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Full title: Objection Carolina Sawmills, L.P's Objection to the Joint Motion of Debtors and Official Committee of Unsecured Creditors for Entry of an Order Approving the Stipulation With Mayr-Melnhof Holz Holding AG (related document(s)869) Filed by Carolina Sawmills, LP (Attachments: # 1 Exhibit A # 2 Exhibit B # 3 Exhibit C # 4 Exhibit D) (Hehn, Curtis) (Entered: 08/04/2021)

Document posted on Aug 3, 2021 in the bankruptcy, 14 pages and 0 tables.

Bankrupt11 Summary (Automatically Generated)

Incurring fees with respect to unsecured claims given the fact that KL2’s position that the settlement with Halifax County “recovered” the real estate stripped of Carolina Sawmills’ Deed of Trust, a position not supported by logic, the facts, or the law, benefits only the professionals not KL-2’s estate and will force Carolina Sawmills to object to the fees unless and until the Carolina Sawmills’ secured position is confirmed or rejected.From the Petition Date, through the start of November, 2020, there was significant disagreement among KL2, the KL2 Committee, Carolina Sawmills, and Halifax County, North Carolina (the “County”) over a variety of issues, including, but not limited to: (i) the secured status of Carolina Sawmills’ liens on substantially all of the assets of KL2; (ii) debtor-in-possession financing (“DIP Financing”), including the alleged subordination of Carolina Sawmills’ lien rights to such DIP Financing; and (iii) the approval of a proposed settlement agreement between KL2 and the County that would allow for the sale of substantially all of KL2’s assets (the “Sale”) free and clear of Carolina Sawmill’s lien rights. “Carved Out Amounts” shall mean the proceeds of the sale of the Sawmill sufficient to allow for the payment in full of the following, free and clear of the CSLP Liens, if any: (a) the amount due to the County from the proceeds of sale under the Amended County Settlement, which includes (i) $4.6 million plus (ii) real and personal property taxes owed to the County plus (iii) reimbursement of previously incurred carrying costs or expenses plus (iv) ongoing reimbursement of expenses, as set forth therein; (b) the outstanding balance of any DIP Financing; (c) any valid liens or allowed secured claims senior to the DIP Financing, including those relating to personal property taxes, real property taxes and mechanics’ liens; (d) all allowed administrative expenses, include the allowed fees and expenses of all Bankruptcy Court-approved retained professionals in the case; (e) all allowed priority claims against the Debtor; (f) any U.S. Trustee fees; and (g) allowed post-effective date fees and expenses incurred in connection with the implementation of a confirmed chapter 11 plan in an amount not to exceed $225,000.Pursuant to the Joint Motion, the Proponents seek the approval of a stipulation (the “MMH Stipulation”) which, with respect to KL2, would provide MMH with (i) an “Unconditional Allowed KL2 Claim” in the amount of $2,595,321.65, and (ii) a “Conditional Allowed KL2 Claim” in the amount of $200,000.The Bid Procedures and Sale Motion did not disclose to either Carolina Sawmills or the Court that MMH had loaned $4,990,643.30 of prepetition loans to KL1 and KL2.

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IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE ____________________________________ ) Chapter 11 In re: ) ) Case No. 20-11518 (KBO) Klausner Lumber Two LLC, ) ) Response Deadline: ) August 4, 2021 at 4:00 p.m. Debtor. ) ) Hearing Date: ) August 11, 2021 at 10:00 a.m. ) ____________________________________ ) Re Docket No. 869 CAROLINA SAWMILLS, L.P.’S OBJECTION TO THE JOINT MOTION OF DEBTORS AND OFFICIAL COMMITTEES OF UNSECURED CREDITORS FOR ENTRY OF AN ORDER APPROVING THE STIPULATION WITH MAYR-MELNHOF HOLZ HOLDING AG [DOCKET NO. 869] Carolina Sawmills, L.P. (“Carolina Sawmills”) objects (the “Objection”) to the Joint Motion for three reasons.1 First, MMH was approved as KL2’s “Stalking Horse Purchaser” when the Court granted KL2’s Bid Procedures and Sale Motion. The approval was over Carolina Sawmills’ Limited Objection to the proposed Break-Up Fee in the amount of $600,000, and Expense Reimbursement of up to $300,000. The Bid Procedures and Sale Motion did not disclose that MMH had loaned $4,990,643.30 of prepetition loans to KL1 and KL2 in connection with its actions to acquire their stock or assets. Had such disclosure been made, Carolina Sawmills does not believe that the Court would have approved the Break-Up Fee and Expense Reimbursement. Since MMH appears to have obtained a recovery of up to $900,000 as the result of an improperly allowed administrative expense for which there was not full disclosure to the Court, Carolina Sawmills objects to the MMH Stipulation. 1 Capitalized terms not otherwise defined herein shall have the meanings ascribed to such terms below or in the Joint Motion.

