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Full title: Reply of Jay Borow as Plan Administrator of Klausner Lumber One LLC in Support of Settlement Agreements Pursuant to Federal Rule of Bankruptcy Procedure 9019 (related document(s)1070, 1071) Filed by Counsel for Plan Administrator (Jackson, Patrick) (Entered: 08/06/2021)

Document posted on Aug 5, 2021 in the bankruptcy, 9 pages and 0 tables.

Bankrupt11 Summary (Automatically Generated)

The KL1 case constituents, including KL1, the KL1 Creditors’ Committee and individual creditors with large claims, worked hard to collectively resolve all major case issues and claims in the KL1 Chapter 11 Case, rather than resort to litigation and deplete estate assets.The timing of the Settlement Motions was driven in large part by the advanced state of the KL1 Chapter 11 Case, and by the willingness of Deloitte, Scharpenack, MMH, KL1 and KL2 to reach reasonable resolutions of these issues, and, as discussed below, the Settlement Agreements (defined below) confer benefits to the estates of both KL1 and KL2.4 See D.I. 1046 (Deloitte Settlement Motion); D.I. 1048 (Scharpenack Settlement Motion); D.I. 1071 (MMH Settlement Motion); D.I. 1070 (KL Settlement Motion) (collectively, the “KL1 Settlements”).The resolutions of claims proposed in the Settlement Motions satisfy the applicable standards under Rule 9019, the Settlement Agreements are the result of the proper exercise of the business judgment of KL1 and KL2 and are within the applicable range of reasonableness, and Carolina Sawmills does not contend otherwise. While the recovery percentage, if any, for general unsecured claims has not been determined in the KL2 case, the resolution of the KL1 claim amount provides certainty that the Plan Administrator will not need to deplete KL1 estate assets by renegotiating or litigating this claim, or reserve amounts for same when determining how much cash to hold back from distribute to creditors.

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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, Ref. Docket Nos. 1070 & 1071 Debtor.1 REPLY OF JAY BOROW AS PLAN ADMINISTRATOR OF KLAUSNER LUMBER ONE LLC IN SUPPORT OF SETTLEMENT AGREEMENTS PURSUANT TO FEDERAL RULE OF BANKRUPTCY PROCEDURE 9019 Jay Borow as Plan Administrator (the “Plan Administrator”) of Klausner Lumber One LLC (“KL1”) in the above-captioned chapter 11 case, by and through his undersigned counsel, hereby submits this reply (“Reply”) in support of (i) 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 [D.I. 1070] (the “KL Settlement Motion”) and (ii) 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 [D.I. 1071] (the “MMH Settlement Motion”, and together with the KL Settlement Motion, the “Settlement Motions”).2 In support of the Reply, the Plan Administrator respectfully states as follows:3 1 The last four digits of the Debtor’s federal EIN are 4897. The Debtor’s mailing address is Jay Borow, Plan Administrator, Klausner Lumber One LLC, P.O. Box 1429, Westhampton Beach, NY 11978. 2 Capitalized terms used but not defined herein shall have the meanings ascribed to them in the Settlement Motions. 3 On July 1, 2021, this Court confirmed the Second Amended Joint Chapter 11 Plan for Klausner Lumber One LLC [D.I. 1014] (the “Plan”). The Plan Effective Date occurred on July 26, 2021 (the “Effective Date”) [see D.I. 1084]. For a full recitation of the facts in support of the Settlement Motions, the Court is referred to D.I. 1070 and 1071. 4852-1733-6564.4 ACTIVE.133953358.01

