23andMe - Audio of March 26 2025 Bankruptcy Court Hearing, case 2025-40976 before the US Bankruptcy Court for the Eastern District of Missouri, #bankruptcy, #privacy, #data, #genetics #sale #truecrime #23andMe

Get my information pulled up here, and we'll get underway. Just a second. Alright.

Noon case. Twenty three and Me, Holding Co, et al.

Set of appearances in the courtroom, please. Mister Riske.

Good afternoon, your honor. Tom Riske and Nathan Wallace and Robert Egman, Carmody McDonald, proposed cocounsel for the debtors here.

Good afternoon, your honor. Christopher Hopkins of Paul Weisz, Rifkin, Wharton and Garrison as proposed co counsel to the company. I'm here today with Mr. Billy Clareman, Ms. Grace Hutz, Ms.

Lauren Castillo, and Mr. Justin Sims.

Welcome to all of you. Thank you, your honor.

Good morning, your honor. Larry Paris and John Hall on behalf of Lewis Rice. We are here with, local as local counsel to Goodman and Proctor who's on the phone with you today. It would be Robert Lemons and Catherine Lin, and we represent the special committee of the board of directors of the debtor.

Good afternoon. Good afternoon, your honor. Jeff Kalanowski, North Rose Fulbright on behalf of JMB, Capital Partners, and my partner, Rob Hirsch, is appearing. He's from our New York office. He's appearing via Webex today.

Very good. Good afternoon.

Good afternoon, your honor. Carol Rychak and my colleague, Joseph Schlotzauer, on behalf of the United States Trustee.

Good afternoon to you. Other appearances in the courtroom? Alright. Appearances on the Webex. This will be a bit of a challenge, but if we try not to talk over each other, if you wish to enter your parents, if you're just listening only, you don't need to enter your parents.

That's a few.

Good afternoon, Your Honor. This is Heather Crockett for the State of Indiana.

Good afternoon.

Good afternoon, Your Honor. It's Robert Lemons from Goodwin Procter. As Mr. Paris mentioned earlier, we are proposed counsel to special counsel to the special committee.

Good afternoon to you.

Good afternoon, Your Honor. Jillian Dent of St. B. Segal Hansen on behalf of the class in the AMRE23ME customer data security breach litigation, which is pending in the Northern District Of California. My partner, Norman Siegel, who is unable to be here today, was appointed by the court as settlement class counsel in that case along with Karen Wasserberg of Keller Warbucks, and Gail Blatt of QCDR.

And Ms. Blatt is appearing with me today as is Chris Granger, who is on for Keller Warbucks. And just so the court knows, that case involves a data breach involving millions of claims and billions of statutory damages. And there the court has preliminarily approved a settlement and conditionally certified a settlement class. And settlement class counsel don't intend to speak today unless you need us to, but we're here to let the court know that we're evaluating our options and

intend

to be active participants in these proceedings to protect the interests of the class who we believe are at the top of the list of unsecured creditors. Thank you, Your Honor.

Thank you.

Good afternoon, Your Honor. Andrew Bellman from Weinstein Sandler. We represent a group of law firms that represent a large number of data breach arbitration claimants. On the line today as well is my partner, Michael Etkin, and I believe the litigation counsel on as well, but they are intending simply to monitor.

Very good. Good afternoon to you. Other appearances on the WebEx?

Good afternoon, Your Honor. My name is Kevin Barnes, pro se. I'm a shareholder of twenty three andMe. I appreciate the chance to be here today.

All right. Welcome, Mr. Barnes. Mister Vicito, I think you're on

Yes, your honor. My name is Charles Vicito. I'm also an equity shareholder and a member of the generic database and customer of twelve thirty eight.

All right. Welcome.

Thank you. This is again, look at the current versions.

Yes.

Some of them are not

currently muted if you please check unless you're speaking. Alright. I think we might take care of that. Any other appearances on the WebEx before we get underway? All right, hearing none.

Mr. Riske?

Yes, Your Honor. Again, Tom Riske, proposed co counsel for the debtors. If it pleases the court, as far as proceeding today, I'd like to just do a little bit of introductory remarks. I'll turn it over to my co counsel, Mr. Hopkins, to give your Honor an overview of how we got here, what we're doing and where we see this case going.

Certainly. We filed the proposed agenda. We're, of course, happy to accommodate however the court would like to take things up. But we have kind of divided the labor of those motions, Your Honor, for presentation after that kind of an introductory presentation by Mr. Hopkins, if that's acceptable.

That would be great.

So briefly, Your Honor, I just at the outset of this, as Your Honor knows, complex cases like this have a lot of moving parts. And in order to get a case filed, proceeded through the filing process and before your honor with the relief we're seeking today, it requires a lot of people and it requires a lot of people working together. So I think I have to start today by thanking the court for accommodating us with the short hearing, with being accessible to us to speak to concerns. I have to thank the U. S.

Trustee and Ms. McGuire. They have been extremely accessible for us prior to the filing and through this filing have provided us valuable insight, comments on proposed orders and really helped us streamline the issues that we'll be presenting before Your Honor today. So I do think I need to state on the record that we very much appreciate all these parties helping us get here to stand here today, Your Honor. So with that, Your Honor, I'll introduce my co counsel from Paul Weis, Christopher Hopkins, who will provide an overview of the company and in this case, your honor.

Very good.

Good afternoon again, your honor. For the record, Christopher Hopkins of Paul Weiss, Rifkin, Morton and Garrison, proposed co counsel to the company. I would also like to start, echoing Mr. Riske's comments. We appreciate everything the court, US Trustee's Office and the clerk's office has done to work with us over the last week or so on our first day papers.

I'm pleased to report, I think as a result of those efforts, we've been able to resolve substantially all of the open issues and comments from the U. S. Trustee. There may be ones or twosies here as we go through the agenda, but we really do appreciate that, so

we could have a smooth hearing today.

We do have a set of demonstrative materials, your honor, that I'd like to walk the court through that really is intended to answer three questions. Who is 23andMe? What were the key events and facts that led us here today? And how do we see these cases proceeding with your honor's support. But before I get to the materials, you know, just a couple of introductions to the court.

So on the line today from the company, I believe we have mister Joe Sel Savage, who is the company's interim chief executive officer and also the chief accounting officer and chief financial officer of the company, as well as mister Guy Hyun, who is the company's general counsel. They're, you know, hard at work at the company attending to the important business of, you know, transitioning the company into chapter 11 status, but I'm sure they're listening in today. The debtor's proposed investment banker is Nolos and Company. Mister Andrew Swift is here today, and he's filed declarations in support of the debtor's proposed bidding procedures as well as the proposed approve, the dip motion. We're also joined by mister Matt Kavarda of Alvarez and Marcel.

He is the debtor's chief restructuring officer, and Alvarez and Marcel has filed a retention application to designate him as the CRO and and authorize Alvarez and Marcel to designate certain personnel to support him in that role. I've already introduced the Paul Weiss team that's here today. My restructuring partner, mister Paul Bosta, is also on the line. And I just wanna pause here for a moment, your honor. There's a lot of attorneys from the firm here today.

We did that because we felt they all worked hard and did a great job to get the company to where we are today, and we wanted your honor to have an opportunity to meet the team and for them to present some of the motions before the court. You're not going to be charging the estates for that time. And that that's something you're going to hear, you know, repeatedly in these presentations is how important it's going to be for us as the debtors professionals and stewards of these cases and really for all parties and interests to make every effort to conserve liquidity, run these cases efficiently and keep case costs down, so we can preserve as much value as possible for distribution to our stakeholders at the end of the process. So with that, turning to the materials, who is 23andMe? So starting on slide three.

To provide a brief overview of the company, the company was cofounded by miss Anne Wojcicki and certain of her partners in 02/2006 '20 '3 andMe is a leading provider of genetic testing and telehealth services and was really one of the leading pioneers in the direct to consumer genetic testing space. And really since its inception, the company's mission has been focused on allowing people to access unique personalized information about their ancestry, their health characteristics, and and other and other valuable information derived from their genetic data to benefit their overall well-being. And that mission has enabled the customer to serve over 15,000,000 customers and develop one of the world's largest crowdsourced databases of genetic information. Getting into on the next slide, you know, just a little bit more detail on the business. There's really three main segments.

There's the personal genome service or PGS business, which is the primary. It's the primary business line. This is customers ordering kits, sending samples back to the company, and getting various forms of, genetic reports based on their unique genotype. Through its Lemonade Health subsidiaries, the company also operates a telehealth business that includes a, you know, a telepharmacy as well. And those services are provided by nondeter affiliates that are owned by licensed medical professionals that actually provide the health care services, in connection with the Lemonade Health business.

And finally, there's research services. So many of our customers have elected to opt into various research initiative and programs of '23 andMe where the company uses various various methods, including machine learning and other things to analyze the database of genetic information it has to identify and validate targets for drug development and and and other things that are designed to leverage the genetic health to to benefit, you know, its customers and others in terms of the insights that can be gleaned from that data. On the next slide, this is the organizational chart for the company. So there's there's 12 debtors in these cases. Twenty three andMe Holding Company is the is the company that, you know, as of the petition date was publicly traded on Nasdaq.

There is no capital structure slide here, your honor, because this company has no funded debt, secured or unsecured. And so really, the equity holders are that's it. On the next slide, you know, just to start to introduce you to some of the folks at the company. This is the current board of directors. Mr.

Mark Jensen is the chairman, Andre Fernandez, Jim Francola, Thomas Walper, and miss Anne Wojcicki. That's the full board. On the next slide, we'll get into the we'll get into governance in a lot more detail later in the presentation, but there there is a fully independent special committee of the board that has been delegated the full authority of the board with respect to all restructuring matters, and it's comprised of everyone except miss miss Wojcicki. And then finally, now I've already introduced them, but these are these are the so you can put faces to the names. Here's here's the senior management team of the company.

So on the next and then we've already introduced the proposed advisers other than Kroll, who is our proposed claims and noticing agent as well as our an administrative adviser and and their retention app is also up for hearing today. Customer data. So your honor, with your permission, I'd like to spend a good amount of time on this topic because it's an important aspect of these cases. And I'm sure the court is aware leading up to and immediately after the filing, there has been an extraordinary amount of attention given to this issue, media reports and other things about customer data and how it's going to be treated in these cases. And I think it's very important that all of our stakeholders, our customers, the governmental agencies who are focused on this issue hear directly from us on this topic.

And simply put, the customer data is more protected today than it has ever been. And that and that's both from a chapter 11 process perspective and from the cybersecurity perspective. Your honor heard from some of the counsel to claimants who believe they have claims arising from a cybersecurity incident that occurred in the in the fall of twenty twenty three. We'll get to that later in the presentation because I they they are right. They are a major creditor constituency here, and I think it'll be helpful to provide the court some background on that.

But in our view, you know, as I said, I I think the concerns around the treatment of customer data here are are predicated on a fundamental misunderstanding of how twenty three andMe has addressed the treatment of customer data in these cases for at least three reasons. First, the the privacy policies that existed before the filing remain in place today. Nothing has changed. Nothing in our first day relief seeks to modify those policies, and so the company intends to manage, use, and protect customer data as it always has. It's the status quo.

Second, you know, it is true that a major pillar of these cases is going to be running a sales process to maximize the value of our assets for the benefit of our stakeholders. But that that's not a new fact. The company has been, you know, very through very for 13 d's, media reports, press releases issued by the special committee. It it is well known that the company has been exploring strategic alternatives for a long time. But importantly for this process, the debtors proactively have required in our proposed bidding procedures that it is a requirement of any bid that the buyer has to agree to take any customer data in a court approved transaction subject to the policies that existed before we filed and are still in place today.

And and finally, your honor, we're now in chapter 11. And so that comes with all the procedural safeguards and due process considerations that the debtors accept as a condition to using this process. And any transaction that involves customer data is going to be done on notice. Parties are gonna have an opportunity to object. And most importantly, it's gonna have to pass muster in front of your honor that we're we're satisfying our obligations, the bankruptcy code, and applicable law.

And so the reality here is that the privacy policies in place before the petition date remain in place. Any buyer must commit to honoring those policies in connection with the sale and all parties rights with respect to the treatment of their data and to object to any potential sale are fully preserved. And we think it's important that we deliver that message clearly because obviously the success of the sale process is an important aspect of these cases, and we want it to be very clear as to how we're seeking to proceed and in what we're actually doing by being here

in the chapter 11 case

today. Now on the cybersecurity perspective, just to touch on it briefly, it is true the company was the victim of the cybersecurity incident. But since the company became aware of that and announced the incident, it has taken proactive steps to address its cybersecurity infrastructure. And so just on that point, from the pure cybersecurity perspective, I mean, the data is protected.

And

so the last issue I wanna touch on with respect to the customer data is there have been news reports that customers have been issue have been having issues deleting their data. And there's a suggestion that the company is somehow affirmatively engaged in effort to prevent that. We are not today. We haven't it's in fact, it's the opposite. The company has deployed their engineering team, engaged with third party vendors and other parties to remedy the issues as soon as possible.

I mean, as your honor can imagine, with the filing and the media scrutiny, the volume of traffic to the company's website has skyrocketed. And it's it's just it's a systems IT issue that where the the company's website and servers are just overloaded, and the company is working to address those issues. And so we hope through these comments to demonstrate to the court and our stakeholders that the company is committed to being responsible stewards of our customer data through this process, consistent with our fiduciary duties to all of our stakeholders. So I know that was a long winded speech, Your Honor, but it was very important to the company that that message be delivered today. So unless Your Honor has any questions on those aspects of this, we can keep moving through the presentation.

Go ahead.

Thank you. Prior slide. So just to orient, when we say customer data, what are we talking about? So over the course of its history, the company has collected over 15,500,000 unique genotype customer, you know, samples over the course of its history. That is the highest level.

So they they submit their their, you know, they get their kit, they submit a saliva swab, the company processes it. That's that top line genetic information. And then many of the company's customers have voluntarily opted in to other programs at the company with respect to their data, including research, which effectively means that they are agreeing that their data can be used in connection with that research services businesses I described earlier in the presentation. And then there's also biobank data, where customers have opted in to allow the company to store the saliva sample. So it can go back and be retested and things like that at laboratories that the company contracts with.

On the next slide, again, not to reiterate the points I already hit, but I think the key takeaway here is that the terms of the customer's privacy policies do permit in a situation where the company is involved in a bankruptcy, merger, acquisition, sale of assets, etcetera, that the data may be transferred in connection with any of those transactions. But importantly, and it's it's at the end of the first sentence here, in connection with any of those transactions, the privacy statement will apply to their personal information as transferred to the new end. And so that that is what consistent with the privacy policy, that's where the provision in the bidding procedures ties those two concepts together. Next slide please. I think we've already covered a lot of this, your Honor, but again just to emphasize that the company wants to be responsible stewards of this data.

We've already talked about the bidding procedures, but we've also are seeking authority from the court in our first day relief to redact personal information of customers from our the various filings we need to make in the cases like the creditor matrix and other things. Things. But we'll get into more detail on that later in the presentation. Next slide please. So how did we get here?

At one point in time, this company had a market cap of approaching $6,000,000,000 And the company has consistently generated significant revenue over its history. But for a variety of factors we'll get into in a second, it has never generated a net profit as it as it's tried to invest in its future growth and kind of right size operations to bridge to profitability. And so historically, the company has funded operations primarily through PGS revenue, accessing the equity capital markets and entering into research collaborations with third parties. Over time, however, a confluence of factors began to erode the company's ability to finance operations that way. And as a result, the company began to become liquidity stream.

And so starting in around 2021, you know, there are some macroeconomic factors at play that I'm sure your honor has heard come up in many of your other recent filings. Just rising costs led to increased operational expenses. The same factors resulted in decreased consumer discretionary spending. And there's also increased competition in the direct to consumer genetic testing market. In addition, on the next slide please, the cybersecurity incident occurred.

And so the company announced, became aware that a threat actor had accessed certain of its customers' data and announced that breach in October of twenty twenty three. The type of data access varied by customer, but because one of the services the company provides is kind of an interconnectivity between customers where if you want if you elect to share your data in this way, you can find out if your relatives have submitted the '23 andMe test kit or otherwise. The threat actor was able to access certain information of about 7,000,000 customers. And as your Honor can imagine following that announcement, there was a explosion of litigation against the company resulting from the cyber incident. That includes 40 class action litigate lawsuits in The US as well as two class action lawsuits in Canada.

There were nine class actions commenced in state court. And because the company's terms and conditions included in arbitration clause were also subject to, you know, mass arbitration. And over 35,000 arbitration claimants have either initiated or threatened to arbitrate claims against the company, primarily in The US, but there's also some in The UK as well. And then there was also a regulatory reaction. So the FTC the FTC instigated the CID against the company, and there is a a group of state's attorney generals that also commenced an investigation into the company.

On the next slide, so given the breadth of that litigation, the company obviously had to act quickly, so it didn't, you know, overcome the company. So that the federal class actions were consolidated in an MDL proceeding in the Northern District Of California in front of the honorable Edward Chen. And the parties, you know, basically, once the class was formed and the MDL was formed, they entered into mediation that ultimately was successful. So they reached agreement, and I'm I'm gonna paraphrase the terms here to focus on what's material, but effectively it was a $30,000,000 cash payment to the settling class, certain other non monetary relief, and the company took that agreement forward to be approved on a preliminary basis before Judge Chen. Importantly, because this this will matter and I'm sure it will come up at some point in the case, you will your honor will see some bifurcation between claimants who are litigating in federal court, claimants who are litigating in state court, and claimants who are electing to arbitrate against the company.

