Case Doc 3956 Filed 05/23/16 Entered 05/23/16 13:02:28 Desc Main Document Page 1 of 16

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1 Case Doc 3956 Filed 05/23/16 Entered 05/23/16 13:02:28 Desc Main Document Page 1 of 16 UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION ) In re: ) Chapter 11 ) Case No KIMBALL HILL, INC. ) ) Hon. Timothy A. Barnes Debtor. ) ) DECLARATION OF BRADLEY R. GRINING IN SUPPORT OF THE OBJECTIONS TO INSPIRADA AND KYLE CLAIMS Bradley R. Grining hereby declares: 1. I am a consultant to the KHI Post-Consummation Trust and the KHI Liquidation Trust (collectively, the KHI Trusts ), a former employee of the KHI Trusts and the former vice president and controller of Kimball Hill, Inc. ( KHI ). I am familiar with the Debtors business records, including but not limited to, their land purchase and sale contracts, agreements and other documents pertaining to their debt and capital structure, and financial records. I am assisting U.S. Bank National Association (the Administrator ), as administrator for the KHI Trusts in the management of the claims review and objection process in this case. 2. In that capacity, I have reviewed various documents regarding a development known as Inspirada that is located in Henderson, Nevada. I have also reviewed various documents regarding a development known as Kyle Canyon that is located around U.S. Highway 95 and the Kyle Canyon turnoff near Mount Charleston, Nevada. I am authorized to make this Declaration in support of the Administrator s objections to various claims asserted in connection with the Inspirada and Kyle Canyon developments. I am familiar with the information contained in those objections and the various disputed claims annexed thereto. {7049 DEC A DOC 6}

2 Case Doc 3956 Filed 05/23/16 Entered 05/23/16 13:02:28 Desc Main Document Page 2 of Specifically, various claimants filed the following claims against KHI and Kimball Hill Homes Nevada, Inc. ( KHHN ) in their bankruptcy cases with respect to the Inspirada development: Claimant Name Claim No. Alleged Amount KHI Debtor Alleged Basis South Edge, LLC 1635 > $18,300,000 (unliquidated) KHHN Breach of Contract South Edge, LLC 1641 > $18,300,000 (unliquidated) KHI Breach of Contract South Edge, LLC 2290 > $19,300,000 (unliquidated) KHHN Executory Contract Rejection Damages South Edge, LLC 2291 $245, KHHN Breach of Contract - Tax Obligations South Edge, LLC 2292 $245, KHI Breach of Contract - Tax Obligations South Edge, LLC 2293 > $19,300,000 (unliquidated) KHI Executory Contract Rejection Damages JP Morgan, for itself and as Agent for Prepetition Lenders 1734 Unliquidated KHHN Breach of Contract JP Morgan, for itself and as Agent for Prepetition Lenders 1738 Unliquidated KHI Breach of Contract JP Morgan, for itself and as Agent for Prepetition Lenders 2027 JP Morgan, for itself and as Agent for Prepetition Lenders 2028 KB Home & KB Home Nevada, Inc KB Home & KB Home Nevada, Inc Toll Brothers, Inc. & Coleman Toll L.P Toll Brothers, Inc. & Coleman Toll L.P Toll Brothers, Inc. & Coleman Toll L.P Toll Brothers, Inc. & Coleman Toll L.P Toll Brothers, Inc. & Coleman Toll L.P > $58,200,000 (unliquidated) KHI Breach of Contract > $58,200,000 (unliquidated) KHHN Breach of Contract > $644,194 (unliquidated) KHI Breach of Contract > $644,194 (unliquidated) KHHN Breach of Contract > $397,380 (unliquidated) KHHN Breach of Contract > $397,380 (unliquidated) KHI Breach of Contract > $67,080 Breach of Contract - (unliquidated) KHI Capital Calls > $67,080 Breach of Contract - (unliquidated) KHI Capital Calls > $306,212 (unliquidated) KHHN Breach of Contract {7049 DEC A DOC 6} 2

