American court hearing recordings and interviews - Season 3. Episode 13. November 14, 2023. In re Core Scientific, Inc et al chapter 11 bankruptcy case number 22-90341, audio of hearing held in bankruptcy proceedings pending before the U.S. Bankruptcy Court for the Southern District of Texas #crypto

Episode Date: November 27, 2023

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Okay, good afternoon, everyone. This is Judge Lopez. Today is November 14th. I'm going to call the 2PM case 2290341. Of course, Scientific here on a disclosure statement hearing and a backstop commitment motion. So let me go ahead and just briefly take appearances. Mr. Perez. Your Honor, Alfredo Perez on behalf of the debtors. Okay. Anyone else wish to make an appearance? Good afternoon, Your Honor. Karen Beckman from Ms. Lelkins appearing on behalf of the Equity Committee. Okay. I'm going to David Meyer.

David Meyer and Paul Heath School in the courtroom. Okay. Good afternoon. Anyone else in the courtroom? Choate Hall and Stewart on behalf of B. Riley Financial. Okay. Good afternoon. Good afternoon, Your Honor.

Brian Lohen on behalf of Barron, one of the equipment lenders. Oh, good afternoon. Okay. I'm going to mute a few lines here. It's a 917 number. Mr. Kim, you're a little bit low. Can I get a chance to hear you too well? playing at Morgan Hoffman in the securities class action.

Oh, perfect. Good afternoon. There's a 202 number. Good afternoon. Hold on. I think I double. I gave you the double hit, not intentional. Good afternoon.

That's okay. You're always playing games with me. Good afternoon, Your Honor. Jason Ruff on behalf of the United States Trustees Office. Good afternoon. He's a 2-1-2 number. Good afternoon, Your Honor. Chris Hanson and Paul Hastings on behalf of the Adhock Committee of Convertible note holders.

Good afternoon. All righty. Mr. Perez, why don't you tell me where we are? Yes, Your Honor. With the court's indulgence, if we could have one more hour, come back at 3 o'clock, I think everyone's back at the office trying to work through the various issues, and hopefully we will, at a minimum, have narrowed the issues before we come back. Okay.

So with the court's indulgence, one hour, be great. Okay. For the lines that are unmuted, I will keep you unmuted. and I'll just I'll step off and I'll come back at 3 p.m. Thank you. Thank you, Your Honor. Good afternoon, Your Honor. Hey, good afternoon. Roni Berkovich from Wild Gatchell for the debtor for scientific.

With me from Weil, we have Mr. Perez and Mr. Carlson. Mr. Schrock is also on the video. Okay. I have our financial advisor from PJP, John Singh. And then we have from Corps, Adam Sullivan. who's the CEO and Mike Rose, who's the senior BP of Capital Market. Your Honor, we're here today on the debtor's disclosure statement motion, a docket 1384, and the backstop motion at docket 1383.

Your Honor, I was hoping to tell you that the documents were signed up in the last hour between when the hearing was supposed to start and now. Where we are is we're 99.99% of the way done with the RSA parties. and the backstop parties. There's a couple of open issues. I would call them very minor, and I have confidence that we'll be able to resolve them in the documents in the time later today or first thing tomorrow morning,

but we believe it makes sense to go forward to get approval of the documents that are on file, but everything would be subject to the parties to the documents, finalizing them and agreeing on them. Okay. Okay. So as I mentioned, the first item is conditional approval of the Disposure Statement and the solicitation procedures, and the second item is approval of the backstop agreement.

Mr. Carlson will go over those documents, but I'd like to give this an overview of where we are and what our Chapter 11 plan is and the agreements we have among the parties. Okay. We do have two declarations that we just filed in support of the motions. one from John Singh and one from Michael Brose at dockets 1417 and 1418. Somebody else will move to admit those into evidence. And we've been filing documents for the last hours. We have a team of associates back in the office filing documents as we speak to reflect

the terms that have evolved in the last 48 hours. The deal is complicated and there are many parties. There's like several dozen backstop parties and we have the ad hoc group of convertible note holders. So every time there's a change, there's a lot of people to reach out to. Just to highlight, and we do have, sorry, a presentation. Yeah, just got filed. Higel, you're going to have to wave your hand. A lot of boxes here.

Okay, I see you. Wait. You moved. Oh, there you are. Okay. The overview. Just a few key dates, and again, Mr. Carlson will go through this in more detail. But if we get the orders approved today, we would like to commence solicitation of the plan

and the rights offering. Friday we would file the plan supplement on December 8th the voting deadline December 13th objection deadline December 15th and we haven't run this by chambers yet but we would like a confirmation hearing shortly before Christmas if that's available with the hopes of getting out of bankruptcy on January in January today today is a big day the fact that we are 99.99% of the way there sort of agreements in a very very complicated case with many parties We should have filed any minute now.

The fourth amended plan, which changes the third amended plan, which had been docket 1407 from Friday. We are very close to restructuring support agreement, which also we have to file on the docket. That would be between the debtors, the ad hoc note holder group, the Equity Committee, and all members of the Equity Committee except for one. We also have had for a while the support of the minor equipment lenders for our plan. There are two parties that are not yet supporting the plan. I really think of them as one. One is the unsecured creditors committee. The other is B. Riley, which is our dip lender, but also our largest unsecured creditor.

