operation and as always should you need to be heard please use the raise hand
function and I will be sure and my staff will be sure to spot spotlight you this
is the BlockFi ink matter we have just what I anticipate is essentially a
report it seems that you all met all of my expectations as far as productivity
and efficiency and have reached certain resolutions I'm going to turn to
debtors council mr. Susberg and ask that you update the court as to what
resolutions have been reached and what remains out there yes your honor and
thank you for the record Joshua Susper from Kirkland Ellis on behalf of
BlockFi first and foremost I want to thank your honor for the status
conference on Monday and the setting of the hearing on Friday and Monday because
I think that's really something that spurred everybody into action we did
something a bit unorthodox for all of us and I could speak for mr. Stark when I
say this we actually had principals and advisors on a call on Tuesday I had a
deposition that actually went forward on Wednesday but we were able to cancel the
remaining depositions because we worked collectively and collaboratively to
reach an agreement on both the curve as well as the molest retention so we have
complete agreement on all sides and as you've seen the United States trustee
withdrew its objection after reviewing the terms of the settlement and mr.
Howell will walk the court through the proposed order that we reviewed with the
parties and believe everyone has signed off on so I did again want to take the
court and obviously want to take the committee and the BlockFi team for
everybody working collaboratively these are difficult circumstances and not
everyone's always going to agree but here the process really worked the way
it's supposed to work and kudos to the professionals involved for helping
everybody get to a good solution I think we feel comfortable that the curb will
serve its intended purpose and I think we convey for the committee and its
members some of the thinking behind that which is frankly what led to a
productive resolution so thank you your honor for that I did want to address one
brief issue before I turn it over to mr. Howell it's been the source of some
unrest on the BlockFi side and it was in the media and unfortunately it was
reported inaccurately and I'll start by saying that I always tell my kids that
we have pencils that have erasers on them for a reason and all humans make
mistakes I know I certainly make several probably each and every day and what
happened here was purely a mistake and I know mr. Stark and I know mr. Meiji and
I know everyone involved here and again while we may not always agree on
everything I know these people could be of the utmost integrity and there was
nothing nefarious in my view that went on there but as your honor I think is
aware there was an affidavit from mr. Meiji filed on January 24th at 12 10 a.m.
and that document was redacted but it was incorrectly redacted and this goes
beyond my knowledge base but someone was able to access the document that was
posted and copy the data underneath the redaction later that afternoon there
was a motion to steal the document which probably got people out there in the
universe looking at the document and peeling away their redactions and then we
had an unfortunate CNBC story that broke and that story is wrong the story said
there are secret financials that weren't otherwise relayed and conveyed in our
self-is in our schedules and I want to be very clear there are no such secret
financials the financials that we reported are entirely accurate in fact
block five numbers showed a net exposure whereas the ones in the end three
decorations showed a gross and so when block five made the loan to Alameda
that was the source of an older reporting prior to the Robin Hood shares
that your honor is well aware of being pledged the pledge collateral was FTT
points and as everybody who's familiar with FTC those the FTT collateral was
marked down to zero and the gap that remained was just the hour meet alone
and so the gap in the end three presentation looks bigger because it
shows the gross exposure and adds together assets and liabilities and both
numbers are accurate again no secret financials it just depends on the
corresponding footnotes I will also note that the CNBC article inaccurately
reported some management conversation that is outstanding that was wrong and
it was false we put out a statement as such I know that the document on the
docket that docket number 363 has been removed we appreciate the court and call
doing so and 388 is a revised declaration from Mr. Meiji that has in
fact been redacted appropriately so again Justice Nafoo, Mr. Stark and Mr. Meiji
called me immediately after realizing this and I totally understand this can
happen at any time and it's unfortunate but we're moving out understood and as
you said these things do happen especially with technology that we're
all not necessarily facile with Mr. Stark do you want to weigh in?
I do your honor, I don't want to...
Do you want to hear me okay?
Yes.
Thank you. I do want to confirm a couple things on the record although I think Mr. Sussberg
stated the facts on the ground quite well this was a late night drafting and
the redaction unfortunately did not have the encryption software we've all seen
this encryption issue before where our late-night mistake by somebody lowering
the chain on a redaction that the software was not used we didn't find out about it
the problem of not using the redaction is that it can be reversed engineered and
the person inadvertently files it doesn't realize because of a failure to
use the encryption software that they inadvertently put out there or something
that could be reverse engineered as soon as we found that out we pulled the
pleading we notified chambers we called Kirkland and Ellis and called them and
replaced it with the encryption redaction but in that intervening
window the CNBC reporter was able to reverse the pleading and reverse
engineer it so we couldn't stop that all we could do is come up to the error
which I fully take responsibility for I think the report as Mr. Sussberg and
quite aptly said sensationalize something that's a bit of a long and and so but
you never wanted it's kind of fallen for me that an error like that happens in any
event as soon as I figured it out I found out about it I called Mr. Sussberg
who could not have been more gracious and professional about that I'm not
surprised that's how he is and but I do think it's important to acknowledge and
recognize that that conversation happened in the heat of a very
significant battle between our respective clients so again I'm not
surprised by the professionalism but I'm quite thankful for it we don't have an
issue to resolve but I do want to acknowledge and be thankful for it in front of
you all. Thank you Mr. Stark I appreciate those comments and everything
I've seen is really as I've said matched if not exceeded expectations about the
quality and the efforts going on in this case. Mr. Sussberg I do have a question
just before we get into the details and it was my understanding that the US
trustee has lack of a better term signed off on the resolution the kerp
resolution I thought it was still an open issue on the mollusk retention has
something developed that I'm unaware of in other words I thought they had until
Sunday at certain Sunday afternoon right before game start to file objections.