3 Case Doc 3956 Filed 05/23/16 Entered 05/23/16 13:02:28 Desc Main Document Page 3 of 16 Claimant Name Claim No. Alleged Amount KHI Debtor Alleged Basis Toll Brothers, Inc. & Coleman Toll L.P > $306,212 (unliquidated) KHI Breach of Contract Toll Brothers, Inc. & Coleman Toll L.P > $18,646 (unliquidated) KHI Breach of Contract - Capital Calls Toll Brothers, Inc. & Coleman Toll L.P > $18,646 (unliquidated) KHI Breach of Contract - Capital Calls Pardee Homes of Nevada 1648 Unliquidated KHI Breach of Contract Pardee Homes of Nevada 1651 Unliquidated KHHN Breach of Contract Weyerhaeuser Real Estate Company 1652 Unliquidated KHHN Breach of Contract Weyerhaeuser Real Estate Company 1655 Unliquidated KHI Breach of Contract Beazer Homes Holding > $32,673 Corp Beazer Homes Holding Corp Meritage Homes Corp. & Meritage Homes of Nevada, Inc Unliquidated {7049 DEC A DOC 6} (unliquidated) KHHN Breach of Contract > $50,057 Breach of Contract - (unliquidated) KHI Capital Calls 3 KHHN & KHI Breach of Contract Focus South Group, LLC 1471 > $1,081,000 (unliquidated) KHHN Breach of Contract Focus South Group, LLC 1485 Unliquidated KHI Breach of Contract > $174,754 (unliquidated) KHHN Breach of Contract Focus South Group, LLC 1499 Alameda Investments, LLC 1561 Unliquidated KHI Indemnification Alameda Investments, LLC 1565 Unliquidated KHHN Breach of Contract John A. Ritter 1488 Unliquidated KHI Indemnification John A. Ritter 1492 Unliquidated KHHN Indemnification Holdings Manager, LLC 1478 Unliquidated KHHN Breach of Contract Woodside Group, Inc Unliquidated KHI Breach of Contract Woodside Group, Inc Unliquidated KHHN Breach of Contract 4. Additionally, various claimants, including some claimants that filed claims regarding the Inspirada development, filed the following claims against KHI and KHHN in their bankruptcy cases with respect to the Kyle Canyon development: Claimant Name Claim No. Alleged Amount KHI Debtor Alleged Basis Kyle Acquisition Group, LLC 1504 Unliquidated KHI Breach of Contract Kyle Acquisition Group, LLC 1508 Unliquidated KHHN Breach of Contract

4 Case Doc 3956 Filed 05/23/16 Entered 05/23/16 13:02:28 Desc Main Document Page 4 of 16 Claimant Name Claim No. Alleged Amount KHI Debtor Alleged Basis Kyle Acquisition Group, LLC 2298 Unliquidated KHI Executory Contract Rejection Damages Kyle Acquisition Group, LLC 2299 Unliquidated KHHN Executory Contract Rejection Damages Wachovia Bank, N.A., as Administrative Agent 725 Unliquidated KHHN Breach of Contract Wachovia Bank, N.A., as Administrative Agent 742 Unliquidated KHI Breach of Contract Wachovia Bank, N.A., as Administrative Agent 743 Unliquidated KHHN Breach of Contract Meritage Homes Corp. & Meritage Homes of Nevada, Inc Unliquidated KHHN & KHI Breach of Contract Focus Kyle Group, LLC 1475 Unliquidated KHI Breach of Contract Focus Kyle Group, LLC 1483 Unliquidated KHHN Breach of Contract Focus Kyle Group, LLC 1484 Unliquidated KHHN Breach of Contract Holdings Manager, LLC 1480 Unliquidated KHHN Breach of Contract John A. Ritter 1487 Unliquidated KHHN Indemnification John A. Ritter 1495 Unliquidated KHI Indemnification PN II, Inc Unliquidated KHHN Breach of Contract PN II, Inc Unliquidated KHI Breach of Contract Pulte Homes, Inc Unliquidated KHI Breach of Contract Pulte Homes, Inc Unliquidated KHHN Breach of Contract Lennar Communities Nevada, Inc Unliquidated KHHN Breach of Contract Lennar Communities Nevada, Inc Unliquidated KHI Breach of Contract Lennar Corporation 1524 Unliquidated KHHN Breach of Contract Lennar Corporation 1531 Unliquidated KHI Breach of Contract Toll Brothers, Inc. & Coleman Toll L.P Unliquidated KHI Breach of Contract Toll Brothers, Inc. & Coleman Toll L.P Unliquidated KHHN Breach of Contract KB Home & KB Home Nevada, Inc Unliquidated KHHN Breach of Contract KB Home & KB Home Nevada, Inc Unliquidated KHI Breach of Contract Alameda Investments, LLC 1561 Unliquidated KHI Indemnification Alameda Investments, LLC 1565 Unliquidated KHHN Breach of Contract Woodside Group, Inc Unliquidated KHI Breach of Contract Woodside Group, Inc Unliquidated KHHN Breach of Contract {7049 DEC A DOC 6} 4

