Case 20-30805-KRH Doc 672 Filed 05/19/20 Entered 05/19/20 01:22:59 Document Page 1 of 12 Joshua A. Sussberg, P.C. (admitted pro hac vice) Emily E. Geier (admitted pro hac vice) AnnElyse Scarlett Gains (admitted pro hac vice) KIRKLAND & ELLIS LLP KIRKLAND & ELLIS INTERNATIONAL LLP 601 Lexington Avenue New York, New York 10022 Telephone: (212) 446-4800 Facsimile: (212) 446-4900 Desc Main Michael A. Condyles (VA 27807) Peter J. Barrett (VA 46179) Jeremy S. Williams (VA 77469) Brian H. Richardson (VA 92477) KUTAK ROCK LLP 901 East Byrd Street, Suite 1000 Richmond, Virginia 23219-4071 Telephone: (804) 644-1700 Facsimile: (804) 783-6192 -andJoshua M. Altman (admitted pro hac vice) KIRKLAND & ELLIS LLP KIRKLAND & ELLIS INTERNATIONAL LLP 300 North LaSalle Street Chicago, Illinois 60654 Telephone: (312) 862-2000 Facsimile: (312) 862-2200 Co-Counsel to the Debtors and Debtors in Possession IN THE UNITED STATES BANKRUPTCY COURT FOR THE EASTERN DISTRICT OF VIRGINIA RICHMOND DIVISION In re: PIER 1 IMPORTS, INC., et al.,1 Debtors. ) ) ) ) ) ) ) Chapter 11 Case No. 20-30805 (KRH) (Jointly Administered) DECLARATION OF ROBERT J. RIESBECK IN SUPPORT OF DEBTORS’ MOTION FOR ENTRY OF AN ORDER (I) AUTHORIZING THE DEBTORS TO WIND DOWN OPERATIONS, (II) AUTHORIZING THE DEBTORS TO CONDUCT STORE CLOSINGS, AND (III) GRANTING RELATED RELIEF I, Robert J. Riesbeck, hereby declare under penalty of perjury: 1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor’s federal tax identification number, are set forth in the Order (I) Directing Joint Administration of Chapter 11 Cases and (II) Granting Related Relief [Docket No. 76]. The location of the Debtors’ service address is PO BOX 961020, Fort Worth, TX 76161-0020. Or, for delivery by Airborne, Federal Express & other Courier Services: 685 John B. Sias Memorial Parkway Suite 255, Fort Worth, TX 76134. Case 20-30805-KRH 1. Doc 672 Filed 05/19/20 Entered 05/19/20 01:22:59 Document Page 2 of 12 Desc Main I am the Chief Executive Officer of Pier 1 Imports, Inc. and have served in that role since November 2019. I also currently serve as the Chief Financial Officer of Pier 1 Imports, Inc., having served in that role since July 2019. 2 2. I am intimately familiar with the Debtors’ day-to-day operations, business affairs, personnel, and restructuring efforts. I submit this supplemental declaration to support the relief requested in the Debtors’ Motion for Entry of an Order (I) Authorizing the Debtors to Wind Down Operations, (II) Authorizing Debtors to Conduct Store Closings, and (III) Granting Related Relief filed contemporaneously herewith (the “Wind-Down Motion”).3 3. Unless otherwise indicated, all facts set forth in this declaration are based upon (a) my personal knowledge of the Debtors’ current operations and corporate structure, (b) information learned from my review of relevant documents, or (c) information I received from the Debtors’ management team or advisors. 4. I am authorized to submit this declaration on behalf of the Debtors, and, if I were called upon to testify, I could and would testify competently to the facts set forth herein. I. Declaration in Support of the Wind-Down Motion. 5.  The Wind-Down Motion seeks entry of an order (the “Order”): authorizing the Debtors to enter into the Statement of Work by and between Pier 1 Imports, Inc. and the Consultant, attached to the Order as Exhibit 1; 2 Before to joining the company, I was Chief Financial Officer of FullBeauty Brands from June 2018 to February 2019. Before Full Beauty, I served as the Chief Financial officer of H.H. Gregg, Inc. from September 2014 to June 2016, and then as Chief Executive Officer from February 2016 to June 2017. I also served as an operating executive of Sun Capital Partners, Inc. from 2010 to 2014, and Chief Financial Officer of a Sun Capital Partners, Inc. portfolio company, Marsh Supermarkets, from 2006 through 2010. Before that, I served as the Chief Operating Officer and Chief Financial Officer of subsidiaries of Nike, Inc. from 2000 through 2005. 3 Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Wind-Down Motion. 