American court hearing recordings and interviews - Season 3. Episode 2. February 1, 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: March 19, 2023

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The general aid master cases under case number 22-90341 Core Scientific Inc. As always, if you make sure you record your electronic appearance, it's a quick trip to the website. You can do that at any time prior to the conclusion of the hearing. First time that you step up to the lectern, be it the real one or the virtual one, if you please state your name and who you represent, that really serves as a good point of reference in the event that a transcript request is made, and as always, we are recording using, Court speak. We'll have the audio up on the docket shortly after the conclusion of the hearing. We do have a number of folks who are on the line. I'm going to activate the hand-raising feature, just so folks aren't interrupted.

If you know you're going to be speaking, if you go ahead and give me a five-star on your telephone. Conference, muted. All right. terrific. Who is taking a lead this morning? Ah, Mr. Schrock. Good morning, Your Honor. Ray Shrock, Wild Gautchell and Angie's proposed counsel for the debtors. Great. Thank you. Your Honor, my partner, Weneath Berkovich, and my colleague, Alex Cohen,

are going to be taking you through where we are precisely on our new proposed dip, but I thought it was worth just a general update to the court parties about where we are in the cases and give you a little bit of context for, you know, where we are in these cases. I love to hear it. Okay, so obviously since we filed, we've seen a pretty dramatic change in the price of Bitcoin. Bitcoin was, you know, depending on the time of day, you were talking about the petition date right around 16,500, 168. You know, as of this morning, somebody will correct me, but I believe it's, you know, it's been hovering around 23,000, which, you know, depending on your math, you know, 35 to 40 percent,

increase in the price from the petition date. I think that it's been quite evident that, you know, this has had, you know, a dramatic impact on the debtors' prospects. You know, essentially the company is, you know, in many respects a, you know, in many respects a levered Bitcoin option. So our cash flow is substantially better than when, you know, we had forecast it under the initial dip budget. And we did have a very robust post-petition dip marketing process consistent with our fiduciary obligations.

And so we have the unusual circumstance of presenting to Your Honor today a replacement debtor and possession financing facility. A few notes about that. One, it was a good faith process. It was run, open, fairly, and we're presenting evidence to that effect. And it's with our partner, B. Riley. Just a couple of notes on the company's relationship with B. Riley. So B. Riley was running and at the market type of equity raise pre-petition. We also had a loan that was outstanding to them.

We had significant negotiations with B. Riley leading up to the petition date about an out-of-court transaction as we, you know, highlighted in some of our pleadings. Ultimately, we didn't get there. And I wouldn't always say that, listen, it was contentious, you know, between the parties, but good faith, but spirited, I would say, is the right way to characterize it. Pre-petition. You know, Mr. Riley, as firm, then went on to the creditors committee. They're the chair of the creditors committee.

they were not, they didn't, you know, get serious, they were not the alternative dip financing provider. I think the convertible note holders pleading that they filed this morning referenced they were the alternative, that's not correct. They were not that alternative dip financing provider. But given that B. Riley was on the creditors committee, I think the committee's done a good job. They made sure that B. Riley was recused, you kind of walled off from any dip financing discussions and Wilkie Farr, who was counsel, to be Riley pre-petitioned.

They're the Creditors Committee Council now. Riley brought in Choate as their dip-financing counsel. And assuming Your Honor approves the financing, you know, my understanding is they'd be stepping off the Creditors Committee at that point. So I note all of that just to make sure that, you know, I don't ever want you to think that we're not being anything other than old. and transparent. There was a relationship here, but we have been completely down the middle and above board about the process and how we're running this today. Number one, I know I appreciate transparency. The pleadings have told the story from day one, and for those folks who haven't read all the pleadings, I think what you've done this morning is just perfect. I think anyone who has an interest in the case could not participate and not know that there's a relationship there. So I very much appreciate it.

you're telling me. So let me ask, because at least as I read the pleadings, the replacement dip issue is really just down to the termination fee, right? Or are there other issues? I think there's a couple of issues, Judge, that may be open. I think between the debtors and B. Riley and the convertible note holders, I think we've resolved all of the issues. I think the unscured creditors committee and the ad hoc equity committee have raised concerns around the termination fee that that Your Honor would have to hear this morning. Also, just a note that, you know, in conjunction with this, prior to closing the financing, we would be terminating the pre-petition RSA with the convertible note holders. That's simply because, listen, the company is not under any misimpression that we're not going to be working with, we're going to be working with the, convertible note holders. We are still firmly of the view and special committees firmly of the view. We need a substantial de-leveraging as part of any kind of exit from Chapter 11. That being said,

when you have this kind of change in value from the petition date and just given the splits that we saw under that existing RSA, you know, our judgment was it's appropriate to sit down, reset. And so I want to make clear that the company still will, and intends to have a good working relationship with the convertible note holders throughout these cases. We want to get to a consensual transaction, ensure the company's emergence from Chapter 11 and it's in the best interest of all stakeholders. And likewise, we recognize there's been a change

in circumstances since we initially filed these cases. So I just wanted to give that context and that assurance to the stakeholders that we're here and we're still calling balls and strikes. I got it. This is just the modern digital SOARCO case. right we watched you know we were in the money out of the money based on the price of copper and this is just a it's just a different commodity it's a different

commodity I agree with that analogy let me ask you with and again not prejudice prejudicing anyone's right to get up and make whatever argument so as I have you done worst case best case analysis of what the dip looks like different outcomes on the termination fee? Your Honor, I'm going to have to defer to Ms. Berkovich on that particular question, but I think that, you know, our position on the termination fee is essentially, listen, we had a deal with the converts. The converts, it's part of an initial order.

We approved, the court approved it, and, you know, our view is it deals a deal, and, you know, we're here, we're standing behind that. So let me tell everyone this, and maybe it causes a change in how people are acting today, how they're, what they're thinking about, and how they're thinking about it, is no question in my mind that I approved the termination fee that was priced in, and it was, you know, and I complained about the cost, or I did it nicely, but I complained about the cost, but I also recognize the circumstances. What I haven't thought all the way through,

I've spent the past three days up in your neck of the woods, 18 years of the day. I just hadn't had time to work my way through this, is if there are changed circumstances, what discretion do I have to move the termination fee? The answer may be none. It may be that I have discretion, And then it becomes a question of do I do anything or not?

Because I do operate from the premise that I assume that people rely on orders that I enter. And if it becomes a habit that I don't really mean what I say, then the process doesn't work in it. And I got all of that. That being said, is I thought it made some sense to tell everyone that I do believe that there's a termination fee that part. of the financing that I approved. Is it somewhere between, you know, zero and, you know, the max fee that was, that was under the financing? You know, I have my own feeling about that, but I'm certainly willing to, I'm certainly willing to hear that argument if folks wanted to, if folks wanted to do that. I'm also a firm believer.

When I stood where you're standing, I liked to control my own destiny. I didn't like the guy who knew the least about the case, but who would make the decision making the result unless I just couldn't get there. And so as I was thinking to it, again, my thought was I would tell everyone that I do believe there's a termination fee involved in this, you know, whether it's something less than the 15% yeah I hadn't thought through I'm not gonna take away anybody's right to make those arguments and what I was really trying to sort out is is that's something that folks want to say you know didn't think that Jones was gonna do that we want to talk about think about

having different arguments on a different day or do we all want to make the argument today and you know we'll just we'll just see where it goes I will go either way. I'm just trying to be fair to everybody because not everyone knows exactly how I'm thinking about it. And I'm talking to you, but obviously I'm talking to everyone. So I'm more than happy to do, I'm more than happy to do that. I'm more than happy. I mean, I think the first issue or the first item that's on today's doctor is just easy and non-controversial.

