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Full title: Motion to Approve Compromise under Rule 9019 Joint Motion of Debtor Klausner Lumber One LLC and Debtor Klausner Lumber Two LLC Pursuant to Bankruptcy Rule 9019, Local Rule 9013-1 and 11 U.S.C. §§ 105(a) and 363(b), for Entry of an Order Authorizing the 401(k) Settlement with Klausner Trading Filed by Klausner Lumber One LLC, Klausner Lumber Two LLC. Hearing scheduled for 3/30/2021 at 10:00 AM at US Bankruptcy Court, 824 Market St., 6th Fl., Courtroom #3, Wilmington, Delaware. Objections due by 2/12/2021. (Butz, Daniel) (Entered: 01/29/2021)

Document posted on Jan 28, 2021 in the bankruptcy, 8 pages and 0 tables.

Bankrupt11 Summary (Automatically Generated)

Pursuant to sections 105(a) and 363(b) of title 11 of the United States Code (the “Bankruptcy Code”), Rule 9019 of the Federal Rules of Bankruptcy Procedure, and Rule 9013-1 of the Local Rules of Bankruptcy Practice and Procedure of the United States (the “Local Rules”), both KL1 and KL2 seek entry of an order substantially in the form attached hereto as Exhibit A (the “Order”) and approving the proposed Settlement among KL1, KL2 and KTU attached as Exhibit 1 to the Order.The Affected Employees, who are former employees of KL1 and KL2, must receive their distributions from the 401(k) Profit Sharing Plan and Trust. Authorization of the Settlement is also justified as a valid exercise of KL1’s and KL2’s business judgment pursuant to section 363(b) of the Bankruptcy Code.Notice of the Motion has been given via first class mail and/or hand delivery, as applicable, to (a) the UST; (b) counsels to KL1’s and KL2’s prepetition lenders; (c) counsel to the KL1 and KL2 Committees; and (d) all parties who have requested notice in these Chapter 11 Cases pursuant to Local Rule 2002-1(b).For the foregoing reasons, KL1 and KL2 respectfully request that this Court enter an order substantially in the form of the Order attached hereto as Exhibit A approving the Settlement, attached as Exhibit 1 to the Order, and granting such other and further relief in favor of KL1 and KL2 that the Court may deem just and proper.

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IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE Chapter 11 In re Case No. 20-11033-KBO Klausner Lumber One LLC, Objections Due: Feb. 12, 2021 at 4:00 p.m. (ET) Debtor.1 Hearing Date: March 30, 2021 at 10:00 a.m. (ET) Chapter 11 In re Case No. 20-11518-KBO Klausner Lumber Two LLC, Objections Due: Feb. 12, 2021 at 4:00 p.m. (ET) Debtor.2 Hearing Date: March 30, 2021 at 10:00 a.m. (ET) JOINT MOTION OF DEBTOR KLAUSNER LUMBER ONE LLC AND DEBTOR KLAUSNER LUMBER TWO LLC PURSUANT TO BANKRUPTCY RULE 9019, LOCAL RULE 9013-1 AND 11 U.S.C. §§ 105(a) AND 363(b), FOR ENTRY OF AN ORDER AUTHORIZING THE 401(K) SETTLEMENT WITH KLAUSNER TRADING Klausner Lumber One LLC, a debtor and debtor-in-possession (“KL1”), and Klausner Lumber Two LLC, a debtor and debtor-in-possession (“KL2”), each in the above-captioned and separately administered chapter 11 cases (collectively, the “Chapter 11 Cases”), respectfully represent as follows in support of this motion (the “Motion”): JURISDICTION AND VENUE 1. This Court has jurisdiction to consider this Motion pursuant to 28 U.S.C. §§ 157 and 1334, and the Amended Standing Order of Reference from the United States District Court for the District of Delaware, dated February 29, 2012. This matter is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2) and, pursuant to Local Rule 9013-1(f), KL1 and KL2 1 The last four digits of the Debtor’s federal EIN are 9109. KL1’s mailing address is Klausner Lumber One LLC, P.O. Box 878, Middleburg, VA 20118. 2 The last four digits of the Debtor’s federal EIN are 4897. KL2’s mailing address is P.O. Box C, Redding Ridge, CT 06876.

