Case GLT Doc 987 Filed 08/28/17 Entered 08/28/17 12:04:26 Desc Main Document Page 1 of 9

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1 Document Page 1 of 9 IN THE UNITED STATES BANKRUPTCY COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA In re: rue21, inc., et al., 1 Case No (GLT Debtors. Chapter 11 (Jointly Administered rue21, inc., et al., Related to Movants, Docket No. 695, 917 v. Official Committee of Unsecured Creditors, et al. 2 Respondent. DECLARATION OF NEAL GOLDMAN IN SUPPORT OF DEBTORS REPLY TO LIMITED OBJECTION OF THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS TO THE DEBTORS FIRST AMENDED JOINT PLAN OF REORGANIZATION PURSUANT TO CHAPTER 11 OF THE BANKRUPTCY CODE 1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor s federal tax identification number, are: rue21, inc. (1645; Rhodes Holdco, Inc. (6922; r services llc (9425; and rue services corporation (0396. The location of the Debtors service address is: 800 Commonwealth Drive, Warrendale, Pennsylvania The other respondents are: PREIT Services, LLC, The State of Michigan, Department of Treasury, Aronov Realty Management, Brixmor Property Group, Inc., ShopOne Centers REIT, Inc., UBS Realty Management, and Weitzman Management Corporation, Los Lunas Investors, LLC CBL & Associates Management, Inc., Bloomfield Holdings, LLC, IREIT Louisville Dixie Valley, L.L.C., IREIT West Valley City Lake Park, L.L.C., Yuma Palms LeaseCo, L.L.C., Honey Creek DST, IRC Bradley Commons, L.L.C., IRC Goldenrod Marketplace II, L.L.C., IRC Stone Creek, L.L.C., IRC Timmerman Plaza, L.L.C., KRG Aiken Hitchock, LLC, KRG Plaza Green, Leeds Retail Center, LLC, Duluth (Gwinnett SSR, LLC, 3503 RP Jackson Columns, L.L.C., 3503 RP Summerville Azalea Square, L.L.C., 3503 RP Waco Central Limited Partnership, Inland Western Spartanburg, L.L.C., RPAI Lakewood, L.L.C., RPAI Mansfield Limited Partnership, RPAI McDonough Henry Town, L.L.C. and WHLR-Village of Martinsville, LLC, Bloomfield Holdings, LLC, 3503 RP Jackson Columns, L.L.C., 3503 RP Waco Central Limited Partnership, RPAI Lakewood, L.LC., and RPAI McDonough Henry Town, L.L.C., ARC NPHUBOH001, LLC, Centennial Real Estate Company, LLC, C.E. John Company, Inc., Deutsche Asset & Wealth Management, Foursquare Properties, Inc., Gem Realty Capital, Inc., KRE Colonie Owner, LLC, The Macerich Company, PGIM Real Estate, Southgate Mall Associates, LLP, Starwood Retail Partners LLC, and Vintage Real Estate, LLC, Coventry III/Satterfield Helm Valley Fair, LLC, Mt. Pleasant Shopping Center, LLC, Adrian Acquisition, LLC, Merle Hay Investors, LLC, and Capital Mall JC 1, LLC, Surprise Marketplace Holdings, Weingarten Realty Investors, Weingarten 1-4 Clermont Landing, LLC, WRI Alliance Riley Joint Venture, and WRI Mueller, LLC, Experian Marketing Solutions, Inc., Landlords DDR Corp., DLC Management Corp., GGP Limited Partnership, Gregory Greenfield & Associates Ltd., Jones Lang LaSalle Americas, Inc., Northwest Capital Investment Group, LLC, Regency Centers Corp., Rouse Properties, LLC, ShopCare Properties, LP, and Woodmont Companies, Winthrop Resources Corporation, Spinoso Real Estate Group, Washington Prime Group Inc.

2 Document Page 2 of 9 Pursuant to 28 U.S.C. 1746, I, Neal Goldman, hereby submit this declaration (this Declaration under penalty of perjury: 1. I am an independent director currently serving on the board of directors of Rhodes GP, LLC, the ultimate parent of the above-captioned debtors and debtors-in-possession (collectively, the Debtors. 2. In addition to my role as an independent director, I am the Managing Member of SAGE Capital Investments, LLC and I have over twenty-five years of experience working as both an investor and advisor on complex distressed transactions. I have extensive experience serving as an independent director on the boards of chapter 11 Debtors including In re Answers Holdings, Inc., Case No (SMB (Bankr. S.D.N.Y. March 3, 2017 and In re Lightsquared Inc., Case No (SCC (Bankr. S.D.N.Y. May 14, I was a Managing Director at Och Ziff Capital Management, L.P. from 2014 to I was a Founding Partner of Brigade Capital Management, LLC from 2007 until Previously, I served as a Managing Director in the High Yield Division at MacKay Shields, LLC in New York, which I joined in 2001 and where I worked until Prior to that, I served as a Principal at Bank of America Securities where I was in the special situations group from 1999 to Prior thereto, I served as a Vice President on the High Yield Trading Desk at Salomon Brothers Inc. from 1995 to I also held various positions at Salomon Brothers Inc., both as a mergers and acquisitions banker and as an investor in the high yield trading group. 4. I submit this Declaration in support of Debtors Reply to Limited Objection of the Official Committee of Unsecured Creditors to the Debtors First Amended Joint Plan of Reorganization Pursuant to Chapter 11 of the Bankruptcy Code, filed contemporaneously 2