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Second, at this point in KL2’s case, it’s impossible for anyone to know whether the approval of the proposed MMH Stipulation – or any settlement – will be in the best interest of the KL2 estate, and further the paramount interest of creditors. This is so because nobody knows if the “ownership” of the remaining $57,671,668 of “Net Proceeds” from the Sale belong to KL2’s estate, or Carolina Sawmills. If the remaining “Net Proceeds” are completely encumbered by Carolina Sawmill’s liens, then there will be no money for general unsecured creditors, and the proposed MMH Stipulation will literally provide no benefit to KL2’s estate and will have been a complete waste of time and money and not in the best interest of the creditors. Moreover, KL2 is under a fiduciary duty to maximize the value of its estate. KL2 cannot fulfill this duty, while litigating unsecured claim objections, if it does not know whether the “Net Proceeds” will belong to its estate or Carolina Sawmills. KL2 has admitted it did not own the real estate securing Carolina Sawmill’s $75,000,000 loan to KL2 when it filed its Bankruptcy Petition on June 10, 2020. KL2 asserted it only owned “Estate Recovery Rights”. Now, KL2 claims that by the settlement with Halifax County it “recovered” the real estate stripped of Carolina Sawmills’ Deed of Trust, a position not supported by logic, the facts, or the law. To date, $16,752,217 have been spent on professional fees in KL2’s case, which includes 1,072.5 hours of professional time for work on unsecured claims analysis, management, and objections. While Carolina Sawmills agreed to the “Carved Out Amounts” provision of the Stipulation to provide for the financing of the KL2 case, it did not sign off on a “blank check” for financing the litigation of unsecured claims objections if they do not provide an actual benefit to KL2’s estate. Incurring fees with respect to unsecured claims given the fact that KL2’s position that the

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settlement with Halifax County “recovered” the real estate stripped of Carolina Sawmills’ Deed of Trust, a position not supported by logic, the facts, or the law, benefits only the professionals not KL-2’s estate and will force Carolina Sawmills to object to the fees unless and until the Carolina Sawmills’ secured position is confirmed or rejected. Finally, even though nothing in the MMH Stipulation explicitly prohibits creditors like Carolina Sawmills from objecting to the MMH Claim in the future, Carolina Sawmills reserves its right to do so, especially in light of the payment of the Break-Up Fee and Expense Reimbursement. In further support of this Objection Carolina Sawmills respectfully states as follows: FACTS IN ADDITION TO THOSE SET FORTH IN THE JOINT MOTION KL2’s Bankruptcy Filing and Sale 1. On June 10, 2020 (the “Petition Date”), KL2 filed for bankruptcy under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”). 2. From the Petition Date, through the start of November, 2020, there was significant disagreement among KL2, the KL2 Committee, Carolina Sawmills, and Halifax County, North Carolina (the “County”) over a variety of issues, including, but not limited to: (i) the secured status of Carolina Sawmills’ liens on substantially all of the assets of KL2; (ii) debtor-in-possession financing (“DIP Financing”), including the alleged subordination of Carolina Sawmills’ lien rights to such DIP Financing; and (iii) the approval of a proposed settlement agreement between KL2 and the County that would allow for the sale of substantially all of KL2’s assets (the “Sale”) free and clear of Carolina Sawmill’s lien rights.

