in the declarations as well as in our motion and in our reply in short though

197
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the plan was designed to retain the critical employees which is necessary

198
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here while also making sure to make the best effort to control costs the plan

199
00:18:01,560 --> 00:18:06,280
design is consistent with industry standards the costs are reasonable given

200
00:18:06,280 --> 00:18:11,160
the facts and circumstances of this case and the debtors did an incredible amount

201
00:18:11,160 --> 00:18:15,040
of diligence working frankly around the clock immediately proceeding the

202
00:18:15,040 --> 00:18:21,680
bankruptcy to design these plans and to consult with outside advisors including

203
00:18:21,680 --> 00:18:28,880
counsel and Willis powers Watson so as we've said we're pleased to have reached

204
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this negotiated resolution and we have provided a revised order socket 419 that

205
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lays out the salient settlement terms those terms are as follows first the

206
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total cost of the plan of both programs was reduced to a total of a maximum of

207
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nine point nine eight million dollars that amount reflects that bonuses

208
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retention payments to the tier one employees shall be forty two point five percent of the base salary amount and with respect to the tier two

209
00:19:13,800 --> 00:19:19,680
participants and the retention programs that amount shall be nine percent which

210
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again arrives at a maximum of nine point nine eight billion dollars

211
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secondly there is a change to the timing for the tier one participants the tier

212
00:19:31,120 --> 00:19:35,440
two participants have no change to the timing of their payments but the tier

213
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one is now payable one third will be payable upon approval of the retention

214
00:19:42,280 --> 00:19:47,680
programs subject to clawback until the three-month anniversary of that same

215
00:19:47,680 --> 00:19:54,560
court approval the second third will be payable at the earlier of confirmation

216
00:19:54,560 --> 00:20:01,360
or sale approval so the earlier of either a confirmation or sale approval on

217
00:20:01,360 --> 00:20:05,840
the one hand or the six-month anniversary of court of court approval of

218
00:20:05,840 --> 00:20:10,520
the retention programs on the other hand and the final third will be payable at

219
00:20:10,520 --> 00:20:17,440
the earlier of either 30 days after emergence or 12 months or the 12-month

220
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anniversary of the court approval date also one other change to the order is

221
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that the debtors may now add a replacement participants of the

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retention program only with the consent of the committee so those are the

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changes those are reflected in the order at 419 so with that your honor I

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respectfully request that the debtors motion be granted I'm sure he's going to say you

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know it's seven Michael you're not on mute so your honor with that I respectfully

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request the debtors motion be granted thank you thank you mr. Howell I

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appreciate the recitation of the changes let me hear from anyone else who wishes

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to offer up any comments or concerns

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yes yes I'll mean that we agree with mr. Howell's

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recitation of the settlement and that with the settlement we are supportive of

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moving from us all right I thank the committee and I thank the US trustees

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office as well the objections have been well laid out and raised concerns and I

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think the the manner in which it was addressed as far as the sliding scale

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and the scheduling makes sense and in the amounts I think it offers the the

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debtor and the employees an opportunity to move forward and maximize the estate

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all involved were in agreement as to the applicable law and the recitation of the

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data factors I'm not going to go through it at this juncture I'm satisfied that

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the proposal as amended and has agreed upon comports with applicable law with

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respect to the curb and the TRP and I'm happy to approve it going forward I

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appreciate again the efforts and the professionalism and reaching the

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compromises thus I guess we're left with a hearing on Monday I won't let me go

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back before we approach Monday will the debtor be submitting final forms of

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order on these yes we will you're on all right so I'm going to mark an order to be

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submitted the motions to seal will just be more granted I don't need orders

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we'll use the orders that accompanied the motions and and now for Monday my

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understanding we have the molus application still pending we also have

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the sale and bidding procedures motion correct correct your honor we've got an

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objection from the United States trustee on the bidding procedures I'm hopeful

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maybe even cautiously optimistic that we can try to reduce the amount of

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objections from the US trustee although I'm not sure we'll solve them all so if

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we need to we'll address that Monday and then we also have the bar date motion

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and as you mentioned your honor the molus retention to the extent the US

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trustee has an objection all right that slipped my mind the bar date motion all

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right we are on for 10 o'clock I believe Monday my only concern scheduling is as

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I've indicated I am participating in a town hall remote seminar for one hour

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from 12 to 1 you all are welcome to watch if we're hopefully will be done if

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not we'll continue on after one o'clock depending upon how the arguments go any

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other issues or concerns that anyone wants to raise well again I

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appreciate the efforts thank you all take care we are adjourned