I didn't know if it made sense just to get that out of the way. So if there are pending deals, those can, people can know that those are going to get inked and get consummated and then we can move on. Because it wouldn't sort of move the case kind of money. I know it's real and I know it's a lot of money, but it's not really moved the case money. Yeah, I think we had always, all of our forecasts are assuming that it is payable. I think our new, better proposed dip lender is prepared to make sure that it's possible. I think that your question and parties will get up I think we should decide it today okay say that and I think we should should deal with it I do think that the court

always has discretion what to put in an order here in this order you know you said the list everything all the obligations and you feel fees that are paid or payable are approved and then I think parties may look to you know I imagine some parties will say listen under 364 the code once you make you know if we're making loans on that basis and reliance on that that that's you know we would ask the the court to uphold that I imagine that'll be some of the argument and others may say listen we we think you have discretion but I think that's where it's going to come down to is probably the the statutory

alliance telling everyone I mean I again when I enter an order I expect people to abide by it until it's reversed I want people to rely on the orders that I enter I also recognize, I mean, let me pick something that won't apply, but it's an example of what exists in the code. I mean, you've got a standard under 328 that I can approve a fee, not as this is a fee, but I can approve a fee in advance, and if there are things that I conclude that I couldn't reasonably have anticipated at the time, then I can change it. That's written into the statute, and so, again, not trying to take away anyone's right to me. make any argument that they want to make. You're going to tell everyone.

I do believe that there's a termination fee that's factored into the cost of a dip. You know, Hansen's a good lawyer. He's going to listen to me, and I don't know if he wants to step out and see if there's a small give to give certainty or if he wants to roll the dice and see what I'll do. I mean, that's his choice. I'm just trying to give him information to the extent that I can. but happy to do that but it is I understand that that's really the only issue the only other sorry you're interrupted judge just the the only other issue I believe that's out there is that

shortly before we came to court there was still an outstanding issue on the 506 C waiver and the 552B waiver to the to the convertible note holders we have language that basically what we the debtors have agreed to do as part of this order is that So long as there's a consensual use of cash collateral up through the termination date of cash collateral, that we would give a 506 waiver during that time. The logic of it being that if we were going to have a surcharge, it would be, you know, someone could say, well, listen, if it's under an approved budget, it would be roughly equal to, you know, that use of cash collateral at that time.

And so that would be a fair exchange. of for the consensual use of cash collateral. I think the other side of it is just, you know, how does that interact with any 507B claim that could be later asserted? And, you know, we see those as separate issues. We actually had the pleasure litigating this in Sears up through the Second Circuit. And so we have some intimate familiarity with it.

I hope we never get there because that would be a bad outcome for the case if we're arguing over 507B claims. But we did, resolved it and I think the committee and the sheriff ad hoc shareholders group still have an issue around that particular issue of my understanding but they can tell you if there's anything else outstanding we've been trying to play the the mental I'll tell everyone my view of that is sure those are debtor rights and I know that sometimes debtors don't really have a choice and that's when I pay a lot

more attention to it but when debtors are freely exercising their business judgment because they have the big view of the case. They, you know, we're not, you're not just fighting issues. You've got to play the long game and you've got to figure out how to get to an end result as efficiently and as quickly and as you can. If that's the evidence that I'm going to hear, I'm just going to tell everyone. Again, I had someone make the argument to me that this is not a debtor right, the creditor right, And it was a long hearing, and they lost me from the very beginning.

You know, it's one thing to say that it's a debtor right, but the debtors can't exercise it because of, pick your issue. That I get, and I know that that exists because I've been exactly where you are, and I've been told that if you want this, you don't have any discretion. And I know that goes on. but when I've got a debtor in a position where they've done, look, we've thought through this, we've been down all the branches of the decision tree, and this is how we think our right ought to be used or not used. I'm going to pay an awful lot of attention to that. So again, I'm sort of talking to everybody on that.

Fair enough. Thanks very much, Your Honor. So, you know, with that, I propose to turn the podium over to my partner, Ms. Berkvich, and give you some more of the specifics. Absolutely. I want to give everyone else a chance to make opening comments. And part of those comments could be we'd like five minutes to think about what you've said. And I would certainly entertain that.

If we knew you were going to say that one form or another, we're ready to proceed and terrific because my nuisance is only going to last so long. You gave me a cold during that mediated. But I'll just fine. Let me ask. Anyone else want to make opening comments? Okay. Oh, you know what I didn't do?

Anyone on the go-to-meeting was to make comments? Yes, Ms. Hardy, come on up. They've actually turned on their video camera, so I'm going to assume that everyone's just watching. Thank you, Your Honor. Jennifer Hardy at Wokey Far and Gallagher is the Post Counsel of the Unsecured Creditors Committee. I just wanted to introduce some of my colleagues in the courtroom

because this is the first time we've appeared as counsel to the creditors committee. We have Brett Miller, who I believe you know from previous matters, Jim Dugan, Todd Gorin as well. And as Mr. Schrock mentioned, and as the court knows B. Riley was a former client of Wilkie Far. So that's why we have Mr. Bruckner of Gray-Reed as conflicts in efficiency council in the courtroom as well. Always good to see you. Thank you. All right, thank you. All right.

There are no other comments? Yes, ma'am. Did you want to come up? No, I'll read for the ad hoc group of equity holders. Yes, ma'am. Just wanted to introduce ourselves and we anticipate. We'll be filing a motion for a commitment of an official committee. Okay.

Within maybe the next 24 hours with me is my partner, Lawton Eisler, and one of our associates, Ms. Belks, and Mr. Panagoff's mayor, and after you know him. Got it. Hadn't seen him yet, but obviously I know him, and I welcome his participation. What I would ask that you do if you decide that you're going to, that you're going to seek official recognition,

talk to everybody, because I assume that's not a 30-minute hearing. Talk to everybody and then reach out to Mr. Alonzo and get a setting that as much as it can works for everybody. I assume that that will probably be an in-person hearing, but just have that conversation with everybody. Certainly, we will. And just for your record, we did file an objection to the original and, of course, that's needed to find out. Thank you.

All right. No undertakers. Good morning, Your Honor. For the record, Ronee Berkovich from Wild Gatchell, proposed counsel to the better. We need to find a way to lower that screen, don't we? Lower the. I was just, I know. No, no, no.

That's my fault. Thanks, I don't have to lower this. Don't. I do have another option. It's better. So it's really helpful. So now I have to tell you a story. So every year I have a Cub Scout group come in, and, you know, they're learning about the law.

And, of course, you know, to a bunch of nine- and ten-year-olds, the law is the marshals come down and they pays one another. But I think that's super cool. And I don't get them until after they do that. So I bring them in, and, you know, obviously this is a bankruptcy court, and that's an impossible abstract thought. So we have a criminal case. And it's always a Santa Claus-related thing, and someone stole cookies, and Santa's accused of committing a crime.

And so I have a little small person's robe, and so we have a judge, and then I get a couple of lawyers, and they tell people what to say, and they have an argument. And I have to put a box of copy paper right there for folks to stand on, which is what made you think of that. I had one advocate get so excited that he fell off the box. There was a message to this, so please be careful. I'm wearing flats.