We're taking care of them as a dip lender, so to the extent they don't support the plan, it's as an unsecured creditor, and so they're aligned with the creditors committee. So, again, all of our secured creditors, as far as we know, support the plan, are many secured creditors and the equity holders support the plan, but this one group in the middle, we're still working on it. We do intend to continue discussions with them. They have been part of mediation. We have tried to reach a deal with them.

We do owe them a proposal, and we do intend to give them one and hopefully get to a fully consensual plan. This case has also involved many other settlements that have been approved by the court over the last six months or so, including a big one with Celsius and about half a half of the settlement. a dozen holders of mechanics lien claims. Your Honor, we wouldn't be here today without the great work of Judge Isgar, who is our mediator, who's been working with us since July, in overcoming very, helping us overcome very difficult issues in getting this day. Just a quick timeline to take us to where we are. We filed this case in December of 2022. As we explained to your

honor last month, we had a status conference, we filed with an RSA. with the secured predators. The market changed. We terminated that RSA. We got more time through a new dip loan. And then we worked hard with all of our parties.

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Even when things are in their Ruff. Cincinnati Insurance. Let us make your bad day better. Find an agent at CINFIN.com. I try to get to a deal. At Judge Jones is urging. We filed a plan on June 20th, so almost five months ago. No one supported that plan. We began mediation, and little by little, we started getting agreement on our plan. So first, we entered into the equipment lender settlement. There's no real documentation to that. There's no RSA. It's just their agreement to support a plan if it includes the terms that

we've included in the plan. And we're grateful for their support. They've been our first friend, and we don't forget that. We did file a couple of versions of the plan in August and September. It did have the support of D. Riley, but did not have the support of the ad hoc note holder group. Those plans

contemplated a cram-up of the secured notes that, you know, approximately with $700 million in claims that we secured claims we were seeking to cram up. We were happy to get them on board again through the mediation and we announced the settlement on September 19th that included the ad hoc group and the equity committee. We then worked with them and V. Riley to try to get to a deal. We reached a restructuring term sheet with the ad hoc note holder group and the equity

committee to be filed on October 30th. At that point, the convertible note holders had agreed to provide our exit financing, taking out the need for B. Riley to do so. So that's when B. Riley no longer supported the plan. And then we get to November and we've been filing plans and disclosure statements as the deal evolved. As a reminder of the key stakeholders, we have the CEO and Mike Rose are declarant here in court. Our chief legal officer is Todd Duchenne.

Our special committee has been very involved throughout. That's Neil Goldman and New and Youngblood. And then the rest of our board is listed here. We've always said that this case involved five key constituents, the ad half note holder group, equipment lenders, the creditors committee, D. Riley, and the Equity Committee. And we've been working with them for a year. So we are excited about our Chapter 11 plan, which will get the company out of bankruptcy.

It a few highlights. It incorporates a global settlement between the debtors and the RSA parties, as well as other settlements with other key stakeholders. It provides a comprehensive restructuring of the debtor's balance sheet, reducing the debtor's total debt by approximately $245 million, and significantly reducing their annual debt service. plan would preserve in excess of 240 jobs very importantly the plan provides a full recovery to all creditors other than subordinated creditors and those that have agreed to

lesser treatment um this includes 100 percent of the allowed claim plus post-position interest we know that the creditors committee um doesn't agree that it's a full case and they put their we put their position in our disclosure statements and that will be an issue for confirmation we can't reach to deal with them. We have a meaningful recovery to shareholders, and we have exit funding to enable us to exit the plan and fund operations going forward. First, there's a $40 million new money

being provided by convertible note holders in a first-lane exit facility, and second, we have a rights offering of up to $55 million to shareholders that is daxed off currently by $37.1 million. What's really great about our plan is it resolves a lot of big, issues that have been facing us since the beginning of the case. One big one is valuation.

Given the nature of this business, there's been a lot of disputes about valuation. Now everyone agrees, who's parted the plan that the plan has an enterprise value of $1.5 billion with an expected plan equity value of $795 million. We have warrants going to equity holders in case they're right that the value is higher then we've agreed they will get compensated through those warrants. Another big issue, which hopefully we don't have to hear about because we resolved it, is this 2x amount. There's some unusual provisions in the convertible note holder purchase agreements that provide

that under certain circumstances, the convertible notes are payable at two times principal plus interest. It's been a dispute as to whether that's payable under Chapter 11 plan, and our plan does resolve those issues that's the claim amount. We talked about the funding of the plan that was now resolved. This plan, unlike the other versions of the plan that we had prior to a deal with the convertible note holders, allows us to significantly de-leverage. We no longer have to cram up $700 million in secured debt. Instead, they've agreed to equitize a significant portion of their secured claims, obviously something that we couldn't do without their consent. There were very

lien priority and inter-creditor issues involved when B. Riley was putting in the new money. Our current plan gets rid of those issues by having the convertible note holders be the primary secured creditors under both the exit facility as well as the take-back debt. There were significant disagreements over the terms of the take-back debt that the convertible note holders were getting. We were able to resolve those and those are all set forth in term sheets to the plan each of the instruments being issued under the plan a big issue early in the case was our disputes with the equipment lenders over the value of their collateral and the size of their claims we've been able to resolve those through

the equipment lender settlement the plan resolves governance our new board of directors we have both the equity committee and the convertible note holders each selecting two members with fifth to be the CEO and then I'll get to this more detail but there were some disputes about the payment of certain fees relating to equity holders. So those have been resolved through our plan. Your Honor, I have like about a 10-minute summary of the plan. I know that you saw the version from Friday. It hasn't changed on these issues too much.