5 Case Doc 3956 Filed 05/23/16 Entered 05/23/16 13:02:28 Desc Main Document Page 5 of As of April 23, 2008 (the Petition Date ), the Debtors, along with certain nondebtor affiliates, operated a homebuilding enterprise that was one of the 25 largest homebuilders and one of the largest privately-owned homebuilders in the United States. Collectively, the Kimball Hill companies designed, coordinated the construction of, and sold new homes (single-family attached and detached homes as well as multi-family homes) to a broad range of customers in numerous metropolitan markets, and primarily located in five major geographic regions Illinois, Texas, Nevada, California, and Florida. 6. Like most homebuilders, the Debtors did not actually construct homes but instead coordinated the activities of numerous contractors. They were involved in both horizontal (i.e., development of buildable lots from raw land) and vertical (i.e., building homes) construction. Certain Debtors developed their own communities, which involves both horizontal construction and vertical construction, and built homes on horizontally developed lots in other homebuilders or developers communities. They also formed joint ventures with other homebuilders to develop master-planned communities. One such community was Inspirada, and another was Kyle Canyon. The Inspirada Development and South Edge 7. South Edge, LLC ( South Edge ) was a Nevada limited liability company, and its members were KHHN; KB Home Nevada, Inc. ( KB Nevada ); Focus South Group, LLC ( Focus ); Coleman-Toll Limited Partnership ( Coleman-Toll ); Alameda Investments, LLC ( Alameda ); Pardee Homes of Nevada ( Pardee ); Meritage Homes of Nevada, Inc. ( Meritage Nevada ); and Beazer Homes Holding Corp. ( Beazer ). {7049 DEC A DOC 6} 5

6 Case Doc 3956 Filed 05/23/16 Entered 05/23/16 13:02:28 Desc Main Document Page 6 of In early 2004, South Edge s members formed the LLC for the purpose of purchasing approximately 1,953 acres of vacant real estate in Henderson, Nevada and developing that property into a master-planned community that became known as Inspirada. 9. The plans for Inspirada called for the development of a town center and seven residential villages. Each village was comprised of approximately 200 to 250 acres and was subdivided into four or more neighborhoods of approximately 15 to 60 acres per neighborhood, which were called PODS. 10. South Edge was not designed to be a profitable entity. Instead, it was established primarily to: (1) acquire and own the land until the members purchased their predetermined PODS in phases; (2) serve as the borrower under the credit facility that would finance the acquisition of the land and partially finance the development of the communities infrastructure; and (3) be the pseudo general contractor and cost center for all shared development costs. When a builder would acquire its POD, it would pay South Edge the designated amount that would fund the release of the lien for that POD and various related shared development costs. The builder would then be free to build homes or other planned and approved structures on the PODS and reap the profits for itself. 11. The management of South Edge was generally vested in a management committee that was comprised of one representative for each member, which had voting rights commensurate with the percentage of such member s membership interest in South Edge. Membership interests were apportioned commensurate with the percentage of the total acreage each member had agreed to acquire in Inspirada. 12. To partially finance the purchase and development of Inspirada, South Edge obtained a credit facility in the amount of $585,000,000 (the Credit Facility ), in aggregate, {7049 DEC A DOC 6} 6