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3. All these issues were either resolved or deferred, in whole, or in part, on November 9, 2020, when the Court: ● entered that certain Order Approving Stipulation Regarding Motion to Approve County Settlement [Docket No. 377] (the “Stipulation Order”), which approved, as an Order of the Court, the terms of the Stipulation Regarding Motion to Approve County Settlement [Docket No. 377-1] (the “Stipulation”); and ● entered that certain Order Approving Motion of the Debtor 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 Revised Settlement With the County [Docket No. 380] (the “County Settlement Order”). Collectively, the terms of the Stipulation and County Settlement Order, (i) allowed the Sale to proceed, while (ii) preserving the rights of Carolina Sawmills and the KL2 Committee to resolve – consensually, or through litigation – the parties’ respective rights to the “Net Sale Proceeds” from the Sale; and (iii) provided a mechanism for funding the balance of KL2’s bankruptcy case. 4. This funding mechanism was contained in paragraph 3 of the Stipulation, which states: Carved Out Amounts. “Carved Out Amounts” shall mean the proceeds of the sale of the Sawmill sufficient to allow for the payment in full of the following, free and clear of the CSLP Liens, if any: (a) the amount due to the County from the proceeds of sale under the Amended County Settlement, which includes (i) $4.6 million plus (ii) real and personal property taxes owed to the County plus (iii) reimbursement of previously incurred carrying costs or expenses plus (iv) ongoing reimbursement of expenses, as set forth therein; (b) the outstanding balance of any DIP Financing; (c) any valid liens or allowed secured claims senior to the DIP Financing, including those relating to personal property taxes, real property taxes and mechanics’ liens; (d) all allowed administrative expenses, include the allowed fees and expenses of all Bankruptcy Court-approved retained professionals in the case; (e) all allowed priority claims against the Debtor; (f) any U.S. Trustee fees; and (g) allowed post-effective date fees and expenses incurred in connection with the implementation of a confirmed chapter 11 plan in an amount not to exceed $225,000. For purposes of subparagraph (a), the initial reimbursement of the County’s expenses is contemplated under the DIP Financing and thus will occur upon Bankruptcy Court approval of the Amended County Settlement. The ongoing expense reimbursement contemplated under the Amended County Settlement will occur in accordance with the budget approved

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by the DIP Financing Order. The term “Net Proceeds” means the total proceeds from the sale of the Assets less the Carved Out Amounts plus any other Debtor assets remaining after the sale of the Assets that would have been subject to the CSLP Liens as of the Petition Date. Stipulation, pg. 8, ¶3 (emphasis added on subsection (d)). 5. After the entry of the Stipulation Order and the County Settlement Order, the Sale process proceeded. 6. On November 9, 2020, the KL2 Debtor filed a combined bid procedures and sale motion [Docket No. 381] (the “”Bid Procedures and Sale Motion”). Part of the relief thereunder was to have MMH approved as the “Stalking Horse Purchaser” and receive both a “Break-Up Fee” in the amount of $400,000, and “Expense Reimbursement” in the amount of $300,000, if it was not the successful bidder in the sale of KL2’s assets. 7. Nowhere in the Bid Procedures and Sale Motion was it disclosed that MMH had provided $4,990,643.30 worth of prepetition loans to KL1 and KL2 to facilitate its acquisition of their assets. 8. On November 17, 2020, Carolina Sawmills filed a limited objection [Docket No. 409] (the “Limited Objection”) to certain aspects of the Bid Procedures and Sale Motion. Carolina Sawmills opposed the proposed Break-Up Fee and Expense Reimbursement (the “Bidding Protections”) upon the grounds that there did not appear to be a factual basis for the relief, especially since MMH had been heavily involved in the KL1 sale process, and wound-up as the “Back-Up” bidder in that case. Accordingly, Carolina Sawmills did not believe that the Bidding Protections were necessary to induce MMH to be the stalking horse purchaser in the KL2 case. Carolina Sawmills’ Limited Objection was overruled on this point.