I'm happy to spend 10 minutes going through it or we can skip over it. Yeah, no. I've seen it. And I started going through. there was a version another version of the plan that was filed around two 51 I don't know if there's going to be another version I think that's that one that's the version the last version for today might be the third third they call it the third again so it may be the the solid third yes that that's the version that we're

seeking approval of if there are minor changes to it okay all the parties to consent to that. Okay. Perfect. So we don't need to go through these slides. We'll jump to slide 18 just to show you the equity split. This is a slide from our disclosure statement. I think it's interesting, especially the last two lines. It just shows you that both the equity holders and the

convertible node holders have significant equity ownership from the company going forward. and it's a huge accomplishment that we were able to get them to agree on the plan. And then my last slide is slide 19. Again, we have an RSA. It is very standard in that the convertible note holders and the Equity Committee agreed to support the plan. We have milestones that are tight but not too tight, and consent rights for parties over the document. We also have a fiduciary out for both the debtors and the equity committee.

But the RSA gives us a clear path to emergence. And we were going to file a form of the RSA in the last hour or so, but we'll get that on file. And that's all I had in terms of background before turning it over to Mr. Carlson to get through the specific request for today. Okay. Thank you. Good afternoon, Your Honor. With Carlson on behalf of the Ders.

Your Honor, before I go through a separate of the Ders, Your Honor, before I go through, the evidence that we'd like to introduce. Is there anyone else you'd like to hear from before we move forward with the evidentiary? No, let's just get right to it. So, Your Honor, we filed our witness and exhibit list at docket number 1420. That's our amended one. This morning we filed two declarations. One declaration is John Singh from BJT in support of the backstop motion.

The other one is of Michael Broves from the company in support of our disclosure statement, or conditional disclosure statement motion and the backstop as well so we'd like to move to introduce exhibits one through 13 here six and seven of the declarations any admission any objection to the admission of any of the requested documents in evidence and just take a quick look here mr carlson just on line okay they're admitted So, Your Honor, I'm going to start with just an overview of the rights offering and the backstop commitment to walk you through how that works here. So, Your Honor, we have a $55 million equity rights offering that we plan to launch following approval of the disclosure statement order and the backstop approval motion. That's going to be available, the rights offering, to all existing equity holders.

and there'll be opportunity to purchase new common interest at a 30% discount the plan equity value. And included as part of that equity rights offering procedures, there's going to be subscription rights and oversubscription rights for the extent some of the subscription rights are not fully subscribed. Your Honor, we have two, and I should take a step back, we have two sources of capital that is going to fund our Chapter 11 plan. We've got the $55 million equity rights offering that is backstopped by 31 individuals up to $37.1 million dollars in the amount of backstop commitment. And then we have a separate commitment that we're finalizing with our convertible note holders or subset of that group to provide for $40 million of new money and a delay draw term loan. As part of the backstop commitment that we've negotiated, I think the evidence that will show or the shows in Mr. Singh's declaration that, you know, PJT ran a fulsome process.

They went far and wide. They, you know, we entered into the mediation stage of these cases in July. We were able to negotiate a value maximizing transaction that resolved a number of issues as Ms. Burkiewicz went through, including a $1.5 billion enterprise. value and a number of other issues with respect to claim amounts and we also in parallel we're running a process to try to raise equity rights off or equity rights raise and the only you know only actionable form of equity that we were able to raise was the 37 million dollars in commitments at least at least to backstop and fund this this plan at this valuation as part of the settlement

And so we think that it's in the reasonable, it's in the best interest in the company. It provides certainty. It allows us to implement that plan. It provides the debtors with sufficient liquidity, you know, along with the exit facility, to move forward and fund the plan and address its post-emergence capital needs. We think that, you know, in addition, you know, this, what's unique about this is that it's a backstop commitment. provided by 31 individuals. These are all, or sorry, 31 parties. These are primarily existing equity holders. There are protections that we've negotiated and rights to make sure

that this is, you know, this is actionable and somebody is in default. We have, we have remedies. Number one, we're requiring that each party put in a deposit of 10% of their commitment within three days of entry three business days of entry of the backstop order we've also negotiated a number of other enforcement remedies that we will that you know including the ability to withhold equity distributions under the plan to the extent those default we think the the terms that we were under which we were able to negotiate the backstop commitment are very favorable to the company although the commitment premium is on the high end of the

It provides for a 20% commitment premium payable in chairs on the effective date. The termination payment in this case is quite limited. It's only about $1.85 million and it's only payable in very limited circumstances where where there's a either we missed the outside date in February or other other circumstances where there's a breach by the debtors. So we think that the terms are favorable. And, you know, one thing we did want to flag, we did make some amendments to the form of the backstop amendment letter in term sheet that we filed as a supplement early this morning. Those changes are a threefold.