Judge Chen modified the proposed settlement class to say that effectively folk any claimant who had elected to arbitrate their claims against the company could not be included in the settlement class. And from the company's perspective, that was a pretty devastating ruling in terms of the economic benefit to the company of providing the settlement, because it meant that the company still faced around 30,000 plus individual arbitration claims, which in the terms of just the filing fees alone could could could have resulted in tens of millions of dollars of liability. And so coming out of that ruling, the company determined to engage with counsel to a critical mass of the arbitrating claimants and state court claimants and try to enter into separate, you know, contractual settlements with them. And those efforts were actually successful. The the company entered into binding term sheets with the settlement with both sets of those claimants outside of the class in February of twenty twenty five.

They were documented in executed settlement agreements with those groups of claimants, actually, the Friday before we filed. And I believe it was on March 12, the company told the judge Chen in the Northern District Of California that in light of those settlements, they were willing to proceed with the class settlement as modified by judge Chen's order. And the company engaged in those efforts primarily to to try to remove the overhang that was on the business to allow it to regain access either to the capital markets or to facilitate a strategic out of court transaction. Unfortunately, you know, we are that didn't work. And so we're we're here today.

But but that was why the company focused so much time and effort on trying to resolve this issue consensually and quickly, before, you know, so we could have tried to preserve an out of court option.

Can I ask you, are there substantial numbers of plaintiffs who are not included in one of these three settlement groups?

So it's a good question, your honor. This is not it is true that this is not comprehensive. So there there are, like there are the two class actions pending in Canada. There are some class action. There is a threatened class action in The United Kingdom.

We may be back to your honor on those topics later in the case to the extent we need to address that foreign litigation, but it's not an issue for today. And one of the issues with those settlements is, as I'm sure your honor is aware, a class action settlement is a settlement, but claimants can opt out. Sure. So it is not comprehensive. And then there's obviously, this is really kind of the private claimant side of the cybersecurity issue.

There's also the regulatory side and potential government fines, other things etcetera and litigation costs. On a company that was already struggling with liquidity, I'm sure your Honor can appreciate how challenging the overlay of this data breach incident, how deeply it exacerbated the company's issues as we tried to effectuate an out of court transaction. So on the next slide, so this will kind of get into this is the segue into really how things accelerated into the filing. And I think it's worth spending time here. So your honor understands you know, the key facts that led us to today, how robust our pre petition marketing process was, how robust governance process around that was, and how we ended up filing.

So, in early twenty twenty four, as those challenges, I mean that predated the cyber incident by a couple of or I'm sorry, no, it postdated it by the all the macroeconomic factors, the operational issues, the data breach issues, in light of those all of that, Ms. Wojcicki expressed her interest in potentially taking the company private. And for context, you know, Ms. Wojcicki is the founder. She's also the controlling shareholder of the company.

And until the petition date was also the CEO and chairman of the board. In light of that dynamic, you know, the challenges facing the company and a CEO being a potential bidder, the board determined that it was appropriate to establish a special committee of the board responsible for reviewing and evaluating any strategic alternatives that might be available to the company, including a potential transaction with Mr. Giske. That special committee is not the special committee that I introduced to you earlier today. I will explain why.

But just for context, your honor, I will it will be clear in the presentation when things kind of switched over to the currently constituted special committee in this process. But back then in March of twenty twenty four, that special committee engaged Wells Fargo as a banker to help facilitate the assessment of strategic alternatives and Decker as independent counsel to the special committee. Next slide please. So in July, a lot happened between March and I'll call it November of twenty twenty four that I'm going to paraphrase here a bit, but just so your honor has the relevant background. So in July of twenty twenty four, Ms.

Wojcicki made an offer to the special committee to acquire the outstanding minority equity of the company. That proposal was rejected by the company or I'm sorry, was rejected by the special committee. Over time, there were more proposals. There's a lot of 13 Ds that are in the public record that kind of explain the back and forth. Wells Fargo ran a sales process, but there were statements in the market made in the 13 d that miss Wojcicki, in her capacity as controlling shareholder, you know, was not willing to entertain a change of control transaction.

And so, you know, that that process was ultimately not successful. And, you know, ultimately, events culminated in September 2024 when the then serving independent members of the board and the special committee determined to resign. And they actually issued a public press release saying that, you know, after months of work with Ms. Wojcicki, they had not received a fully financed, fully committed, actionable proposal. And given a difference in the strategic vision for the company, they determined that it was in the best interest of the shareholders for the independent directors

of the board to resign.

And so that brings us to November 2024. In November 2024, the special committee was repopulated with three of the four independent directors that I introduced you to today. And that that's mister Jensen, mister Fernandez, and mister Francola. And, you know, once they got on the scene, you know, the company began really a comprehensive and very proactive effort to try to address the company's issues quickly, given the liquidity position of the company was becoming more and more concerning from a liquidity runway perspective and how long the company would have to implement a transaction to stay out of court and continue to fund the business. And so once the new once the special committee was repopulated, they hired Molis, who's here with us today, and Goodwin, who you heard from earlier in the hearing.

And under the guidance of the new special or the new members of the special committee, they engaged in some pretty robust operational restructuring initiatives to try to right size the cost structure of the company. Company shuttered its historical therapeutics business. It made the difficult decision to reduce overall headcount by about 40%. And they entered into negotiations with primarily with their landlords. The company had entered into leases for space that it just didn't need anymore, but were significant cost to the company.

And so they really tried to pull the costs out of the company to preserve liquidity and maximize runway. It became apparent, however, that those types of operational fixes alone were going to be insufficient. And so the special committee determined to to kind of relaunch the sales process with Molas working with Molas and Goodwin as its independent counsel. And that resulted in a very robust pre petition marketing process. On Slide 20.

So beginning focusing on that process in January 2025, that's when it really kicked off with Moelis going out into the market and seeking third party proposals for a potential sale or financing Over one Over 103 potential investors were contacted. There were 90 introductory calls, 42 NDAs executed and an extensive VDR populated. So buyers had as much information as possible to assess what if anything they would be willing to do with the company. On the next slide. And that process did generate meaningful interest.

The company received various types of IOIs, some out of court, some in court, different types of asset packages, different types of structures, and that included proposals from Myswojcicki. Molis and the other advisors worked hard to negotiate those proposals to try to land the plane on an acceptable and actionable out of court transaction. Unfortunately, the special committee in consultation with the company and its advisors determined that those proposals were either preliminary, not currently actionable, not capable of it being implemented on an out of court basis or simply just otherwise not in the best interest of the company. And so looking at the liquidity runway, looking where we were in the sales process, the special committee determined that it was the right thing for the company to commence these cases, stabilize the business, use the bankruptcy tools to attract new capital, which you'll hear about our dip motion later on in today's agenda, And be able to run a sales process in a court supervised process that provides the debtor the opportunity to sell assets free and clear of things like the data breach liabilities and all the uncertainty that was associated with those either through a confirmed Chapter 11 plan or a three sixty three sale.

On the next slide, Your Honor, I do wanna just pause here. You know, so I'm not gonna go through this timeline. I think it shows kind of all the back and forth really starting since April of twenty twenty four and culminating with the filing. Ms. Wojcicki has made certain statements in public expressing disappointment in the special committee's decision to commence these cases.

From the company's perspective, that is surprising to say the least. As I think you can see here from the almost year that has passed from Ms. Wojcicki's initial announcement that she was considering taking the company private to today. She has really had every opportunity to put forward an actionable fully committed transaction proposal that would have kept this company out of chapter 11. And, you know, this is not a criticism, but she failed to do so.

And there may be many reasons for that, but we want to be clear that the special committee's process and business judgment in commencing these cases is not among them. On the and just, you know, I that's a good segue into, you know, I told your honor we would talk about governance on the following slide. I have to say as a firm, we work with a lot of special committees as restructuring lawyers. And this group of individuals is among the most dedicated, thoughtful and diligent group of directors that I've ever had the privilege of working with. For context, these three were appointed in, as I said, in November.

And since their appointment, they met 70 times. That's an average of 3.5 times a week. And from February 21 through March 23, they met almost every single day, assessing proposals, assessing options, analyzing you know, everything that independent fiduciaries that are good stewards of company are supposed to do. And, you know, really at all relevant times leading up to these cases, this has been a independent, thorough, fair, conflict free process that led us here today. I just think it's important given all the noise, you know, outside the courtroom that that folks understand that.

As in in addition, you know, as the filing became increasingly imminent, the special committee and board took additional steps to bolster the governance protocols here coming into a filing. So on March 7, the board approved a rep approved a resolution expanding the special committee's delegation of authority of the board to cover the authority to commence these cases and all restructuring matters that arise from them. On March 22 or I'm sorry. On March 21, miss Wojcicki and the special committee reached a mutual agreement pursuant to which miss Wojcicki agreed to resign from her role as the CEO of the company. She has also said that she's still committed to the company and interested in bidding in this process, and we welcome that.

Obviously, we want us competitive and value maximizing process as possible. Other steps included, you know, electing mister Jensen as chairman of the board. Mister Kvarta was designated the CRO. And we also you know, you saw mister Walper as a member of the special committee and board. Mister Walper was appointed to the board and special committee effectively contemporaneously with the five.

So there is he is a new to the scene independent director who's going to assist the board and the special committee, you know, as we navigate this process together. And then mister Joe Selzavage was elevated to the role of interim CEO in addition to his chief accounting and chief Financial Officer roles given Ms. Wojcicki's mutually agreed resignation. On the following slide, we also, Special Committee has authorized certain specified counsel of the special committee in the company to commence an investigation into potential estate claims and causes of action to see if there are other valuable assets out there for potential distribution to stakeholders. And that will include any claims or causes of action against the company's insiders.

And on March 23, shortly before we filed, the special committee further delegated that authority to mister Walper as, you know, the newly appointed independent director who wasn't involved in any of the events that that led us up to the filing today. And so, you know, that that's really the story of how we got here, your honor. I I think, any questions on any of that before we move into how we see these cases proceeding from here?

I don't think so. Thank you, though. Thank you, your honor.

So we really think, obviously, as in many cases, our goal here is to move these cases forward as efficiently and expeditiously as possible, so we can maximize distributions to our stakeholders. I'm sure Your Honor knows time is money in bankruptcy. And we hope that we will be able to we certainly are committed to doing everything we can to make sure that all stakeholders in the cases are focused on what's best for the stakeholders and how do we get to a successful outcome at the end of the process. And I really think there's four main pillars to that. One is funding the cases.

We plan to do that through a combination of our revenue, our balance sheet cash coming into the filing and the proposed dip commitment from JMB Capital, that we'll present later at today's hearing. Obviously, we've talked a lot about the sales process and we're going to be seeking approval of proposed bidding procedures today that set the framework for a robust transparent sales process, but also one that kind of acknowledges that the faster we move, the faster we can distribute value to stakeholders. And hopefully the more value there is to distribute. And so given the robust pre petition marketing process, all of the attention that's already around this process that we have already seen an uptick in bitter interest since we filed. So it's encouraging to us as we kind of get underway here.

But that's going to be kind of the main event in terms of how what is the size of the pie that we're going to be able to distribute to our stakeholders. Third, I think we want to work collaboratively and constructively with not just the cybersecurity incident claimants, all stakeholders. Obviously we're focusing on them because we believe even

at

the proposed settlement amounts, they're among the largest unsecured creditors in these cases. And I'm encouraged that we were able to develop a constructive and collaborative relationship with them in documenting these settlements in the months leading up to the petition date. And we hope that continues through the filing. And we're working together to figure out how to move these cases forward and maximize value to stakeholders as opposed to potentially fighting each other. And then finally, your honor, and we're going to try to do this as much as we can in parallel with those stakeholder discussions and the sale process, we wanna move forward to expeditiously confirm a plan.

You know, our view is that the sooner we can get to a confirmation hearing, the more value there will be to distribute to our stakeholders, which is what, you know, the special committee, the company, and all of its advisers are obviously focused on at

the end of the day.

I think that's all I have, your honor. I sincerely appreciate the time. I know that was a lot. This is a this case has many different facets to it, and I just thought it would be helpful to kind of paint a picture for the court as we head into the today's agenda.

Oh, it is very helpful. Thank you. I appreciate that. I've read a lot in the last twenty four hours. I have no doubt.

I didn't absorb all of it, and so this is a nice refresher, and I appreciate that, mister Hopkins.

Thank you very much. Unless your honor has anything else for me, I think I'll I'll sit down. You'll see me again when we get to the dip motion and the retention applications later in today's hearing. But otherwise, thank you, Your Honor.

Thank you.

It's unreasy for the record, Your Honor. Point one and two on our agenda are essentially housekeeping matters with respect to the expedited hearing, if Your Honor would like to take either of them up first.

Sure. Why don't we go higher level housekeeping? We're going to need a date for a second hearing. What what does the debtor what do the debtors propose about a second day hearing?

Thank you, your honor. There's actually two two things I've I forgot to do. One is the second day hearing. So we would ask for a hearing on or around April 22 if the court can accommodate. I mean, if it's the twenty third, that should work as well, but

that was our proposal.

That's a Monday the or is Tuesday the twenty second? Are you anticipating an inventory hearing extensive? It would be easier for us to do in the afternoon on the twenty second? I can do it in the morning, particularly if it's more straightforward?

Your Honor, I think our expectation will be that we will do everything possible to resolve issues ahead of the hearing. So if you can give us the afternoon, I that's we the debtor should be able to make that work. And if for some reason that's not the case and we expect a trial or something to that effect on the dip order or whatever, we can We could set that up. We can coordinate with the court.

Okay. Why don't we, for now, pencil in April 22, at 01:30 Central Time for second day hearing. As you indicate, if it looks like it's going to be a major event, I have hearing scheduled in the morning of the twenty third, but we could double we could weave things in if we wanna continue that morning or if we wanna set a piece of it later in the

week, we could do that too.

I mean, personally, your honor, I I don't anticipate that there's going to be a big dispute at the second day hearing. I I I don't wanna prejudge the outcome, but I mean, I it's a pretty plain vanilla dip proposal, like, there's you know, so I I think that should be fine.

Okay. So let's let's pencil in April 20 April '20 second, '1 '30 Central Daylight Time for a second day hearing. And you said there's one other thing.

There is, your honor. I I've if it's alright with your honor as a housekeeping matter, I think what we would propose to do is there's really three declarations that are gonna be germane to, substantive first day relief we're seeking. There's the declaration of mister Kvarta in support of the first day relief. That's a docket number 32. And then there's two declarations from mister Swift.

The deck his declaration in support of the dip motion is filed at docket number 33. And he also submitted a declaration in support of the proposed bidding procedures, which is at docket number 30 exhibit six. And so if it's okay with your honor, what I would propose to do is admit those into evidence now subject to anyone's right who wants to cross a witness as we get to a motion where they have a potential objection, you know, fully preserved.

Okay. Let let's take them one at a time just to make sure we have a clear record. So first, let's talk about the Clovarta declaration document 32. Does any party have an objection to my receipt of that declaration in evidence subject to the recognition that you will still have an opportunity to cross examine from time to time throughout the remainder of the hearing as anything in that declaration is relevant. All right.

Hearing no objection, I'll receive the COVARTA declaration, document 32, with that qualification. Let's talk about the SWIFT declaration for the DIP financing motion, document 33. Does anyone have an objection of my receipt of that declaration from Mr. Swift into evidence subject to the same reservation of the ability to cross examine? All right, hearing none.

I'll receive that declaration in evidence. And then finally, the SWIFT declaration attached to document number 30, the bid procedures motion. Does anyone have an objection to my receipt of that declaration in evidence subject to the same reservation? Alright. Hearing none, I'll receive that one in evidence as well.

Thank you very much, your honor. Thank you. And so we have second day hearing, and I would encourage mister Riske or someone from your team to reach out to mister Spital. We'll get some more hearings set up beyond that so that we have the ability to schedule matters.

That'll be great, your honor. I think when we get to the bidding procedures motion, we will ask the court for a sale hearing,

just

so we can set up the notices, but we can deal with that. Yes.

Okay. Very good.

Thank you very much.

All right. Mr. Riske, you promised some housekeeping.

Yes, Your Honor. We have two administrative motions up at the beginning of our proposed agenda, joint administration and motion expedite. With respect to the motion expedite, as in any case, there's certain relief that we need to get in front of the court with as soon as possible. This case, as you've heard from Mr. Hopkins, is especially sensitive to preservation of value.

A lot of the first day relief and the declarations in support of that outline the reasons that we need the relief that we're seeking on an expedited basis. As soon as we receive the proposed hearing date of today, notices went out. I think those constituencies that Mr. Hopkins outlined, a lot of them received electronic notice in this case. So we believe the notice of this hearing was robust and as broad as we could do.

So with that, your honor, we'd I'd ask that the motion to expedite the hearing be granted.

Alright. Does anyone wish to be heard on the motion to expedite hearing document 54? All right. Hearing none, I will grant the motion if you'd submit an order, please. Thank

you, Your Honor. Next motion up is the motion for joint administration. Your Honor, through as your Honor said, the voluminous papers that were filed through the first day hearings, I believe, in some of them, The U. S. Trustee noticed there might have been a mistake where the phrase procedurally consolidated was outlined.

I just want to make it clear for this motion. All we are seeking is joint administration. We are not seeking substantial consolidation of these estates. We've received no formal or informal notice. We have circulated that proposed order and tried to make it fit within the clerk in this court's local practices and guidelines.

So with that, we would ask that the motion for joint administration be granted.

Does anyone wish to be heard on the motion for joint administration, document three? Hearing none, I will grant that motion as well. Please submit an order.

We will do so, Your Honor.

And I believe you've submitted orders already. I'm just probably going to say that every time because that's what I say.

And I think what we we were going to submit just a fresh batch for your Honor after the hearing, if that's okay, just to make it as clear as possible.

