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Full title: Joint Reply in Support of Joint Motion of the Debtors and Official Committees of Unsecured Creditors Pursuant to Bankruptcy Rule 9019, Local Rule 9013-1 and 11 U.S.C. Sections 105(A) and (363(B), for Entry of an Order Authorizing and Approving that Certain Settlement Agreement By and Between Klausner Lumber One LLC and Klausner Lumber Two LLC (related document(s)868, 905) Filed by Klausner Lumber Two LLC, Official Committee of Unsecured Creditors (Attachments: # 1 Exhibit A) (Butz, Daniel) (Entered: 08/06/2021)

Document posted on Aug 5, 2021 in the bankruptcy, 7 pages and 0 tables.

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(“KL2”), the debtor and debtor-in-possession in the above-captioned chapter 11 case (the “KL2 Chapter 11 Case”), and the Official Committee of Unsecured Creditors in the KL2 Chapter 11 Case (the “KL2 Committee”, and together with KL2, the “Proponents”), by and through their undersigned counsel, hereby submit this joint reply in support of the Joint Motion of the Debtors and Official Committees of Unsecured Creditors 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 and Approving that Certain Settlement Agreement by and Between Klausner Lumber One LLC and Klausner LumberTwo LLC [Docket No. 868] (the “Settlement Motion”)2 in response to Carolina Sawmills, L.P.’s Objection to the Joint Motion of the Debtors and Official Committee of Unsecured Creditors 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 and Approving 1 The last four digits of the federal EIN of Klausner Lumber905] (the “Objection”) and the Proponents rely on the Declaration of Adeola Akinrinade in Support of the Joint Reply in Support of Motion of the Debtors and the Official Committee of Unsecured Creditors Pursuant to Bankruptcy Rule 9019, Local Rule 9013-2 and 11 U.S.C. §§ 105(a) and 363(b) for Entry of an Order Authorizing and Approving that Certain Settlement Agreement by and between Klausner Lumber One LLC and Klausner LumberHowever, other than the claim asserted by MMH against KL2, the Claim is not duplicative of any other claims that have been filed against KL2, including the Klausner entities listed in paragraph 19 of the Objection.If Carolina Sawmills is wrong (as KL2 and the KL2 Committee contend), and Carolina Sawmills does not have a lien on the sale proceeds, then KL2’s stakeholders—including Carolina Sawmills—will benefit from the approval of the Settlement Agreement.

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IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re: Chapter 11 KLAUSNER LUMBER TWO LLC, Case No. 20-11518 (KBO) Debtor.1 Hearing Date: August 11, 2021 at 10:00 a.m. RE: D.I. 868 and 905 JOINT REPLY IN SUPPORT OF JOINT MOTION OF THE DEBTORS AND OFFICIAL COMMITTEES OF UNSECURED CREDITORS 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 AND APPROVING THAT CERTAIN SETTLEMENT AGREEMENT BY AND BETWEEN KLAUSNER LUMBER ONE LLC AND KLAUSNER LUMBER TWO LLC Klausner Lumber Two LLC (“KL2”), the debtor and debtor-in-possession in the above-captioned chapter 11 case (the “KL2 Chapter 11 Case”), and the Official Committee of Unsecured Creditors in the KL2 Chapter 11 Case (the “KL2 Committee”, and together with KL2, the “Proponents”), by and through their undersigned counsel, hereby submit this joint reply in support of the Joint Motion of the Debtors and Official Committees of Unsecured Creditors 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 and Approving that Certain Settlement Agreement by and Between Klausner Lumber One LLC and Klausner Lumber Two LLC [Docket No. 868] (the “Settlement Motion”)2 in response to Carolina Sawmills, L.P.’s Objection to the Joint Motion of the Debtors and Official Committee of Unsecured Creditors 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 and Approving 1 The last four digits of the federal EIN of Klausner Lumber Two LLC is 4897, and its mailing address is Klausner Lumber Two LLC, P.O. Box C, Redding Ridge, CT 06876. 2 Capitalized terms used but not otherwise defined herein have the meanings ascribed to them in the Settlement Motion.