One is we clarified the way the backstop amendment works. It backstops the first $37 million of the equity rights offering. So if we were able to raise $37 million. any any you know then there will not be a backstop it falls away after 37. Second is we removed a procedure that would allow for additional backstop parties come in and then finally we're engaging an information agent to help to help facilitate the rights offering. You know these were these were changes that were negotiated that were required part of the commitments that we received and so we thought they were reasonable and

appropriate under the circumstance. Your Honor, that's the presentation on the backstop. I'm being in the rights offering. I don't know if you have any questions if now I'll move on the discourse today. No, why don't we just take them one by one? Let me just see if anyone has wishes to be heard in connection with the backstop motion. Good afternoon, Your Honor. David Meyer, Vincent and Elthons on behalf of the Equity Committee. Good afternoon. A couple quick remarks. Largely we'll echo Ms. Berkovich and Mr. Carlson's comments. First, we're close on the 99.99%, I believe, of being a definitive documentation. But, you know, I think there's an accurate characterization from the company's perspective

of a lot of hard work that's gone in over the last several days and weeks. Or for that matter, and greatly appreciate judges' efforts on that front as well. Your Honor, I think we often, in your courtroom and others, will refer to stakeholders stepping up to defend their position in the form of a new capital raise. And to say this is a unique capital-raised process, Your Honor, would truly be an understatement. It's the Equity Committee that spearheaded the initiative to raise the $37.1 million in backstop commitments from 31 parties. That includes members of the Equity Committee, as well as other equity holders. And as Mr. Carlson knows, the vast majority of those folks are individuals.

I think of it, almost, Your Honor, as a form of crowdfunding is how it might be described, reflecting the enthusiasm from equity holders of getting a deal closer to the finish line and helping the company emerge from bankruptcy. We've negotiated closely with the company and coordinated on the revised deal terms, and we're cautiously optimistic based on the revised backstop commitment that their equity rights offering is going to be successful. So in sum, Your Honor, and to the equity holders that may be listening today, I agree with Ms. Berkovich that today is an important day for the company,

as well as the company's equity holders. It's been a difficult path and journey for the company's equity holders, but we believe the key stakeholders are positioned to work together as partners. facilitate confirmation and exit from chapter 11 on the timeline the company has proposed. So thank you, Ryan. Thank you. Anyone else? Wish to be heard.

And the Chodhawin's word on behalf of B. Riley. So the backstop and the disclosure statement are of course intertwined, Your Honor. And so I don't want to take up a lot of time. But I did want to note our growing concern, I guess, on sort of the scheduling issues that are going into this process. It's very much understanding this is a complicated case and this is evolving. But it's very difficult to judge. to judge exactly where we are given these we still haven't seen a signed backstop we don't know fully who's participating in it so most of my comments today are really

echoing what was raised by the committee in their response last night your honor going to the feasibility of the plan and also like I said a growing concern about the schedule with the holidays rushing upon us and the like your honor so they may go more to the disclosure statement but since you asked to take them one at a time. That's what I really wanted to raise, Your Honor. So I anticipate the folks representing the committee will want to speak. But I did want to note, it's really tough for my client to know quite where we are, given that there are still documents sort of being filed right now, Your Honor.

Yeah, I understand. Thank you. Anyone else? Let me turn to the phone line. Anyone on the phone line wish to be heard if you do, please hit 5-star. I'm just unmuted a 2-1-2 number. You wish to be heard in connection with the backstop? Can you hear me okay? Just fine.

Not a problem. I'm glad you're okay. Thank you. Anyone else? Your Honor, can you hear me? Yes, fine. Thank you, Your Honor. Chris Hanson with Paul Hastings on behalf of the ad hoc committee of convertible note holders.

You all have some remarks in the context of the disclosure statement as well, but with respect to the backstop and the equity rights offering that surrounds it, I just wanted to note for the court that, like with the disclosure statement, and the ad hoc committee is still trying to work through some of the terms. There were some changes recently to the equity rights offering terms. And if we have some requests into the debtors, our hope is that we'll be able to resolve those consensually. And that'll be part of the disclosure statement and confirmation process is all rolled out. We don't think that they're really major issues, but we did want to point out to the court that we're still working through that with the debtors.

We don't oppose approval of the backstop today on the, representations made to us by the debtors and the equity committee that we're going to try to work through these issues together. Okay. So let me just then note for the record. At docket 1383 on November 3rd, the debt is filed an emergency motion to enter into a backstop commitment letter agreement to approve performance obligation obligations there under. I'm going to find that there's been proper notice and service of the motion under the circumstances. I'm going to grant emergency consideration of the motion. I believe it's appropriate in light of where we are today.

The court considers the statements made on the record, and I also rely on the declaration admitted with Mr. Singh, as I consider where we are. The standard for approval in the motion is under Section 316. really, which is, you look at Fifth Circuit case law. The standard really is an articulated sound business reasons. Business judgment test is really where you are. You've got to have good sound business reasons for entering into it,

and that's the standard under 363. Looking at the old continental case that really about 1986 came out. And, of course, the Fifth Circuit's been pretty consistent. They're under looking at the standard there. When you look at the backstop commitment letter, I agree with the statements made by Mr. Singh in his declaration. I think you've got to look at backstop commitments in their totality, and you don't just kind of pinpoint isolated reasons one way or the other. I think you've got to look at every component of it, but you've got to kind of look at the total.

package to see really where you are, and you also have to kind of take a look at where the case is and where things are. And so when I consider the totality of the entire package there, I got it. I think the commitment premium is kind of on the higher side, but when you look at the termination payment, it's on the lower side, and you look at the agreement and kind of the consent where parties stand today, and I don't hear a better deal on the table. And I got it. It's emergency motion, but this case has been out there for a while.