Next time I'll wear my foreign shields. I'm going to, I'm going to, I just hadn't noticed that before. I'll figure out a way to deal with that. I'll move it to the side or figure out how to lower it. Thank you, Your Honor. I think we have an interim solution. Joining me today in the courtroom is John Singh from PGAT partners, the proposed banker to the debtors,

Roeby Block from Alex Partners, the proposed financial advisor to the debtors, and Russell Kahn, who's the head of mining and executive vice president of the debtors. Also joining us today... I'm the way to put him on. I knew you'd like that. You mentioned it from the very beginning, Your Honor,

but unfortunately, as I'll get to... unlikely to need Mr. Kahn's testimony today. Also joining us online via Zoom is Michael Broz, the senior vice president, of capital markets and acquisitions, of course, scientific, was our first day declarant. And we have a few other of our colleagues from Wild Gashel. We have my partner, Ted Securides,

and my colleagues, Jeremy Kane and Alex Cohen. Good morning to the entire meeting. And if she left you out, she didn't mean it. Did not mean that. We filed a revised agenda, docket 426 today. We are very happy to be in front of you seeking approval for the proposed replacement interim dip order and the terms for the consensual.

use of cash collateral. To provide maximum notice of our change in circumstances, the second we had a deal. We filed the proposed order in the wee hours of Monday, January 30th at docket 378, and we attached a red line of the interim order that was entered by this court on December 23rd, which had been docket number 130, as well as the term sheet. B. Riley is funding under a term sheet given the speed with which we needed to reach a deal with them. We subsequently filed our motion to approve the order at docket number 385. And while we had coordinated with both the ad hoc group of secured node holders and the creditors committee prior to filing the initial order, we continued to work with those groups, as well as our dip lenders and our equipment lenders,

around the clock to make changes to the proposed order to get to consensus among all the parties. Just about an hour before the hearing, we were able to reach a fully consensual deal between the debtors, the ad hoc group, and the dip lenders. So again, we have consensual use of cash collateral. I believe based on email discussions that the equipment lenders are also not objecting to the interim dip order. They're reserving their rights with respect to the final order. As a result of those changes that we made in the version that we filed, and we have some extra copies of the black line in the courtroom in case people were not able to access it, given the late filing.

We're not 100% sure, as Mr. Schrock said, whether any of the last-minute-second changes would be acceptable to the creditors committee. Okay. And the revised order was filed this morning at ECF-424. My colleague, Alex Cohen, will walk the court through the relevant changes. Terrific. So before I summarize for the court the benefits in terms of our replacement dip order, I would like to move the court to enter into evidence two of the three declarations

that we filed on January 31st in support of our motion. First is the declaration of John Singh at ECF number 390 and second is the declaration of Brody Block at ECF 391. As I mentioned, they're both in the courtroom today and available for cross-examination. All right, thank you. Anyone have an objection, again, for purposes of today's hearing only, Mr. Singh's declaration at CMEA CF number 390, Mr. Block's declaration at 391.

The objection? All right, they're admitted. Anyone wish to cross-examine either one of those two gentlemen. Do you okay? All right. Thank you, folks. Oh, Mr. Hanson, sorry, I just didn't see you. No, it's all right, Your Honor.

So Chris Hansen, with Paul Hayes, on behalf of the ad hoc group and the existing dip lenders genre. We would just reserve to the extent that you permit the committee to put their witnesses on. With respect to comps, et cetera, regarding the fee, we would like to cross the debtor's witnesses because obviously they were declarants in connection with the original dip. So if we're going to get the time machine and go back to when we were here originally, we need to have them on the stand to walk the court back through their original testimony. And of course, we would like to elicit further testimony from them about the circumstances

at the time the original letter I don't see a reason across them now but I wanted to make sure that you understood that if the committee does if you allow the committee to fall to witnesses which we think you shouldn't but if you do then our position is we may have questions for what that is witnesses got it it seems an efficient way to proceed any objection your honor Brett Miller will keep Far and Gallagher proposed counsel to the creditors committee we have no objection to that we would just like to be subject to the same reservation in case we do go forward on a contested hearing with witnesses because Mr. Singh did have some testimony regarding in deposition regarding what executives might be reasonable. Sure, and at some point I don't want this to be, I don't want this to be in any shape, way or form of surprise. I'm going to ask you the question, I assume it's unreasonable. Tell me why it is, I, because I have to put the process first. Tell me why it is having done what I did, even if you convince me that it's unreasoned.

And it wouldn't take a lot. Why should I change it? Do you want to start now? If you would like to, you're only going to get to do it once, so would you like to hear everything that's said and then make the argument? Or do you want to make the argument? I'll let while make their case and then. Fair enough. All right.

Thank you. and you have the same reservation. Thank you. Yes, sir. We did file a third declaration in support of the dip motion from Russell Kahn. That's a docket 392, but as I mentioned earlier, we will not be putting that evidence in today, given the equipment lenders, I believe, their agreement to not to object. Do you need, you said, given your belief, do you need to get confirmation of that?

There were many of them. We just filed a final order. If any of them were to, I see Mr. Lillard. Lohan, who's been sort of an informal leader for the group. I don't know if he has the views of everybody, but... Mr. Lohan, do you have your line unneeded? I believe I do, Your Honor. Can you hear me? Absolutely.

Good morning, Your Honor, for the record, Brian Lowe, on behalf of Bering. Ms. Perkovich is correct. We did file a limit objection at docket number 291. Several other equipment lenders joined that objection, but we think it makes sense, given the positive development. this is the case to just reserve our right to the final hearing and really streamline the issue that needs to be decided at this interim hearing. Right.

And, you know, we support entry of the order and are not pressing forth in the objection. All right. Thank you for the announcement. Your Honor, if I may, Dennis Tumi, can you hear me okay? Mr. Tumi, absolutely. Thank you, sir. Thank you, Your Honor. Good morning, and it's Dennis Tumi with Siddly off on behalf of Nive-A-B-L-L-C.

just confirming what Ms. Berkiewicz said. We also are not planning on objecting today, but do reserve our rights for the final hearing. We do believe we have an agreement we've spent a lot of time and thanks to Ms. Berkiewicz and her team over the last several weeks, we do think we have a resolution and expect that we'll be emotional to be filed here

in the next day or two on that. And in the meantime, we're not going to be objecting today. and hopefully our resolution will ultimately get finalized and approved, and we won't be objected to final hearing. But in the meantime, we do have to be permitted to reserve our rights for that final hearing. Mr. Trilly, thank you for the announcement, and absolutely. Thank you, Your Honor. All right.

Ms. Berkvich. Your Honor, on the first day hearing, I told you, Mr. Schrock told you, that we would be seeking replacement dip financing, and that's what we've been doing for the last month plus, and working tirelessly to find financing that would eliminate the roll-up, eliminate the linkage to the RSA and related milestones, remove the restrictions on selling assets to improve our liquidity, and provide overall better terms.

When we entered into bankruptcy, the debtor's liquidity was in dire condition, and I can say that the original dip lenders, the HAAB group saved this company by being the only party at that time willing to provide financing. At the same time, you know, some of the terms of that dip, and I've been very well in our papers, really, we're not the most favorable to the debtors.

So we were looking for a replacement dip facility that could provide greater values to all stakeholders than that of the original dip credit agreement. We understand that the debtor's constituents, other than the preposition secured note holders,

are thrilled with our new dip. We've received no objections to it. We know that the creditors committee is supportive. They filed their statement at ECF 397. The ad hoc committee of equity holders has told us they are supportive, and same thing with the equipment lenders. Our marketing process for this dip was very robust, and the Singh Declaration provides a great deal of detail

about the negotiations with the various lenders we were talking to over the last week, but at the end of the day, the proposal that we were able to negotiate with B. Riley, our largest unsecured creditor, was the superior proposal. We kept all of our stakeholders informed throughout the process. The major groups were not surprised when we reached the deal. We sent all of our dip proposals to the UCC and the ad hoc group, and we were in touch throughout with the equivalent lenders as well. We did ask the ad hoc group whether it was willing to provide a dip more in line with the terms of the B. Riley dip and while they were potentially amenable to improving some of the terms, they were not willing to go all the way there.

So unless your honor has any questions about the process, I would like to summarize the key terms of the dip. Please. It's actually a very simple dip. One of the things we like about it, it's a $70 million multiple draw term loan facility. Today we're seeking interim approval for a draw of 35 million of that facility. we will use those funds along with cash on hand to repay the original dip facility and for general operating purposes. And we did have a budget attached to the proposed interim deporter. The maturity is 12 months with a three-month extension that compares to the six months with three-month extension we had under the original dip.