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1. The KL1 case constituents, including KL1, the KL1 Creditors’ Committee and individual creditors with large claims, worked hard to collectively resolve all major case issues and claims in the KL1 Chapter 11 Case, rather than resort to litigation and deplete estate assets. As a direct result of same, only four claims remain in this case that need to be resolved - Deloitte, Scharpenack, MMH, and the KL1 claim filed against KL2 - and each of those claims is now the subject of a settlement motion pending before this Court.4 Upon approval of those settlements, the Plan Administrator stands ready to make a very large initial distribution to Class 5 unsecured creditors under the Plan. By the Settlement Motions, it appears that KL2 and the KL2 Creditors’ Committee are trying to implement the same process that resulted in the success of the KL1 Chapter 11 Case, i.e. work together collectively to resolve all major issues consensually. The timing of the Settlement Motions was driven in large part by the advanced state of the KL1 Chapter 11 Case, and by the willingness of Deloitte, Scharpenack, MMH, KL1 and KL2 to reach reasonable resolutions of these issues, and, as discussed below, the Settlement Agreements (defined below) confer benefits to the estates of both KL1 and KL2. 2. No direct objections to the Settlement Motions have been filed in the KL1 chapter 11 case, and no one has suggested that the Settlement Motions or underlying settlement agreements (the “Settlement Agreements”) do not meet the required standards of reasonableness and business judgement, or are not in the best interests of the KL1 estate. Accordingly, the Settlement Motions should be approved in the KL1 Chapter 11 Case. 4 See D.I. 1046 (Deloitte Settlement Motion); D.I. 1048 (Scharpenack Settlement Motion); D.I. 1071 (MMH Settlement Motion); D.I. 1070 (KL Settlement Motion) (collectively, the “KL1 Settlements”). 2 4852-1733-6564.4 ACTIVE.133953358.01

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3. On August 4, 2021, Carolina Sawmills, L.P. (“Carolina Sawmills”) filed an objection to each of the Settlement Motions in the KL2 Chapter 11 Case [Case No. 20-11518, D.I. 905 and 906] (collectively, the “Objections”). Because of the inter-relatedness of the KL1 and KL2 Chapter 11 Cases, however, these Objections significantly impact the KL1 Chapter 11 Case, and the Plan Administrator’s ability to resolve all issues and make distributions in the KL1 Chapter 11 Case. 4. The Objections are baseless and do not contest reasonableness or business judgment, and the creditors of KL1 should not be penalized by having their distributions delayed and/or reduced as a result of Carolina Sawmills’ latest attempt to throttle the KL2 Chapter 11 Case and its professionals. 5. The Objections in the KL2 Chapter 11 Case should be overruled, and the Settlement Motions should be approved in both Chapter 11 Cases. A. The Settlement Agreements satisfy settlement standards, are in the best interests of KL1 and KL2 and are made pursuant to reasonable and prudent business judgment. 6. The resolutions of claims proposed in the Settlement Motions satisfy the applicable standards under Rule 9019, the Settlement Agreements are the result of the proper exercise of the business judgment of KL1 and KL2 and are within the applicable range of reasonableness, and Carolina Sawmills does not contend otherwise. See 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). KL1 (by the Plan Administrator) and KL2 have a legitimate business justification for seeking approval of the Settlement Motions, and there are sound business purposes for entering into the Settlement Agreements. See In re Caribbean Petroleum Corp., 444 B.R. 263, 269 (Bankr. D. Del. 2010) 3 4852-1733-6564.4 ACTIVE.133953358.01

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(applying the business judgment rule to a debtor’s business decision); In re Glob. Home Products, LLC, 369 B.R. 778, 784 (Bankr. D. Del. 2007) (same). 7. Other than asserting non-substantive and mere conclusory allegations that KL1 and KL2 have not provided sufficient information to evaluate the business judgment of the Settlement Motions, Carolina Sawmills’ Objections do not articulate specific objections to the reasonableness of the proposed settlements to overcome the business judgment of KL1 and KL2. Indeed, Carolina Sawmills’ Objections center on its contention that the Settlement Motions are premature because it disputes KL2’s ownership of the proceeds of the sale and that there may be no benefit to the KL2 estate once Carolina Sawmills’ position is resolved. 8. Carolina Sawmills’ secured position is tenuous. While Carolina Sawmills asserts a secured claim that has attached to all of the KL2 sale proceeds, the likelihood of such claim being an allowed secured claim in anywhere near that amount is scant at best. Carolina Sawmills’ alleged secured claim suffers from the same infirmities in the KL2 Chapter 11 Case as Florida Sawmills’ claim in the KL1 Chapter 11 Case. In addition to such issues, Halifax County, through its prepetition tax seizure (which was resolved by KL2 postpetition), further complicates Carolina Sawmills’ alleged secured position by raising issues of property acquired by KL2 postpetition under Bankruptcy Code section 552(a). Florida Sawmills’ claim was objected to in the KL1 Chapter 11 Case, which claim was resolved through mediation with Florida Sawmills agreeing to a distribution of approximately 40% of the face value of its claim. 9. The Settlement Motions assist in resolving global case issues. Further, Florida Sawmills’ claim was able to be resolved because the KL1 professionals had a reasonable idea of the pool of unsecured claims. KL2 seems to be positioning itself to follow that same strategy. The Settlement Agreements (and those resolving the claims of Scharpenack and Deloitte) significantly 4 4852-1733-6564.4 ACTIVE.133953358.01