I think that would be fine. And I should add for the benefit of you and your co counsel, I've reviewed the motions, the applications, the declarations. As I mentioned, I haven't committed everything to memory. So you should feel free to touch on whatever points you need to in your presentation of any particular motion or application. But I have reviewed them.

And I have done my best to review the proposed orders that were on the third party website as of early afternoon, mid afternoon yesterday. So if there are substantive changes to the ones that you submit after the hearing, if you would either send Mr. Spiedle a red line or otherwise draw our attention to those changes, that would help us expedite getting orders entered.

We'll do so. And I think also as part of our presentation today, we'll highlight the changes the proposed changes to those orders since the posting

Very good. That would be definitely helpful. With the parties. All right. Thank you.

Thank you.

So with that, Your Honor, I believe the next motion on the docket is bidding procedures. I'll cede the podium to my co counsel, Your Honor.

Very good.

Good afternoon, your honor. Grace Hudson, Paul Weiss, proposed counsel to the debtors. As mister Whiskey mentioned, I'm gonna cover the bidding procedures motion. This is at docket number 30. This motion is accompanied by the declaration of Andrew Swift of Mullis, which was, just entered into evidence.

And as we've discussed today, his declaration really goes through the long process that's been going on for close to a year now, for the company to find strategic investors and other, you know, potential buyers for the business. So this motion really seeks to continue that process, except now with the benefit of the court supervision and oversight and, with further notice to potential bidders in the process. We're available to the highest and best bidder. We want those bidders to come forward, and we're prepared to work with them quickly and to document that transaction whatever form that it takes. So first and foremost, this motion seeks approval of bidding procedures to govern this process.

I recognize it's a long document. There's a lot in here. But it has a full suite of procedures that govern the requirements for bidders who wanna participate in the process, and, ultimately, how the debtors will work to to determine who the successful bidder is following an auction, if one is necessary. There's a lot of mechanics in here. We have, procedures to allow the debtors to designate a stocking horse bidder upon, advanced notice and an opportunity to object.

There's a form notice of sale and auction, and there are procedures for the assumption and assignment of contracts and leases to a potential buyer. We've included all this information upfront, because for the reasons mister Hopkins outlined, we really can't afford any delay in these cases. We think everything should be in place if someone comes forward, to buy the business so that we can move quickly and, everything should be available. Parties should be on notice, so that we can get to a successful conclusion of these cases. So on that note, I think one of the most important aspects of this motion is the timeline.

We are seeking a proposed bid deadline of May 7, which is about forty five days from the petition date. If a party wants to be our stocking horse bidder, we would have to notice that by April 25. And we're seeking to hold an auction on May 14 with a sale hearing, on or around June 2 subject to your the court's availability. We've also worked in some proactive consultation rights for, any committee that gets appointed in these cases. We want them to be keyed into the process.

We expect to work with them constructively and hear them out, and and get their feedback on this process, you know, notwithstanding the fact that they're not here today. In addition to the bidding procedures, this motion also, has separate procedures that we're proposing would govern, de minimis asset sales and abandonment of of smaller assets. This would be separate from the overarching bid process and govern what we would view as, like, discrete asset sales or discrete abandonment of property, for lower value assets subject to a $2,000,000 cap per per sale. This is largely to help the company close out the shutdown of the therapeutics business that mister Hopkins, disclosed earlier. Last year, they shut it down.

They've been working to get rid of the the remaining assets, and they anticipate that, some of those sales might close or they might otherwise wanna abandon the assets, that were previously used in connection with that business. I'd be happy to answer any questions that you have on the motion. Otherwise, we would ask that you enter the order, and, we're also looking for a sale hearing on or around June 2 that I think we would like to schedule today if possible.

Okay. I'll I'll hear from others, of course, but I did have a few questions for you. Let let's start with that last one, the scheduling. I have some travel in early June that would make it challenging for me to, schedule a hearing exactly on your time frame. Okay.

Based on what I see about other constraints in the dip and elsewhere, would a hearing in the June say, oh, I put down a date here. Where did it go? June, would that be workable?

I think if possible, we would like to do it earlier. Do you have any availability at, like, the very May?

I might. That's obviously making the timeline a bit more aggressive. And as you pointed out, we don't have a committee here today. I'm

what

I would like to do is schedule a hearing that when the committee is appointed reduces their desire to say, oh my god. We've gotta do something. And and because you will have noticed this to many, many people already. Right. So I would I would like to balance the desire to move quickly with the desire to avoid collateral litigation about trying to set aside the deadlines and reschedule them.

And so I I will without disclosing too much information about my whereabouts on the record, I will be, for a time in the June, not available to conduct a hearing even by video. And so that, that causes me some concern. I I think I could have a sale hearing on your timeline. What I don't know is whether there will be motions to motions for reconsideration, motions to stay, that sort of thing, which, of course, one of my colleagues could cover, but that's a big ask of a colleague to, to drop, you know, what might be an order approving a sale or an order denying the sale. I'm not gonna prejudge it, on a call, you can say here, you can handle the motion for reconsideration.

So that that's that's what I'm trying to work with.

Okay. If it's okay with your honor, maybe we could, go through the rest of the motion, and I could

Yes. I I think yeah. Yeah. I don't I don't want you to make that call.

I just don't know availability.

Right. I don't want you

to make that call unilaterally while you're at the lectern. That would not be fair. So, okay. And so the other yeah. Miss Hopkins.

Yes.

So Sorry, Ms. Hudson. Your Honor, if I may, do you mind if I confer with

the DIP lenders Council? Yes, certainly.

Certainly. We may be able to come back while Ms. Hudson covers the rest of your

That's absolutely fine. Yes. Yes. Okay. So my overall reaction to the timeline is that it's pretty tight.

But on the other hand, the pre petition marketing process is pretty robust. And so those two things obviously go hand in hand. And so I think a sale hearing in June is doable. I think the committee, when it is appointed, may have something to say about that. But as I indicated, if it goes a little later, there's less for them to say about that than if it goes earlier than that.

So that's my initial question. What can we do there in terms of maybe moving that sale hearing a bit later into June? Another question is the nonbinding indications of interest due April 13, which is about two point five weeks away. Is there any reason that needs to be quite so early? Again, I'm just thinking the committee is appointed maybe not too long before April 13, maybe a good bit before April 13, it depends how things go.

And knowing how committees work, if there is an imminent deadline, they may be forced into litigation mode. And if that deadline doesn't need to be quite so far in advance of the qualified bid deadline on May 7, perhaps some of that dynamic gets lessened a little bit.

So I would just point out that this is not, it's not something that every bidder needs to to to submit a bid by. We're just looking for, you know, generalized interest, terms. This would help us if we are going to appoint a stalking horse, by the April 25 deadline. It would give us some time to work with that party, document it through a purchase agreement, on the on the proposed timeline. So we're certainly open to extending that initial IOI deadline.

If there are parties who, need more time or, if the committee, you know, would like us to make certain exceptions for people, we're happy to to consider that and and work with them. I think it it really is just keyed off of that stalking horse deadline and and trying to get, just an initial read of, like, how much interest do we have here, how is the how is the marketing process going, and and just be able to kind of assess how the cases are going to look based on these deadlines.

Okay. So am I correct then that it's not a a make a IOI or you're out? It's this would be one of the many matters the debtors would consult with the committee if someone shows up with an IOI after April 13

and figure

out what

to do in the interest of the bankruptcy states?

Yes, exactly. And we would always consider any offers up up and until the bid deadline.

Okay. That's helpful clarification. Thank you. The other question I have is in the proposed order, there's a finding in paragraph 37 that there's no policy prohibiting the transfer of PII and therefore no consumer privacy ombudsman. Do we need to do that today or should that be a sale hearing issue or on a separate track?

In other words, I imagine there are parties who want to know more about that, whether there is a basis for the appointment of a CPO. And should we set that on a different track so that they can be heard on that? Realistic, I know they could be here today, but, practically, not everybody can be here today.

Sure. I mean, the reason we put this in there is because, we don't believe a a consumer privacy. Ombudsman is required here. The debtor's privacy policies, which, we showed your honor earlier today, and the bankruptcy code are are pretty clear on this point, that if, that a a CPO is only required when the debtor intends to sell, personally identifiable information in violation of its privacy policies. And the privacy policies here expressly state that, the data can be transferred or sold, you know, explicitly in connection with a bankruptcy or other asset sale.

So we our position is that one is not required, but, you know, we're open to other parties' feedback if, if others don't agree with us.

Okay. Well, why don't we I mean, I want to hear from others and but that's just a question I have about how we ought to deal with that in connection with this motion versus the case the larger case. Why don't we hear from other parties and then maybe circle back to the sale timing and the CPO issue? Who in the courtroom would like to be heard on the bid procedures motion? Is it

Richard? I'm sorry, I was just in the second.

We're going to hear from parties in the courtroom first, sorry.

Your Honor, as you just alluded to, The U. S. Trustee has serious concerns about the privacy issues. In this case, given the nature of the debtors businesses, the events leading up to the debtors businesses, the debtors proposal to sell its assets and obviously the most valuable assets the debtors have is the genetic information of the debtors' customers and there are very sensitive privacy concerns about that. I understand what the debtors are saying that their privacy policy does let customers know that their privacy and their information can be sold in the context of a bankruptcy.

But Your Honor, we know that most people just scan those things and really if they notice them at all, don't really understand what that means in the context of their lives, their information. And second, your Honor, even though I don't question the debtors' integrity or the efforts of their professionals, sometimes it is just better to have a neutral third party looking at a procedure to make sure that everything done is done in a proper fashion. And sometimes we're just myopic about our own actions and what the implications of those actions can be. It would be much, much better for everyone concerned, including the debtors, to have a privacy a consumer privacy ombudsman appointed in this case to

review the procedures and make sure that those

protections are in place with respect to any Rudder. The U. S. Trustee would prefer an extension of the deadlines for the bid procedures because as you mentioned, they're very, very tight deadlines. And I think it would be best for all the stakeholders in this case to have more time to review those.

And if anyone has an objection to them, they can voice those. I agree that the pre petition marketing seems to have been very vigorous and very extensive, very robust. But one never knows. And there are considerations that we may not be aware of as we discuss this today that someone else may raise. And I just think that they need that a little bit more time would be very helpful.

Okay. Thank you. Anyone else in the courtroom wish to be heard on the bid procedures motion? All right. On the WebEx.

Thank you, Warner. Again, equity holder. With regards to the motion, as articulated with the motion, there's no communities that have been appointed at this time. If the court allows, I'm gonna be making a motion at the end of the agenda for the appointment of an equity committee, an overall motion if the court allows. But with regards to this motion, in that regard, if there was an equity committee of other committees, it's my opinion that they should be involved in the determination of the qualified dates and be involved in that process and also be involved in the determination of the Stalking Horse bidders, and the approval of the Stalking Horse bidders.

I have language on page one and six that may accommodate that that concern where, basically in in conjunction with the debtors, it would be in consultation with any court approved committees, that they would basically be involved with. And the debtors would be not the only ones that are making those determinations of the stoking horse bidders and what are the qualified bids and what is the highest bid.

All right. Ms. Hodz, my recollection of the bid procedures throughout say the debtors will consult with any committee, capital C. Is that the general formulation?

Let me just double check the language. I know that we did build in consultation rights. I just wanna make sure it's any committee as opposed to the unsecured creditors committee. But if we can certainly make a change to say any, you know, statutorily appointed committee Okay. If it's not already in there.

If if there's an equity committee in this case, the debtors would consult with the equity committee along with the Yeah. Insurance, your creditors

So it does just open it.

Committees. Yes. Yeah.

Okay. Both will make that change in the procedures.

So I think that's that's how I read it and that's how I understood it. So I think that would address that concern, Mr. Pacino. On the motion to appoint an equity committee, I'm not going to grant that motion here today without giving parties an opportunity to be heard. So if you would like a committee to be appointed, please feel free to file a motion or contact the U.

S. Trustee and get the wheels turned. Anyone else on the WebEx wish to be heard?

Yes, Your Honor. Heather Klassick from the State of Indiana.

Yes, ma'am.

Thank you. The State of Indiana was alluded to by debtor counsel is part of the state's regulatory entities that are investigating the data breach that occurred. And we have serious concerns about the bidding procedures, and echo what the USRC stated about the consumer protection ombudsman, but we also have consent that the idea that just simply complying with the privacy procedures that are in place, the privacy policies that are in place are not sufficient. So, governmental entities, as I'm sure that your honor is well aware, cannot be members of normal committees. In other, cases, we have had ad hoc committees created, and certainly we will be reaching out to the IRS trustees office to discuss that.

But we would also ask to be part of any discussion to ensure that all security and privacy issues are are dealt with in this case, at a higher level because of the regulatory matters. Currently, I'm only speaking for the statement. I cannot represent any other states, of course, but I know that there are other states who also have these concerns and they're not here today to be able to waive their objections. And so we would ask that, that be taken into consideration. There are some very specific pieces and parts that I have I would ask that you be part of, and that's just in the bidding procedures with the submissions to the better, reviewing the potential bidders, the qualified bidders, privacy policies, asking that consumer protections and data security be part of the requirements that any bidders have to meet in order to comply and be huge qualified bidders.

In addition to just the normal regulatory aspects, beyond that, we have concerns about the notice of the auction. As it is currently done, we would ask that it be modified to require, compliance with any state requirements of security and protection of defective data and materials. And, additionally, and I we I know that this has not been been clearly discussed with the sale order and the de minimis, motions as well. We have concerns with having those entered today, and would ask for no need to wait on those. Again, we don't know what's being sold.

I know that we haven't gotten to this. The extension motion is on here. As it stands, if the extension motion was granted, it appears that the schedules and services will not be filed until the April. And we would be we would have concerns that we don't know what the assets are that may be included. A $2,000,000 de minimis number is not a small number.

It is a rather large number and without knowing whether that could include, customer information, you know, it's one thing if it's desks and chairs and office materials, it's another thing that it is essentially protected or needs to be protected, information that could also be raised. So we would just ask for that. And we did ensure that your honor has not had a chance to see this. My appearance was entered as well as a notice of concerns of the security aspect and that was entered at Baccarat No. 74 earlier today.

So we would ask that that be taken into consideration as well.

Okay. Let me see if we can address these one at a time in the Baccarat and see where we are. Let's start with the last one. Do the de minimis asset sale procedures contemplate personally identifiable information or genetic information being sold under those procedures?

I mean, it's just a general de minimis asset sale procedures. It it doesn't specify what it would require the debtors to do is prior to effectuating any sale, we need to provide notice filed with the court, served on, you know, all parties who have requested notice in these cases about what assets we're trying to sell or abandon and, a description of, you know, any kind of potential counterparty to the sale or abandonment party. So the debtor's position is that the government, and other parties in interest have the opportunity at that time to assess what's being sold or abandoned, and and, you know, they can raise any objections before the closing of those sales, would be approved by the court.

Okay. That's helpful clarification. Ms. Crockett, does that address your concern about the de minimis sale proceeds? There will be this is not authorization to just go selling stuff without any further proceedings.

There will be additional notice provided.

I guess my concern was that Sam's that I believe in and I can be corrected if I read this one, but I believe it is a ten day notice, which is really not a lot of time for states to be able to review that and determine whether there is genetic material that would need to be objected to.

I hear you on that. Let me go ahead.

Sorry, your honor. We can revise the procedures to provide that if a sale involves any kind of personally identifiable information or or customer data that we can we can notice it on the normal twenty one days notice as opposed to the truncated ten day notice that we're that we're proposing for.

That strikes me as that strikes me as a helpful clarification. I it would when I think of de minimis sale procedures, I think of desks and chairs and these baskets. And so it didn't occur to me that it might implicate PII or genetic information. It seems unlikely that it would. But in that case, it would just be teed up as a normal $3.63 sale with regular notice.

I think that

this

is the issue raised by Ms. Crockett on that one. Ms. Crockett, I'm not sure I followed what you wanted what changes you wanted to the notice of auction.

The notice of auction, we would ask that it include a requirement that, any bidder comply with any state regulations concerning security and protection of, protected data and materials. Well, that's, you know, something that I think some people think about in regulatory schemes. This is a very unique and specialized information, and I know that in some states that based on consumer protection,

some

states have a much broader thing that laws that could include specifically to the genetic material. So we would just ask for the in that there be a modification to make it clear that that does include consumer protection laws, privacy laws and then any other potential genetic material laws.

Hans, your thoughts on that?

Sure. So the bidding procedures already contemplate that any bidder, in connection with submitting a bid is required to acknowledge their compliance with, both the bankruptcy code and non bankruptcy law. We didn't specifically call out any kind of privacy laws, but we believe this is already covered in the bidding procedures. And we can call out this notice, or this requirement in the notice, if that would be helpful. But we do take the position that it's already covered.

It seems to me that it is fundamentally an issue that is in the bid procedures. It belongs in the bid procedures. The notice of auction is going to be widely circulated, if I'm not confusing one notice for another here. Yes. And is not well, it is designed to attract bidders, but it's largely designed to make all parties in interest aware that something is going on and that they can object if they have an issue with it.

And if they have not looked at the bid procedures to see the requirements to honor the privacy policies, etcetera, they may file an objection that is not necessary and that happens sometimes. So it sounds like though that the debtors are willing to put comparable language in this notice that sort of repeats what's in the bid procedures. Is that what I understand?

Sure.

Let's do that and then I think that resolves the objection. If you pair it the language that's in the bid procedures that puts parties on notice of what the debtors are proposing. If someone thinks more should be required, I think they need to file an objection and raise that in connection with the sale here. All right. I have in my notes Ms.

Crockett consultation rights for attorneys general.

Yes.

And as I stated, we are not a normal committee member and that's why it comes up as a concern for us to ensure that we are specifically noted as somebody that has to be consulted with on regulatory matters.