7 Case Doc 3956 Filed 05/23/16 Entered 05/23/16 13:02:28 Desc Main Document Page 7 of 16 from a syndicate of lenders (the South Edge Lenders ), including J.P. Morgan Chase Bank, N.A. ( JPMorgan ), which was also the Administrative Agent for the other lenders that participated in the Credit Facility. The Amended and Restated Credit Agreement dated as of March 9, 2007 (the Credit Agreement ) generally governed the parties rights and obligations with respect to the Credit Facility. Upon information and belief, as of the Petition Date, Facility B under the Credit Facility had been fully repaid and retired, and the undisbursed amount of the Aggregate Facility A Commitment as of the Petition Date was approximately $24 million. 13. On November 1, 2004, South Edge acquired the property from the Bureau of Land Management after submitting the winning bid of $557 million. South Edge Agreements 14. Various agreements dictated the rights and obligations of South Edge s members and those members affiliates. Many of the members rights and obligations are set forth in the Operating Agreement, originally dated as of May 2, 2004, as amended (the Operating Agreement ). 15. The Operating Agreement obligated South Edge s members to make capital contributions for various expenses, including ongoing development costs, major infrastructure costs ( MI Costs ), payment of principal and interest on the Credit Facility, management fees, and professional fees (collectively, Development Costs ). The capital contributions for Development Costs were paid pro rata by the members as their acquisition of PODS progressed. 16. In addition to the Operating Agreement, the South Edge Members entered into various other agreements relating to the Inspirada development, including purchase and sale agreements, development declarations, cross-indemnity agreements, repayment guarantees, {7049 DEC A DOC 6} 7

8 Case Doc 3956 Filed 05/23/16 Entered 05/23/16 13:02:28 Desc Main Document Page 8 of 16 limited guarantees and completion guarantees (collectively with the Operating Agreement, the South Edge Documents ). 17. Each member had an affiliated guarantor of certain of its obligations relating to South Edge as follows: South Edge Member KB Nevada Focus Coleman-Toll Alameda KHHN Pardee Meritage Nevada Beazer Affiliated Guarantor KB Home John A. Ritter Toll Brothers, Inc. Woodside Group, Inc. KHI Weyerhaeuser Real Estate Company Meritage Homes Corporation Beazer Homes USA, Inc. Acquisition of PODS 18. Pursuant to the Operating Agreement, the members were required to take down (i.e., acquire) their respective PODS in scheduled phases under separate acquisition agreements. 19. The PODS were allocated to the members from the outset, and the total acreage for each member corresponded with its respective percentage interest in South Edge. 20. KHHN s membership interest in South Edge, and thus the Inspirada development, was 6.29%. 21. The total gross acreage of PODS to be acquired by KHHN was approximately acres. 22. Each time a member completed a take down, South Edge was required to pay the South Edge Lenders a portion of the purchase price for the take down of a POD, which was referred to as a Release Price and which was required for the South Edge Lenders to release their lien on a parcel of land when it was acquired by a member. {7049 DEC A DOC 6} 8