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consent to the entry of a final order by the Court in connection with this Motion to the extent that it is later determined that the Court, absent consent of the parties, cannot enter final orders or judgments consistent with Article III of the United States Constitution. 2. Venue is proper pursuant to 28 U.S.C. §§ 1408 and 1409. 3. The statutory and other legal predicates for the relief requested herein are Bankruptcy Code sections 105(a) and 363(b), Bankruptcy Rule 9019, and Local Rule 9013-1. FACTUAL PREDICATES TO MOTION I. General Background 4. On April 30, 2020, KL1 filed a voluntary petition under chapter 11 of the Bankruptcy Code. On June 10, 2020, KL2 filed a voluntary petition under chapter 11 of the Bankruptcy Code. KL1 and KL2 continue to manage their respective properties as debtors-in-possession pursuant to §§ 1107(a) and 1108 of the Bankruptcy Code. 5. On May 21, 2020, the Office of the United States Trustee for the District of Delaware (the “U.S. Trustee”) appointed the official committee of unsecured creditors in KL1’s Chapter 11 Case. On June 25, 2020, the U.S. Trustee for the District of Delaware appointed an official committee of unsecured creditors in KL2’s Chapter 11 Case. No party has requested the appointment of a trustee or examiner in either of the Chapter 11 Cases. 6. Prior to the filing of its petition, KL1 was the owner-operator of a state-of-the-art Southern Yellow Pine sawmill located in Suwannee County, Florida. Prior to the filing of its petition, KL2 was the owner-operator of a state-of-the-art Southern Yellow Pine sawmill being built in Halifax County, North Carolina. The impact of the national pandemic when combined with KL1’s and KL2’s precarious financial standings made their continued operations and, in KL2’s case, further construction, difficult.

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7. These financial and medical hurdles came to a head in when both sawmills shut down on or about March 16, 2020. On that date, both KL1 and KL2 dismissed all of their employees and left the facilities unattended. II. The 401(k) Program 8. Certain of the employees of both KL1 and KL2 (the “Affected Employees”) were participants in a defined-contribution account defined in subsection 401(k) of the Internal Revenue Code (the “401(k) Profit Sharing Plan and Trust”). The plan administrator of the 401(k) Profit Sharing Plan and Trust is Klausner Trading USA Inc. (“KTU”), which is an affiliate of KL1 and KL2. 9. Pursuant to Federal law, the 401(k) Profit Sharing Plan and Trust must be wound down and the assets returned to the Affected Employees. However, for this to occur, an audit of the 401(k) Profit Sharing Plan and Trust by an accounting firm (the “Accountants”) must be completed first. Unfortunately, KTU has no assets with which it can pay for the Accountants. III. The Settlement 10. To allow the wind down of the 401(k) Profit Sharing Plan and Trust and the return of the assets to the Affected Employees, KL1 and KL2 have entered into the Settlement Agreement attached hereto (the “Settlement”). The Settlement provides that KL1 and KL2 will fund the approximately $30,000 necessary to pay for the services of the Accountants. The Settlement also provides KTU will not receive any distributions from the estates of KL1 and KL2 until the amounts paid by KL1 and KL2 are recouped. RELIEF REQUESTED 11. Pursuant to sections 105(a) and 363(b) of title 11 of the United States Code (the “Bankruptcy Code”), Rule 9019 of the Federal Rules of Bankruptcy Procedure, and Rule 9013-1 of the Local Rules of Bankruptcy Practice and Procedure of the United States (the “Local