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9. On December 17, 2020, the Court entered that certain Order (I) Approving APA, (II) Authorizing the Sale of Certain of the Debtor’s Assets Free and Clear of Certain Encumbrances, (III) Authorizing the Assumption and Assignment of Certain Executory Contracts and Unexpired Leases, and (IV) Granting Related Relief [Docket No. 507] (the “Sale Order”). 10. Pursuant to the Sale Order, KL2 was authorized to pay MMH the $600,000 Break-Up Fee, and an Expense Reimbursement, without the need for further order of the Court. Sale Order, pg. 19, ¶ 15. 11. KL2 closed upon the sale of substantially all its assets for $83,400,000 (the “Sale Proceeds”) on January 8, 2021. See Notice of Closing of Sale of Substantially all of the Debtor’s Assets [Docket No. 553]. Claims Filed Against KL2’s Estate 12. The Debtor’s Claim Pool. On December 15, 2020, the Court entered an order [Docket No. 501] (the “Bar Date Order”) establishing January 29, 2021 as the deadline by which general unsecured creditors of the Debtor must file their proofs of claim against the Debtor’s estate. Attached as Exhibit A is a copy of the most current Register of Claims [Docket No. 779] (the “Claim Registry”) filed by Donlin, Recano & Company, Inc. (the “Claims Agent”). As set forth therein, a total of $127,631,519.60 worth of unsecured claims were filed against the Debtor by 80 unsecured creditors. Claims Registry, pg. 10. 13. On January 29, 2021, MMH filed Claim No. ECN-47. A copy of MMH’s Claim is attached hereto as Exhibit B. Therein MMH disclosed that it had unsecured claim in the total amount of $4,990,643.30 against KL1 and KL2. The Rider attached to Claim ECN-47 further disclosed that MMH had loaned KL1 and KL2 such funds in connection with MMH’s

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potential acquisition of the Debtors stock or assets. This is the first disclosure that Carolina Sawmills is aware of regarding MMH’s prepetition involvement in trying to acquire the assets of the Debtors in the KL2 cases. KL2’s Remaining Sale Proceeds 14. On July 21, 2021, the Debtor filed the Monthly Operating Report [Docket No. 861] (the “June MOR”) for the reporting period ending June 30, 2021. A copy of the June MOR is attached as Exhibit C. Through June 30, 2021, the Debtor has: ● spent $16,752,217 on professional fees; and ● only has remaining Sale Proceeds in the amount of $57,671,668. June MOR, pg. 2, Part 1: Cash Receipts and Disbursements; pg. 3, Part 5: Professional Fees and Expenses. 15. Professional Time Spent on Claims Analysis and Objections. Attached as Exhibit D is a spreadsheet that summarizes all the time billed by professionals to “Claims,” “Claims Administration,” “Claims Objection and Administration,” and “Claims Admin & Objections” based upon the fee applications filed to date in this case. As set forth on Exhibit G, 1,072.5 hours of professional time have been spent on such claims works, for a total cost to the Debtor’s estate of $656,986.50. 16. To date, Carolina Sawmills has not filed a single objection to the fees of any professional in the Debtor’s case. The Proposed MMH Settlement 17. On July 21, 2021, the Proponents filed their Joint Motion of Debtors and

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Official Committees of Unsecured Creditors for Entry of an Order Approving the Stipulation With Mayr-Melnhof Holz Holding AG [Docket No. 869] (the “Joint Motion”). 18. Pursuant to the Joint Motion, the Proponents seek the approval of a stipulation (the “MMH Stipulation”) which, with respect to KL2, would provide MMH with (i) an “Unconditional Allowed KL2 Claim” in the amount of $2,595,321.65, and (ii) a “Conditional Allowed KL2 Claim” in the amount of $200,000. 19. According to the Proponents, the MMH Stipulation will benefit KL1 and KL2 by (i) fixing the amount of MMH’s Claim against KL1 and KL2, (ii) eliminating the joint-and-several liability of KL1 and KL2, and (iii) with respect to KL2, reducing MMH’s claim against the KL2 estate by as much as approximately $2.1 million. Joint Motion, ¶ 32. OBJECTION I. MMH Appears to Be Obtaining a Double-Dip Against KL2’s Estate Because it was Paid a Break-Up Fee and Expense Reimbursement for Prepetition Diligence That it had Already Conducted as Part of its Efforts to Acquire KL2’s Assets 20. As set forth above, MMH was designated as KL2’s Stalking Horse Purchaser and was authorized to be paid a Break-Up Fee of $600,000, and an Expense Reimbursement of up to $300,000. 21. The Bid Procedures and Sale Motion did not disclose that KL2 was jointly and severally liable on $4,990,643.30 worth of prepetition loans that MMH provided to the Debtors as part of its efforts to acquire the assets of the Debtors. Had this fact been disclosed, Carolina Sawmills believes that the Court would not have approved the Break-Up Fee and Expense Reimbursement, and KL2’s estate could have been saved up to $900,000.