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reduce and resolve some of the larger asserted unsecured claims in the KL2 Chapter 11 Case – (a) Scharpenack reduced from $2,000,000 to $200,000, (b) Deloitte reduced from $840,000 to $250,000, (c) MMH reduced from nearly $4,900,000 to $2,700,000, and (d) KL1 reduced from $12,700,000 to $8,200,000. If the KL1 Chapter 11 Case is an example, the narrowing of the range of allowed unsecured claims in KL2 will assist in the resolution of Carolina Sawmills’ claim in the KL2 Chapter 11 Case. The delay of these resolutions, as requested by Carolina Sawmills, only serves to delay the administration of the KL2 Chapter 11 Case. The constituents in the KL1 Chapter 11 Case went to mediation with a diminishing pot of funds for distribution to creditors, as will likely occur in the KL2 Chapter 11 Case. In this type of scenario, it makes more sense to negotiate over distributions based on the infirmities of the claims and realistic potential litigation outcomes, rather than a line-by-line claims analysis. Under this paradigm, knowledge of the range of the unsecured creditor pool becomes vital and the Settlement Agreements promote same. 10. The Settlement Agreements provide value to the KL1 and KL2 estates. The Settlement Agreements bring real value and certainty to the KL1 and KL2 estates, and Carolina Sawmills does not contend otherwise. The Settlement Agreements (which require approval in both Chapter 11 Cases) will reduce and fix the amounts of the (a) MMH claims against KL1 and KL2 and (b) KL1 claim against KL2. With respect to the MMH Settlement, the MMH Settlement Agreement will reduce the $4.9 million claim of MMH filed in each Chapter 11 Case to $2.6 million against KL1 and $2.7 million against KL2. The result is the elimination of joint-and-several liability for KL1 and KL2, with the KL1 Claim being reduced by approximately $2.3 million and the KL2 Claim being reduced by approximately $2.2 million (with potential for additional savings). Moreover, KL2 further benefits by the reduction of the KL1 claim as a result 5 4852-1733-6564.4 ACTIVE.133953358.01

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of the MMH Settlement. In total, the KL1 claim, is reduced from $12.7 million to $8.2 million under the Settlement Agreements. 11. The Settlement Agreements resolve the MMH and KL1 claims without unnecessary delays, uncertainty, and expense associated with negotiating and/or litigating any further and/or piecemeal resolution of same. 12. As to the MMH claim, its existence and MMH’s agreement to act as stalking horse bidder in the KL2 Chapter 11 Case are completely separate and distinct issues, and do not constitute grounds to deny the MMH claim in the KL2 Chapter 11 Case. 13. As to the KL1 claim against KL2, there is no doubt that KL1 funded KL2’s operations through advances for payment of payroll and other operating expenses. The credit agreement referenced in the Objection to the KL Settlement was to the March 25, 2016 CoBank loan. The provision cited by Carolina Sawmills was meant to benefit CoBank, not KL2. And the CoBank loan was repaid in full prepetition, and all of its instruments discharged. Also, due to the negotiations between KL1 and KL2 to resolve the KL1 claim, there should be no fear that KL2 will agree to an allowed claim for any other Klausner entity that is duplicative of the KL1 claim, since KL2 is intimately familiar with the underlying basis of the KL1 claim. KL2 will be armed with the knowledge of KL1 claim when resolving the claims of the other Klausner entities. 14. Finally, KL1 and KL2 have the right to preempt Carolina Sawmils from objecting to other creditors’ claims, so long as those settlements satisfy the legal standards for approval, which they do here. 15. Accordingly, the proposed Settlement Agreements are well within the applicable range of reasonableness, and supported by the business judgment of KL1 and KL2. KL1 and KL2 have provided sufficient information in the Settlement Motions to assess the business justification 6 4852-1733-6564.4 ACTIVE.133953358.01