9 Case Doc 3956 Filed 05/23/16 Entered 05/23/16 13:02:28 Desc Main Document Page 9 of As of the Petition Date, KHHN had acquired approximately 62 gross acres of its PODS and had timely paid the aggregate Release Price of approximately $18,544,500 for those PODS. 24. KHHN s payment of the Release Price for its 62 gross acres resulted in an $18,544,500 reduction of South Edge s indebtedness to the South Edge Lenders. 25. As of the Petition Date, approximately 779 gross acres of the property had been acquired by various members. 26. Other than Focus, which had acquired all of its acres in the Inspirada development, KHHN was the only member that had acquired more than 50% of its total gross acreage as of the Petition Date. 27. In comparison, as of the Petition Date, KB Nevada had acquired approximately 31% of its gross acreage; Coleman-Toll had acquired approximately 15%; Alameda had acquired approximately 39%; Meritage Nevada had acquired approximately 40%; and Pardee and Beazer had not acquired any of their PODS in the Inspirada development. 28. Thus, with the exception of Focus, KHHN was ahead of all other members with respect to payments to and funding of South Edge, because KHHN had acquired approximately 8% of the total acreage acquired by members at that time even though its share of the development was only 6.29%. The excess was held by South Edge for KHHN s benefit in a M.I. deposit account. 29. On April 14, 2008, the General Manager of South Edge recommended a capital call totaling $3.2 million but acknowledged that KHHN would not have to make an additional contribution because it already had a sufficient balance in its M.I. deposit account to cover its share of the costs relating to that proposed capital call. {7049 DEC A DOC 6} 9

10 Case Doc 3956 Filed 05/23/16 Entered 05/23/16 13:02:28 Desc Main Document Page 10 of 16 South Edge s Member Capital Summary 30. In conjunction with periodic meetings of the management committee, South Edge prepared a report that tracked the status of each member s total capital contribution obligations as the development of Inspirada progressed. 31. South Edge prepared an analysis of each member s total capital contribution obligations (the Member Capital Summary ), a copy of which is dated April 3, 2008 and attached hereto as Exhibit A. 32. As set forth in the Member Capital Summary, South Edge reported that KHHN s total gross obligations to South Edge relating to the Inspirada development equaled $86,954,756 ( KHHN s Total Obligations ). 33. KHHN s Total Obligations included a 10% markup that was to be eventually returned to KHHN as a return of capital. 34. As set forth in the Member Capital Summary, KHHN had already satisfied a significant portion of its Total Obligations, including the payment of: a. Capital contributions totaling $19,075,844 relating to Development Costs; plus b. $18,544,500 in connection with full payment of the Release Price for each of its first two takedowns of its PODS; plus c. LID assessments totaling $4,501,400 in connection with its first two takedowns. South Edge s Project Budget 35. South Edge prepared a project budget as of February 25, 2008 (the Project Budget ), a copy of which is attached hereto as Exhibit B. {7049 DEC A DOC 6} 10

11 Case Doc 3956 Filed 05/23/16 Entered 05/23/16 13:02:28 Desc Main Document Page 11 of The Project Budget shows that total costs of the Inspirada development were expected to be approximately $7.6 million less than what was set forth in the budget attached to the Credit Agreement and approved by the South Edge Lenders. 37. The Project Budget estimates total project costs of $1,107,093,663, of which $852,688,163 had been incurred and paid as of December 31, KHHN Letters of Credit 38. In addition to the positive balance in its M.I. Deposit account, KHHN had posted letters of credit that secured its obligations to South Edge and the South Edge Lenders for MI Costs and other obligations. 39. Soon after the Petition Date, JPMorgan drew down those letters of credit in the aggregate amount of $10,685,979. KHHN s Final POD 40. Under the Operating Agreement, in April of 2008 KHHN was scheduled to acquire its final POD of gross acres, which was known as Village By March of 2008, the residential real estate markets in Nevada had started to decline, and a controlling interest of South Edge s management committee, including Meritage Nevada, had voted to suspend work on the Inspirada development because of disadvantageous economic conditions in Henderson, Nevada, and much of the United States. 42. None of South Edge s members completed their scheduled takedowns under the Operating Agreement after December 31, As of the Petition Date, South Edge owned the land that comprised Village Upon information and belief, the fair value of Village 3.1 was at least $30 million as of the Petition Date. {7049 DEC A DOC 6} 11