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that Certain Settlement Agreement by and Between Kalusner Lumber One LLC and Klausner Lumber Two LLC [Docket No. 868] [Docket No. 905] (the “Objection”) and the Proponents rely on the Declaration of Adeola Akinrinade in Support of the Joint Reply in Support of Motion of the Debtors and the Official Committee of Unsecured Creditors Pursuant to Bankruptcy Rule 9019, Local Rule 9013-2 and 11 U.S.C. §§ 105(a) and 363(b) for Entry of an Order Authorizing and Approving that Certain Settlement Agreement by and between Klausner Lumber One LLC and Klausner Lumber Two LLC (the “Akinrinade Declaration”) attached hereto as Exhibit A and, in support hereof, the Proponents respectfully state as follows: Reply 1. Prior to the KL1 Petition Date, KL2 received approximately $12.8 million from KL1 in the form of prepetition advances, loans, and other vendor payments. As a result of the Settlement Agreement, the Claim is being reduced to approximately $8.2 million. This settlement is the product of good-faith, arm’s-length negotiations, including multiple negotiation sessions between the parties. The settlement proposed through the Settlement Motion is reasonable and satisfies the applicable standards under Bankruptcy Rule 9019 and sections 105 and 363 of the Bankruptcy Code. 2. The only response that has been filed is from Carolina Sawmills, L.P. (“Carolina Sawmills”), and it starts with the proposition that everything left to be done in this case is about Carolina Sawmills and no one and nothing else, and then vaguely and without substance provides superficial criticism of the reasonableness of the settlement with a primarily focus on issues inapplicable to the requested relief. The only valid concern raised by Carolina Sawmills—that KL2 should not make multiple distributions on account of the same underlying charges—was identified by KL2 at the outset and thoroughly examined by KL2, its professionals, and the KL2 2

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Committee prior to entry into the Settlement Agreement. As discussed in the Motulsky Declaration and the Akinrinade Declaration, KL2’s Independent Director requested that the KL2 Committee conduct a forensic analysis regarding the Claim to ensure there was no duplication between the Claim and any other claim asserted against KL2. In sum, the substantive concern raised by Carolina Sawmills was considered and addressed. 3. Indeed, the Settlement Agreement is contingent on the approval of the settlement agreement between KL1, KL2, and Mayr-Melnhof Holz Holding AG (“MMH”) precisely because there was duplication between the claims asserted against KL2 by MMH and KL1. See Settlement Agreement ¶ 7; Akinrinade Decl. ¶ 8. However, other than the claim asserted by MMH against KL2, the Claim is not duplicative of any other claims that have been filed against KL2, including the Klausner entities listed in paragraph 19 of the Objection. 4. As set forth in the Settlement Motion and the Motulsky Declaration, the Settlement Agreement was the result of a hard-fought negotiation, led by two Independent Directors who were well advised as to the strengths and weaknesses of the Claim, including the potential defenses that KL2 could assert. To dispel any uncertainty regarding the proposed Settlement Agreement, set forth below is a summary of the proposed Claim reduction: $12,779,771.31 Initial Asserted Claim - $2,040,587.25 Reduction on Account of MMH Claim Duplication -$100,000 Further Reduction Agreed as Part of MMH Settlement Agreement -$45,925.73 Reduction on Account of KL1 Receivable Owed to KL2 -$2,383,483.12 Reduction Negotiated By KL1 and KL2 to Account for KL2’s Potential Defenses = $8,209,775.21 Final Proposed Settlement Amount 3

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5. The remaining issues raised by Carolina Sawmills have no bearing on the Settlement Agreement. Any allegation that the Debtor somehow breached any covenants in its loan documents prior to the KL2 Petition Date, see, e.g., Obj. at ¶ 32, does not change the reasonableness of the settlement, or whether KL1 could assert the Claim in the first instance. Nor does the Settlement Agreement need to resolve or address any fiduciary duty claims that Carolina Sawmills may have against Leopold Stephan. See, e.g., Obj. at ¶ 33. Given the lack of duplication of the Claim with any other Klausner entity claims, the “propriety of the Klausner Claims” and whether they were filed to “leverage the KL2 plan process” is simply inapplicable. See Obj. at p. 2. 6. In sum, Carolina Sawmills’ Objection appears to hinge not on the terms of the settlement, but on its contention that the Settlement Motion is premature because it disputes KL2’s ownership free and clear of the proceeds of the sale of KL2’s assets. Carolina Sawmills’ position on this issue is contradictory, however, given that it has filed its own objections to other unsecured claims in the KL2 Chapter 11 Case. [Docket No. 829]. Carolina Sawmills cannot be heard to complain about expenses incurred in resolving unsecured claims objections, and then turn around and file its own objection. Moreover, Carolina Sawmills’ position, if taken at face value, would result in the complete shutdown of the administration of this case until its claim to ownership of the Debtor’s sale proceeds is resolved. There is no basis for such heavy-handed relief, and even Carolina Sawmills has not requested it. If the settlement is appropriate, then the Court can and should approve it now. 7. But putting that aside, it should be sufficient for present purposes to state simply that Carolina Sawmills’ Objection is inapposite. The issue before the Court is whether the Debtor’s proposed settlement falls within the lowest range of reasonableness and are valid exercises of the 4