Yes my understanding is that we are resolved with the US trustee for today
so the objections to the kerp and to the stealing of information have been
withdrawn as it relates to mollusk we will circulate if we haven't already a
copy of the revised mollusk order to reflect the settlement with the
committee and the US trustee has until Sunday to object to the mollusk
retention and to the extent there's an objection we will of course respond and
then be in a position to deal with it on Monday. All right that comports with my
understanding well that's great. Let's then proceed and let's hear of the
resolution that's been reached. Mr. Howell. Yes thank you your honor.
Rush Howell from Kirkland and Ellis. Can you hear me okay? Yes fine thank you.
Okay first I want to echo Mr. Susberg's comment and thank the court for its time
and assistance in helping us get to the resolution that we've reached as well as
to thank the committee and the office of the United States trustee for its
professionalism and the sometimes hard-fought battle that led to where we
are now. I'll take us through the agenda today briefly which of course we're
happy to say is entirely uncontested and so I'd like to start with the debtors
motion to seal at socket 351 to seal certain confidential information related
to Ms. Crowell's declaration in support of the retention programs motion. As Mr.
Susberg indicated all objections to this motion have been withdrawn and it is
highly important to the company and to its employees to keep their personal
information confidential. So unless your honor has any questions we ask that
that motion be granted and I can turn to the retention programs motion which
would be the last item on the docket. Well before we do that there is the
committee's motion docket at 311 which is referenced in the agenda which
essentially sought redaction of their pleadings in opposition to the CURP. Are
we treating those in the same fashion? In other words is the court being asked to
grant their motion to redact and to seal?
Well the US TRFTE has withdrawn objections to any of those motions. I do
think it's moved with respect to the for instance the declaration that won't be
put into the evidentiary record on behalf of the part of the retention
programs motion but yes all of that should remain under seal. Well that's
fine. For our records and for the docket I want this reflect that the motions are
granted and that ensures that the documents remain sealed and not either
returned or unsealed. So we'll then mark as well the committee's motion to
seal at docket 311 is granted. And Mr. Spondor, Ms. Bielski who was ever weighing
in you'll let me you'll advise if the US
trustee is taking or has any additional concerns as we go along. Good morning to
both of you. Thank you your honor yes we will advise. All right thank you. Mr. Howell
please continue. Thank you your honor. So turning to the debtors motion for entry
of an order approving the debtor retention program and granting related
relief. We're pleased to say that we've reached the settlement with the
official committee of unsecured creditors and that that settlement also
allowed the United States trustee to resolve and withdraw its objection and
as Mr. Susberg said it's thoughtful right now that that settlement with the
official committee also addressed the molus issues as was just discussed. But
the debtors have proposed two retention programs one key employer retention
program for Kirk and one targeted retention program for Terp and in
support of those motions I'd like to now offer two supporting declarations. One
from the debtors chief people officer Megan Kroll that's a docket 350 and the
other from Josephine Gar-Trel a senior director at Willis Powers Watson and
that is that a docket 349. Your honor Maddie Hurst. Yes please. The committee most
assuredly does not object to the admission of those declarations. I only
asked if we can sort of a first evidentiary issue kind of matter where I
asked the court if we're going forward contested matters there's sort of a rule
that what we admit in one contested matter is not necessarily applicable in
the next contested matter so we have to worry about things like that. We haven't
sort of gone through any declarations with that in mind it's just sort of the
normal rules of the road I understand them. If your honor is willing to appear.
I don't have any issue with that approach we're limiting the evidence to
the discrete motions that are before the court. Parties reserve their rights
obviously for impeachment purposes down the road what's in a file sworn
declaration is going it will retain its relevance but for purposes of today we
understood we the court understands that given the consensual nature of
the resolution they're being offered and for purpose of support of the
resolution itself. Thank you. You're welcome and unless I unless I hear
another objection the court will accept the declarations into evidence. Thank you
your honor. So as laid out in the declarations as well as in our pleadings
both of these plans the curb and the turf are retention plans and neither
includes any of the debtors insiders. These are sound exercises of the debtors
business judgment and justified based on the facts and circumstances of these cases.