2 Case 20-30805-KRH II. Doc 672 Filed 05/19/20 Entered 05/19/20 01:22:59 Document Page 3 of 12 Desc Main  approving the Sale Guidelines approved in the Store Closing Order (as modified, attached to the Order as Exhibit 2) for the closing of all Additional Closing Stores set forth on Exhibit 3;  approving relief related to the Wind-Down Budget attached to the Order as Exhibit 4, and approval of payments thereunder, including payments under the Non-Insider Severance Program as described in the Wages Motion;  approving non-insider incentive programs for certain of the Debtors’ remaining store and distribution center employees as necessary to manage an orderly and efficient Wind-Down, included in the Wind-Down Budget, and set forth in the Wind-Down Motion (the “Wind-Down Incentive Program”);  approving modifications to certain customer programs, including the return policy and acceptance of gift-cards and loyalty certificates, resulting from the Wind-Down;  adjourning any motions, applications, hearings, or demands for payment of postpetition claims (including any administrative claim allowable under 11 U.S.C. § 503(b) and entitled to priority pursuant to 11 U.S.C. § 507) until the end of the Debtors’ proposed administrative claims process;  approving the abandonment of certain burdensome Merchandise, FF&E, and personal property;  setting a new Bid Deadline, Auction, and Sale Hearing related to the Bid Procedures, and;  granting related relief. The Debtors’ Chapter 11 Cases and COVID-19. 6. The Debtors have consistently maintained that negotiating a going-concern reorganization is the best way to maximize estate value. To that end, the Debtors engaged with potential bidders and anticipated receiving qualified bids by the bid deadline previously established in these chapter 11 cases—until the spread of COVID-19. The Debtors sought emergency relief in response to the COVID-19 pandemic by and through the Debtors’ Emergency Motion for Entry of an Order (I) Approving Relief Related to the Interim Budget, (II) Temporarily Adjourning Certain Motions and Applications for Payments, and (III) Granting Related Relief [Docket No. 438] (the “Emergency Budget Motion”). Despite the relief granted in relation to the 3 Case 20-30805-KRH Doc 672 Filed 05/19/20 Entered 05/19/20 01:22:59 Document Page 4 of 12 Desc Main Emergency Budget Motion, the effects of the COVID-19 pandemic have proven insurmountable. As a result, an overdraw of approximately $40 million under the DIP Facility is necessary for the Limited Operation Period. III. Initiating Wind-Down Efforts. 7. The Debtors cannot initiate store-closing efforts until their stores can reopen following the COVID-19 pandemic. And even so, predicting consumer demand at that time is challenging. Accordingly, the purpose of the Wind-Down Motion is to permit the Debtors to commence and conclude the Wind-Down as expeditiously as possible under the circumstances, but the Debtors cannot provide parties in interest certainty with respect to the ultimate sale end date. 8. This uncertainty increases the risk that the Debtors’ employees will procure new employment prior to commencing the Wind-Down. Though employees are aware of the possibility of a Wind-Down,4 the Company notified employees that stores would be reopening and jobs likely returning, at least temporarily.5 To mitigate the risk that the Debtors’ employees find other employment (and the associated costs of finding replacements for a limited time), the Wind-Down Budget (which remains subject to negotiation) is expected to include the payment of up to 50% of severance to eligible employees, and Store Closing Bonus payments under the Wind-Down Incentive Program. 4 On April 14, 2020, the Debtors provided headquarters and distribution center employees with a conditional notice pursuant to the Worker Adjustment and Retraining Notification Act of 1988, notifying employees that as a result of the impact of the COVID-19 pandemic, if additional financing or a purchaser did not materialize, the Company may permanently close all operations. The Company gave similar notice to store employees. 5 The Debtors provided notice of the Wind-Down to associates on May 18, 2020 in advance of filing the Wind-Down Motion. 