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22. Nothing in the Joint Motion, or the supporting declarations filed by Nat Wasserstein, Richard Bernard, Daniel T. Motulsky, or Eric M. Sutty address this point. 23. Carolina Sawmills objects to the approval of the MMH Stipulation upon the grounds that MMH has already obtained a recovery of up $900,000 as the result of an improperly allowed administrative expense for which there was not full disclosure to the Court, and that this issue must be addressed as part of any settlement over the amount of MMH’s Claim against the KL2 estate. II. Approval of the Stipulation is Premature 24. Additionally, it is impossible at this time in KL2’s case for anyone to know whether the approval of the MMH Stipulation is in the best interest of KL2’s estate and creditors because there is an ongoing dispute over the ownership of “Net Proceeds” from the sale of KL2’s assets. If the remaining “Net Proceeds” are completely encumbered by Carolina Sawmill’s liens, then there will be no money for general unsecured creditors, and the MMH Stipulation will literally provide no benefit to KL2’s estate and creditors and will have been a waste of time and money by all the involved parties. 25. This problem of determining whether a proposed settlement will benefit KL2’s estate and creditors will remain in this case until the issue of the “ownership” of the “Net Proceeds” has been resolved, either consensually by way of settlement between Carolina Sawmills and the KL2 Committee, or by adjudication by the Court. 26. Already $656,986.50 in professional fees have been incurred for the filing and prosecution of objections to unsecured claims even though it is clear that if Carolina Sawmills claim is secured the unsecured creditors will receive nothing. Although, during the

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course of this litigation, this Court has heard tangential conclusory statements, made by the KL2 that the exercise of the County Reverter terminated CSLP’s lien rights and that together with the KL2’s subsequent settlement agreement with the County, these events had the miraculous effect of simply washing away CSLP’s lien rights and thereby transferring over $75 million of property from CSLP to KL2, KL2 has failed to meets its burden of providing any legal analysis or precedent to support this incredible conclusion. KL2’s position fails to recognize that any legal, equitable or fictional “Estate Recovery Rights” or other claims that KL-2 asserts to the sawmill gives rise to equal and corresponding “recovery rights” and claims of CSLP to its own “estate”. Thus, any property interest that KL2 claims in the sawmill property is and will remain subject the claims and rights of CSLP. KL2’s position also fails to recognize that, at the time of the exercise of the Reverter by the County, KL2 “estate” was nothing more than a right to free and clear ownership of the sawmill property after it paid off the CSLP lien. In effect, KL2 so-called “estate” was worthless. Thus, it falls to KL2 to explain how it could “lose” an estate subject to a $75 million lien and then “recover” the same estate free and clear of that lien. In effect, the KL-2 owned and lost “A” and now claims the right to recover and own “A + $75 million”. Likewise, as the property purportedly received by the County upon the exercise of the Reverter, was, according to KL2, subject to KL2’s “recovery” rights, it was equally subject to the corresponding “recovery rights” of CSLP. Apparently, KL2 disagrees and contends that the KL2 had “recovery rights” against the County while CSLP did not. Yet here again, KL2 which has the burden in this matter, has failed to offer any legal explanation, precedent, or basis for its assertion. KL2 has not and cannot explain logically, factually, and legally how the County, after purportedly receiving the sawmill property subject to CSLP’s claims and “recovery rights” could