On this one, your honor, I think this would be quite burdensome for the company to consult with, every regulator that's out there that may have an interest in the sale. I think it's gonna slow down the process and distract the company from finding the best and most qualified bidders for this process. We do think that the both the requirements of the bid procedures, as well as the the notice that parties will have when a successful bidder is selected, that period of time between the sale hearing will give, regulators a chance to actually review who we're proposing to to sell any of our assets to as opposed to kind of clogging that up throughout the process, and and potentially distracting from the ability to get, get this done in the most value maximizing way.

I I'm inclined to agree. I think that the attorneys general and other regulators are protected here by the ability to object once they know who the proposed winning bidder is and the details of that deal. I do think that and obviously, I'm not going to require this, but if the regulatory bodies select a single representative to be their eyes on the ground and to raise questions with the debtors as the process goes along, I would certainly encourage the debtors to be open and transparent if they only have to respond to one regulator who doesn't necessarily speak for everyone, but can be the eyes and ears and communicate the information, learn to the other regulatory authorities. I think that could expedite the process and be overall helpful. So I would encourage that.

But I'm not going to require the debtors to consult with regulatory authorities the way they will with any committee, to use that language that we just discussed. And that's all I had in my notes, Ms. Crockett. Did I miss one? It seems to me you might have had a fourth point.

The other piece is on the sale order, we would ask that it not be that it not be a final order at this point to allow all parties to have an a period sorry, an opportunity to review and object to that.

So the sale order, I would not enter until after the sale hearing, which we're talking about early June or late June, depending on how that discussion went. The bid procedures order is what might be up for entry if I grant the motion at today's here. So the sale order, everybody as to the sale are preserved.

Sorry. I should clarify that. So the portion that they ask for authorization of the sale of debt is also free and clear of any income that has to do with the de minimis sales.

On the order approving the de minimis sale proceeds?

Yes.

I do think that that is contemplated that, that would be a final order. Obviously, any party could ask to reconsider it or object to any particular sale as it goes along. And so I think that will address there are no de minimis sales on the table today. I would be surprised if there were any well, I don't what do I know? Never mind.

There may be some soon, but there's nothing on the table at the moment. So I'm comfortable subject to working out the other issues that I could enter an order that approves the de minimis sale procedures, but that doesn't mean it can't be changed later following appropriate procedures.

Understood.

All right. Thank you. Anyone else on the WebEx wish to be heard?

Yes, Your Honor.

Let's talk to Mr. Barnes. I'm sorry, he had his hand raised a little earlier. Mr. Barnes?

Yes, Your Honor. Thank you for the time. Once again, my name is Kevin Barnes, Pro Se, and my fellow common shareholder of 23andMe. I just wanted to raise my concerns that some other parties have in regards to the accelerated timeline here for the bidding procedures. Aloneness with Zixby, the Founder and ex CEO, CEO, leveraged her 18% economic ownership and do a 49% bogey control.

She was actively hostile to other bidders during the pre petition marketing process. And so I don't think much weight should be ascribed to that process at this time in light of our obstruction of that and the resulting resignation of the prior Board of Directors. And then secondly, I'd just like to highlight the best recorded special committee. The only thing that's special about them is that they were both selected and appointed by Ms. Wazowski, who now has announced on LinkedIn that she's interested in acquiring these assets.

So I think it's important as some others have mentioned here, for an independent committee to be appointed to supervise this process and ensure value is maximized. And I think an official equity committee in this situation is very appropriate.

All right. On the issue of the equity committee, as I mentioned to Mr. Vicito, you're free to file a motion or address your issues to The U. S. Trustee and that will proceed in the ordinary course if you do that.

Ms. Hach, your thoughts on Mr. Barnes' other questions and comments?

Yeah. The debtors disagree with the characterization of the pre petition marketing process. The special committee in in this, for this company, as mister Hopkins described in some some detail, was represented by independent counsel, that good Goodwin Proctor. Goodwin was not representing, the founder. They were not representing the company.

They were, you know, laser focused on running a very, independent process, without any kind of, you know, undue influence or control from the people who, you know, could be potential counterparties to that that process. They also reach as we as we described today, external advisers were part of this process reaching out to other third parties. Several either indications of interest or term sheets were received, which, you know, we think reflects strong interest, for for buyers to acquire this company. And, we can we wanna continue that process post partition. So there will be additional time for parties to to come forward, especially now that the, founder and former CEO no longer works at the company and is not gonna be involved in any decision making with respect to approval of any restructuring matters.

Okay. Thank you. In response to Mr. Barnes' objection, I'm not prepared to interrupt the sale process today based on argument or speculation about whether the special committee had divided loyalties of some sort. If someone wants to raise that issue in connection with the sale hearing, I think that's open.

I think they're free to do that. But for purposes of evaluating the right timeframe for bid procedures, I have a detailed declaration in the record about the pre petition process. And I'm in particular, I'm relying on the post November 2024 process, not the prior special committee, but the current special committee. And I think it is sufficiently robust that a sale hearing in June is a reasonable thing to do. Again, I'll hear from a committee if they're appointed.

And if they have new information for me, I'll entertain, you know, what they have to say as well. But I don't think I'm prepared to, to disrupt the sale process, based, on mister Barnes' comments. Anyone else on the Webex? Oh, miss Ryan.

Yes. Good afternoon, your honor. For the record, Abigail Ryan with the National Association of Attorneys General. I am the bankruptcy counsel for the National Association of Attorneys General. I'm just gonna echo what miss Crockett said, and I've been in touch with a number of the states, almost all of the states, regarding things that have, you know, possibly come to light here during the bankruptcy and, you know, things that need to be paid attention to.

And I completely understand Better Council's concern about consulting with all the different states because there are very, very many, living parts there, if you will. So I just wanted to let Better know and to let you you know, your honor, that I'm I'm here for to reach out to you if they need help getting in touch with the state, if they need information given to a state that they don't have a contact for. If the state request me to represent them, I will follow-up OHAQ in this case, and then I will have a constituent of states that I will represent. But I'm here to help, your honor.

Great. Thank you. So a hand raised, miss Dent. Yep.

Yes. Thank you, Your Honor. Julian Dent on behalf of the settlement cost counsel that was appointed in the cybersecurity litigation that we've heard about a lot today. And I just wanted to reiterate to your honor that we do care deeply about the consumer privacy. And a critical part of the settlement that was reached in the class action litigation was protection guarantees and continued mechanism for consumers, bigger class to delete their data.

So we just don't want that to get lost in terms of sale process and the bankruptcy proceedings. And we hope to take part, have a seat at the table in any committee that is appointed here. So I just wanted to let your honor know that. Thank you.

Thank you. Anyone else on the WebEx wish to be heard? All right. Developments on sale hearing timing, Mr. Hopkins.

Thank you, Your Honor. For the record, Christopher Hopkins of Paul Weiss, proposed co counsel to the debtors. Just to touch on one of the comments that the pro se I apologize, I forget the gentleman's name, but just to say it for the record, so, you know, shareholders, all other stakeholders, etcetera, understand kind of the state of play today from a governance perspective. Ms. Wojcicki's sole role with the company today is as a member of the board of directors.

And I just think it's important for everyone to understand that everything that happens in this case and all related restructuring matters have been delegated to the special committee of the board of which miss Wojcicki is not a member. So to the extent she is engaged in, she elects to participate in the sales process, all of the company's deliberations are going to be fully independent of that. And obviously, as I'm sure your Honor is aware, our bidding procedures have the customary protections around anti collusion and everything else. So I'm not saying one way or another whether those things were an issue or were not an issue prior to the petition date, but I think the process we're proposing is fair and independent. On the timing, obviously, we want to be respectful of the court's calendar.

The only reason we're focused on the debtors is frankly the cash burn. If your honor prefers June 18, we've consulted with the DIP lender, and I can walk through this when we get to the DIP motion. They will agree to make corresponding adjustments to the DIP term sheet so that the debtors aren't prejudiced with respect to the DIP by that delay. So whatever your Honor preferred.

All right. June 19 is a holiday, which complicates things. I don't know if you're expecting the sale here. I mean, it seems to me the sale hearing could be longer than your average sale hearing. It might not.

Things may come again. June 17, I also have available, which is Tuesday, and, we could start June 17. I think I'll be on my jet bike by then. If not, I'll have coffee. So I would be inclined to go with June 17 to provide just that little bit more time and also that I'm here for whatever needs to be addressed for months thereafter.

Yes. Without unnecessarily infringing on the court schedule, the sooner the better from our perspective. So whenever whenever you

Okay. That's very helpful. Thank you. Thank you.

Okay.

Alright. Miss Hotz, what else do we need to address? I I raised some questions, and I haven't answered them yet.

That's okay.

What other open issues do you see based on the party's objections and discussions?

I don't think I have anything else. I just, would take one opportunity to just address the the comments by the US Trustee on

the Yes.

Yes, ma'am. Appointment of a consumer privacy ombudsman. You know, I think we've said this, and I would just wanna make it clear that, we do intend and these procedures require any buyer to comply with our privacy policies, and our position is that those do permit the transfer of customer information. I think this is gonna be an issue that is, a lot of parties are laser focused on throughout these cases. And we think, any you know, parties can be free to take, like, question any kind of potential purchaser on what they're planning to do with the data, what kind of policies they're gonna have in place.

So we think that the bidding procedures combined with the debtor's, pretty straightforward privacy policies in this case, do not warrant a consumer privacy ombudsman at this time.

Okay. Alright. So on the bid procedures motions, with with the few adjustments that I'll discuss, the bid procedures appear to be a reasonable exercise of the debtor's business judgment and appropriate under the circumstances. And that includes the procedures for selection of the stalking horse, notice of assumption and assignment, sale and abandonment of de minimis assets. The adjustments are the following.

We talked about the IOI deadline. I'm satisfied with the discussion that the IOI deadline is not a put up or shut up deadline. So I'm comfortable leaving that at April 21. Let's set the sale hearing for June 17 at 9AM Central Daylight Time. That'll provide a little more flexibility for me to address the issues as they come up.

We didn't discuss whether to move the objection deadline accordingly, but I think that would be appropriate. I want to give the debtors time to review and respond to whatever it is, but I'm not sure that we need an objection deadline in late May. So I'll move the objection deadline to June 10 at 4PM. The one thing I didn't really discuss, but I I think this will not be controversial, is the deadline to object to the selection of a stalking horse. If you were to select a stalking horse tomorrow, that deadline would perhaps run before the committee exists, and I think the committee should be able to weigh in on that.

So I think we should have the the deadline to objective selection of a stalking horse not be any earlier than seven days after the committee is appointed. If you wanna select a stalking horse tomorrow, I'm not stopping you. You can give notice to everybody else, but the the deadline will need to be at least seven days after the committee is appointed, has an opportunity to to see what they think about that. And then on the on the privacy policies and the CPO, I think that should be addressed on a separate track. So I think that it makes sense to take out paragraph 37 of the proposed order.

That's without prejudice to the debtor's ability to file a motion seeking an order that that no CPO was required, any party any other party's ability to file a motion requesting the appointment of a CPO. And Saas, as you point out, it may be the most effective strategy for a creditor regulatory authority or someone else to engage in the process and find out directly from the potential bidders or from the debtors by the debtors, what the issues are and whether they think it makes sense to have a third party do an investigation. And, you know, that's a long way of saying, asking for a CPO might not be the most efficient way for parties to get the information they're looking for, but I'm not going to preclude them from filing that motion if that's what they want to do. Paragraph 16, the bid procedures mentions the privacy policy, but I think that's your characterization, not my findings. So you can leave that in as far as I'm concerned.

Okay. And so I'll find that notice of the motion was appropriate and sufficient under the circumstances with the modifications we've discussed, the bid procedures including selection of stocking horse, notice of assumption and assignment, sale and abandonment of de minimis assets or reasonable exercise of business judgment, the payments and other uses of assets proposed are necessary to avoid immediate irreparable harm. And to the extent that federal rule 6,004 h applies, that stay is waived and the order will be effective immediately. You need any other findings on that order other than what's in the proposed order, of course?

No. We'll make those changes to the order and the procedures, and then submit a red line to your chambers to review before.

Very good. Thank you very much.

Alright. You've got me for a little bit here. I'm gonna move on to item number four on the agenda, which is the cash management motion filed at docket number 12. This is the debtor's request to continue their existing cash management system, including to maintain their existing bank accounts, business forms, and checks, seeking authority to pay bank fees and corporate card obligations, including on a pre petition basis, in the amount set forth in the motion, and to continue ordinary course intercompany transactions and accord intercompany claims against the debtors with administrative priority status. Just for background, the debtors have 12 bank accounts.

They are all maintained with JPMorgan, which, we've confirmed with the US trustees and authorized depository in this region. And most of the relief seek that we're seeking through this motion is really regular way cash management relief. There are a couple of bespoke elements that I just wanted to flag for your honor. And then I also wanna walk through some changes that we've made after discussions with, the US trustee, JPMorgan, and, the debtors payment process or PayPal. So the motion has what we're calling administrative expense procedures.

We're not see we have a dip commitment, but we're not seeking to incur any dip financing today. That would all be reserved for the second day hearing. And so that being said, we did file a cash flow. It's attached to the cash management order. It's also attached to the dip motion.

I'm sure you might recognize it. It it's often attached to dip and cash collateral orders. This is really geared towards our effort to make sure that we're running an open and transparent process and people know, what kind of money is gonna be spent on these cases, what the liquidity looks like, and have visibility into that process, and to make sure that we're, operating with sufficient liquidity going forward. So we are seeking through this motion to modify the cash management system, in a limited way to establish a segregated bank account. This would be a bank account which the debtors would fund with US Trustee fees as they accrue any, fees paid to the clerk of the court, and or to be paid to the clerk of the court and, the estate professional fees, both of the debtors and any, other party that, you know, their fees are required to be paid by the estates.

So we would fund the forecasted amounts each week, and then go out to the professionals and and seek actuals after the fact and then true up any difference just to ensure that, like, the key administrative cost of these cases are are protected, notwithstanding the outcome of the cases. This is kinda similar to a carve out structure that you would see in a dip, and we do expect that the dip order that's ultimately filed would replace this concept. So it's really just to govern kind of this interim period until there's a decision on the dip, and make sure that those those critical fees to this case, are, segregated and and available. Sec separately, we do have one investment account. It's at JPMorgan, but it's a money market account, whose funds are not FDIC insured.

So prior to the petition date, these funds were transferred into the debtor's main concentration operating account. And while we're not planning to use that account, its balance is zero, and we're not gonna fund it during these cases. We are, proposing to leave it open just, for administrative efficiencies. And we've agreed to some language in the revised proposed order that we'll submit to you with the US Trustee, that covers this this concept. And we believe the US Trustee signed off.

A couple other minor comments that we've received from parties. We have some comments from the dip lender or post dip lender, making any payments both under this order and really all of the first operational first day orders in this case subject to any dip order if and when it gets entered, and the budget in connection there with, and, giving some notice rights for for things that we might change to the cash management system, opening new bank accounts, things like that, as well as a new paragraph for PayPal, which is the debtor's payment processor who's just requested, some confirmatory language that they can continue to operate under the user agreement where they process sales and then, remit the proceeds less of their processing fees to the debtors. I'm happy to answer any questions. I would just flag, if possible, we would like to get this order entered as quickly as possible following the hearing, just because there's a little bit of lead time to get the bank accounts open, and JPMorgan is standing by waiting for the enter the order to get entered, so that we can, you know, resume ordinary course operations

Sure.

Understood. In the filing.

Understood. Okay. I

I I think

I only had one question. Paragraph 19 of the proposed order refers to a couple letters of credit for PayPal and SCG Grove two twenty one and an assignment of deposits. I think I recall seeing the assignment of deposits has to do with credit cards, but the letters of credit, is that anything we need to know about?

No. So, JPMorgan maintains, like, a separate, what we call restricted cash account. The debtors have or have had JPMorgan issue letters of credit for the benefit of PayPal as a payment processor, and as is required under one of the leases.

That's a that's a landlord.

For the landlord. Okay. And there are funds in that account that just cover JPMorgan's obligations, and all that cash is subject to a, to a lien in favor of JPMorgan in case they have to, you know, cover expenses that arise.

Alright. That's just collateralizing.

Yes.

Oh, okay. Alright. That's helpful. Okay. That's the only question I had.

And anyone wish to be heard on the cash management motion in the courtroom first? No? On the Webex? Okay, hearing none. I will grant the motion on interim basis.

We'll have final hearing April 22 at 01:30. Objections by April 15. And if you'd submit an order, please. Did I clarify on the bid procedures order? I'm granting the bid procedures aspect of that motion and not the sale aspect of that motion.

I think the experienced bankruptcy lawyers know what I was doing there, but I want to clarify that for those not everybody who's with us today does bankruptcy a lot. I'm not granting the sale. I'm not approving the sale. I'm just approving the bid procedures and the related matters that we discussed. There will be that final hearing on June 17 to address the proposed sale.

Your Honor, Heather Clark from Indiana. Can I just ask for a clarifying other one other clarifying point on the big purchases?

Yes.

We had discussed the minimum sale and the additional time frame for anything that involving, consumer data or genetic material. I wanted to make sure that that was also going to be included. And also I'm

I'm sorry. I interrupt you. The debtors agreed to the de minimis sale to the extended vols PII or genetic material, and I spoke over you on your second one. I'm sorry. What was that?

That's okay. I appreciate that. Abandonment of the same type of material, I don't know if we discussed that, but that would also be something we would want the longer timeframe in order to adapt.

Is that objectionable? To

the extent it covers that same customer debt or PII.

PII or genetic material, if it's going to be abandoned, that would also be subject to traditional notice?

Yes.

Okay. All

right. So the debtors will make those changes?

Yes. All right.