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Debtor’s business judgment. In re Capmark Fin. Grp. Inc., 438 B.R. 471, 475-76 (Bankr. D. Del. 2010); Dai-Ichi Kangyo Bank, Ltd. v. Montgomery Ward Holding Corp. (In re Montgomery Ward Holding Corp.), 242 B.R. 147, 153 (D. Del. 1999). As set forth in the Settlement Motion and this Reply, the Settlement Agreement should be approved. Carolina Sawmills is not the only creditor in this case and should not be permitted to hold up resolution of a favorable and heavily-negotiated settlement based on concerns regarding the expenses incurred in the administration of the estate.3 8. Carolina Sawmills further objects to the provision of the proposed settlement that would bind creditors to the terms of the settlement. Carolina Sawmills asserts that this provision would interfere with its ability to prosecute its own objection to the Claim. Again, Carolina Sawmills’ position here is contradictory. If Carolina Sawmills is ultimately correct that it has a lien on KL2’s sale proceeds, then it will have no reason to prosecute its own objection to the Claim. If Carolina Sawmills is wrong (as KL2 and the KL2 Committee contend), and Carolina Sawmills does not have a lien on the sale proceeds, then KL2’s stakeholders—including Carolina Sawmills—will benefit from the approval of the Settlement Agreement. Thus, in either case, Carolina Sawmills will have no basis to continue to assert its objection to the Claim. In any event, if this Court approves the Settlement Motion, Carolina Sawmills will be bound by this Court’s determination. See In re Medomak Canning, 922 F.2d 895 (1st Cir. 1990) (“A trustee in bankruptcy is a fiduciary representing the estate and creditors. . . . In order efficiently to administer the estate, a trustee’s court-approved settlement must have finality, and settling parties must be assured that those the trustee represents will not relitigate settled claims. Such a result is implicitly recognized 3 Carolina Sawmills’ concerns about administrative expenses in the Objection are also ironic since, by objecting to the Settlement Motion, Carolina Sawmills has ensured that there will need to be a contested hearing on this motion, which of course will require the Debtor to incur additional expenses in preparation. 5

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in Bankruptcy Rule 9019, which requires notice to interested parties prior to approval of such a settlement.”); Morris v. Zimmer (In re Zimmer), 623 B.R. 151 (Bankr. W.D. Pa. 2020). 9. For the foregoing reasons, the Debtor and the KL2 Committee respectfully request that this Court overrule the Objection, grant the Settlement Motion, and approve the Settlement Agreement. Dated: August 6, 2021 Respectfully submitted, 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) 1201 North Market Street, 16th Floor P.O. Box 1347 Wilmington, Delaware 19899-1347 Telephone: (302) 658-9200 Facsimile: (302) 658-3989 Email: dbutz@morrisnichols.com -and- Kim Martin Lewis, Esq. (admitted pro hac vice) Travis Bayer, Esq. (admitted pro hac vice) DINSMORE & SHOHL LLP 255 East Fifth Street, Suite 1900 Cincinnati, Ohio 45202 Phone: (513) 977-8200 Facsimile: (513) 977-8141 Email: kim.lewis@dinsmore.com travis.bayer@dinsmore.com Bankruptcy conflicts counsel for Klausner Lumber Two LLC 6

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ARMSTRONG TEASDALE LLP /s/ Eric M. Sutty Eric M. Sutty (No. 4007) Jonathan M. Stemerman (No. 4510) 300 Delaware Avenue, Suite 210 Wilmington, DE 19801 Telephone: (302) 824-7089 Email: esutty@atllp.com jstemerman@atllp.com Counsel to the Official Committee of Unsecured Creditors of Klausner Lumber Two LLC 7

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