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Rules”), both KL1 and KL2 seek entry of an order substantially in the form attached hereto as Exhibit A (the “Order”) and approving the proposed Settlement among KL1, KL2 and KTU attached as Exhibit 1 to the Order. 12. KL1 and KL2 believe that this Settlement is in the best interest of its estate and all creditors and should be approved. THE SETTLEMENT SHOULD BE APPROVED PURSUANT TO BANKRUPTCY RULE 9019 AND THE MARTIN FACTORS 13. Bankruptcy Rule 9019(a) provides, in pertinent part, that “[o]n motion by the trustee and after notice and a hearing, the court may approve a compromise or settlement.” Fed. R. Bankr. P. 9019(a). Bankruptcy Rule 9019 empowers bankruptcy courts to approve of settlements that are “fair and equitable” and in the best interest of a debtor’s estate. In re Energy Future Holdings Corp., 648 F. App’x 277, 281 (3d Cir. 2016) (citing In re Nutraquest, Inc., 434 F.3d 639, 644 (3d Cir. 2006)); Vaughn v. Drexel Burnham Lambert Grp., Inc. (In re Drexel Burnham Lambert Grp., Inc.), 134 B.R. 499, 505 (Bankr. S.D.N.Y. 1991) (finding that Bankruptcy Rule 9019 “empowers bankruptcy courts to authorize settlements if they are in the best interests of the estate”) (citation omitted). 14. To meet this standard, a settlement agreement need not be the best possible outcome, but must fall above the “lowest point in the range of reasonableness.” In re Capmark Fin. Grp. Inc., 438 B.R. 471, 475-76 (Bankr. D. Del. 2010); In re Sea Containers Ltd., No. 06-11156 (KJC), 2008 WL 4296562, at *5 (Bankr. D. Del. Sept. 19, 2008). In the Third Circuit, courts consider the Martin factors in determining whether a settlement falls above the lowest point in the range of reasonableness, which consist of: “(1) the probability of success in litigation; (2) the likely difficulties in collection; (3) the complexity of the litigation involved, and the expense, inconvenience and delay necessarily attending it; and (4) the paramount interest

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of the creditors.” Capmark, 438 B.R. at 476 (citing Myers v. Martin (In re Martin), 91 F.3d 389, 393 (3d Cir. 1996)). 15. The 401(k) Profit Sharing Plan and Trust must be wound down in accordance with Federal law. The Affected Employees, who are former employees of KL1 and KL2, must receive their distributions from the 401(k) Profit Sharing Plan and Trust. The only way that can be accomplished is by KL1 and KL2 agreeing to fund the audit of the 401(k) Profit Sharing Plan and Trust. 16. As part of the Settlement, KL1 and KL2 received confirmation from KTU that KTU will not receive any distributions from the estates of KL1 and KL2 until the amounts paid by KL1 and KL2 are recouped. 17. The Settlement avoids further delays and uncertainty and assures that 401(k) Profit Sharing Plan and Trust will be wound down and the Affected Employees will receive their shares of the assets of the 401(k) Profit Sharing Plan and Trust. As such, the Settlement eminently falls within the range of reasonableness, is in the best interest of creditors, and satisfies all of the applicable Rule 9019 or Martin factors. THE SETTLEMENT SHOULD BE AUTHORIZED UNDER BANKRUPTCY CODE SECTION 363(b) AS THE PRODUCT OF THE DEBTOR’S VALID EXERCISE OF SOUND BUSINESS JUDGMENT 18. Authorization of the Settlement is also justified as a valid exercise of KL1’s and KL2’s business judgment pursuant to section 363(b) of the Bankruptcy Code. Section 363(b)(1) of the Bankruptcy Code provides, in pertinent part, that “[t]he [debtor], after notice and a hearing, may use, sell, or lease, other than in the ordinary course of business, property of the estate.” 11 U.S.C. §§ 363(b). Under section 363(b), courts only require that a debtor “show that a sound business purpose justifies such actions.” Dai-Ichi Kangyo Bank, Ltd. v. Montgomery Ward Holding Corp. (In re Montgomery Ward Holding Corp.), 242 B.R. 147, 153 (D. Del. 1999)