I think when you look at everything there, the debt is certainly articulating, making sound business reasons. I said, why it needs liquidity to get to, and it needs to set a runway in connection with plan confirmation. And obviously, those plan confirmation issues will get taken up at the appropriate time. Today's not that day. Today's just the day to see whether they can even begin to kind of put the pieces together to create a runway that would set the table for a, potential plan. And there's, you know, agreement between the debtors and on our committee, or at least no objection between an auto committee or insecure creditors, and there's support from an

equity committee. So a lot of moving pieces have come together here. So I'm going to find that the debtor is satisfying the test in the Fifth Circuit for approval of the backstop commitment letter and to enter into it and to seek performance under it and to afford the backstop commitment parties to understand kind of you know what they're what they would get under the deal and so I'm going to approve that

the you know the equity capital raise as described on the parties and been articulated before the court so I'm going to grant that motion. I got it. There's some moving pieces. And if things change materially from where we are today, then I think we all get a chance to come back and reconsider. But based upon the representations that are before me, the forms that I have read, that doesn't mean that, you know, insignificant or what I would call non-material tweaks can't get made. But if there's something really just changed the deal, the fundamental terms of the deal, then I think parties have a right to kind of come back. and take a look at this so subject to everyone else subject to finalization of all the paperwork

in which parties along have an opportunity to see um i'm going to grant um the motion so why don't we turn to the disclosure statement thank you your honor so you're up so we filed our amended disclosure statement that's at docket 1421 this morning we also filed an amended form of disclosure statement order um i think where we stand at first we're only seeking conditional approval today we'll have we'll have a final approval of the disclosure statement heard at the combined hearing at a later later time the where I think we stand as far as objections we've been working around the clock to try to resolve all the all the all the comments that have

come in we had three filed objections on the docket I believe two of those three have been now withdrawn but we're resolved on those two there's one that was filed by Mr. Hoffman a securities litigation plaintiff I don't know where that stands if that's still going to be pressed I think our view is that that objection either deals with plan confirmation issues or or may have misunderstood how our opt-out procedures work here and under the plan and help third party the the third-party releases work and so those those types of issues but we'll hear from him I'm sure if there's still open issues I know the

I know the UCC has confirmation issues as well and I'm sure you'll hear from them but I believe we're resolved on all of our disclosure statement and solicitation procedures issues with them in the amended form of disclosure statement order that we filed this this morning and so your honor I think we would you know we would rely on you know the test the declaration of mr. Rose who's the who signed signed the disclosure statement and that's filed that that's our exhibit number seven. I know folks have views on timeline that we can talk through,

but before that, if there's any questions you have about our procedures or our disclosure statement, I'm happy to answer them. No, no, no, I read it. The only thing I would ask, Mr. Koston, is I know there was a kind of the, I guess what I recall to us, the third or the solid third that was filed around two. 249 and the disclosure statement was filed at 251. I think I just want to, I don't know if there's been a red line for me to see kind of

if there were any red line tweaks to the prior version just so we can, and I think I just need to see change pages only, by frankly, just so everyone can kind of just see what the latest. I think I saw the changes, but I may have missed one. We're happy to get that in file. Okay. But no, I'm comfortable with where we're. at least in terms of kind of where things are, I just need to hear from parties and see where things are in light of everything that got filed.

So why don't I open it up first in the courtroom and then see where we are on the phone? B. Riley. I apologize. I realize I made you go back there and come right back. Yeah, I need to exercise. So, Your Honor, I guess kind of two broad points to make. As Ms. Berkovich reminded the court, B. Riley is both the dip lender and the largest unsecured creditor in this case. And the plan does contemplate the payment in full of the dip upon emergence.

I would note, Your Honor, though, that our fundamental concern is that we don't think the plan is confirmable in its current form for the reasons set forth in the UCC's response and for various other reasons that we will be able to do. What's the unconfirmable part? We do think it violates the absolute priority rule, Your Honor, because it is certainly provided. How do I make that determination with no votes? Oh, I'm not asking you to make it today, Your Honor. I'm just reflecting why I'm up speaking today. Ah, got it. So, as I was trying to say, and I apologize for not being clear on,

that's a confirmation issue, but it does concern us. So I simply would say we reserve all our rights to defend, Your Honor. I think what is concerning us today is the timeline, and we'll let the UCC Council speak more directly about it. But as I understand it, they're planning to do discovery. We are on a remarkably short time frame, I think, given the complexity of the case and kind of the moving target we're firing at, Your Honor.

So I know the committee reserved the right to challenge the timeline after the fact. We're not trying to get in the way of the debtor process. Here, Your Honor, we understand this value in the case moving along. But we are concerned about that, I would say, a great deal. And then the last thing I just want to say briefly, Your Honor, is my client has been very supportive

of the debtor for this process. We have a very good relationship with Ms. Berkovich and her team. And we know people are working around the clock and we respect that. But we've been waiting for quite a while now for a response to some offers that were made before. We're eager to get that and engage with the debtor on it. And we'd just note, Your Honor, Ms. Berkiewicz made a point earlier that we're not supporting the plan

because we were not the exit lender. And I would just respectfully note, Your Honor, that's not why we have concerns about the plan. We were committed to provide the exit financing and still would be interested in providing it. But that's not why we're concerned right now about the plan. it's because we don't agree with the treatment of our claim. So I just wanted to note that for the record, Your Honor. But again, we are eager to work with the debtor and its professionals to try to resolve this. And if we can, we'll deal with it a confirmation.