12 Case Doc 3956 Filed 05/23/16 Entered 05/23/16 13:02:28 Desc Main Document Page 12 of 16 Mass Grading Agreements 45. In addition to the Development Costs, the Villages required mass grading before home construction could commence. Those mass grading costs were not addressed in the South Edge Documents. 46. Therefore, the South Edge Members entered into a mass grading agreement dated January 1, 2007 (the Mass Grading Agreement ) in order to establish a process for the orderly mass grading of each Village and the sharing of associated costs and expenses among the South Edge members (the Mass Grading Costs ). A copy of the Mass Grading Agreement is attached hereto as Exhibit C. 47. The Mass Grading Costs were allocated to each South Edge member in proportion to its respective percentage membership interest in South Edge. 48. For each Village, the members that acquired PODS in that Village paid Mass Grading Costs directly to the providers of mass grading goods and/or services. The Mass Grading Costs were preliminarily paid pro rata by the members that acquired PODS in the Village for which such Mass Grading Costs were incurred and paid. The preliminary proration was based on the acreage acquired in the Village. These preliminary prorations were to be truedup so that final Mass Grading Costs would be allocated in proportion to each member's respective percentage membership interest in South Edge. 49. KB Nevada, Coleman-Toll and Meritage Nevada were scheduled to acquire PODS in Village 1 and therefore paid total Mass Grading Costs of $4,213, with respect to Village 1 as follows: KB Nevada paid $2,219,850.31; Meritage Nevada paid $1,036, and Coleman-Toll paid $957, {7049 DEC A DOC 6} 12

13 Case Doc 3956 Filed 05/23/16 Entered 05/23/16 13:02:28 Desc Main Document Page 13 of KB Nevada, Alameda/Woodside and KHHN were scheduled to acquire PODS in Village 2 and therefore paid total Mass Grading Costs of $3,256, with respect to Village 2 as follows: KB Nevada paid $1,566,744.23; Alameda and/or Woodside paid $868,857.53, in aggregate, and KHHN paid $820, KHHN did not receive any reimbursement payments from other South Edge members on account of the Mass Grading Costs that KHHN incurred and paid in connection with the mass grading of Village Upon information and belief, as of the Petition Date, no Mass Grading Costs for Villages 3, 4, 5, 6 or 7 had been incurred or paid. Value of KHHN s Membership Interest in South Edge 53. KHHN s membership interest in South Edge has no value. 54. An involuntary chapter 11 bankruptcy proceeding was commenced against South Edge in December The Administrative Agent and certain of the South Edge members jointly proposed a plan of reorganization that eliminated all membership interests in South Edge without any right to distribution. In September 2011, the United States Bankruptcy Court for the District of Nevada confirmed that joint plan but expressly reserved all rights of the parties, including KHI and KHHN, with respect to the claims involved in the KHI Debtors bankruptcy cases. The Kyle Canyon Development 56. NW Valley Holdings LLC f/k/a Kyle Acquisition Group, LLC ( Kyle ) was a joint venture among various builders and developers, including Alameda, KHHN, Focus Kyle Group, LLC, MTH Homes Nevada, Inc., Coleman-Toll, KB Nevada, US Homes, PN II, Inc. and Ryland Homes Nevada, LLC ( Kyle Members ). The Kyle Members organized Kyle in 2004 to {7049 DEC A DOC 6} 13

14 Case Doc 3956 Filed 05/23/16 Entered 05/23/16 13:02:28 Desc Main Document Page 14 of 16 acquire approximately 1,700 acres of real property around U.S. Highway 95 and the Kyle Canyon turnoff near Mount Charleston, Nevada (the Kyle Property ) and to develop a master planned community on the Kyle Property. 57. The rights and obligations of the Kyle Members are set forth in the Operating Agreement of Kyle Acquisition Group, LLC, which was amended a couple of times (the Kyle Operating Agreement ). 58. Each Kyle Member had an affiliated guarantor of certain of its obligations relating to Kyle including as follows: Kyle Member KB Nevada Focus Kyle Group Coleman-Toll Alameda KHHN PN II Meritage Nevada Lennar Communities Nevada Ryland Homes Nevada, LLC Affiliated Guarantor KB Home John A. Ritter Toll Brothers, Inc. Woodside Group, Inc. KHI Pulte Homes Meritage Homes Corporation Lennar Corporation The Ryland Group, LLC 59. In order to finance the acquisition and development of the Kyle Property, Kyle obtained a credit facility (the Wachovia Loan ) from a syndicate of lenders (the Kyle Lenders ) led by Wachovia Bank, N.A. (together with Wells Fargo Bank, N.A., its successor by merger, Wachovia ) as administrative agent. The Kyle Lenders principally secured Kyle s obligations under the Wachovia Loan through a deed of trust on the Kyle Property. None of the Kyle Members or their parent guarantors is a party to the Wachovia Loan. 60. As additional financial support for the Wachovia Loan, the Kyle Members and their parent guarantors (collectively, the Kyle Guarantors ), each executed three different guaranties in favor of Wachovia as follows: {7049 DEC A DOC 6} 14