The interest rate is the same, 10% paid in kind. The exit treatment is total payment at exit is 105%. of the then outstanding debt as compared to the 115% under the original debt facility. We are permitted to use the net proceeds of any asset sales, to conduct asset sales, and to use the net proceeds of any asset sales to pay down the dip, whereas that permission was very restricted in the original dip facility. No roll-up, no RSA link, no real milestones except for a final dip order. And, Your Honor, the one, I guess, negative of this new dip is that we do have to pay the termination fee.

And I'll get to a little more about our views of that in the end, but you did ask the question about how that impacts our liquidity. And I was passed a note by our financial advisor. The takeaway that the termination fee does not impact our cash or liquidity forecast. And also that the new dip is still superior to the old dip, even when taking into account. that we have to pay these termination fees. Okay. Also, these termination fees would have been payable at any time anyway for the refinancing of that dip, whether it's now or later.

As noted in the Block Declaration, this replacement dip facility will provide the debtors with the liquidity necessary to pay off the original dip facility, fund payroll, and satisfy other working capital and general corporate purposes. And it is the debtor's business judgment that this is the best dip available. As noted, we reached agreement with the ad hoc group over the terms for the consensual use of cash collateral. Their adequate protection package is, for the most part, similar to what we included in the original interim order, replacement liens, by with 7 claims, and the payment of professional fees. There were some complicated issues relating to the different lien priorities by different parties over different assets and how that would all work by layering the dip in there.

The dip is non-priming as to the existing liens, but taking a first lien in unencumbered asset. But we are grateful, again, to all the parties, the dip lenders, the equipment lenders, and the ad hoc group for working through these issues to get to a final resolution. We do have an Exhibit 5 to the proposed order that provides an illustrative chart of how the lien priorities work with respect to different assets. There's up to six different liens that are applied to each different group of assets. And unless your honor has any questions before turning the podium over to Mr. Cohen, I want to reiterate the debtor's position on the termination payment. We do not agree with the committee's position. Those fees were properly disclosed to the court in all parties in interest in both are written and oral submissions to the court and were approved in the interim order. We also believe they were reasonable under the circumstances as part of the overall package of terms in the original dip facility.

which at the time was the only financing facility financing option available to the debtors this was supported in the singe declaration at docket 98 your honor mentioned changed circumstances there were no change circumstances we were in front of you like 40 days ago saying we want to find the replacement dip if we find that dip in four weeks these are the fees that will be paid that's exactly what happened and one more point you know i mostly represent debtors or firm does and you know I personally worry about the chilling effect to the ability of accompanying distress to be able to get a dip loan if the liplenders have to worry that what they negotiate with the debtor and get approved by the court is later subsequent to challenge. So those are our views. Does Your Honor have any questions?

I do. I think what I heard you say and I just want to confirm it is you're telling me that the debtors exercised their business judgment in deciding to go forward. fold with this believing they were going to have to pay determination fee yes your honor okay all right i got it anything else nothing else thank you your honor thank you good morning your honor how was alex phone wild gosh from managers for the debtors yes sir thank you good morning morning first i want to say that that next time you do the the boy scout trip i would suggest that the santa obtains replacement dip financing could be a good topic i'd be more than happy to write a problem for you.

I'm going to keep that in mind. Thank you, Your Honor. And second, I always, whenever people walk through these orders, I think it kind of gets a bit tedious to go through every single change. So I think what's probably more useful for the court, and please correct me if you disagree, is to highlight some of the high-level changes. So I think I started reading and then I stopped.

What I'd like to do, and you'll just have to take a deep breath, because you'll know this far better than I do, is let me get 424-2 up, and then as you walk me through, if you could give me a page reference using 424-2, that would be helpful. And so I have it up. Okay. Where would you like to start?

So I think first, I'll note that it looks a lot blue and more blue and more red than the changes actually are. A lot of the changes are clarifying to make sure that some of them are defined term fixes, Some of them are just technical corrections. But I think the place that we should start is on page 15 of the red line. So I can go 15 of 101. That's right. Should be able to, yep. This is at the top.

It says cash collateral. Is that what your give it shows? No, different page numbers. It's a... You want to see what I'm looking at? There we go. If you scroll down to the next page, yeah, down more, 15 at the bottom. I'm sorry, I'm referring to page numbers at the bottom.

There we go, 15 at the top. So this clarifies, there we go, the definition of cash collateral. Just clarifying the definition of cash collateral after discussions with the ad hoc group. All parties agree with this definition. There's minor changes to ensure the proper scope. Okay. Next is page 19 at the bottom. This feels with approval of the vote.

budget. So the ad hoc group has consent rights over the budget as well as the replacement of lenders. However, if there's a disagreement between the two parties, so somebody says yes, somebody says no to approving the budget, then the provision at the bottom and then the top of page 20 clarifies that in the event of a conflict, the judgment of the replacement dip lender would govern. However, the ad hoc group has the right to come back to court on an emergency basis to dispute any issues and your honor can hear them in a budget resolution event.

Okay. All right. The next page I go to is 21, the last paragraph of page 21. This is the 506C, 552B, and marshalling waivers. Here's a couple places throughout, but this is the first place. And that Mr. Schrock previewed the 506 and 552B waivers are granted, but to the extent that there's a cash collateral termination event, those would burn off. And there's a paragraph at the end of the order to that effect.

Make sure you reference that for me, if you would. Yes, Your Honor. And then the rest of the changes on page 22. Reflect that change as well. Okay, the next place I go, it's page 28 of the red line at the bottom. This is clarifying that the debtors will pay all of the reasonable undocumented fees of both the ad hoc group and the replacement dip lenders, regardless of when they arose related to the dip financing.

Okay, next place is top of page 30. This paragraph relates to any modifications or amendments or changes to dip loan documents. Effectively, this limits the ability of the debtors and replacement dip lenders from making modifications without asking the ad hoc group and in certain cases getting consent, or if they can't get consent coming to court and asking you for mature modifications. Okay. The next place is the footnote at the bottom of page 36. Now, because of the timing of how this all sequences, refinancing will happen no later than five business days after Your Honor enters the order.

So there's a small gap period in which we have to pay off the pre-petition secured parties. And this provision clarifies that during that gap period, there are certain things that the debtors can't do. basically preserving the status quo under the original dip order. Okay. And then next place is middle of page 38 of the red line. This is another reference to the pay down and the refinancing within five business days of the entry of the order.

Again, this is all to protect the status quo in this gap period and also making sure that it's clear that adequate protection rights continue. Bottom up 38, top of 38, or excuse me, top of 30. This is the same similar provision except for to the extent that we're selling that debtors are selling pre-petition Secured parties collateral there are certain procedures we have to follow and making sure that They to the extent they don't consent that we have to come to your honor or otherwise Follow the provisions of this this interim order so a lot of these provisions throughout you'll see we can't sell their collateral Outside of the provisions of the order there's certain guardrails baked in and you're seeing that throughout

on a lot of these paragraphs. The next is at bottom of page 40. It also relates to the budget consent rights. The into spillover, middle of page 41, says that notwithstanding anything in here that dip professional fees, notwithstanding anything, that that professional fees will get paid,

even if there's an issue with the budget, and also that the replacement dip obligations and dip professional fees are not included in variance testing of the approved budget. And finally, that the repayment of replacement of obligations is not in and of itself a cash collateral termination event. This is again protecting against an issue of a dispute with the budget. Next is middle of page 43.