4 Case 20-30805-KRH 9. Doc 672 Filed 05/19/20 Entered 05/19/20 01:22:59 Document Page 5 of 12 Desc Main The Debtors, in consultation with their advisors and lenders, are planning to wind down their operations in a manner that maximizes the value of their assets. Specifically, the Wind-Down contemplates the relief set forth herein. IV. The Consulting Agreement. 10. As set forth in the Store Closing Motion, the Debtors and the Consultant have a long-standing relationship, and the Consultant is familiar with the Debtors’ businesses and processes. Additionally, the Debtors have a long-standing relationship with the Consultant and the Consultant is continuing to honor the historic relationship through the terms of the Statement of Work. V. The Sale Guidelines. 11. The Consultant will effectuate the Store Closings at the Additional Closing Stores in accordance with the Sale Guidelines. A modified version of the Sale Guidelines, including that modification, is attached to the Order as Exhibit 2. VI. Authorized Approval of Wind-Down Payment. 12. I also believe it is appropriate for the Court to approve procedures pursuant to which the Debtors can inform service providers that their services will be paid for in full pursuant to the Wind-Down Budget. The Debtors are concerned that announcing the Wind-Down will cause confusion regarding which vendors will be paid during the Wind-Down period, and certain vendors that provide critical services, such as IT or security, may immediately cease providing necessary services. It is therefore imperative that the Debtors are able to notify vendors for services covered by the Wind-Down Budget that such services will be paid in full. 5 Case 20-30805-KRH 13. Doc 672 Filed 05/19/20 Entered 05/19/20 01:22:59 Document Page 6 of 12 Desc Main Accordingly, the Debtors propose that a subset of Remaining Employees be designated as authorized approvers (the “Authorized Approvers”) of expenses contemplated by the Wind-Down Budget. The initial list of Authorized Approvers is attached to the Order as Exhibit 5. To minimize the cost and expense of formal noticing procedures, the Debtors propose that any Authorized Approver may confirm in writing (which may be by e-mail) authorization for any such expense (a “Critical Third-Party Notice”), and that any third-party is entitled to rely on that communication in seeking payment. VII. Abandonment of Burdensome Property. 14. In effectuating the Wind-Down, the Debtors intend to liquidate all saleable personal property, Merchandise, and FF&E, as set forth in the Wind-Down Motion. The Debtors may determine, however, in their business judgment, that certain personal property, Merchandise, and FF&E (the “Burdensome Property”) will be difficult or expensive to remove, ship, or store, such that the economic benefits of removing, selling, shipping, or storing some or all of the Burdensome Property will be exceeded by the attendant costs thereof. To the extent the Burdensome Property exceeds the scope of the property abandoned pursuant to the Sale Guidelines—such as Burdensome Property held by shippers or other agents of the Debtors, the Debtors request the Court’s approval to abandon any Burdensome Property for the benefit of their estates and creditors. VIII. The New Asset Sale Key Dates. 15. The Debtors intend to continue the sale process for their assets as described in the Bidding Procedures Order. 16. The Debtors will seek bids for any and all of the Debtors’ IP and the e-commerce business, in accordance with the terms of the Bidding Procedures Order. Given the current circumstances, and pursuant to the Bidding Procedures Order, the Debtors seek to formally 6 Case 20-30805-KRH Doc 672 Filed 05/19/20 Entered 05/19/20 01:22:59 Document Page 7 of 12 Desc Main establish a new Bid Deadline, Auction date, and Sale Hearing. Accordingly, the Debtors propose the following dates be utilized in the Asset Sale: EVENT DATE Bid Deadline July 1, 2020, at 5:00 p.m. (prevailing Eastern Time) Auction July 8, 2020, at 10:00 a.m. (prevailing Eastern Time), or as may be adjourned to such later date by the Debtors Sale Hearing July 15, 2020, at a time to be determined, or such other date and time that the Court may later direct and as agreed upon by the Debtors IX. The Wind-Down Incentive Program. 