15 Case Doc 3956 Filed 05/23/16 Entered 05/23/16 13:02:28 Desc Main Document Page 15 of 16 a. Repayment Guaranty dated July 20, 2005: The Kyle Repayment Guaranty could only be triggered upon the filing of a bankruptcy case by Kyle. Under the Kyle Repayment Guaranty, each Kyle Member and its respective parent guarantor guaranteed the repayment of such Kyle Member s Guaranteed Share of all principal, interest, commitment fees and letter of credit fees under the Wachovia Loan. As of the Petition Date, no bankruptcy case had been filed by or on behalf of Kyle and the Kyle Repayment Guaranty had not been triggered. b. Completion Guaranty dated July 20, 2005: Under the Kyle Completion Guaranty, each Kyle Member and its respective parent guarantor guaranteed for Wachovia s benefit the payment of such Kyle Member s adjusted pro rata share of all completion obligations that Kyle did not pay or perform, and it did not require either the Kyle Member or its parent guarantor to cover any portion of the adjusted pro rata share of any other Kyle Guarantor. c. Limited Guaranty dated July 20, 2005: Under the Kyle Limited Guaranty, each Kyle Member and its respective parent guarantor guaranteed for Wachovia s benefit the payment of any losses incurred by Wachovia because of their misrepresentations, omissions, unlawful conduct or receipt of restricted payments, in addition to their pro rata share of any losses incurred by Wachovia because of any similar misconduct by Kyle or various environmental liabilities. I am not aware of any misconduct or other bad acts that would form the basis for any claim by Wachovia or any other Kyle Guarantor against KHI or KHHN under the Kyle Limited Guaranty or otherwise. 61. Kyle acquired the Kyle Property but never meaningfully began any land development activities. Upon information and belief, no Kyle Member or its parent guarantor paid any obligations on behalf of KHI or KHHN. 62. Upon information and belief, the Kyle Property had an appraised value of $635 million as of March 1, After the financial crisis of took its toll on Kyle s development plans, Kyle defaulted on the Wachovia Loan. Wachovia subsequently foreclosed on its deed of trust, and substantially all of the Kyle Property was thereafter transferred to an entity called KAG Property, LLC. {7049 DEC A DOC 6} 15

16 Case Doc 3956 Filed 05/23/16 Entered 05/23/16 13:02:28 Desc Main Document Page 16 of Although Wachovia began a collection action against most of the Kyle Members and their parents shortly after Wachovia s foreclosure of the Kyle Property, along with a deficiency action against Kyle and claims filed in the bankruptcy cases of Alameda and Woodside, those actions and claims eventually culminated in the execution of settlements. Upon information and belief, none of those settlements involved or required the payment by any Kyle Member or its parent guarantor of any obligations on behalf of KHI or KHHN. 65. In or about August 2011, Kyle distributed $3,588,416 to the Kyle Members, except for KHHN and Alameda which received no distributions, in accordance with their adjusted pro rata shares, and those distributions were used to fund the settlement with Wachovia. I declare under penalty of perjury that the foregoing is true and correct. Dated: May 23, 2016 {7049 DEC A DOC 6} 16

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