Thank you, Ms. Crockett. Alright. So that's the cash management motion.

Okay. Agenda item number five, I'm gonna move to, which is, what we're gonna refer to as the PMC motion filed at doctor number seven. I think mister Hopkins briefly touched on this, but the debtors operate a telehealth business, Lemonade Health. They partner with doctor groups to provide medical care, to to patients through this telehealth platform. We refer to these doctor groups as professional medical corporations or PMCs.

In in in all cases, they're owned by licensed physicians, because the debtors are subject to certain, you know, corporate prohibition on the ownership of of medical practice as laws cannot actually own a medical practice. And so they partner with doctor groups that are independently owned and and service the the the telehealth platform by providing doctors, nurses, nurse practitioners to access the debtor's customers through the platform. These these arrangements are covered by agreements between the debtors and the PMCs where the debtors are really responsible for nearly all administrative aspects of the PMCs. These entities are actually set up solely to service 23 andMe. And so, the debtors are responsible for things like paying employee wages, taxes, vendors, really just kind of operating the administrative aspects apart from the medical services component.

So this motion really seeks comfort in some regard to confirm that PMC relationships and the ability to continue to operate Lemonade Health remain unchanged as a result of the chapter 11. It's gonna be helpful to point to to to manage the relationships with the PMCs, and answer questions that they may have. It also seeks some limited substantive relief as it relates to satisfying the debtor's obligations under the agreements with the PMCs. We don't believe that there are any pre petition amounts outstanding that are not otherwise covered by the first day orders that we're seeking today. But the agreements are quite broad.

There are, for example, instances where we might be responsible for indemnifying doctors, or paying legal expenses that might not fit squarely into the other motion. So we're really just seeking this, to cover anything that may come up. And we've worked closely with the US trustee on this one over the last couple days, and it comes to an agreement that any payments in the interim period, would be limited to those where nonpayment would cause irreparable harm to the debtors. And so, all parties would have, you know, the standard notice period to object to this motion on a final basis. That will be reflected in the order we submit later today.

And, otherwise, I'm happy to answer any questions that you might have.

Okay. I I only have one in my notes, and I think you answered it, but just let's just clarify. Do the debtors or any employees of the debtors practice medicine, or is it all outsourced?

No. It's all outsourced.

Okay. That's how I read the motion and and your comments. That's the only question I have. Anyone in the courtroom wish to be heard on the Professional Medical Corporation's motion? Anyone on the WebEx wish to be heard?

Yes, your honor. Heather Crockett, I'm sorry. Thank you. The Indiana is just a little bit concerned in that we have not had an opportunity to review those contracts. I know that Indiana Pharmacy Board oversees at least a portion of what goes on with some of the related debtors.

And so as long as this is an interim order, I don't think we have a an objection. We just wanna make sure that we can review all of that information and get any questions answered before the final order.

Yes. This is expressly set up for interim relief. So that's where I think we're headed.

Okay. Thank you.

Anyone else on the WebEx? All right. I've reviewed the motion and it appears to be appropriate. I'll grant interim relief. I will have a final hearing April 22 at 01:30.

Objection is by April 15. If you'd submit an order and I'll make a finding that anything that to the extent that anything is payable during the interim period, it's, payments necessary to avoid immediate irreparable harm, and I understand that will be inserted in the order expressly. And then to the extent that rule 6,004 h applies, this stays waived or be effective immediately.

Great. Thank you. The last one for me today is agenda item number six. This is the customer programs motion, file the docket number nine. This is a motion to pay certain preposition customer pro or customer obligations and maintain the customer programs in the ordinary course.

We've heard a lot about customers today. They're very important to the business. The debtors maintain, several customer programs kind of categorized at a high level into four buckets. There's customer subscriptions, for things like almost like memberships where you get enhanced reports and other health information, as well as memberships to utilize that telehealth business that we just talked about. The debtors from time to time also offer, you know, promotional offers.

So I think I saw on the website yesterday, it's like buy one kit, get the second one twenty percent off, so sales promotions like that. We have a refund and exchange program. And then, there are retail the debtors partner with third party retailers to sell their kits, on places like Amazon, and other retailers like that. We're seeking to honor any of the obligations under these programs in connection with maintaining them and and notwithstanding the chapter 11 filing. We estimate that the amounts the cash amounts due are approximately, $1,100,000 on a pre petition basis.

We're also just seeking confirmation that we can continue any noncash obligations going forward. These are critical to maintaining customer goodwill and satisfaction, and so we think they're very important just to stabilize operations. So with that, I will conclude my presentation and answer any questions that you might have.

Okay. I don't think I had any questions on this one. Thank you, miss Hotz. Anyone in the courtroom wish to be heard on the customer programs motion? Anyone on the WebEx?

This is also seeking interim relief. Anyone on the WebEx wish to be heard? Customer programs. Hearing none, I have reviewed the motion. It appears to be appropriate.

I'll grant interim relief. Final hearing, April 22 at 01:30. Objections by April 15. Submit an order, please. And similarly, I'll find that to the extent that anything is payable during the interim period, it's necessary to avoid immediate and reparable harm and the four thousand h six thousand four h stay, if applicable, is waived.

Great. Thank you, your honor. I'm gonna cede the podium to my colleague.

Thank you

very much. Actually, would this be a good time for a short recess? We've been going a couple of hours here and folks might want to stretch their legs. Sorry to interrupt your presentation before it gets started.

I won't hold it again.

Why don't we take a ten minute recess and we'll be back what time?

Are we officially here? We're at 01:55.

We're about six or seven after the hour we'll be back.

Thank you, Your Honor.

Thank you. Your Honor, we are back on the record.

Thank you. Please be seated, everyone. Alright.

Alright. Ready to go?

Yes.

Alright. Could I

please remind me your name? I I'm trying to keep things in my head, like, how many chromosomes there are and important numbers, and I've forgotten your name.

It's a lot of information all at once. But my name is Lauren Castillo from Paul Weiss for post counsel to the debtors.

Thank you.

Today, I'm gonna be presenting three motions, which are agenda items seven through nine. These items are the critical vendor's motion, the wages motion, and the creditors matrix, and schedules and statements extension motion. I just wanna flag early on that we did preview each of these motions with the US trustee in advance of today's hearing. I've incorporated certain their comments into the motions and orders, and we believe with those changes that the US trustees, outstanding concerns with respect to these motions have been resolved. But we, of course, let them speak for themselves Of course.

During each presentation. So I'll go ahead and start with the critical vendors motion, which is located at agenda item number seven and was filed at docket number 15. By this motion, your honor, the debtors are seeking authority to pay pre petition claims to certain vendor claimants in the ordinary course of business that are central to the debtor's operations. Specifically, the debtors are seeking to pay these claimants up to a cap of approximately $5,800,000, almost all of which will come due in the interim period. These claimants include lab testing service providers, third party marketing service providers, lien claimants, five zero three b nine claimants, foreign vendors, and other vendors that are critical to the going concern value of the debtor's business.

And I just wanna clarify that in order to identify this universe of cases, the debtors with the assistance of their advisers undertook a comprehensive process to ensure that only vendors that provide good goods and services truly necessary to the value of the estate are included under this motion. Through this process, runner, which I can go into more detail if you'd like, but the list was ultimately narrowed down to only 30 vendors out of a total of 850 potential vendors that the debtors have made distributions to in the past twelve months. Absent relief requested by this motion, there's a significant risk that some or all these vendors may stop supplying goods and services that the debtors require to run their business, which would negatively impact the value of the business. You You know, as we flagged throughout the beginning of this case, your honor, the debtors are planning to run a sale process. And, accordingly, preservation of value, especially early on in these cases, is critically important.

I also wanna flag that, we will be submitting a revised form of the order just to incorporate the operational, language that our dip lender has requested. It just says that any payments made under the order will be made in accordance with the dip order. And finally, your honor, based on our discussions with the US trustee's office, we have agreed to provide the US trustee with a monthly report of payments made to vendors pursuant to this order. And so unless you have any questions at this time on the motion, I'd respectfully request that the critical vendor's motion be granted on an interim basis at this time.

Okay. I have a a comment followed by a question. The the motion and mister Farda's declaration include include what I think is a very thorough description of the process that the company went through and the reasons why in the debtor's judgment, it is less expensive to pay these amounts than to deal with the consequences of not paying them. So the question is related, who's responsible for who owns this process going forward? In other words, as payments come due, is someone responsible for saying, you know what?

Last week, we thought this was critical. Now they just signed a new supply agreement with us. We don't you know? Who who's responsible for saying, you know what? We have the authority.

Let's not use it here.

Right. So it's gonna be, you know, of course, the company's management team, and the applicable members of that team in conjunction with, the debtor's proposed financial adviser, A and M, who has also overseen the process through petition to identify these critical vendors and include them under this motion. And also, of course, legal counsel will be involved, either local counsel or Paul Weiss.

Okay. Actually, the second question. I Yeah. Misled you there. You mentioned providing the, the matrix to the US trustees.

Is there any objection to providing it to the committee once they're appointed?

I'd like to confer with my, colleagues for one second. Sure. I think that's

Okay. That's fine.

Yeah. We have no issue.

No objection. Okay. Okay. Who in the courtroom wishes to be heard on the critical vendor motion? Seeing none.

Anyone on the WebEx wishes to be heard on the critical vendor motion? This is again interim relief, although a lot of it happens during the interim period. Yes. All right. Hearing none, I will grant interim relief on the motion.

As we discussed, if you'd modified to provide that the committee will be provided with the matrix when they're appointed and periodically thereafter. We'll have final hearing April 22 at 01:30. Objection is April 15. And please submit an order, and I'll find that payments, outlined in the motion during the interim period are necessary to avoid immediate and irreparable harm and waive the 6,000 for each stay.

Thank you, your honor. I'm sure our critical vendors very much appreciate that. So the next motion I'll be presenting, your honor, is the wages motion, which is located at agenda item number eight and was filed at docket number 11. Your honor, I can speak from my own personal experience when I say that, this company's management team, many of whom are on the line today, and so many of their employees have dedicated a significant portion of their time and energy, to this business, most recently by working late nights and weekends to get this company ready for a chapter 11 filing. What this motion really does is just to try to do right by those employees and to preserve the value of the business going forward.

Specifically pursuant pursuant to this motion, the debtors are seeking to pay up to approximately $7,600,000, of which 6 and a half million dollars is requested under the interim order. Payments made under this order are gonna be made, on a kind of pre petition obligations with respect to compensation and benefit, programs owed to the employee's workforce and certain third parties, such as taxing authorities, four zero one k providers, and other certain parties, and to continue the debtor's compensation and benefits programs in the ordinary course. Additionally, the debtors are also requesting a limited waiver of the automatic stay to allow claims against the debtor's workers' compensation program to proceed. I'd also like to flag that we will be providing a revised form of the order to incorporate that operational dip language that I mentioned previously. And then also for the record, I wanna clarify and that the US trustees request, that the order that I'd like to make clear that the wages motion does not seek to pay any insider or any amount above the priority cap under sections five zero seven eight four and five of the bankruptcy code.

Accordingly, at this time, your honor, unless you have any questions on the motion, I'd like to request that the motion be approved at this time on an interim basis. Okay.

I do not have any questions on this one. Anyone in the courtroom wish to be heard on the wages and benefits motion? Anyone on the WebEx wish to be heard? Alright. Hearing none, I'll review the motion.

It appears to be appropriate. I'll grant interim relief. We'll have a final hearing April 22. Objections by April 15. You submit an order, and I'll make the same two findings I just made on the last motion.

Gonna repeat

those. Great. Thank you. It's going going smoothly so far, I'd have

to stop. Right.

Okay. So the final motion I'll be presenting today, is the creditors matrix and schedules and statements, extension motion, which is located at agenda number nine and is filed at docket number 16. I'd also like to flag that we did make some changes to this order before filing, just to work with US antitrust answer and clarifying language to the equi to the request to waive certain notes requirements to equity holders. Those changes just include specifying that we did provide a list of, holders of outstanding common stock who own approximately 5% or more of outstanding common stock of the debtors, and that such equity holders will have received notice pursuant to section, 2,002 d of the bankruptcy code. So by this motion, your honor, the debtors are seeking to extend the fourteen day period to file their schedules and statements by an additional twenty two days, file consolidated list of creditors, redox their impersonally identifiable information of natural persons, and approves certain noticing procedures related to the notice of commencement and certain other procedural relief that's outlined in the motion.

With respect to those more procedural aspects of the motion, your honor, including the request to file consolidated creditors matrix, the top 30 list of general and secured creditors, a list of, counsel representing cybersecurity plaintiffs, and the extension for this, deadline to file the schedules and statements. We believe such relief is warranted given the comp given the size and complexity of these chapter 11 cases and that requiring the debtors to strictly comply with these sections, the bankruptcy code and rules would be unduly burdensome and would cause undue delay at this time. Finally, with respect to the request to redact certain identifiably personally identifiable information of individuals, your honor, we believe this relief is warranted given the circumstances surrounding these chapter 11 cases. As we discussed earlier, one of the primary factors leading to the debtor's chapter 11 filing was a data privacy breach whereby a threat actor was able to access certain debtors' customers personal information. And accordingly, the privacy of individuals during these cases is of heightened importance.

We believe the redaction request is reasonable in light of such circumstances. And in the spirit of disclosure, we have implemented certain procedures to provide the court and The US Trustee and certain other parties holding legitimate interest in such information with a copy of the unredacted creditors matrix motion. Finally, I do wanna flag that right before the hearing started, we did did receive an informal comment on this motion with respect to the language located at paragraph 36 b in the motion.

36, bravo?

Yes. 36 b.

Okay. And and what was the comment?

So this comment was just from one of our, law firms representing certain cybersecurity incident claimants, and it was just with respect to that line that states that, the debtors will provide notice to such counsel and counsel will immediately send that notice to their claimants. If counsel is on the phone, they can clarify if I get this wrong. But I believe they're just concerned with requiring counsel to immediately forward that information to their claimant without having agreed to it. I do wanna clarify that these procedures were just place to make sure we give broad notice to all cybersecurity incident claimants. You'll also notice in that paragraph a that we're individually serving the notice of commencement to each individual claimant as well as their counsel.

And so we're more than happy to revise this language to be something a little bit more, appeasable to both parties.

Okay. If it's something that you can work out with the objective party, obviously Yes.

And we'll certainly reach out to them. I just wanna flag if there's a change

in the way.

Reasonably, promptly. And whatever formulation works for the debtors and the objective party, I'm sure we'll be fine. Okay. Thank you for bringing that up.

Okay. Great. So with that, that's all I have. So unless your honor has any questions at this time with respect to the motion, I respectfully request that the court approve the motion at this time.

I do not have any questions. Anyone in the courtroom wish to be heard on the motion for additional time to file the schedules and other related relief at document number 16? Anyone on the Webex? Mr. Bing.

I'm sorry, Ms.

Ritchie. The Trustee had no objection to the timing. I just wanted to make it clear, I thought the U. S. Trustee had requested that at least with respect to the non data breach, individuals who may be creditors on that least the names of those individuals be listed on the schedules.

They don't have to be identified as employees of the debtors or anything of that nature, but just so that they are identified as creditors on the schedules. I I don't know if there's any opposition to that or there's what the reason would be.

So it's true we provide we redacted individuals' names in the creditor matrix that we filed with the court on the petition date. And we we strongly believe that redaction of individuals' names in these cases is of critical importance to protect the, personal information of those individuals, especially given the increased media surrounding these cases, and the concerns set around data privacy. We think the circumstances here make a strong justification under section one zero seven c of the bankruptcy code that this, that that the personally identifiable information of natural persons be redacted.

So, miss Richtek, you're talking about we're talking about the schedules, not the not the matrix?

The schedules. Right.

You would you would like the the names only.

Right. They don't have to identify someone as I could communicate with debtor's counsel if I want to know, is this someone if this person a creditors I mean a regular trade creditors, this person and employee. I don't think that that needs to appear on a publicly filed document. But the code and the forms, the official forms do require that creditors be listed on the schedules. And I understand the privacy concerns, but if no one can identify why the debtors owe certain individuals money, I don't see what danger there is to just identifying those individuals as creditors on the debtor's schedule.

But you're talking about non data breach victims?

That's correct.

Okay. Miss Castillo, your thoughts on that?

So, your honor, we believe that section one zero seven c applies to all individuals, not just the data breach individuals, and so we'd request that we still publicly file a redacted version of the schedules and statements on the docket under this motion. But in furtherance of the disclosure concerns the US Trustee has brought up, we are willing to implement the same procedures that we have, added to the motion with respect to the creditors matrix with respect to the schedules and statements if that would work for the US trustee's office.

In other words, the US Trustee on request can can receive an unredacted version?

Yes. And we're willing to also extend that to the committee and other parties who have a legitimate interest in such information with such information provided that we provided that the objection procedures outlined in the motion, apply.

Jack?

Not sure that the requirements of Section one zero seven c have been satisfied here, your honor. I think we could live with that. I don't, I certainly don't want to be difficult unnecessarily if there's no purpose to it. Other parties may be interested in it, and I would hope that if those other parties have a valid interest in knowing who the creditors of the debtors are that the debtors counsel would provide the unredacted information to those individuals or other parties.

My recollection is if someone needs to serve a paper on all creditors, for example, there's a provision in the order where they can obtain the information needed to mail things out. Is that right?

Yeah. That's right. There's, a a provision in the paragraph that says any legitimate party as well as the US Trustee and the committee can receive a copy of the unredacted creditors matrix and with the revised language, the unredacted schedules and statements, as long as they have a legitimate interest in such information and there's, and the debtors will reserve the right to object to such request.

I think that would be satisfactory, your honor.

Okay. Let's do it that way then. I think that'll that'll resolve that objection, and I think everybody would be able to get what they need based on that.