You'll also see a lot of these provisions throughout, and I won't highlight it everywhere, but this effectively what we did in the order is preserve the current waterfall, as Ms. Berkovich mentioned, but layer in the addition of the dip liens and the dip leans obligations so that's a lot of these changes. Page 13 or excuse me, page 48 paragraph 13, again this is the mechanics of the refinancing. You'll see a reference in the order of a to a payoff letter and that's in process.

It's almost done. There's only a couple terms that are being discussed at this point so we intend to file a revised form of order with that attached as an exhibit. Right now we just have a slip page. But the parties are all working together on that payoff letter. 58 at the bottom. This is paragraph 20. B is in Bravo. 5.8. Oh, this is a this is more clarifying changes regarding the refinancing. Yep. And then other 58, there we go. So another thing that we did to compromise and come to an agreement here is to

allow that the ad hoc group, the pre-petition secured parties, have certain rights in the event of default or similar type provisions in this agreement. We spell it out in a couple paragraphs. And effectively, if there's a cash collateral termination event, then it triggers a similar remedies notice period to a dip. And it's also the two Southern District rules regarding coming in and trying to seek to lift the stay. You'll see that in pages 60 through 63.

That's all that blue. Okay, next page 73, we skip a lot of pages here. Page 73, and then it spills over in the next couple pages, this is all related to the challenge, and everyone's right to challenge, and making sure that it's clear who can challenge what and win. Effectively, everyone has the right to challenge. Everybody else's liens, claims, obligations, basically just preserving parity for all parties to have similar rights to challenge.

You'll see that a lot of the challenge missions that we initially faked in to the dip order have not changed. This is mostly clarifying who can challenge what and win. Okay, next is a page 80. This is again the 506C, 552B, equity to the case, and then the marshalling. Provisions, this is similar to what we discussed earlier, just flagging again that it's here, and then 28 into 29,

or, excuse me, paragraph 28, 80 and 81 pages, or respect to credit bid rights of the parties. Everybody has the right to credit bid with respect to the obligations that are set in this order. Okay, next is, page 83. Another protection against material amendments or modifications to the order, any documents. Again, if there's any dispute or disagreement, everything is set out here in pretty granular detail. I think there's only a couple left. The next is page 95, paragraph 43.

This is the technology that Mr. Schrock was referencing and we spoke about earlier, that in the event of a cash collateral termination event that the equities of the case and the 506C waivers burn off. And this last set of blue that you'll see, paragraph 44, it's a lot meteor and longer than it actually is. It effectively preserves inter-creditor rights with respect to certain rights, obligations, liens, et cetera, everything that Ms. Berkovich and I have spoken about

regarding the status quo, but layering in the dip obligations to make sure it's clear what happens to whom and who has rights over what, in the event of any occasion that could occur. So we tried to take those protections in and preserve the status quo. And then the final portion of the order is just setting a date for the final hearing.

And we have a proposed date in mind, but I don't know if you prefer that we reach out to your chambers and schedule or if you just want to do it live. What date were you looking for? February 27th is what we were targeting in some Monday. Do you have a time in mind?

Afternoon, works better. So I would have 227 at 3 p.m. Central available to get to the end today. That sounds good, Your Honor. We'll put it in this order whenever we submit the revised. All right. And nothing further. Thank you, Your Honor. All right, thank you.

Yes, sir. My name is John Vintola from Chodalong-Stort. Counsel to B. Riley in their capacity is a proposed replacement dip lender. I really just wanted to introduce myself to the court, Your Honor. And of course, if you have questions, happy to answer anything we can. My firm is new to this. We only got involved about eight days ago. That seems longer, candidly.

But we've been working very cooperatively with the parties in interest to get to where we are today. And again, if we have any questions, Your Honor, please let me know. Number one, welcome to the dance. Thank you very much. I don't at present. Okay, and I just want to confirm Mr. Sharrock mentioned in his opening remarks. B. Riley's intention is, in fact, to respond. resigned from the committee if this is approved it that's kind of a given to me so I

but I appreciate you thank you thank you for saying that for all right mr. Hanson yes your honor Chris Hanson and Paul Hastings on behalf of the ad hoc group in the existing dip lenders do you want to hear on the affirmative side or did you want to hear from the committee first from an argument perspective and then I want to deal I want to understand the evidentiary presentation you'll certainly have time to come back on argument but I want to understand what the committee is proposing to do and given them where the record is now where they think whatever it is that they want to present is going to be persuasive so let me let me do

that and then we'll circle back right yeah fair enough your honor and obviously we reserve because our view is we don't think they should be no evidence on but I'll want to get this on the table because I want to understand it all right mr. Miller thank you your honor Brett Miller will be foreign gallery or proposed counsel to the creditors committee your honor as As you know, more than most people, it's your order. And having spent the last three years in a case across the hall with Judge Isger, the Sanchez case,

we've been fighting over a dip order that is long since approved and have had multiple hearings, multiple mediation sessions, and at least here we're only five weeks later, we're not three years later. And Judge Isger said something during, the multiple hearings, that he wants to get it right. And there were a lot of words in the dip order there, and a lot of people interpreting the words

how as favorably as they can for their party. Here, I think we have a little bit of a different scenario. Both sides seem to focus on 30D of the dip order, and whether the termination payment is actually part of the package that I'm sure Mr. Hansen will say was part of the pricing of the dip. Because I disagree with the statement in the ad hoc groups pleading filed this morning that a finding that if we open up the termination payment provision, and the committee does not dispute a termination payment can be paid here.

It's a question of the reasonableness. And that's, that's so, so using the replacement dip as a basis and a, I think Ms. Berkowitz said a 105%, I'll call it a 5% termination fee, that's about $2 million. Whereas the interim order included a 15% payment or $6 million. So we're talking about a $4 million delta here. And if you look at the comps that are in the various, in the declaration, submitted by the committee, 15% is out of whack. 5% is around normal. And I believe if we actually went forward and put our witness on the stand,

it would be hard to find otherwise. And I think if Mr. Singh was put on the stand and cross-examined, he would find the same because we've seen a dip comparison chart that he's prepared. So to your point, the 15% fee is unreasonable. And the question now turns back to, How can we, should we, be determining whether an interim order that approved a termination fee on 24 hours notice without a committee being formed satisfies the requirements of bankruptcy rule 401C2, section 364, and perhaps most importantly 30D of the interim order. Because 30D says two things.

Well, it says multiple things, but two things that are highlighted, one by the ad hoc committee and one by us. And I don't know if we can put that on the screen. You can actually, I think, use the version that Mr. Cohen was just going through because I think 30D has stayed the same. Sure. I can do it either way. I can give your person control. I can put back up what we were just looking at. I think why don't we put back up what was just on?

Is it just... 30D doesn't change. I don't think so. No change. 30D, I think to page 86. It's a really long order. So the

ad hoc group in its statement focuses on too little I. The validity or enforceability of any obligation indebtedness or liability incurred under this interim order or the replacement

dip loan documents, etc. Question. was or is the termination payment incurred at the outset as opposed to the other fees that the committee doesn't challenge they were the upfront fees that have been paid that no one is seeking to disgorge we are simply looking at the termination payment and as I said it's approximately a four million dollar delta from what we think is reasonable versus what is being requested but when you look at four little I It talks about or the payment of any fees, costs, expenses, or other amounts to the replacement dip secured parties, blah, blah, blah, in the case prior to the actual receipt of the written notice of any replacement dip agent or the pre-petition agent as of the effective date of such reversals, say, or modification or decatur. I really have to question whether the payment, these fees were not payable at the interim hearing.

They are contingent payments that could, might, may become payable later. And quite simply, we believe that's the purpose of having an interim order and a final order two weeks, four weeks, five weeks later. That's what is intended by the bankruptcy rules. That is intended by the bankruptcy code. And where the AHOC group thinks this is going to turn dip financing on its head, I actually think it's the reverse. Because if this is approved now and the committee is basically neutered in any future discussions regarding reasonableness of fees, then the next lender might as well throw in 100% termination fee because the debtor has no choice. I think what Ms. Berkovitt said was that the fee was reasonable under the circumstances.