And in the end I'll come to the specific alterations that were made as a result
of settlement but I did want to say your honor that in particular the facts and
circumstances of this case are somewhat remarkable. These employees have faced a
remarkable storm of events over the past year that have created friction already
and high risk of further attrition. These employees have already seen three major
downsizing events since last January including a reduction of force of nearly
two-thirds of the total workforce immediately preceding the petition date.
Most of these employees had legacy retention payments that were wiped out
by the filing of the bankruptcy and all of them had lost equity in the company.
In short this was a perfect mix for potential attrition and unfortunately
the debtors have seen that attrition including 11 exits since the petition
date alone nearly 10% of the remaining workforce. So against that backdrop it's
essential that the debtors institute these retention programs to keep
critical workers with the company. Now anyone reviewing this ProHills
declaration or frankly anyone listening to Ms. Kohl's deposition would recognize
the depth of effort that went into designing these programs and the depth
of knowledge and passion that she and her team brought to understanding the
debtors workforce and making sure the right skeleton crew remained to go
forward and these employees that are part of these retention programs are
critical to the debtors success no matter what the path forward whether
that be through a sales process a standalone reorganization or otherwise
and when I say success I mean maximizing recoveries to stakeholders here of
course critically to the blocked by customers or clients as they call them
and so I'm happy to walk through the data factors your honor but I thought
given it's uncontested I would move through quickly that support is laid out
in the declarations as well as in our motion and in our reply in short though
the plan was designed to retain the critical employees which is necessary
here while also making sure to make the best effort to control costs the plan
design is consistent with industry standards the costs are reasonable given
the facts and circumstances of this case and the debtors did an incredible amount
of diligence working frankly around the clock immediately proceeding the
bankruptcy to design these plans and to consult with outside advisors including
counsel and Willis powers Watson so as we've said we're pleased to have reached
this negotiated resolution and we have provided a revised order socket 419 that
lays out the salient settlement terms those terms are as follows first the
total cost of the plan of both programs was reduced to a total of a maximum of
nine point nine eight million dollars that amount reflects that bonuses
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
participants and the retention programs that amount shall be nine percent which
again arrives at a maximum of nine point nine eight billion dollars
secondly there is a change to the timing for the tier one participants the tier
two participants have no change to the timing of their payments but the tier
one is now payable one third will be payable upon approval of the retention
programs subject to clawback until the three-month anniversary of that same
court approval the second third will be payable at the earlier of confirmation
or sale approval so the earlier of either a confirmation or sale approval on
the one hand or the six-month anniversary of court of court approval of
the retention programs on the other hand and the final third will be payable at
the earlier of either 30 days after emergence or 12 months or the 12-month
anniversary of the court approval date also one other change to the order is
that the debtors may now add a replacement participants of the
retention program only with the consent of the committee so those are the
changes those are reflected in the order at 419 so with that your honor I
respectfully request that the debtors motion be granted I'm sure he's going to say you
know it's seven Michael you're not on mute so your honor with that I respectfully
request the debtors motion be granted thank you thank you mr. Howell I
appreciate the recitation of the changes let me hear from anyone else who wishes
to offer up any comments or concerns
yes yes I'll mean that we agree with mr. Howell's
recitation of the settlement and that with the settlement we are supportive of
moving from us all right I thank the committee and I thank the US trustees
office as well the objections have been well laid out and raised concerns and I
think the the manner in which it was addressed as far as the sliding scale
and the scheduling makes sense and in the amounts I think it offers the the
debtor and the employees an opportunity to move forward and maximize the estate
all involved were in agreement as to the applicable law and the recitation of the
data factors I'm not going to go through it at this juncture I'm satisfied that
the proposal as amended and has agreed upon comports with applicable law with
respect to the curb and the TRP and I'm happy to approve it going forward I
appreciate again the efforts and the professionalism and reaching the
compromises thus I guess we're left with a hearing on Monday I won't let me go
back before we approach Monday will the debtor be submitting final forms of
order on these yes we will you're on all right so I'm going to mark an order to be
submitted the motions to seal will just be more granted I don't need orders
we'll use the orders that accompanied the motions and and now for Monday my
understanding we have the molus application still pending we also have
the sale and bidding procedures motion correct correct your honor we've got an
objection from the United States trustee on the bidding procedures I'm hopeful
maybe even cautiously optimistic that we can try to reduce the amount of
objections from the US trustee although I'm not sure we'll solve them all so if
we need to we'll address that Monday and then we also have the bar date motion
and as you mentioned your honor the molus retention to the extent the US
trustee has an objection all right that slipped my mind the bar date motion all
right we are on for 10 o'clock I believe Monday my only concern scheduling is as
I've indicated I am participating in a town hall remote seminar for one hour
from 12 to 1 you all are welcome to watch if we're hopefully will be done if
not we'll continue on after one o'clock depending upon how the arguments go any
other issues or concerns that anyone wants to raise well again I
appreciate the efforts thank you all take care we are adjourned