Thank you.

Okay. Thank you.

Thank you.

All right. We have several folks on the WebEx. Mr. Bailman raised his hand first, I'm told. So Mr.

Bailman?

Thank you, Your Honor. Andrew Bellman from Weinstein Sandler on behalf of the group of law firms that represent numerous data breach arbitration claimants, which I believe is within the vendor's definition of cybersecurity incident claimants. One preliminary matter, Your Honor, we had so we just got involved this morning. We had sent our ProHawk applications to the court in hard copy. I don't know if they've gotten there yet.

They sent them to the courier, but they were in transit right before the hearing started. I just want to clear that and make sure it's okay to speak before I get started.

Certainly, it's

fine. Thank you for checking.

Thank you, Ron. So we have a common concern as Dennis Castle highlighted, we have a common concern between both the motion to extend time to file schedules and the case management notice procedures motion. I'm not entirely sure it can be resolved, through a meet and conferral, but we're certainly willing to do so. The concern I think is that as debtors' counsel hinted at, both of those motions seek to effectively shift the debtors' noticing burdens to counsel for the represented cybersecurity incident payments. So as opposed to saying, we the debtors are going to direct our claims and noticing agent to notice everybody, which it sounds like they're willing to do, although I think some of that that's absent in some places in the orders for both.

They're saying we'll send it to counsel and we'll impose an affirmative obligation on them through our order in the bankruptcy court to pass things off, basically putting us into the role of being an extension of the claims agent, but they have the claims agent. And in document number 10, the case management notion, the debtors openly acknowledge we have the names and email addresses of our subscribers. So the burden should be on them through their claims agent to serve things on individual creditors, not to essentially offload that role and outsource that role to counsel for other parties. These folks are counseled in the arbitration, not part of CORAL, not part of the claims agent. And we don't think that particular link in the service chain is necessary or appropriate where the debtors can serve their documents, whether it's the notice of commencement of the case or anything else throughout the course of the case, directly on folks by email as happens, you know, fairly frequently.

Miss Castillo?

Derna, I think this is a good time, to take a minute to sort of explain our general noticing plan for these cases because I certainly understand that there's probably a lot of claimants out there who are concerned with notice and how that's going to work in these cases. And I do wanna say our permanent goal when developing how we were gonna provide notice to these claimants was to provide as much notice as possible, as quickly and efficiently as possible. With that in mind, I will just wanna flag that under the creditors matrix motion, which only deals with service of the notice of commencement. The creditors matrix motion provides that, the notice of commencement will be served on each individual cybersecurity claimant at the, address or email address that we have on file and then also separately served on, such claimant's counsel. And then, like I said, there's that language in there that says claimant's counsel will forward that information, but we're happy to work on that if there's any objections to that language.

In addition, the case management motion, which will be up, for discussion later, this afternoon, discusses general notice requirements for other pleadings filed in these cases except for a few others in in the bar date and the sale notice, which are specifically called out in those motions. In pursuant to the case management motion, the way it works is if an if an individual is represented, those notices will be sent via email to the law firm representing such individual. And then if an if an individual claimant does not have representation, those notices will be sent to the individual, so long as the company has sufficient notice information, which, like, was mentioned previously, the company has those information for almost all of these claimants. And then, again, if in the if a claimant requests individual notice under section, 2,002 of the bankruptcy code, we will also serve them individually by email or mail at the, address we have on file for them. And we believe with respect to the case management motion, these those requirements are reasonable because there's a lot of paper in this case that might not necessarily apply to all of these cybersecurity council claimants.

And, obviously, there's a cost to the estate of of noticing over 35,000 claimants. But there is a procedure in there that if a certain individual claimant believes, they want notices of any sort of documents, that they can get that information.

Okay. So, mister Bellman, it sounds like for this motion, your issue is maybe not right because this motion will this motion will deal with the notice of commencement of three forty one notice, and it will go both to counsel and to the clients if the debtors know how to contact them. And then you and Ms. Castillo can work out the language about immediately forward or something else that works. Am I reading that correctly, that would take care of your objection to this motion?

Sort of, your Honor. I think it's that affirmative obligation to immediately forward the notice that is a little perplexing to us because it's putting folks into the chain of notice that really shouldn't in the bankruptcy context where the debtors have acknowledged they can just send the notice of commencement to these people directly. The same issue with the subsequent pleadings as well that we can save that for the case management order. But the issue here is that affirmative obligation to take steps in connection with the forwarding of the commencement of the case. Because let's say somebody erroneously leaves out 10 claimants, Are the debtors going to come back and say, well, sorry, arbitration lawyers, that's your fault because we've been affirmatively directed in the course of this order to pass things on?

That's really the concern is that affirmative obligation.

Well, don't lawyers have that affirmative obligation to keep their clients abreast of their matters regardless?

Yes. But not by not by force of a court order in another court other than, you know, the arbitration form where their their proceedings are pending. This is a this is a bankruptcy noticing issue, not an arbitration issue.

Do you just wanna take it out and let lawyers risk malpractice claims? I mean, it doesn't

I mean, I will reiterate. Like I said before, we will be serving the individual, notice on each claimant. So I think the concern that these claimants won't receive notice of the notice of commencement is is is minimal. And then, also, we are more than happy to to strike that language from from the motion and the order.

Why why don't we take it out? I mean, it seems to me that if counsel knows of a better address than the debtors do, counsel has, an obligation, whether it's imposed by me or not, I think it's imposed by the ethical rules of every state that I'm aware of, to let the client know what's going on. But, the debtors have no objection to taking it out of this order and letting counsel, address that on their own. That's fine with me.

Okay, great. Thank you.

That would solve our concern on packet 16 and we'll come back I guess to the newest procedures then.

Yes. Okay. Thank you, Your Honor.

All right. Ms. Dent?

Yes. Thank you, Your Honor. Here for cost counsel. So I just wanted to let you know that we over here for the settlement cost counsel are still digesting this language and we would also like to meet and confer with the bankruptcy council because as you know in the transaction, we have our settlement cost representatives that the court has preliminarily approved and that we represent. But we also have 6,000,000 cutative class members who we don't know their identities at this point.

The notice for the settlement has not yet gone out because it was issued preliminary approval. So I guess we just have some concerns that might need to be worked through immediately send to all people that you represent. Well, we are appointed to represent the class. Class consists of millions of individuals, but we don't know their identities. So I guess we're just I just wanted to raise those concerns to your Honor, and we would like to meet and confer with the Embassy Council about how the notice should go down from the class so the class perspective.

Okay. Well, I think based on the changes we've just made, as to this motion, there is no issue because that language is coming out. Let's take up the question of how counsel deals with unnamed class members, whether they are clients or something else when we get to the case management motion.

So in terms of the creditors matrix and the service of notice of commencement, the way they, the motion works is the debtors will serve individually. Those claimants that have filed lawsuits or arbitration claims against the debtor on account of cybersecurity incident claims entered any into any settlement with the debtors relating to such claims or received any payment from the debtors, on behalf of such claims. So it is, like, claimants that we are aware of as of today. But in in terms of case in terms of case management or creditors matrix, if a party makes themselves aware to us and and files a claim or says they wanna receive notice, we're more than happy to provide that notice under the creditors matrix motion.

Okay. So, I mean, the three forty one notice is gonna go out to the group that the debtors identify as needing to receive that notice.

Correct.

And it may also go to lawyers who represent some of those same folks, but we're taking out the language that requires the lawyers to send it on. So I think we're resolved for this motion, and we can talk about, where we are on broader service of other things that may happen in this case when we get to that motion.

That's correct.

Okay. Very good. Yes, miss Denise.

Can I ask a quick question, your honor? Is the notice going to be sent out to all 6,000,000 punitive cost members? Is that what I'm hearing from 23 of these counsel? Or I guess we're a little bit unclear on that over here based on the filings.

So so long as we have the information for those individuals and that they have, like, made themselves aware and filed claims against us, then they will receive that notice. But we have the same issue with any unnamed individuals who have not made themselves aware that, at this time, we don't know or have the information to serve them. But, again, we will also be serving, class counsel with this notice. If any individuals are made aware, they can receive that information from Class Council if they'd like to provide it, or we can also provide it separately if they make a request to us.

Thank you. Thank you, Your Honor. Again, Heather Crockett on behalf of the State of Indiana. And I want to lead with I do appreciate the fact that Debtors Council is doing the redaction of the PLI of those who were affected by the data breach. I that says, I'll lay one of the fears that, of course, is the regulators that we have.

But our other concern actually involves the actual deadlines of when these schedules and stuff like that we filed in relation to the sale date and then a percentage of the bar date mission is not on for today, but it actually is very close in time. That's it. It's twenty one days between when the schedule gets filed and when the bar date is for the general feathers. And and that causes a concern, of course, we will lose that might come up as well, but it's gonna be, right this to the court. So the date for, when the schedules and purposes are going to do in relation to the dates for the auction and the sales and then the plates for the promotion, do cause us concern.

And we would ask that if it would be possible to actually not give them the first twenty two days, but move it up, closer so that there is no time. Or, if not, we will be raising the objection to the date for the actual general bar date for, the consumers to file their complaint in the case.

Okay. Well, I'll defer the issue of the bar date until that motion is for the court, and the debtors may adjust their recommendation or request based on whether the schedules are filed on time or early or late. I'm not encouraging you to file them late, but if that happens, then there may need to be adjustments made. In terms of the interaction between the schedules and the sale process, I think the request here is reasonable. I'm comfortable that potential buyers will have sufficient information in the data room to understand what is for sale and how it might work without needing to rely unduly on the schedules.

Schedules may prove helpful at some point in the process. They probably will make their way into the data room for what that's worth. But I think the potential buyers will be sufficiently informed about what the debtors own and to the extent, it matters to them what the debtors owe, before the schedules are filed. So I'm going to overrule the objection of the timing of schedules, and and we'll go with, what I believe is April 28 is what is proposed there.

That's correct.

Alright. Anyone else wish to be heard on the Webex? Alright. Hearing no one else, I will then grant the motion with the changes we've discussed. Really, the change we've discussed, I think, is just the one.

Mhmm. And the relief request is reasonable under the circumstances, so I'll grant that motion if you submit an order, please.

Great. Thank you. That order will be coming around, shortly after this hearing. And with that, your honor, that's it for my presentation today, and I will cede the podium to my colleague to present the next item on the agenda.

Thank you, Ms. Castillo.

Good afternoon, your honor. For the record, Justin Sims of Paul Weiss, a proposed co counsel for the debtors.

Good afternoon.

I

will be presenting items 10 through 12 on the agenda. And as my colleagues have noted throughout their presentations, copies of these motions and the corresponding proposed orders have been provided to the United States Trustee, and we sincerely appreciate how collaborative and constructive they've been in throughout this process. And to my knowledge, there have been no objections formal or informal to the motions that I will be presenting. Moving to the motions themselves, item 10 on the agenda is the debtors' taxes motion, which is located at docket number 14. By this motion, the debtors are seeking the authority to pay their pre petitioned taxes and other related fees.

In total, the debtors have approximately $481,000 of accrued and unpaid taxes and fees outstanding as of the petition date. Of that $481,000 the debtors anticipate that about $100,000 will become due to various authorities within the next thirty days. The pre petition taxes and fees comprise income and franchise taxes, property taxes, sales and use taxes, as well as foreign taxes. And the debtors do incur certain intellectual property fees, licensing fees, NASDAQ fees, and other regulatory fees throughout the operation of their business. If the debtors do not pay their taxes, it would severely interrupt their operations and further the debtors, directors and officers may open themselves up to personal liability.

And it would also distract them from the administration of these Chapter 11 cases. If your honor does not have any other questions about this motion, the debtors do respectfully request that it be granted on an interim basis.

Thank you, Mr. Sims. I did not have any questions about this motion. Is anyone in the courtroom wish to be heard on the taxes motion, number 14? Anyone in the Webex wish to be heard on the taxes motion?

Alright. Hearing none, I have reviewed the motion. It appears to be appropriate. I'll grant interim relief. We'll have a final hearing April 22 at 01:30.

Objection is April 15. And if you would submit an order, please. And I'll make the same 6,003, six thousand and four H findings I've made several times already today. Thank you,

Your Honor. Thank you.

The next item is item number 11 on the agenda, which is the debtor's insurance motion, and that's found at docket number 13. By this motion, the debtors seek the authority to continue their insurance program in the ordinary course of business and pay all insurance obligations. As outlined in the motion, the debtors maintain a comprehensive insurance program, which consists of 34 insurance policies. These policies the policies that comprise this program are standard of a company of the debtor size. The debtors do not believe that they owe any amounts any pre petition amounts rather in relation to their insurance program and the debtors submit that their ability to continue their insurance programs are central to preserving the value of the debtors estate, as any lapse in coverage could open the debtors to significant liabilities.

In addition to that, insurance coverage is required by the laws, regulations and contracts that govern the debtors commercial activities. Your Honor, we believe this is a standard insurance motion. So unless Your Honor has any questions, we would respectfully request that it be granted on an interim basis.

I don't have any questions. It does appear to be a standard insurance motion based on my read of it. Does anyone in the courtroom wish to be heard on the insurance motion, doc number 13? Anyone on the WebEx wish to be heard? Alright.

I will grant this motion on an interim basis as well. Final hearing April 22 at 01:30. Objections by April 15. Please submit an order and I will again make the 6,364 H findings.

Thank you, your honor. The last motion that I'll be presenting today is agenda item 12, which is the retention application for Kroll, which may be found at docket number eight. By this motion, the debtors, proposed to appoint Kroll as claims and noticing agent and and administrative adviser pursuant to sections 156 c and three twenty seven a of the bankruptcy code. Your honor, mister Benjamin Steele, who is a managing director at Kroll, has submitted a declaration in support of this application. And at this time, the debtors would like to offer this declaration into evidence.

Yes. Any objection to my receipt of the steel declaration, which is attached to Doc eight in Evidence? Hearing none, the Steele declaration will be admitted.

Your Honor, the debtors anticipate that there will be millions of persons and entities noticed in these Chapter 11 cases and that many of those parties will subsequently file claims. And because of the large number of potential claimants, the appointment of a claims and noticing agent and administrative advisor will help make these Chapter 11 cases efficient, run smoothly, and reduce the administrative burden on the clerk of the court. And to that end, the debtors and Kroll have been in contact with the clerk of the court. And and I I would just like to say how how appreciative we are of their help, throughout this process.

She walked in right before you said that. The record will reflect that this if I walked in

the courtroom immediately before you said that, it's wonderful timing.

Well, I'm I'm glad. And and they they've been incredibly helpful as I said. So thank you to them. Overall, the debtors submit that the appointment of Kroll is necessary given the circumstances of these Chapter 11 cases that Kroll's rates are reasonable given their extensive experience and their service offerings and that they are disinterested person under Section 101.14 of the code. Your Honor, if you do not have any questions, we would respectfully request that this motion be granted on an interim basis.

I do not have any questions. Anyone in the courtroom wish to be heard on the Kroll application number eight? Yes, Ms. Richek.

Your Honor, the U. S. Trustee has no objection per se to this application. What the U. S.

Trustee will endeavor to do going forward is to make sure that the procedures that Kroll has implemented are secure enough because obviously a lot of very sensitive information is going to be in Kroll's possession throughout this case. And also there's mention of Kroll's use of third parties for certain services. We want to flush that out, find out who the third parties are, who the third what the third parties will do and what security procedures those parties have. But at this time, your Honor, the U. S.

Trustee, again, does not have any objection to that.

That can all be addressed during the interim period. Is that what you're telling me?

I'm sorry.

That can all be addressed during the interim period? Correct. Okay. Thank you. That's helpful.

Anyone else in the courtroom? Anyone in the WebEx wish to be heard? All right. Well, I have reviewed the application. It looks to be in order.

So I will grant it on an interim basis as with the other motions. Final hearing April 22 at 01:30. Objection is by April 15. Please submit an order.

Thank you, Your Honor. I would like to cede the podium to our proposed co counsel of Carmody McDonald. Mr. Riske? Thank you,

Your Honor. Good afternoon, again. Your Honor, the first item that I'll be taking up today is the proposed utility motion. Your Honor, I would say this motion and the procedures contemplated by this motion are pretty standard for not only cases of this size, but essentially the mechanism that we seek in a lot of operating Chapter 11 cases we file in this district. We instead of posting a deposit, we have a essentially a segregated deposit escrow account that is funded for 50% of the debtor's previous spend.

The thing I would point out to parties given the volume of the filings in this case, if it looks like those numbers don't add up in the motion, it's because a lot of these utilities are kind of coinciding with the motion to reject that we filed some of those leases. So as soon as those leases drop off, a lot of these utility obligations will drop off as well. So that's why the proposed deposit of the motion seems a little de minimis.

It got my attention at first. I saw the footnote that helped clarify. Okay. Thank you,

Your Honor. And the other thing I would just highlight, Your Honor, of course, you've heard the themes of preservation of value, you've heard irreparable harm. Sometimes when we have utilities and there's a debtor like this that has a good payment history and likely no material defaults, there could be a question whether there's potential irreparable harm. I think from what you've heard with respect to what this company is dealing with and the data issues, preservation, accommodating requests, I would hate for any wrong action to happen that disrupts those utilities for those servers and the process and everything like that. So I just wanted to highlight, I do think sometimes we view these utilities a little generic.

In this case, I think there's definite irreparable harm. We filed declarations in support. We've received no informal or formal objections to the motion. So we would ask that it be granted as submitted, Your Honor.

All right. Thank you. I didn't have any questions on this one. Anyone in the courtroom wish to be heard on Utility Motion, Doctor. Twenty five?

Anyone in the WebEx wish to be heard? Alright. No objection. I reviewed it and the procedures and the amounts of issues seem reasonable. I'll grant interim relief.