Well, and yes, the circumstances changed, and we understand that the debtor made the deal. We don't dispute that the debtor cut this deal. They cut the best deal they could do, but they ran to court with a deal that upon scrutiny by a Predator's Committee, upon, if we were to put on witnesses, they'd show it is unreasonable by approximately $4 million. Then what is the purpose of a whole bunch of sections of the bankruptcy code and laws and rules regarding finding things reasonable before you use estate funds? Because the use, the approval of this will deprive unsecured creditors, other stakeholders, other secured creditors of $4 million because that's what this comes down to.

It is a, I'll call it an upfront, smash and grab of $4 million here above what's reasonable. And what will happen, I think, is the next lender is going to do the same. And then after that, the same. And before we know it, the chart that our witness and Mr. Singh would put up of comps, it's going to be littered with 15% across the board, and that's going to become the new mean and median for dip termination fees, and it really, really shouldn't be. Because today should be the day that it stops.

And just like Judge Isger, you should say, I want to get it right. And right is to limit the termination payment to what is reasonable, and we would put on evidence, if asked, that something in the neighborhood of a $2 million payment is reasonable. And with that, I'll, I'll, I'll rest and I'll say, Your Honor, if I think we need to decide on the order first and if you completely disagree with me, which is your order again, then we will not put on any evidence.

If this has opened the door for putting on evidence or for Mr. Hanson and I going in the hall room and in the hallway and having a conversation, then we're happy to do that because this can be litigated, it can be settled. but we defer to your honor. It's your order again. And I just do think for the sake of the bankruptcy code in this case, we should get it right. Thank you. Thank you. All right, Mr. Hanson.

Thank you, Your Honor. Your Honor, Chris Hanson. I'm with Paul Hastings on behalf of the ad hoc group and the existing funders. General start where Mr. Miller left off. It was not a smash and grab. The concept of that ignores the reality of how the debtor came to this courtroom when it filed for bankruptcy.

If you look at 4,000 1C2, you have to determine whether the debtor is going to be the subject of immediate and irreparable harm. And you have that from an evidentiary showing, both in the Brose Declaration and in the Singh Declaration. You also had it based on the presentation provided by the Debtors Council. The Debtors Council pointed out at that point in time that there was a single dip lender that was prepared to lend to this company. And if we look at that moment in time that the debtor filed, the price of Bitcoin, and you actually, Your Honor, I'll step back for a second, you complimented the debtors on the first day on the persuasiveness of the first day declaration. And it was a great read because it explained the debtor's business in pretty easy to understand terms. And these are not the easiest businesses to understand. Many of them have filed for bankruptcy.

They do different things, but they are connected across the – I won't say I won't use it. They're connected by their digital currencies. So the point being, Your Honor, that at the moment that the debtor found itself here, Bitcoin was somewhere in the range of $16,000, and this business, as Mr. Brose's declaration pointed out, is singularly tied to the volatility of that underlying currency. I don't want to address the comments in the sense that I would like to cross-examine the witness if that happens and we'll go through them by comp.

But it's obvious that none of them are a digital currency business. None of them are so singularly tied to the underlying volatility associated with the currency here. So the debtors went out. They ran a process. Mr. Singh pointed out in his declaration that there were 24 parties that they approached. They had nine confidentiality agreements executed. They had two indications of interest, and they had one party prepared to lend. I think, as you can also divine from the motion that was filed to approve the diff financing,

Even the dip lenders, the members of the ad hoc group, they weren't all in on the dip. If you recall when we were here at the interim hearing, there was going to be a syndication process run between the interim hearing and the final hearing to try to find more. The debtors had asked for a higher commitment amount, and the members of the ad hoc group didn't get there initially. And the reason they didn't get there was the volatility associated with this company. It's pretty scary dip. And so what you also have is endless testimony about the arms length negotiation and the guns length negotiation and the good faith nature of those negotiations. There was nothing there to demonstrate that there was a smash and grab or there was some type of untoward influence exercised over the debtor. You heard

Ms. Berkovich to say it. The interim dip saved this company. Without that interim dip financing, again, go to the declarations. The debtor said they had $4 million of liquidity as they entered bankruptcy. We can ask the debtor if we get to that, if that number might have been lower as of the day that it was here in the court before it was able to get authorization to borrow on the interim dip. And it borrowed right away on the interim dip. That money helped to save the business so that it could ride to where it is now. And really what's happened is that debtors have exercised their business judgment twice. They exercised their business judgment soundly and reasonably at the beginning to enter into the first dip.

And now, given where Bitcoin prices are today, and no one, right, there is no forward curve for Bitcoin. It's not like the power curve. We don't get to look off in the future. We wake up every day. We wish there were one, right? Yeah, we wake up, seriously, we wake up every day. And these prices are up or down, and we really don't know where they're going. And sometimes we really don't even know what they're driven by.

And so, Your Honor, the debtor is making another business judgment call. And that business judgment call is, I'm going to enter into a new dip, and I am going to repay the old dip, which takes us back to where I was going to start, Your Honor, is there's an agreed upon deal. That deal was set forth before the court, and candidly even your honor said, I'm aware of this is expensive, but I am also aware of the volatility associated with this business, and I get it. And you said to the folks in the courtroom, most notably B. Riley's attorney, I hope you come back with a less expensive dip, or a less ownerous dip. You know what? Those were circumstances that all were foreseen at the time that you approved the initial

dip. And so the dip lenders on my side, they made their commitment. They said we will advance our funds based upon the documents that we've negotiated and the order that your honor will enter that protects the promise that they made to advance those funds to the debtor. The debtor took those funds, moved forward, saved their business, and allowed them to come before the court with the motion that they asked the court to prove today. And beyond the multitude, you know, Mr. Miller likes to focus on 30D and says, let's singularly look at it. at that. It's really important and I'm going to come back to that in a second. But the entirety of the order, when you go through there are only certain sections that say subject

to entry of the final order, right? Those are things like the roll-up. Those were things like the 506 waiver and the waiver on 552B equities of the case. Things like that say subject to entry of the final order. But the other, and it's far too long, all these dip orders are far too long at this point, but the rest of the dip order itself is replete with provisions that say all of the dip documents are approved, the obligations that are created there under are approved, the debtors are authorized to enter into those. This is an encyclopedic document which approves the dip deal that the debtors entered into. But most importantly, those are also protected by the concept of good faith. And when you look at Section 364E,

it's there for a reason. And your honor knows that and you've incorporated it into this order in multiple places. It protects the super priority administrative expense claims. It protects the priority of the liens and it protects the underlying aspects of the dip financing in toto. And so when you look at 364E, parties have to rely on that. And to just put this one to bed, the order says whether it's overturned on appeal or otherwise. And the or otherwise would be a collateral attack. Your Honor, we would go so far as to say that this order having been entered candidly based on all of the findings that were before it is a lot of the case at this point in time too. And to overturn that order, I guess you'd have to prove that somebody

defrauded the court or that somebody defrauded the debtors. The standard can't really be that while today, because the underlying currency that dictates the value of this business is 30 or 40 percent higher than it was on the day we filed, we should go back and tear up and rewrite the promises upon which everybody relied when they entered the court in good faith. Your Honor, I would also point out that if you think about it again, the circumstances that the debtors entered weren't just the lack of liquidity. In those declarations, you can look and see they defaulted on their equipment loan debt pre-petition. They weren't paying anybody. They should a press release.