Okay. Thank you, Your Honor. Anyone else? Wish to be heard in the courtroom. Good afternoon, Your Honor. Brian Lohen from our own reporter on behalf of Barrios. Good afternoon. Bairings is an equipment lender, and although the equipment lender is never formally organized, we have there's about half dozen or so equipment lenders we have individually and collectively tried to be a constructive partner of the debtors throughout these

cases including by streamlining presentations to this court and negotiating the deal with Berkowitz mentioned so while I rise on behalf of bearings I think my my comments and thoughts echo those of the equipment lenders generally I do want to thank Ms. Berkowitz for her comments that we were the debtors for the time. It really has been a great friendship. I don't want to bury the lead. We very much support the various relief being sought today, as well as the company's exit from bankruptcy on the debtors proposed timeline. We also very much appreciate the hard work by Ms. Berkowitz and her team, the PJT team,

but there is a but, but I don't think it's insurmountable. As Ms. Berkowitz alluded to at the top of the hearing, there's a lot of moving pieces, and that is the source of some concern I don't think it's insurmountable concern we raise concerns with the wild team and hope that's part of the discussions that I'm going to take place over the next couple of days to kind of clean up the documents and I just I think the best way to characterize our concern we reached a deal and that deal is memorialized in the term sheet attached to the plan the equipment lenders vote on the plan and being solicited based on that deal the equipment lender

are being asked to make certain decisions regarding the plan tape treatment based on the deal in the equipment lender term sheet and the overall plan we expect and frankly the plan is solicited on the basis that the deal in the equipment lender term sheet is going to be the deal at confirmation and on the effective date between now and confirmation we are going to negotiate the definitive docs in good faith based on the deal in the equipment and term sheet if others try to change the deal in the equipment lender terms or use consent rights in a way that modifies the equipment lenders deal without our consent, we will be raising those issues at our prior to confirmation.

Of course, we hope that doesn't happen. I didn't, I was reluctant to rise and make that statement given the money. You don't want to get re-traded. I got it. Right. But all that being said, Your Honor, we very much support and appreciate the debtor's work that's gone into it. Their friendship throughout the cases, and we hope that we don't have to be before this court. Thank you.

Thank you. Anyone else in the courtroom wish to be heard? With that, I'll turn on anyone online. Wish to be heard. Yes, Your Honor. It's Philip Kim, Rosen Law firm for lead plaintiff Morgan Hoffman and the securities litigation. Yes, sir. You know, our objection is based on the idea that the plan is not confirmable to the extent that it releases these third-party claims.

You know, in our class action, our case was filed pre-petitioned. We have claims against 15 defendants who are non-debtors. The debtor in this case had never moved to intervene to stay our case. That case is being litigated. Through their silence, it's become clear by taking no action in our case that the participation of the third parties in our class action has any impact in the Chapter 11th. in case, none whatsoever.

And I think that is very important because in the context of third-party releases, there actually has to be some sort of consideration. These 15 defendants, six of whom were not even directors and officers of course, scientific, they were directors and officers of the SPAC entity back in 2021, are providing no consideration. There's nothing in the disclosure statement indicating, the reasons for these third-party releases, no consideration. It appears that these releases are just gratuitous.

They're just providing these releases, these get out of jail-free cards of the securities claim, for actually no consideration. There's no case law, no authority, Your Honor. And they're an opt-out? Well, they've set forth an opt-out procedure, but if we take it a step back, Your Honor, the court, even with the Senate's arguments as to our class treatment motion, which is said we're here on December 6th, they've taken the position that effectively those class members who have these third-party claims,

the court has no jurisdiction over, right? We're here because we filed the class proof of claim because we're appointed lead plaintiffs and lead counsel. We have that authority. In response to that, the debtor's position is, well, you're only here, on the basis of your individual status, not on behalf of the Puted class. So when it comes to objecting to our claim and our right to opt out if that's what we need to do, they take the position that with respect to the third party release, well, that impacts everyone, right?

They're effectively getting a class treatment on these third party claims to which they say to us, hey, you have no standing to speak for these folks, despite the fact that the district court has appointed us lead counsel and lead plaintiff to speak for the putative class. And, you know, if you take it, if you look at the disclosure statement, it's completely silent on it. We've been waving our arms through our various filings saying, what is the consideration?

I've sat through two PowerPoint presentations. There was a status conference. There was a presentation today. there's nothing in those presentations that said, hey, this, the release of a third party claims in the class action is a critical piece to get this deal done. In fact, it isn't. I think the silence speaks wonders. And it's their burden. It's their burden to apply these third party releases. This isn't like the Sackler family putting up $6.5 billion, right? These defendants have put up nothing. So there's no basis

to let the solicitation process go through to our investors, to our class. And, you know, if you actually look at the notice program that they're proposing, we have problems with the timing. I know there's been sort of a flurry of filings and numerous changes, and, you know, this is sort of very compressed, and I would say unprecedented. But if you look at their ballot, Exhibit 9, it seems to suggest that class members who have these third-party claims may actually get a recovery. But in fact, the plan itself says that they will get nothing.

So the ballot itself that's supposed to go out to our investors is misleading. It's not written in plain language. It is security class action under the PSLRA. Notice to investors have to be written in plain language and have to contain all the relevant information. So the ballot itself is inappropriate. Secondly, the notice program that they're suggesting, right, they say that they're going to provide notice to people between January 3rd, 2022 to December 20th of 2022.