Final hearing April '30. Objection is by April 15, to the extent I need to, I'll make the 6,003, six thousand and four H findings. Not sure whether they apply here, to be honest. And please submit an order. Thank you, Your Honor.

Next motion I'm presenting is the debtors' NOL motion. Again, Your Honor, this is a fairly standard motion with respect to public companies that file, but I would like to highlight especially for the people on the phone who may not understand what we're trying to do here. As indicated in the declaration, the first day declaration at paragraph 166, we make sure to highlight that the proposed procedures do not bar all transfers or declarations of worthlessness. This is only to seek these procedures for these substantial transfers of ownership that would have the potential catastrophic or large impact on the value of the debtors' net operating losses. So again, we're just trying to put procedures in place so that the debtor has kind of a procedure in place to react if anything is going to happen with respect to these NOLs and what needs to be done.

So I'm just highlighting that. Again, I think immediate relief in the form of an interim order is appropriate here. If any parties have objections to this at the final order, we can certainly take them up. But I did want to kind of outline for the parties that may not view this as a typical motion what we're not seeking to do here. And I should also I should say we have circulated this, of course, with the U.

S. Trustee, have not received any informal or formal comments or objections.

Okay. I didn't have any questions on this one either. Anyone wish to be heard on the transfer and declaration of worthlessness motions, doc number six, in the courtroom? Anyone in the courtroom, doc number six? Nothing on the Webex?

Nothing there either. All right. I'll repeat the motion. Seems appropriate. I'll grant an interim order of final hearing 04/20/2130.

Objections by April 15. And please submit an order.

Thank you, Your Honor. Next document next pleading that I'm taking up, Your Honor, is the case management order, which I understand from some of the comments to date. I think there'll be some objections to it. Just from a high level, what we're seeking to do here, Your Honor, as we kind of outlined at the beginning, there's a lot of moving parts to this. We're just we're proposing a procedure and a structure for how different procedural things may come up in this case.

We're mindful of the local rules and practices of this court. We're not trying to sidestep anything like that. I do think our local rules actually our first local rule contemplates that in certain complex cases, the court has flexibility to accommodate feasibility concerns with certain aspects of our local rules. Again, I don't think we're trying to sidestep or overreach with respect to anything with respect to our standard local rules and procedures. These were designed for efficiency.

With respect to the issue that I'm sure we'll hear about with respect to the notice of counsel, again, the purpose of that is efficiency. Electronic notice to the counsel is going to be immediate and they will be apprised of whatever has been sent to them by their counsel. But I also think, Your Honor, in the case management order, it still says if your Honor were to approve those procedures of noticing to the counsel or if there is no counsel noticing to the actual claimant, it still says unless otherwise ordered by this court. So when it comes to bar date, when it comes to sale motion, I'm assuming there's going to be publication, and I believe that's contemplated by the papers that we've put forth already that aren't before Your Honor, obviously, the bar date. But again, we're not trying to hide the ball that this is designed for efficiency to get noticed to counsel that is representing these people as quickly as possible, similar to the same way counsel is represented through the ECF notices in this case.

I will say with respect to other than the comment I'm speaking to now, there was one aspect in the motion with respect to extension of deadlines. We conferred with the U. S. Trustee on that. We tried to get some language that accomplished what we wanted while meeting their concerns, and we just agreed to take it out.

So we found that provision to be a little too confusing. So that is out of the proposed order

Fair enough.

Where where, essentially, it was like an automatic bridge order before a deadline Oh,

I see.

If if something was filed.

I see. So we we

just we understand the court's available if things need to be heard on next expiry basis.

That is true.

People need to seek extensions. They can seek extensions. They can seek them and seek them under expedited notice. So I did want to highlight for the U. S.

Trustee that is something that has come out of The U. S. So we're happy to speak to the concerns with respect to the noticing procedures, but that is the only aspect that we've received formal objection or pushback on. That.

Okay. I have a few questions for you on this one, it's risky. Yes. Paragraph 13 of the motion, which I think corresponds to paragraph five of the order, post order. The wording of this, basically, people who've never entered an appearance or requested service are deemed to receive electronic notice through the ECF system of each court document.

I've never seen that formulation before. It seems to me that what you're saying is that if we flip this around, I think what you're saying is that a motion can be served on ECF parties, non ECF parties as defined, Blue Vandered and Appearance and Hard Copy, Core Parties and PIPs, which stands for I forget what particularly interested parties. I think that's the converse of what paragraph 13 says and it makes a lot more sense to me rather than deeming people who don't even know the ECF system exists to have notice of everything that's on it. Can we word it that way? Will that get you what you need?

Yes. Okay. Alright. Let let's do that. I think then not only will I understand it better, but all the people who get this may may be in the same situation.

All right. We've got, and I'm sorry, in paragraph 15, we've got how we serve the core parties. I'm sorry, we have serving of core parties. It doesn't say how. I think paragraph 15 is intended to say US mail or email for core parties.

Is that correct? Yes. Okay. Alright. So we can and I think that goes into paragraph seven of the order.

Alright. Then fourteen day notice with the seven day objection deadline, which is in paragraph, 30 alpha. As you know, that's not our standard practice here. We're but we require a little longer notice than some courts twenty one days. I'm inclined to stick with our usual rule, but be generous in allowance of expedited and emergency hearings, just because of the volume and the the body of the creditors here who may receive something via their counsel, may be traveling, may not know what it is, may need to find somebody to explain to them what it is.

And by the time they do that, the seven days that they effectively have to object less, if you count mailing time, is gone. So I'm certainly willing to hear a rebuttal from you or your

co counsel. I I understand. I'm not sure how I can speak because I I understand your concern.

I mean, I know other courts do it, and I've I've practiced in other courts that that have done that way. And, but those are often cases where all the parties are commercial. Many of the parties are represented by lawyers bankruptcy lawyers, and everybody's paying very close attention to everything that arrives by email or mail. I'm I'm concerned about that here. So I I think we should stick with our typical notice unless the matter is expedited or heard on an emergency basis.

And as I mentioned, if you would get with mister Spinal Right. I don't know how often you think it would be necessary to have standby hearing dates, but we'll we'll get them set up. And if we don't use them, we don't use them.

Right. No. I I

definitely appreciate that invitation. We'll we'll take Yeah.

I I don't think you're gonna

be waiting six weeks to get something heard, for example. So

We appreciate that. Okay. That.

So so so let's do that.

And,

it's easier if I just look at the order rather than the motion. I realize my comments are in here. All right. Paragraph eight talks about particularized interest parties can be served by email.

The

insured depository institutions in the creditor body are going to want to be served by their usual means. So why don't we just add unless the statute or rule requires service by some other means, Or if you want to seek relief from that under the circumstances, you can certainly seek that. It makes sense, Your Honor. And I guess the twenty one days is in paragraph 17 alpha of the order. And then paragraph 20 on negative notice.

Our negative notice rule is designed for simple issues in consumer cases, if I could oversimplify a little bit. Our regular notice language permits the court to enter an order without a hearing if there are no objections. As you know, we don't typically do that.

Right.

Given the number of parties in this case and the number who may be unrepresented and who may walk into the courtroom half an hour before the hearing with something to say, I'm not particularly likely to start entering orders six days before hearing because nobody objected seven days before the hearing. On the other hand, I recognize that if counsel from New York has not come into town because there's nothing that appears to be contested on the calendar, I'm not going to do anything to prejudice counsel and and their client who relied on something like that. So I think let's take out your honor.

Again, the purpose was not to give lack of notice. It was efficiency, but I understand that

concerns your labor.

It is more efficient.

I think it's workaround. I think

there are ways to work around.

It is more

efficient. There's no question about it. It's more efficient. And, you know, there are certain types of matters where we where we do. It's a straight up negative notice when we enter orders the the day after it passes.

I'm concerned about doing that here. Understood. I think I think we can get things heard. I think, I I think it's manageable for the debtors. I when I represented debtors in this court, I chafed at it a bit, and and it worked anyway.

I appreciate I think that's I think that's what I'm inclined to do here. And then on paragraph 33, to be honest, the, video conference procedures might be more COVID era than today's environment. So let's just ask parties, to contact the court from deputy, at the BCW matters email, and mister Spidal will will get taken care of like he did today. Perfect. And that should take care of video appearances.

Those were the kinds of questions I had for you. Anyone in the courtroom wish to be heard? All right. And on the WebEx, we previewed some issues before. Mr.

Bellman?

Certainly, Your Honor. Thank you. Again, for the record, Andrew Bellman, Lowenstein Standard for the law firms representing the arbitral data bridge payments. I just want to respond to a couple of things that debtors counsel had mentioned, both earlier by Ms. Castillo and just moments ago.

Ms. Castillo mentioned earlier that the debtors they don't want to serve everyone every pleading because they don't want to incur the cost of serving everyone everything. We get that. I get a Bankers Box a week of documents in the FTX case. I can't fathom what that cost the estate over there.

But she also said they don't want to have to figure out what goes where and I'm paraphrasing, but essentially the debtors don't want to have the burden of deciding does this impact the individual data breach claimants. But effectuating service of pleadings and other documents on affected parties is their burden. And with that burden comes the corollary of figuring out whether a pleading or a particular document affects a particular party that they then have to serve it on. And they're effectively seeking to outsource that burden to our clients by imposing a new affirmative burden on them by operation of an order that your honor will enter. It's that affirmative obligation that we're concerned about because we don't know what the ramifications are beyond that, what can happen from having a new burden on top of, whatever else may exist out there just anyway.

But here, we're not the debtors. Our clients are not the claims agent. We do think counsel to the arbitral claimants should get served with pleadings that affect our clients. That's obvious. But it's kind of inappropriate for the debtors to say, well, we don't want to figure out what matters.

So we're just going to send everything to you, let you figure it out and then pass it on to your clients. That is not discharging their own burden to give notice of things that happen in their own bankruptcy proceedings that may affect people's rights. And I take Mr. Whiskey's point that they've determined they're going to serve things like the bardate motion, and he mentioned some other stuff, maybe a disclosure statement, whatever. He mentioned that they intend to serve those things directly.

But if they've made that determination as to certain pleadings, why can't they make that determination as to every pleading rather than trying to foist that on other folks?

Well, let me ask Mr. Whiskey. There's a reference in here somewhere to rule 2,002 continues to apply. And I take it that's one of the reasons why the debtors are going to serve the bar date notice and yes paragraph 24 and notice of the deadline to objective disclosure statement, etcetera, etcetera, on on everybody. It seems to me that most proceedings will either affect all cyber claimants or no cyber claims, most directly affect them.

The exception that comes to mind would be an objection to a claim of one creditor. So how are the debtors proposing to deal with? For example, if you object to the claim of one creditor, is that going directly to the creditor, or is it going to counsel? Are you looking to see whether counsel puts his or her name on the proof of claim or her address on the proof of claim?

Well, I think I think it depends on how that objection was filed. If there's a pro se individual filing that objection, I think, marrying what miss Castillo said in that individual gets direct notice. I'm answering your question. They're represented by counsel, that counsel gets. I would think if it's

if it's

someone that fits in the bucket that they are represented, but they're also filing something, they probably are getting both.

Yeah. Alright. So if the if the proof of claim says send notices to a certain address and you object to that proof of claim, you're going to send the notice to that address. Okay. So we're not overriding that rule 3,007, whatever it is.

Okay. All right. So Mr. Bellman, I guess I'm trying your view is that the debtors should serve anything that affects cyber claimants on all of the cyber claimants individually and on counsel?

And on counsel. And our view is that there should not be that additional affirmative obligation set forth in an order from your honor directing us to do anything beyond that point.

Do we solve this problem by taking out that language again that says counsel shall immediately forward and it's up to it's up to counsel I mean, counsel for other parties who receive pleadings, they need to communicate with their client.

So for the record, Christopher Hopkins.

We need to communicate with your client.

Riff, good morning. Yes. Post co counsel to the debtors. Just wanted to rise briefly on this issue, Your Honor. What we're trying to do here is promote two objectives, ensuring that people get notice of the things they need to get notice for in a way that is reasonable under the circumstances and efficient from the perspective of the debtors' estates.

I'm confident that you will hear later on in this process from mister Bellman's clients that their clients have massive claims in these cases. And so they, as counsel to those claimants, should be incentivized more than anybody else or as much as everybody else to keep case costs down, to do things efficiently, and to, you know, kind of partner with others in the process to make sure we achieve those competing objectives. I I I think the notion that serving counsel who purports to represent clients with an interest in the case is being burdened by making a determination as to whether as their counsel, who I my understanding is that though his his clients are not representing these arbitration folks pro bono, there are engagement letters, they are compensated for that representation, is not an unreasonable burden when we have a duty to all stakeholders in the process to do what we can in a reasonable way to try to keep case costs down. And I'm not suggesting that the debtors can hide behind the expense of service to to strip people of due process or notice rights. But I don't think the notion that serving pleadings on counsel who is appearing on behalf of claimants with an interest in the case is somehow creating some new framework that shifts service obligations to a third party.

And so I I I totally understand mister Bellman's concern, and it's not the debtor's intention to create any kind of gotcha on claimants counsel in any way, shape, or form to say, like, you didn't move fast enough or you didn't do what you're supposed to do. And I think the FTX example is a good one. There there may be plenty of pleadings that are irrelevant to his clients. There may be plenty of pleadings that are relevant to his clients. And I do this all the time when I represent ad hoc creditor groups.

I make a determination as counsel what documents I need to forward to my clients or not. And so I don't think this is I'm I'm a little surprised that this is necessarily an issue other than I agree and understand the concern about the language in the order requiring prompt notice where counsel through inadvertently like we're not trying to somehow create a trap where they've inadvertently violated an order of the court. And so I do think there is a way to resolve this consensually, but I just think that it's important to put these points out there. It's not as if we're designating some random third party and saying you have to go notice these other unaffiliated people to whom you don't owe any kind of obligation. Yeah.

That that makes sense to me. Let's what I'm inclined to do with this order is is making an interim order and not that I want to spend a lot of time at the second day hearing on this issue, but I think seeing the language, reviewing it in the context of client relationships, maybe short discussion between the parties in the meantime may resolve it. But for now, let's take out and I'm

actually not sure where it is in

the proposed order. Let's take out any language that imposes an affirmative obligation on counsel to forward something, particularly to do so immediately. And we'll just as with other lawyers representing commercial clients, if they receive something, as Mr. Hopkins explained, it is counsel's job to figure out what to do with it, if anything, which may include not even reading it. I'm not recommending that, but we all know there are times when things arrive in the mail and we look at the caption, we don't read it.

So that's part of counsel's job. So for purpose of an interim order, I think that's how we're going to resolve this issue. And if after reviewing the language plaintiff's counsel have further issues, please take them up with debtors counsel, see if we can get it resolved. If there's anything remaining, we'll deal with it separately. Thank you, Your Honor.

Anything further, Ms. Stone?

We're glad to meet and confirm with the debtors on the language and take a look at what gets drafted into it. Thank you.

Okay. Ms. Dent?

Yes. I just wanted to add that Cloud Council would also like to be involved in those discussions just to make sure that it is all resolved in we represent some of the class representatives and then the punitive class that consists of millions of individuals who we don't necessarily know their identity.

Thank you,

Your Honor.

Yes. And I'm not suggesting a particular language that's going to resolve that little conundrum right now, but there there probably is something that the parties can work out, between now and April 22. So alright. Anyone else on the Webex Webex wish to be heard? Alright.

I think that takes care of it. So I will I will enter an interim order on this case management motion, with the changes that we've discussed or if you would make changes that we've discussed and submit that, and then we'll take it up again April 22 at 01:30. Thank you, Your Honor. Thank you.

The final motion I'll be presenting for this segment is the judge's motion to file under seal, Your Honor. I think this is consistent with the view you've heard thus far today with respect to the need to have this information protected. I think it's pretty narrow in scope. Haven't received any informal or formal objections with respect to it. Of course, any of those things that are under seal will be made available to the U.

S. Trustee and the parties that we've discussed

before. Sure. So this one puzzled me a little bit because in looking at the employment application, I don't see that anything's redacted. So what is what are we talking about?

Yes. It was redacted from the conflict list, Your Honor, on the retention applications. When we're doing the declarations and disclosing all the creditor bodies, there were the data claimants were redacted off of that list.

Okay. So there are individuals listed, but there are other like the I have to find one of these. But what from what I'm looking at, I don't want to should I not be drawing more attention to this than I am?

I'm sorry, Your Honor.

So I'm looking at potential parties and interests list. I mean nothing's blacked out. There are no blank spaces. I'm sorry, Your Honor.

Can I confirm with Michael?

Yes, please do.

Your Honor, Christopher Hawkins, for the record. While we work through that, would it be all right with Your Honor if we took up the dip motion just to keep hearing? Yes.

Thank you, Your Honor. Absolutely. All right. Let's move on to the dip motion number document number 28.

Thank you, Your Honor. Bear with me one moment. Okay. So the next item on the agenda is the debtor's dip motion. This all we're seeking approval of today is entry of an approval order, which I'll describe in a moment, and we would ask the court to set the hearing to hear the actual entry of the dip order for the second day hearing.

Through this motion, the the debtors are seeking authority to enter into today a binding dip term sheet with JMB Capital Partners, the proposed dip lender under the facility, for a $35,000,000 dip facility that is, like I said, subject to entry of the dip order at the second day hearing. As we noted at the top of the hearing, Mr. Swift filed a declaration in support of the motion at docket number 33. And I will preview for the court the proposed terms of that dip, but just the level set at the outset of the hearing, The only thing we are seeking approval of today, it's really more akin to what you would see your honor in, like, an exit facility context. What we're seeking approval of today is entry into the binding dip term sheet, which from our perspective, it's not a commitment letter, but it's the functional equivalent of a commitment letter.