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then transfer that property back to KL2 free and clear of those claims and rights. Until the KL2 can prove a legal justification for its bare conclusory statements, the Court must assume that the CSLP liens are valid. 27. Nothing in the Joint Motion, or the supporting declarations filed by Nat Wasserstein, Richard Bernard, Daniel T. Motulsky, or Eric M. Sutty address this point. 28. While Carolina Sawmills agreed to the “Carved Out Amounts” provision of the Stipulation to provide for the financing of KL2’s case, it did not sign off on a “blank check” for financing the litigation of claims objections that do not provide an actual benefit to KL2’s estate. Likewise, KL2 is under a fiduciary duty to maximize the value of the Debtor’s estate. KL2 cannot fulfill this fiduciary duty by litigating/settling unsecured claims and objections to them, without first determining whether the “Net Proceeds” belong to the estate or Carolina Sawmills, particularly where, as here, there appears to be no legal support for KL-2’s position. 29. There is simply no justification for the professionals to have already billed for 1,072.5 hours of time spent on claims analysis and objections, for a total cost of $656,986.50 that are more probable than not irrelevant. 30. Finally, to date, Carolina Sawmills has not objected to the fees of any professional in the KL2 case. However, now Carolina Sawmills will have no choice but to object to the fees relating to unsecured claims because the time expended provides no benefit to

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the KL2’s estate if Carolina Sawmills’ claim is secured as logic, the facts, and the law dictates, and it is entitled to the “Net Proceeds.”2 31. For all these reasons, Carolina Sawmills respectfully requests that the Court deny the Joint Motion, or, in the alternative, delay ruling upon approval of the MMH Stipulation until after the issue of the “ownership” of the “Net Proceeds” has been resolved. At that point in time, the Court, and all KL2’s creditors, will know if the approval of the MMH Stipulation is in the best interest of KL2’s estate, and furthers the paramount interest of KL2’s creditors. III. Creditors Should Not be Precluded From Objecting to MMH’s Claim 32. For the sake of clarity, Carolina Sawmills notes that there is no specific provision in the MMH Stipulation that binds creditors to its terms, or purports to cut-off the rights of creditors to object to MMH’s Claim in the future if they have grounds to do so. To the extent that any party disagrees with this interpretation of the MMH Stipulation, Carolina Sawmills objects. 2 Carolina Sawmills reserves its right to object to the professional fees incurred in connection with any claim litigation, including the Joint Motion, if such time does not provide an actual benefit to the Debtor’s estate.

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CONCLUSION MMH was approved as KL-2’s “Stalking Horse Purchaser” over Carolina Sawmills’ Limited Objection to the proposed Break-Up Fee in the amount of $600,000, and Expense Reimbursement of up to $300,000. The Bid Procedures and Sale Motion did not disclose to either Carolina Sawmills or the Court that MMH had loaned $4,990,643.30 of prepetition loans to KL1 and KL2. With that disclosure, it is doubtful that the Court would have approved the Break-Up Fee and Expense Reimbursement of $900,000. The actions of KL2 and the Unsecured Creditors’ Committees in pursuing resolutions of unsecured claims while ignoring the “Elephant in the Room” of Carolina Sawmills’ secured position has not and cannot benefit the estates unless and until the Carolina Sawmills’ secured position is confirmed or rejected. KL2’s claim that by successfully converting its “Estate Recovery Right” into ownership of the real estate free and clear of Carolina’s deed of trust by the settlement with Halifax County is not supported by logic, the facts, or the law. And it is very doubtful that KL2 will prevail on its claim. Unless and until it does, incurring fees to resolve unsecured claims is not in the best interest of KL2’s estate and appears to be a violation of fiduciary duties owed to Carolina Sawmills. Therefore, approving the stipulation is premature. Finally, the proposed MMH stipulation cannot bind Carolina Sawmills and/or cut off its right to object to MMH’s claim in the future.

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WHEREFORE, for all the foregoing reasons, Carolina Sawmills respectfully requests that the Court deny the Joint Motion, or, in the alternative, delay the adjudication of the MMH Stipulation until after the “ownership” of the “Net Proceeds” has been resolved. Date: August 4, 2021 LAW OFFICE OF CURTIS A. HEHN /s/ Curtis A. Hehn Curtis A. Hehn (Bar No. 4264) 1007 N. Orange Street, 4th Floor Wilmington, DE 19801 Telephone: (302) 757-3491 Email: curtishehn@comcast.net and EvansStarrett PLC Attn: K. Stewart Evans, Jr., Esq. 11218 Popes Head Road Fairfax, VA 22030 Telephone: (703) 691-8131 Email: stewart@evansstarrett.com James B. Moloney, Esq. 204 Coral Street Beach Haven, NJ 08008 Telephone: (202) 378-8342 Email: moloneywbc@cs.com Attorneys for Carolina Sawmills, L.P.

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