The class period in our case starts December 7th, 2021. Our case not only includes common stock, but it includes warrants, stock options. and the stock of the SPAC entity. So there's not going to be appropriate notice to people if the case gets to the point where they need to solicit vote. The other aspect of it, they make much to do about the fact, well, you know, when we put out the bar order,

we received 30 proofs of claim. Aha. Therefore, that's appropriate notice. If I went to Judge Ezra with the settlement or class certification or something of that, nature and we've only had 30 claimants, he would add a hand tell us to reissue notice, right? This is a case during our class period, there were 1.6 billion shares traded. B with a billion.

The fact that you would get 30 responses in response to that is on its state shows that the notice program is inappropriate, ineffective, and improper. I would say that it's probably because it went out of the notice program. probably because it went out to the wrong people and or whatever went out was not in plain language. So I think on those grounds, Your Honor, there's no basis to let this go forward with these third-party releases, particularly as to the class. And I'll add one more point, Your Honor. What further complicates this is the fact that under the PSLRA, we were required to issue a notice to investors. And as far as investors know, their claims are moving forward, which they are, right?

The debtor never moved to stay those claims. They're moving forward, and they believe, as it with other securities class actions, that we are protecting their claims. I've had a number of cases where the issuer has filed bankruptcy. But I've never seen anything like this, where they're trying to cram down this third-party release, basically extinguishing the claims of shareholders against those folks responsible responsible for causing this entire situation.

So the other aspect I'd like to point out is the compressed timeline. So according to their filing, I was looking, they're suggesting that notice process begin on November 17th or soon thereafter. That's their language. And then they say that folks need to opt out by December 13th. Now, you're talking about a class in our class of potentially tens of thousands, if not hundreds of thousands of people, perhaps.

And for them to collect all those names, to mail out those forms, to stick trace, to do the type of notice that I'm required to do, Your Honor, in a securities case governed by the PSRA, it will take more than a month. Ordinarily, you get 45 days from the notice date for people to submit opt-out, objections, and responses. Here, they're suggesting less than 30, and we don't even know when the notice date's going to be

because they say soon thereafter, and the period that they have does not even have the period that we have. So, Your Honor, I think there's an easy way out for the debtor. they don't need us. They don't need to release the securities claims. The securities claims are being defended. Presumably there's a DNO tower out there. Those proceeds are not access to the estate.

They're defending the claim. And they just don't meet us. And we've asked them on numerous occasions, why are you doing this? What is the consideration? They fell on death ears. and as to this notion that people are working collectively or cooperatively, we had one conversation with the debtors council, and they've ignored us since.

So there hasn't been, you know, this kumbaya sort of moment with us. I think what they're trying to do is just trying to get this gratuitous release, and it should not be allowed. Our securities class action claims should not be impacted by any of this language. in the plan, Your Honor. And that's all I have to say about that, unless the court has any questions. No, thank you very much. Anyone else wish to be heard on the phone?

Your Honor, good afternoon. Jason Morrow from the United States' trustees' office. Just briefly, I do have just a concern, given all the moving pieces with the timeline that's proposed by the debtors. I mean, if all the pieces come together, perhaps it works. But if it's flipped, I think we do need to have maybe a little bit more firm date of when the solicitation mailing deadline is going

to be. I mean, if it goes much beyond November 17th, then we really are kind of affecting even outside of what Mr. Kim was, you know, raising with the court, just the rights of the parties that usually they're typically afforded

under the code. Thank you. Anyone else? Yes, Your Honor. Chris Hanson and Paul Hastings on behalf of the ad hoc committee of note holders. Your Honor, as we noted before, the ad hoc committee still has a few open issues, principally relating to the terms of the various tranches of secure debt that are being distributed to the members of the ad hoc committee under the plan.

We're still trying to work through those with the debtors. We don't believe that resolution of those issues as well as resolution of the issues around the equity rights offering and the backstop are going to result in the need for the court to provide any additional conditional approval of the disclosure statement. and we expect to work with the debtors in the Equity Committee to arrive at an agreement, and we can simply supplement the record with respect those changes as we move forward. I also want to make the court aware that the members of the Ad Hoc Committee have not yet executed restructure and support agreement. Because of the open issues that we have, we hope and expect to be able to do that upon the satisfactory resolution of those issues,

but also note that, you know, the equipment lenders made their point that their deal is their deal. Our deal is our deal. So to the extent that some of those deals wind up overlapping with each other, I think the parties are going to do their best to work together to synthesize them to protect the integrity, especially of the side of the equipment letter deal, but we'll cross all those bridges when we get there and hopefully arrive at a solution of confirmation, and if we don't, you know, we'll see where we are at that point. Thank you.

Just fine. Mr. Crosson, let me ask you, in terms of the docs, when do you anticipate? getting everything done. Just so I can consider that in light of the timeline that you're proposing. Yeah. So, Your Honor, I think with the ad hoc RSA, as Ms. Berger said, we are 0.01% away.

So when would you contemplate commencing solicitation? We'd like to by the end of this week. I think it's acceptable to the court where we're on track, meet our mailing deadlines. Do you want to stick to the timeline? Let me take a look at something. Okay.

So let me just say then, then before the court is request for conditional approval of a disclosure statement and so related solicitation procedures. Again, I'm granting emergency consideration of the relief requested. I'm going to find that there's been proper notice in service for purposes of today. what's being requested is conditional approval of a disclosure statement, which means that the debtors are asking the court to allow solicitation to commence on a proposed plan and essentially running final deferral, final approval of the disclosure statement, until a combined hearing where the court would consider final approval of disclosure statement and confirmation of the plan at the same time.