The way that the ad hoc committee was organized was they woke up to find a press release by the debtors saying that they were no longer in a position to be able to pay their equipment lenders and that they might not be able to survive. is a going concern. So the ad hoc group quickly organized to engage in negotiations at the request of the debtor. And they did. But during that time, the debtors were not paying the equipment lenders and one of the equipment lenders actually accelerated and then crossed the fault of the convertible notes. On top of that, the debtors had, as reported in their declarations, an endless amount of unpaid loans on all of their construction facilities, which resulted in a mechanic. leans. So this wasn't like a debtor that the ad hoc committee had over a barrel. And I think I pointed out at the first day, to your honor, the members of the ad hoc committee are the original

purchasers of these notes. This is not a situation where, you know, a sophisticated, distressed community is trying to take advantage of a debtor. These convertible note holders were hoping that they would be able to convert their notes into equity at some point and ride the wave of great returns associated with those notes. So when again, Your Honor, putting things in the context that we have to look at them, which is where were we when you approved the dip and we entered this courtroom? The circumstances may be different today, but that doesn't allow us to overturn the order that you entered based upon all the factors that everyone foresaw at that time.

And again, Your Honor, I come back to the point that this is not the business judgment of the convertible note holders that's being imposed on the debtors. The debtors, it was their business judgment to enter into the dip, and it's now their business judgment to eliminate the RSA and to move into this current dip. We don't, from an ad hoc committee perspective, we're a little bit nervous about that. We now have no way out of this case.

We're all going to sit down and we're going to negotiate and see if we can get there. But Bitcoin can go down just as much as it can go up. And the ad hoc committee is fearful that as the largest secured creditor, and depending upon where abilities are, or maybe a very large unsecured creditor as well, that we're going to suffer the risk of that volatility, more than most. And so from our perspective, we understand.

We chose not to fight with the debtors today. We said, fine, if you'd like to refinance us, honor your obligations, we'll negotiate an order with you, moving forward from a cash collateral perspective, and let's get to it. Let's try to find a way to get out of this bankruptcy case pretty quickly. So at a reasonableness level, the ad hoc committee and the existing dip lenders have been about as reasonable as they've possibly can be. They extended credit, they saved the company, they allowed the company to get to where they are now. They've stepped out of the way to allow B. Riley to come in. They've negotiated a good order, and we're prepared to move forward. None of that is a record where this court should

revisit its initial decision to put the dip in place, and that dip should be honored. And from a policy perspective, I couldn't disagree more with Mr. Miller. Your Honor, if the sanctity of an order is to be relied on, which is what we're all talking about here, it needs to be relied on. That's not going to turn around and let predatory lenders suddenly say to a debtor who might be an extremist, aha, I can charge whatever fee I want, and as long as I get it approved on an interim basis, I'm good. Because the reality is, there should be a competitive process that results in the debt that's being presented to the court. And you, your honor, if somebody walked in and said, I want a hundred percent fee, might say, you know what, creditors might be

better off if this company liquidates than if it takes your dip financing. And that's within your discretion to determine at the time. And your discretion at the time that this dip was presented to you was to approve this dip with its termination fee. And when we go to the provision that Mr. Miller looks at in the dip order, just for good purpose of going to that on paragraph 30, you go to D and it says in Romanette 1, I'm sorry, Romanette 2, the validity in of any obligation incurred under the interim dip order or the loan diploma documents. The obligation, which is a fee associated with the repayment of something that's borrowed,

occurs at the time that you enter into the contract that provides for it. So that obligation was incurred as of the time of entry. And obviously there's the whole point about the payments which are protected by the good faith standard too when they're made. So, Your Honor, on that record, which was the record before the court, at the interim hearing and the arguments that are presented today, we ask that the court continue to enforce the interim order, let the debtors go where they need to go next and stop what's happening here,

and let everybody rely on the sanctity of the order that you entered, and we'll see where we can get, hopefully get the case out quickly. We don't believe that evidence should be taken, because we think putting in evidence would open up the evidentiary record associated with the interim order, which was closed, and we would have to revisit that. But again, Your Honor, we reserve our rights to the extent that evidence would be taken, not only to cross-examine the committee's witnesses and call the debtor's witnesses, but potentially to call our own.

Thank you, Your Honor. Yes, sir. Morning, Your Honor. Good afternoon at this point. True enough. I'm tempted to take Ms. Berkovich's a binder so I can get a little taller over here. Your Honor, Ron Meisler of Scadden Arps, on behalf of the ad hoc group of equity holders representing approximately 70 million shares or nearly 20% of the outstanding amount of shares. including insider shares.

Your Honor, we're going to be brief, and that's going to be consistent with what we're seeking generally in these Chapter 11 cases. Your Honor, we support the creditors' committee's view. We heard what you said. The fee is unreasonable. 544% IRA is unreasonable. Maybe it's punitive.

One thing's for sure. It's an unfortunate use of money, and we recognize. it's not material to the overall liquidity of the business. But we're trying to stay focused. Is it a good use of money? Probably not. Your Honor, we think that there's two, maybe three issues.

One, due process. Fundamentally, it due process. They got it approved on December 22nd the day after the petitions were filed. I wasn't here. Your Honor, the clients that I represent, they didn't have counsel to represent them. It's a due process issue. Maybe it's binding on the debtors.

Maybe it's binding on other people that appeared in these cases. But, Your Honor, we do think it's a due process issue. Your Honor, with respect to business judgment. That's a fair point, one that we acknowledge. But let's remember Judge Wiles' decision in Pacific Drilling in September 2018, no one objected to the fees associated with the rights offering. Nonetheless, Judge Wiles took the position that the fees were excessive, and therefore he denied the request.

The other thing, Your Honor, quite candidly, business judgment did the special committee know specifically about the termination fee and what it would cost and the return to the lenders if the dip was replaced 40 days later? I don't know. But if they didn't, I don't really know how they could have exercised business judgment with respect to that punitive fee.

Your Honor, the other issue is, I think, as you has suggested at the beginning, thoughtful consideration of this issue, including whether such an incredibly high rate of interest, is enforceable under applicable law. I think for that reason it's worth taking that break. Parties should brief it.

We, on behalf of the ad hoc group, we would coordinate with the creditors committee because if there's no reason for us to brief it, we won't. So, again, I know you don't know me. Your colleague does. when I suggest taking a break, I measure that in terms of minutes, not based. Understood, Your Honor. If the minutes are sufficient for parties to brief it, that would be great.

If they're insufficient, Your Honor, of course, this group defers your judgment. And with that, Your Honor, those are my comments and thoughts. Thank you. Thank you. All right, let me do this. And number one, I very much appreciate the arguments. I appreciate great lawyers doing great things. And it quite frankly makes my job a lot easier

when I don't have to round off the edges. This is actually relatively simple. For me, there are a number of competing concerns that drive everything I do. Number one, the process comes first. And if parties can't rely on the process, then given how fragile the process is and the responsibilities that you all have, then it doesn't work. This is not like being in district court with a defendant.

It's just very, very different. You've also got a huge number of involuntary participants who don't understand the process, who try and make sense of it along the way. And again, my orders have to mean something. I'm aware of what Judge Isger said in the Sanchez case. I think I've mediated it twice. I understand the issues. I understand what he meant when he said,

I just want to get it right, and that's because he's interpreting various provisions that he put his name on. And I know which provisions there are, and this is so far a field of that, that it's not really an appropriate, analogy. Of course we all want to get it right. There's no other reason that we sit here other than. I also want to make it clear about business judgment. Business judgment doesn't mean that I decide what I would have done. That's not the definition of business judgment at all.