17. The Debtors seek approval of non-insider incentive programs for the Remaining Employees that are needed to ensure an orderly and efficient Wind-Down, subject to ongoing negotiations with stakeholders. The Debtors will notify all of their employees of the liquidation of the remaining stores and (to the extent required by applicable law) have sent their employees conditional WARN notices providing such employees notice that their employment may be terminated on or around June 1. But, the Debtors will need many of the employees (the “Remaining Employees”) in their stores and distribution centers to complete the Wind-Down effectively and efficiently, in most cases beyond June 1.6 Remaining Employees will assist the Consultant with the liquidation, assist with the Asset Sale (and any transition period, as needed), and complete financial and legal reporting requirements. The Debtors believe that absent a 6 To the extent any employee is needed for longer than 60 days, the Debtors will supplement the WARN notice as required by applicable law. 7 Case 20-30805-KRH Doc 672 Filed 05/19/20 Entered 05/19/20 01:22:59 Document Page 8 of 12 Desc Main financial incentive, the Remaining Employees may not be sufficiently motivated to wind down the business efficiently. Accordingly, the Wind-Down Budget is expected to include incentive payments to certain employees, as agreed to by the DIP Lenders and Ad Hoc Group of Term Lenders. Because these parties hold the economic interest in any residual value of the Debtors’ estates, their agreement to these incentive payments demonstrates the importance of these payments to an efficient Wind-Down. 18. The Wind-Down Incentive Program generally provides for the following payments:  Store Employees:   Associates and non-manager store leadership will receive a payment equal to one week’s wages (based on average hours worked during the Wind-Down), if they stay to the conclusion of the Wind-Down at their respective store. Distribution Center Employees:  Salaried Employees: 12% of their annual salary if they stay until the conclusion of the Wind-Down at their respective distribution center.  Hourly Employees, less than a year of service: $1,000 payment if they stay until the conclusion of the Wind-Down at their respective distribution center.  Hourly Employees, more than a year of service: $1,500 payment if they stay until the conclusion of the Wind-Down at their respective distribution center. The Debtors believe that these amounts are appropriate under the circumstances. X. Non-Insider Severance Payments. 19. As described in the wages motion filed on the first day of these chapter 11 cases [Docket No. 27] (the “Wages Motion”), the Debtors maintained a prepetition Non-Insider Employee Severance Program (as defined in the Wages Motion). The order entered with respect to the Wages Motion only approved certain reduced payments under the Non-Insider Employee 8 Case 20-30805-KRH Doc 672 Filed 05/19/20 Entered 05/19/20 01:22:59 Document Page 9 of 12 Desc Main Severance Program with respect to employees terminated in connection with the first wave of store closings. See [Docket No. 348], ¶5. 20. The Debtors anticipate that the Wind-Down Budget will include additional payments under the Non-Insider Employee Severance Program for employees terminated in connection with the Wind Down. While the terms of the Wind-Down Budget are still being negotiated, the Debtors anticipate that eligible store level, distribution center, and home office noninsider employees who remain in the employment of the Debtors during the wind down process will receive severance payments upon termination in an amount up to 50% of the policy amounts, subject to certain caps. The final approved Wind-Down Budget will reflect the agreed upon amounts. The Debtors believe that these amounts are appropriate under the circumstances. 