So the debtor kind of runs the risk, if you will, that the court could later, out of final hearing, find that there was not adequate information. And so that's kind of what I'm being asked to consider it with respect to the disclosure statement, but then also there are related procedures. And I think I've heard the comments from the parties and I've considered them all.

And so here's kind of what I'm going to rule. I think even though the court is asked to kind of approve things on a conditional basis, I still think the court has to at least give a preliminary analysis as to whether there's adequate information within the meaning of Section 1125 of the Bankruptcy Code, which requires adequate information to enable either a creditor,

or an equity security holder to make an informed decision as to whether to accept or reject a plan. And so I've read the disclosure statement, and I do find on a preliminary basis that on its face, there's adequate information within the meeting of Section 1125. There's certainly information about the background, the plan, the proposed treatment. Parties can disagree about their proposed treatment and whether plan confirmation, whether it satisfies 1129 of the code. But I think from the objections that I've heard, potential objections, and I appreciate the warnings, issues about absolute priority,

issues about approval of whether the releases will be granted and who the parties would be subject to the releases. I think those are all planned confirmation issues there. I do know that there's some other objections that I'm going to have to deal with in connection that would, I think, crystallize the issues with respect to the securities. Mr. Hoffman's line of, I think I've got hearings on December the 6th and and later on that I think are going to further crystallize,

and I make no ruling one way or the other of us, but the way that goes, I just think it's going to further crystallize the issues there as to whether, you know, where things go there. So I'm going to conditionally approve the disclosure statement as having adequate information within the meeting of Section 1125. I've reviewed the proposed solicitation procedures and ballots there. I'm going to hold a debtor to their timeline. You want a hearing on December 22nd, you're going to get it.

You want a hearing on December 21st with respect to 3D sphere, right? That's more work for you all. If you want it, you'll have it unless something changes from there. I'm going to hold a debtor to the timeline. Your associates, don't blame me. that's not on me, but I'll be here. And I think I promised the parties that I became affiliated that I would hold this case to the same timeline.

It was contemplated there, and I think that's what I'm doing, so I'm not slowing anything down. I'm ready to go now. I'm fully up to speed as to kind of where we're going in connection with this case, and I fully understand the timeline and the many moving pieces that the parties at the parties at describing so I really do appreciate where things are so I'm going to approve it

mr. Carlson what I would tell you is and I got it there's a lot of papers that need to get tightened up if if the claim agent can't if the solicitation agent can't start soliciting by Monday we got to talk on Monday afternoon at some point right and so that means and Monday I don't mean you know Monday at midnight I think you know we got to have a conversation sometime Monday afternoon and revisit any order that I would sign today if solicitation can't start. So really what I'm hoping is that solicitation would start by no later than, you know, quite frankly, Saturdays or Monday morning at the latest.

If that's not the case, then we're going to have to have a conversation and revisit whether the timeline still works or not. So, you know, and if solicitation has started, I want to know over the weekend if it started. So I think that gives everyone the transparent. that we need. And I think, you know, if I don't know what my schedule looks like on Monday. Let me just take a look now.

We can just pencil something in. Intensibly, 4.30 p.m. Houston time. Proposed time. If solicitation is starting, I know we don't need to have, but if something or something, the deal breaks down, right? You don't have a deal until you have a deal. So if things break down, or if there's a need to have a further,

conversation. We'll have it on Monday at 4.30. I know I've got some other stuff as well. Let me see. Judge Aldana is telling me I could do 230 as well. Well, yeah, she's right. Maybe. Let's do 230, Houston time. 2.30. Houston time. If we need to have a conversation there, we'll fit it in. Monday. November 20th, yes, I should say dates too, right? November 20th at 2.30 p.m. would be the required status conference. But if something gets filed, the solicitation has started, then I'm just, you know, your notice will trigger the cancellation of where we are.

I think everyone's rights are preserved. Everyone's rights are preserved on a final. Do I need to give you a final confirmation hearing on December 22nd? Yes, Your Honor. And that should be in the proposed form of order. Yeah. You don't have a time in there, but... I'm going to give you...

Yeah, let's start at 10 a.m. Central. If I started at like 4 p.m., I would be putting the squeeze on all of you, but I'm not going to be cruel. I want to give everyone a fair opportunity that I take the issues, and people need a full... And so there'll be nothing. We'll start at 10 a.m. Central time on December 22nd, and we'll give it as much time as necessary. but I do encourage the parties to continue to talk and parties are saying they're not getting phone calls someone needs to reach out

but I don't want to get in the middle of all that we'll just see where we are maybe Monday maybe on the 22nd I know that there are a number of matters that be you know we'll be talking before that in some other matters and we'll take those issues up in due course so I wish everyone a good day Mr. Carson in terms of the proposed

order what is there's are they do I need to just fill in dates is that what I'm doing or there the one yeah that's right your honor the one we filed at 1416 we're happy to upload or revise with with the time no no I think I can pull that off but so specs can I have this backstop ready for me to sign as well the backstop is as well that we filed that we may need to upload a revised form of order for that. Your Honor, we'll move them quickly.

Yeah, I'll sign disclosure statement at the date for plan confirmation. And again, I'll get that signed, and then you upload a revised order for backstop and then let Ms. Salonia know when that's up, and I'll take a look at it.

But again, circulated to whoever needs. Okay? All right, folks. Thank you very much. Have a good day.