Business judgment is a party being well-informed, recognizing the obligations that they owe making a thoughtful, considered decision. you can exercise proper business judgment and be flat out wrong. It's the process that you go through that is the business judgment evaluation. And I agree with the comment that was made. I think it was by Mr. Hansen is that business judgment has been exercised twice. Once when faced with a set of circumstances, the debtor exercises business judgment and says,

if I want to see tomorrow, here's what I'm going to do. it got that opportunity. It's now seen tomorrow, and it's rosier than perhaps it thought it was going to be. Obviously, there could be a sunset today and a new day tomorrow, and there could be a further exercise of business judgment that calls into question the decisions that got made previously. That's the whole concept of business judgment.

It's the process. It's the thoughtfulness. It's the being aware. it's being educated, it's making sure that you understand not only the issues that run in your favor, but those that run against you. There's also another fundamental tenant that I just believe in just to my core, and that's for every action there has to be a consequence. Sometimes those consequences are positive, sometimes they're negative. The fact that the debtor has exercised its business judgment, and I believe in a proper fashion,

there's a consequence to having exercise that business judgment and it's the payment of that fee. Again, do I wish that I had questioned it more? I mean, I didn't like the deal when I got it. I thought it was incredibly expensive and I was just looking at it from sort of an outsider's viewpoint going, wow, is this really where we are? and I spent a lot of time talking to my intern about how you actually view these things and how you have to make a decision whether it's right or wrong. And I think I said it on the record.

I also think I said I'm somewhat amazed about how folks are able to quantify risk given at least what I knew at the time, that I wouldn't know where to begin, given where the market was. When I put all of that together, again, parties have to rely on my orders. If my orders are always subject to somebody coming in and saying something different in an effort to get me to change it, then the process just fails. If I got it wrong, then I'll do a better job next time of trying to provide more avenues. I'll encourage the U.S. trustee to add this to the list of things that they look at when they look at these inner borders. Because that's the voice at that point in time that's speaking for those parties that aren't here.

I just, again, I got it that it's $6 million, but the process is far more important than $6 million. dollars your ability to go out and say I have this order and Jones signed it and its final is far more important than six million dollars if six million dollars turns out to be the price of success versus failure in this particular case and its failure then I'm prepared to live with that because the process has to be bigger than any particular case so I am based upon a record that I've got based upon just looking at this I'm just I'm doing it does I I endorsed the debtor's business judgment. It's made the decisions that it thought was appropriate under the circumstances that it now faces. Again, I appreciate being walked through the red line.

This is just a better deal. It's a more commercial deal, and debtor's going to pay the consequence of not having been able to get it the first time of ground, which I think that we would all acknowledge it wasn't available. So, again, and I appreciate the committee to bring it to my attention. It's a learning experience for me. I have no doubt it will be a learning experience and on the list of those things that the U.S. trustee looks at on first-day pleadings. But I'm going to overrule the objection.

I'm going to approve the refinancing, the new dip. You've got your hearing date. I understand that there were a few more tweaks that needed to be made. I assume that you will circulate them to all the parties that want to see them. And then you'll let Mr. Alonzo know once that order has been uploaded. Is that correct? Yes, Your Honor. You're back on my binder.

That is correct. We will submit a revised order for the process that Your Honor mentioned. So let me in again. Yes. I want to tell you, I feel awful. I've got one more hearing, and then I see a nashire. in my future somewhere other than a courthouse. So if you would just make sure you coordinate with Mr. Alonzo,

I'll take my computer home. I'll do it from wherever I am, but you need to make sure you talk to him because I'm not going to look for it. Yes, Your Honor. And we understand the process, and we will coordinate with Mr. Alonzo. And with you not feeling well,

just two quick points. First, I want to make it clear for the record that just because we've terminated the RSA and we're not going to keep our eye off the ball here, to try to get this company out of Chapter 11, but we're going to try to do so with a good process and with input from all of our stakeholders.

So that's our next task at hand here. I totally got to look. It's the respect that I said anybody else. I mean, everybody's got a role to play. Everybody's got a position, and it's those clashing positions that the right result will come out of that, whatever that is.

I face value. He doesn't like where he is. I got that, but I also. know that given his skill set he'll figure out a way to maximize whatever it is he has and I know that your team will do the same I know that the committee is going to fight hard for those folks who are probably currently out of the money or not much in the money and I again I've known I don't know miss Reed's colleague but I do know Ms. Reid's she's one of the finest lawyers I've ever seen in the courtroom they're going to advocate for equity it's exactly what should happen and I'll make the calls based upon the record that I get, hopefully the results that we get at the end of the day honors the bankruptcy code. It recognizes the economics both inside the company as well as the industry and the nation, whatever those happen to be in the time. And the process will work. It will be transparent and people may not like the result.

No one says you have to like it. You just have to be able to understand it to see through it. That's the goal. Agree, Your Honor. And there is one last item on the agenda. We'll keep it brief, and my colleague, Mr. Kane, will handle that motion. Perfect. Okay. Good afternoon, Your Honor. Good afternoon. Jeremy Kane of Wild Gatchel and Manjee's proposed counsel for the debtors. Yes, sir.

I'll be brief, and I will not use the steps. I don't want you to be brief. I want to see your A-game. I don't know. Your Honor, the debtors have moved for authorization to sell all of their Bitmain coupons, free and clear of all encumbrances. pursuant to Section 363F of the bankruptcy code. That motion is at docket number 346. In support of the motion, the debtors have submitted the declaration of Mr. Russell Can at docket number 393. This motion has been unopposed,

and we think that it's non-controversial for at least three reasons. First, the debtors do not plan to use these coupons, which are only valid for a specific model of Bitcoin miners from Bitmain. Second, if no action is taken, all these coupons will expire worthless in the next two to three months, with the vast majority expiring on March 22nd. The third reason is that if the motion is granted, the debtors will have an opportunity to sell these coupons on the market if they move quickly, and they've made the business judgment that it is prudent to do so.

At this time, we move to admit the declaration of Russell Kahn in support of this motion, docket number 393. And Mr. Kahn is available here today. It's available in case the court or other parties have questions. All right. Anyone have an objection to the issue of Mr. Kahn's declaration found at Dr. number, all right? Then it's admitted.

Anyone wish to cross-examine Mr. Kahn? I have such an inclination to call it, but I take it. No one else is going to either. All right. Then with that, I'll accept Mr. Kahn's declaration. I have read the declaration at 390. I appreciate the argument. You said exactly what you needed to say in the last sentence.

This is practical applications. Business judgment, if we do nothing, it's worth nothing. If we do something, then we maximize value. Yes, right. All right. Anyone else wish to be heard? All right, again, I find the request your relief just makes a good practical sense. We all wish you could get more, but I understand that market,

is what the market is for these things I think it's a good decision I'll grant the motion want to make sure I got we have revised form of orders or was it just the original order that was submitted with the motion I will get that signed and on the docket I've got a noon which I need to deal with but I'll get that done early afternoon thank you all right thank you anything else we need to address Nothing else, Your Honor. Thank you very much for your time. Thank you. Just one thing. Committee see things coming down the pipe that we need to plan for

or you're still investigative planning, talking, I just want to make sure you have access to the meeting. Your Honor, Brett Miller will be as a committee. Because the ad hoc group is not the dip lender, therefore the immediate challenge deadlines have been removed from the new order, So there will be time to look at some of the things that we outlined in our initial objection. So there's nothing timely other than getting up to speed and hopefully watching Bitcoin go up to 100,000. That would be great.

And I assume that everyone's working together on exchanging documents and making sure that the committee has access to those things that it needs. Having spent the better part of 30 years working opposite while and members of this team as well as Mr. Hansen and his team for a long time. everything has gone very smoothly very professionally and there's been no complaints over that terrific here if you need me and again miss Reid just to reiterate when you folks are ready just coordinate with the major institutions reach out to mr. Lonzo get your hearing date and we'll take that up just as soon as you're ready okay all right then everyone I've got a new hearing so I'm not going to step down please as expeditiously as quiet as you can

everybody.