21. In my experience, programs such as the Wind-Down Incentive Program are commonplace in the retail industry under similar circumstances. During my previous involvement with H.H. Gregg, Inc., and Sun Capital Partners, Inc., plans similar to the Wind-Down Incentive Program, both in amounts and level of participation, were maintained, implemented, and considered in the ordinary course of business. Approval of the Wind-Down Incentive Program is critical to maximizing estate value during the Wind-Down. I believe there is substantial risk Remaining Employees will accept alternative employment before completion of the Wind-Down if such a program is not implemented. In my business judgement, the Wind-Down Incentive Program is essential to the Wind-Down and value-maximizing. I understand that payments on account of the Wind-Down Incentive Program will be subject to the terms of the Wind-Down Budget. 9 Case 20-30805-KRH Doc 672 Filed 05/19/20 Entered 05/19/20 01:22:59 Document Page 10 of 12 a. 22. Desc Main Additional Information Regarding Non-Insider Employee Participants. I do not believe that any of the Remaining Employees participating in the Wind-Down Incentive Plan are “insiders” of the Debtors. It is my understanding that, under the Bankruptcy Code, the term “insiders” broadly includes individuals who serve on a company’s board of directors, are officers of the company, or who exert control over the business enterprise. None of the eligible Remaining Employees are officers, serve on or report directly to the board of directors, or fit the broader definition of “insiders.” Furthermore, while certain of the Debtors’ Remaining Employees have “director” or “senior”-level titles, these titles are common within the Debtors’ industry and do not indicate the level of control necessary to be deemed an insider. While Remaining Employees may, within the scope of their duties, implement critical decisions, none of the applicable Remaining Employees are in roles that require or enable them to make or influence such critical decisions on an organizational scale. 23. It is my understanding that all of the applicable Remaining Employees participating in the Wind-Down Incentive Program were hired pursuant to ordinary course business hiring practices and were not appointed by the board of directors or elected to his or her position. Additionally, while some participating Remaining Employees may influence a certain portion of the Debtors’ corporate budget, none of the participating Remaining Employees possess independent discretionary control over substantial corporate budgets. Despite their titles, these Remaining Employees do not have the responsibilities typically associated with either members of a company’s board of directors or corporate officers. 24. Accordingly, I believe that the participants in the Wind-Down Incentive Program are not insiders. 10 Case 20-30805-KRH XI. Doc 672 Filed 05/19/20 Entered 05/19/20 01:22:59 Document Page 11 of 12 Desc Main Customer Programs. 25. The Wind-Down requires that the Debtors make certain modifications to their customer programs. Accordingly, the Debtors intend to implement the changes set forth in the Wind-Down Motion with respect to returns, gift cards, gift certificates, loyalty certificates, and latent defects, which will be clearly posted for customers at cash registers and online for the duration of the Wind-Down. XII. Administrative Claims Process. 26. I believe that the process set out in the Motion to Approve Debtors Motion for Entry of an Order (I) Setting a Bar Date for Filing Proofs of Administrative Claims (II) Establishing Administrative Claims Procedures, (III) Approving the Form and Manner of Filing Proofs of Administrative Claims, (IV) Approving Notice of the Administrative Claims Bar Date, and (V) Granting Related Relief [Docket No. 664] is the best way to efficiently administer the estate under these circumstances. I believe that relief related thereto is necessary to ensure that they have the stability required to effectuate the Wind-Down. [Remainder of page intentionally left blank.] 11 Case 20-30805-KRH Doc 672 Filed 05/19/20 Entered 05/19/20 01:22:59 Document Page 12 of 12 Desc Main Pursuant to 28 U.S.C. § 1746, I declare under penalty of perjury that the foregoing statements are true and correct to the best of my knowledge, information, and belief. Dated: May 18, 2020 /s/ Robert J. Riesbeck Robert J. Riesbeck