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for entering into each Settlement Agreement.5 This is especially true given that the settlements fix the amount of MMH’s and KL1’s allowed claims and fully and finally resolve potentially protracted litigation to expedite the administration of the bankruptcy cases. KL1 and KL2 are best positioned to exercise sound business judgment and determine whether a settlement is in the best interest of each estate and will maximize the value of the estates. 16. There is no basis to assert that the Settlement Motions are not in the appropriate range of reasonableness or not based on sound business judgment. Further, the Court should not delay the approval of the Settlement Motions based on Carolina Sawmill’s unfounded contentions that the Settlement Motions are premature. B. Denial of the Settlement Motions will prejudice and hinder the Plan Administrator’s ability to make a distribution to general unsecured claimants in the KL1 case. 17. In the KL1 Chapter 11 Case, the Plan Administrator is currently prepared to make an initial distribution to general unsecured claimants pursuant to the Plan. The only outstanding matters impacting that distribution are approval of the Settlement Motions. 18. The Settlement Agreements constitute the resolution of the last remaining disputed claims in the KL1 Chapter 11 Case. These resolutions provide certainty in calculating a reserve and administering distributions to allowed general unsecured creditors. The MMH claim as filed makes up nearly 50% of the general unsecured claims pool of KL1. If it is not resolved through the Settlement Agreement, the Plan Administrator will need to greatly increase reserves, materially impacting the expected interim distribution to KL1 creditors. Further, expected recoveries from 5 See the declarations of (i) Daniel T. Motulsky and Nat Wasserstein in support of the KL Settlement [D.I. 1070-4 and 10170-5] and (ii) Eric M. Sutty, Daniel T. Motulsky, Nat Wasserstein, and Richard Bernard in support of the MMH Settlement [D.I. 1072, 1073, 1074 and 1075]. 7 4852-1733-6564.4 ACTIVE.133953358.01

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KL2 on the resolved KL1 claim is also an integral part of the Plan Administrator’s calculations. While the recovery percentage, if any, for general unsecured claims has not been determined in the KL2 case, the resolution of the KL1 claim amount provides certainty that the Plan Administrator will not need to deplete KL1 estate assets by renegotiating or litigating this claim, or reserve amounts for same when determining how much cash to hold back from distribute to creditors. 19. The Objections filed in the KL2 Chapter 11 Case are not meritorious, and the Court should approve the Settlement Motions in both Chapter 11 Cases. In the event that the Court does not approve the Settlement Motions, the amount of the claims subject to the Settlement Motions will be uncertain, which will affect the amount of, and delay the, Plan Administrator’s distribution to KL1 creditors. 8 4852-1733-6564.4 ACTIVE.133953358.01

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20. For the foregoing reasons, the Plan Administrator respectfully requests that the Court overrule the Objections in the KL2 Chapter 11 Case, and approve the Settlement Motions in both Chapter 11 Cases. Dated: August 6, 2021 Respectfully submitted, /s/ Patrick A. Jackson Patrick A. Jackson, Esq. (Del. Bar No. 4976) FAEGRE DRINKER BIDDLE & REATH LLP 222 Delaware Avenue, Suite 1410 Wilmington, Delaware 19801 Telephone: (302) 467-4200 Facsimile: (302) 467-4201 Email: Patrick.Jackson@faegredrinker.com - and - Richard J. Bernard, Esq. FAEGRE DRINKER BIDDLE & REATH LLP 1177 Avenue of the Americas, 41st Floor New York, NY 10036 Telephone: (212) 248-3263 Facsimile: (203) 803-7728 Email: Richard.bernard@faegredrinker.com - and – Alissa M. Nann, Esq. FOLEY & LARDNER LLP 90 Park Avenue New York, New York 10016 Telephone: (212) 682-7474 Facsimile: (212) 687-2329 Email: anann@foley.com Counsel to Jay Borow, as Plan Administrator for Klausner Lumber One LLC 9 4852-1733-6564.4 ACTIVE.133953358.01

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