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(“In determining whether to authorize the use, sale or lease of property of the estate under [section 363(b)], courts require the debtor to show that a sound business purpose justifies such actions . . . [under the] ‘business judgment test.’”) (citations omitted); In re Ionosphere Clubs, 98 B.R. 174, 175 (Bankr. S.D.N.Y. 1989) (noting section 363(b) provides “broad flexibility” to authorize a debtor to honor prepetition claims where supported by an appropriate business justification). 19. Once a debtor has articulated a valid business justification, there “is a presumption that in making a business decision the directors of a corporation acted on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the company.” Official Comm. of Subordinated Bondholders v. Integrated Res., Inc. (In re Integrated Res., Inc.), 147 B.R. 650, 656 (S.D.N.Y. 1992) (quoting Smith v. Van Gorkom, 488 A.2d 858, 872 (Del. 1985)). 20. KL1 and KL2 submit that the Settlement satisfies section 363(b) of the Bankruptcy Code. The Settlement was negotiated by KL1, KL2 and KTU in good faith and at arm’s length over the course of several weeks. As described above, KL1 and KL2 have determined in their sound business judgments and after consulting with their respective professionals that the proposed settlement is in the best interest of their estates. REQUEST FOR WAIVER OF STAY 21. To implement the Settlement, KL1 and KL2 seek a waiver of any stay of the effectiveness of the orders approving this Motion. Pursuant to Bankruptcy Rule 6004(h), any “order authorizing the use, sale, or lease of property other than cash collateral is stayed until the expiration of 14 days after entry of the order, unless the court orders otherwise.” KL1 and KL2 submit that ample cause exists to justify a waiver of the 14-day stay imposed by Bankruptcy

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Rule 6004(h) to allow the Settlement take effect immediately. Accordingly, KL1 and KL2 respectfully request a waiver Bankruptcy Rule 6004(h) to the extent it is deemed applicable. NOTICE 22. Notice of the Motion has been given via first class mail and/or hand delivery, as applicable, to (a) the UST; (b) counsels to KL1’s and KL2’s prepetition lenders; (c) counsel to the KL1 and KL2 Committees; and (d) all parties who have requested notice in these Chapter 11 Cases pursuant to Local Rule 2002-1(b). KL1 and KL2 respectfully submit that no other or further notice of this Motion is required under the circumstances. CONCLUSION For the foregoing reasons, KL1 and KL2 respectfully request that this Court enter an order substantially in the form of the Order attached hereto as Exhibit A approving the Settlement, attached as Exhibit 1 to the Order, and granting such other and further relief in favor of KL1 and KL2 that the Court may deem just and proper. [Remainder of Page Intentionally Left Blank]

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Dated: January 29, 2021 Wilmington, Delaware MORRIS, NICHOLS, ARSHT & TUNNELL LLP /s/ Daniel B. Butz_______ Robert J. Dehney (No. 3578) Eric D. Schwartz (No. 3134) Daniel B. Butz (Bar No. 4227) Nader A. Amer (Bar No. 6635) 1201 North Market Street, 16th Floor P.O. Box 1347 Wilmington, Delaware 19899-1347 Telephone: (302) 658-9200 Facsimile: (302) 658-3989 Email: dbutz@mnat.com namer@mnat.com - and – WESTERMAN BALL EDERER MILLER ZUCKER & SHARFSTEIN, LLP Thomas A. Draghi (admitted pro hac vice) Alison M. Ladd (admitted pro hac vice) 1201 RXR Plaza Uniondale, NY 11556 Tel: 516-622-9200 tdraghi@westermanllp.com aladd@westermanllp.com Counsel to Debtor Klausner Lumber One, LLC and Debtor Klausner Lumber Two, LLC

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