So it would be a binding term sheet as between us and JMB, so the debtors secure the value. We get the value of having committed dip financing today. The order also seeks approval of two different fees. One is a $100,000 work fee, which is intended to compensate JMB's count you know, JMB for its legal expenses in documenting the dip order and documenting the dip facility as well as a 2% commitment fee on the full $35,000,000 of the facility, which equates to another $700,000 Everything else, in terms of the dip, all of the issues that a committee is going to care about, the U. S.

Trustee's Office may care about, all of that is not up for approval today. It's up for approval at the second day hearing. And at the request of the U. S. Trustee and with the consent of the DIP lender, we will put language into a revised proposed form of order so that it is clear that the only thing being approved today on a final basis is our entry into that commitment letter and the payment of those fees.

Fees. So with that, Your Honor, just to briefly preview for the court. So as we discussed during our opening presentation, in our business judgment, we believed it was very important to come into these cases with committed dip financing so that our customers, vendors, potential bidders, all interested parties in the case have certainty that the debtors will have sufficient liquidity to bridge through the sale process and then ultimately complete these case cases through a confirmed chapter 11 plan. And the proposed dip facility helps us achieve that objective. It was the part of the robust pre petition marketing process that you've heard a lot about today.

Right up until the final wire before we actually filed these cases, we were actually negotiating competing DIP proposals. We had the JMB proposal, and as set forth in Mr. Swift's declaration, we also had a dip proposal from miss Wojcicki. Ultimately, we determined in our business judgment that taken as a whole, the JMB facility was the best available terms for the debtors on in terms of the the dip financing options available to us coming into the case. On the specific terms of the facility, as I said, it's a $35,000,000 multi draw, super priority senior secured dip facility.

The way the draws on that facility work, so when does the capital become available to the debtors, upon entry of the dip order, we have access to up to $10,000,000 of that facility. To access the other 25,000,000 we have to either obtain approval of a stocking horse bid that is acceptable to the DIP lender or obtain approval of a stocking horse proposal that there's a couple of conditions. One, would generate sufficient proceeds to repay the DIP obligations in full. Two, is capable of being closed or would close on or before June 30 based on the terms of that APA. And then pursuant to the court order approving that stalking horse bid, there would need to be language in that order that effectively says, if the court designates this person as a stalking horse and we run the auction and that is the transaction that is approved, that the sale order will require that the proceeds of that transaction are used to actually repay the dip obligations in full.

In terms of the other terms, there's a it's a 14% annual interest rate payable monthly in arrears. There are some additional fees. They're not being approved today, but I'll just so parties in interest have the preview. It's a it's a four there is a 4% exit fee that is that is earned by the dip lender and payable by the debtors kind of in parallel with how we can access the capital under the facility. So when the dip order is approved, we know the 4% on the 10%.

And if we satisfy the conditions to get access to the additional 25%, we know the 4% on that 25%. It's not double counting, But we were able to negotiate for that kind of bifurcation. So if we the unlikely scenario we don't satisfy that condition, we haven't paid exit fee on capital we'll never be able to access. In terms of the collateral package, you know, it's customary for diff facilities of this type. And again, to the extent parties have an objection to the scope of that collateral, they can take it up to second day hearing.

And in terms of the maturity date, it would be the earlier of 09/30/2025, a sale of all or substantially all of our assets, or if the court has not entered the final dip order by 04/25/2025. In short, your Honor, I mean, we think this is a sound exercise of the debtor's business judgment. Effectively, what we're doing is we're securing committed dip financing up to $35,000,000 in exchange for $800,000 in fees. And our business judgment is that the cost of that facility is far outweighed by the benefits that having that secured financing today provides. So with that, your Honor, unless you have any other questions or oh, I would add, your Honor, the term sheet, of course, has a fiduciary out.

So if we determine ahead of the dip hearing that it's not in the best interest of the states to seek approval of the dip order and enter into the dip facility, we we have that ability as well.

Sure. Okay. I only have one question. There's a reference, maybe more than one reference, in in the motion to this being a priming dip. And since as you described, there's no funded debt, I just want to make sure what we mean by priming dip.

That's a good question, Your Honor. So we are not aware today of of liens that exist other than a certain specified categories that are currently scheduled in the The permitted liens. Yeah. So it's a it right. It's a priming dip facility, but there's a bucket for priming liens, and then there's also a carve out for the restricted cash account that Ms.

Hunt's covered in the cash management motion. It is a protective term that the dip lender negotiated for. If someone believes they have a lien and that they should be included in the permitted lien basket or otherwise, we'll have that conversation between now and the dip order.

Sure. Okay. That makes sense. I didn't have any other questions on the dip. Anyone in the courtroom wish to be heard on the dip motion?

Docket 28. Anyone on the WebEx wish to be heard. All right. Hearing none, I'll grant the motion on an interim basis. We'll have our final hearing as with others April 22 at 01:30.

Objection is April 15. I'll find that notice of the motion is appropriate and sufficient under the circumstances. Based on the declaration, I'll find that debtors have established that they're unable to obtain unsecured credit available as an administrative expense. But as you point out, if someone feels differently about that, there's time to address that before the final hearing. I'll find that entry in the term sheet is the exercise of the debtor's business judgment, reasonable exercise of the debtor's business judgment.

The cost and expenses to be paid prior to the final hearing are necessary to prevent immediate irreparable harm to the estate. And, to the extent that rule 6,004 h applies, the stays waived. Thank you

very much, your honor.

Any further findings on that, mister Hopkins?

I don't believe so. I believe the DIP lenders council is here with us today.

Okay. Okay.

And I would add just for the benefit of parties and interest, the the approval order itself requires that we get that dip proposed form of dip order and credit agreement on the claims agent website no later than at least ten days before the objection.

Right. Or call seeking.

So we'll be hard at work

with our Indeed. Our company.

Thank you.

Very good. Thank you.

Tom Riske for the record, Your Honor. Got some clarification on the

Back to the motion to file under seal, okay. Motion to seal. To make

it very easy, we'll be withdrawing that motion. What happened was for disclosure purposes of the retentions, we originally contemplated whether we're going to list every name of every claimant. Yes. For disclosure purposes, for the retention applications, we opted to choose the lead plaintiffs.

Which are probably correct.

Very good. That's withdrawn.

Thank you, Your Honor. Next up, Your Honor, is the application to employ my firm, Carmine McDonnell, as bankruptcy co counsel for the debtors, filed at docket number 35.

Yes. Please proceed.

Thank you, your honor. I submitted a declaration, in support of our application in which I list the reasons why I believe I'm disinterested, do not hold an interest adverse to the estate, did a detailed conflict check through not only our normal means at our firm, but some extended means and making sure all staff has been aware of everything here. So we did an abundance of caution to make sure there were no issues of any conflict in this. We have had discussions with the U. S.

Trustee about some of their comments on it. I believe 2016, the local rules is not referenced, but we, of course, do in the event that our applications are granted, intend to abide by the eightytwenty rules of this district when it comes to compensation before a fee application. I don't think I've received any formal or informal objections with respect to our application. And then I guess just another just matter of clarification, Reason we're listed as co counsel as opposed to purely local counsel. That's in keeping with Mr.

Hopkins' comments at the beginning of this case that we're trying to keep administrative costs down as much as possible. Our firm has consulted with Paul Weiss and has agreed, we'll take down as much of the day to day operation administration as we can handle to help keep that cost down. So that's the clarification as to the way the application is framed, Gerard.

Very good. That's helpful. Okay. I didn't have any questions on your application. Anyone in the courtroom wish to be heard on the Carmi McDonnell application, docket 35?

Ms. Rychak.

Just a quick comment just to, in the interest of saving time, the U. S. Trustee does ask that all debtors counsel comply with Local Rule 20 sixteen-two in providing the monthly fee statements to the U. S. Trustee and I believe it's also to the creditors committee, it makes things a whole lot easier in reviewing fee applications and we cannot resolve any issues early on.

I cannot imagine anyone would be opposed to the opportunity to get paid monthly.

I can't imagine that either. I was pointing that

I'm just requesting

to verify it.

I said that

before the hearing this afternoon.

Yes. Just in case, I will encourage all all debtors and committee counsel when they're appointed to take advantage of that opportunity.

Right. And speaking of that, your honor, I will take this opportunity to echo what counsel for the debtor have said. We've been extremely cooperative. I can't even count the number of emails and meetings and phone calls we've had trying to work things out in advance of this afternoon's hearing and the U. S.

Trustee really appreciates it.

It does appear to be running smoothly so far. So thanks to you all.

Thank you.

Thank you, Your Honor.

Thank you, miss Richat. Anyone else in the courtroom? Anyone on the WebEx wish to be heard on the Carmine McDonald application? Alright. Hearing none, I'll grant the application on an interim basis.

We'll have a final hearing April 22 at 01:30. Objections by April 15. Please submit an order, and I'll find it under Rule 4,000 6,003, interim approvals necessary to avoid immediate and irreparable harm.

Thank you very much, your honor. I'll ask Mr. Hopkins to come back to the podium.

For the record, Christopher Hopkins of Paul Wies, proposed co counsel to the debtors. Your honor, I'll be covering the remainder of the retention applications for the debtor professionals today, starting with number 19, which is the retention application for our firm, Paul Weiss, that was filed at bucket number 31. There's our disinterest in this declaration is exhibit a to that motion. That that's my declaration, and mister Hayoun filed a declaration on behalf of the company. As mister Riske said, we have very robust conflict systems at Paul Weiss.

We searched the PII. All of the relevant information is set forth in the declaration. We've discussed it with The U. S. Trustee, and provided some incremental information that they requested.

And so I think the unless your honor has any questions, we're not aware of any formal or informal objections to our proposed retention on an interim basis.

Alright. I don't have any questions. Anyone in the courtroom wish to be heard? Anyone in the WebEx wish to be heard on the Paul Weis application doc 19? No.

Doctor. Thirty one.

Thirty one,

your honor.

Thank you. 19 on here. Doctor. Thirty one. Okay.

Without objection, I will grant the application on interim basis. Final hearing, April '30. Objection is April 15. And I'll find for purposes of rule 6,003, interim approval is necessary to avoid immediate and reparable harm. Please submit an order.

Thank you, your honor. Item number 20 on the agenda is is the retention application for Moelis and Company as investment banker for the debtors and debtors in possession. That application was filed at docket number 29. There is a declaration attached as exhibit b that is from mister Barak Klein of Mollis and Company, who is assisting mister Swift on this matter on behalf of the company. Same thing, your honor.

We've discussed it with the US Trustee. We're not aware of any formal or informal objections. And so for today, we respectfully ask that your honor enter the proposed, interim order.

Okay. Anyone in the courtroom wish to be heard on the Molis application? Anyone in the Webex wish to be heard? All right. I'm going to grant an interim order.

I'm going to defer a couple of things to the final hearing since we're only a couple of days into this, and that is the three twenty eight standard review and approval of indemnification. I think the committee and others may want to weigh in on that and others may want time to react to that. As you know, in many courts, we wouldn't even take this up until a month or so post petition anyway. So I don't think that's any hardship on Molas, but I do think it's probably to allow parties to take a little time. So if we just put in a proposed order subject to entry of a final order, etcetera, etcetera, on those two items, I think that'll take care of those.

Understood, Your Honor. And so, we'll take this up on April 22 at 01:30 with objections due by April 15, and I'll make 6,003 findings to this one as well.

Thank you, your honor. So the the last one for me for today, item number 21, which is the application from Alvarez and Marcel to designate mister Kavarta as the debtor's CRO and authorize Alvarez and Marcel to provide designated support personnel or I'm sorry, certain additional personnel to support mister Kavarta in that role. Similar, you know, same same spiel as for Paul Weiss and MoLIS. We discussed with the U. S.

Trustee, there will be certain modified language in the proposed order that the U. S. Trustee asked for and Alvarez and Marcel agreed to. And so it relates to certain like a reasonableness review on their completion fee that they'll file an application and parties will have the opportunity to object. That's the crux of it.

But again, no informal or informal objections. And unless your honor has any questions we'd ask for entry of the interim order.

I do not. Anyone in the courtroom wish to be heard? Mister Schlotzauer.

Good afternoon, your honor. Joe Schlotzauer for the US Trustee. We have had productive conversations with counsel for the debtors about the retention of mister Kvarta and A and M as the restructuring managers. This is kind of a special issue because they're not seeking retention under section three twenty seven because, arguably, mister Kvarta is not disinterested as he's been serving as an officer of the debtor, and so they're seeking retention under section three sixty three B in fact. My office has a protocol for matters just like these called the J.

Alex protocol. It's been around for a little over twenty years. Our discussions have mainly concerned confirmation of Mr. Kivarta's retention to that protocol. And we've had a lot of progress on that front.

I think there's only one remaining issue as to the breadth of the indemnification provisions. So we typically require that be limited to the professionals, I guess I shouldn't use the word professionals, the people from A and M who are going to be doing work for the debtor as opposed to the entire corporate entity that they that those people come from. But otherwise, I think we've worked out most of the issues.

Okay.

Well, while you're both on your feet, similar to what we just discussed with Moelis, I'm inclined to put off indemnification until the final hearing just to make sure that the US Trustee and other parties have an opportunity to take a look at that more carefully. So, I think that will defer the issue That will give give the party some time to work through whatever is remaining there. And if anybody else has an objection, we'll we'll take that up to the final hearing. Anything else, mister Slasier?

No, your honor. Thank you. Okay.

Anyone else in the courtroom? Anyone on the Webex wish to be heard? Okay. So, as we just discussed, we'll defer approval of indemnification to the final hearing, as we just did with Moelis. Otherwise, I'll I'll approve the application on interim basis, and we'll take it up on April 22 at 01:30.

Objection's due by April 15.

Understood. Thank you, Your Honor. I believe I will now turn it over to Mr. Lemons from Goodwin Procter to handle their retention application. I believe he's on the WebEx today.

Certainly. Mr. Lemons?

Thank you. Good afternoon, your Honor. Robert Lemons from Goodwin Procter, on behalf of a proposed special counsel to the special committee. I don't know if Mr. Perez wishes to speak first or if I should keep going.

Go right ahead.

Okay.

Thanks. Your Honor, Goodwin has been representing the special committee to the Board of Directors since shortly after it was reconstituted starting in November of last year. We're seeking to be retained as special counsel under Section three twenty seven. We are not being retained to play any sort of role in generally conducting the bankruptcy cases. Our role will be just to advise the special committee.

I think the bulk of the work that we will do will likely be conducting an investigation into potential causes of action against the founder as well as the Board of Directors that existed prior to the appointment of this ongoing committee so that we can and that will be under the direction of Mr. Wolper, the newly appointed independent director, so that we can advise both him and the special committee when it's thinking about how to value and deal with causes of action that the estate may have against former DDoS in this case. We may have a little bit of other work to do in terms of advising the committee with respect to fiduciary duties dealing with, manding an enormous number of meetings finishing getting those done that the committee conducted, pre petition. But that's just above the work that I expect us to do. We ran the master server or the list of all interested parties that was provided to us by Paul Weiss against the firm's database and as stated in my declaration can confirm that we don't hold or represent any interest adverse to the debtors of their estates.

So if there are any further questions, John, I'd ask that you approve on an interim basis for retention.

I did not have any questions, Mr. Lemons. Anyone in the courtroom wish to be heard on the Goodwin Proctor application? Anyone on the Webex wish to be heard? Okay.

I will then grant the Goodwin Proctor application on interim basis. Final hearing April 22, '1 '30 pm, objections by April 15. And I'll make the rule 6,003 findings to Goodwin Proctor as well, if you would submit an order, please.

Thank you, Your Honor.

And mister Perez. Your honor, last but not least on today's docket, we have Louis Rice's application to be employed as special local counsel, on behalf of the special committee of the board of directors. We have filed our declaration of disinterestedness even though we technically didn't have to. We wanted to make sure that the court understood that Louis Rice is, disinterested in this case as well. Our employment is is pursuant to section three twenty seven e, and we have run all the conflicts, checks and put together the declaration, that I filed on behalf of Lewis Rice.

With that, your honor, we would ask that you, unless you have other questions that you employ Lewis Rice pursuant to the interim orders that we have already uplifted to the court.

Okay. I do not have any questions. Anyone in the courtroom wish to be heard, Lewis Rice application? Anyone on the Webex wish to be heard? Alright.

I've reviewed it. It appears to be in order, mister Perez. I'll grant interim relief on the application. We'll have a final hearing April 22 at 01:30 with objections due by April 15. I'll give you that 6,003 finding as well, sir.

And since you already submitted an order, I won't tell you to submit one. Alright. Thank you. Alright. Are there any further matters from the debtor?

Checking with my co counsel, I don't think so, Your Honor. We, again, greatly appreciate the court accommodating today's hearing, and we look forward to this case progressing.

And thank you. Very good. Any further matters from any other party? Yes.

Since it came up earlier this afternoon, I will advise the court that the U. S. Trustee did send the solicitation for members of an Unsecured Creditors Committee on Monday afternoon, and the deadline for responses is noon next Monday, so it would be March 31. So yes, and then we'll see what the response is in the form of committee, probably next week.

Very good. Thank you. We'll look forward to seeing what you come up with.

Thank you.

One final point. Your Honor did ask about priority of orders. Yes.

We, of

course, will have a lot of work once we get back to the office to get things. However, I have already confirmed that I do believe wages and cash management are being submitted now, and I believe those are on the top of the list of things we'd like to

see today. Okay. Mr. Spidal is confirming he's received those. As you send in others, just alert him as to their relative priority, and we'll take them in that order.

Perfect. Thank you very much. Okay. Thank you, everyone. Court is adjourned.

Thank you

very much,