3 Document Page 3 of 9 herewith (the Reply, 3 and in support of the Debtors release of potential claims and causes of action against Apax, contained in Article VIII.C of the Plan (the Debtors Releases. I am duly authorized to execute this Declaration on behalf of the Debtors independent directors. 5. Except as otherwise indicated herein, the facts set forth in this Declaration are based upon my personal knowledge, my review of relevant documents, information provided to me by the Debtors employees or the Debtors advisors working with the Debtors, or my opinion based upon experience, knowledge, and information concerning the Debtors operations. If called upon to testify, I would testify competently to the facts set forth in this Declaration. The Independent Committee s Investigation 6. On June 30, 2017, the board of directors (the Board of the Debtors parent, Rhodes GP, LLC formed an independent committee (the Independent Committee consisting of me and the Debtors other independent director, Amy Hauk. The Board authorized the Independent Committee to investigate potential claims (the Investigation, if any, related to the 2013 buyout of rue21, inc. (the Take-Private Transaction by Apax Partners L.P. ( Apax and subsequent activities by Apax. The Independent Committee was advised by Reed Smith LLP ( Reed Smith in the Investigation. 7. Neither I, nor to my knowledge, Ms. Hauk, served on the Debtors Board at the time of the Take-Private Transaction or had any other involvement in the decision-making of the Debtors at that time. 8. Over the weeks following the appointment of the Independent Committee, Reed Smith, under the supervision of the Independent Committee, conducted a comprehensive investigation into the Take-Private Transaction. As part of the Investigation, Reed Smith 3 Capitalized terms used herein but not defined have the meanings given to such terms in the Reply. 3

4 Document Page 4 of 9 reviewed relevant documents including board materials and minutes spanning more than five years, financial projections and analyses, a fairness opinion that Perella Weinberg Partners (the financial advisor to the special committee of the Debtors board of directors which evaluated the Take-Private Transaction prepared in connection with the Take-Private Transaction and supporting materials; business plans, management presentations, and solvency certificates. 9. Reed Smith also met with and interviewed certain of Debtors employees, members of the Perella Weinberg Partners team that advised the Debtors in connection with the transaction, representatives of Apax, and a representative from Ernst & Young, the Debtors accountant, to gain additional information. 10. During the Investigation, the Independent Committee held several conference calls with Reed Smith to receive updates on the Investigation s progress and findings. Ms. Hauk and I asked questions of Reed Smith during these meetings about issues subject to the Investigation and relevant analysis. 11. Additionally, I understand that, during the Investigation, Reed Smith voluntarily engaged with the official committee of unsecured creditors appointed in these cases (the Committee, holding regular telephone conferences and sharing documents and information with the Committee as they became available to Reed Smith. I understand that, all told, Reed Smith produced more than 35,000 pages of documents to the Committee in connection with the Investigation. The Investigation Report 12. At the conclusion of the Investigation, Reed Smith prepared a 79-page report (the Investigation Report summarizing the findings of the Investigation. I reviewed the Investigation Report before a meeting of the Independent Committee on August 17, At 4

5 Document Page 5 of 9 that meeting, Reed Smith reviewed with the Independent Committee the findings of the Investigation. Ms. Hauk and I also discussed the Investigation Report with Reed Smith and approved the Investigation Report. 13. On August 17, 2017, after the Independent Committee approved the Investigation Report, I understand that Reed Smith shared the report with the Debtors stakeholders, including the Committee. 14. The Investigation found no colorable claims in connection with the Take-Private Transaction for several reasons, as detailed in the Investigation Report. Based on discussions with Reed Smith and my review of the Investigation Report, these reasons include: First, the section 546(e safe-harbor defense of the Bankruptcy Code operates as a complete defense to state law avoidance claims and constructive fraudulent transfers under the Bankruptcy Code. 4 Second, any actual or constructive fraudulent transfer claims arising from the leveraged buyout under section 548 of the Bankruptcy Code are time-barred under the two year statute of limitation of the Bankruptcy Code because the transaction closed on October 10, 2013, more than three years prior to the filing of the Petition Date. 5 Third, any actual fraudulent transfer claim fails because there is no basis to conclude that there was any actual intent to hinder, delay, or defraud creditors in connection with the Take-Private Transaction, as section 548(a(1(A requires. 6 Fourth, any constructive fraudulent transfer claim fails for the additional reason that there is no evidence under section 548(a(1(B or applicable state law that the Debtors were insolvent at the time of the transaction, or rendered insolvent as a result of the 4 See Investigation Report, Section I, at p Id. 6 Id. 5

6 Document Page 6 of 9 transaction. 7 Fifth, any potential breach of fiduciary duty claim is barred by the three-year statute of limitations governing such claims. 8 Sixth, the evidence shows that the Board complied with its duty of care and duty of loyalty in deciding to enter into the Take-Private Transaction, and thus no potential fiduciary breach claim could lie in any event. 15. Importantly, the Investigation found that Apax did not receive any funds from the Debtors at the time of or during the time following the Take-Private Transaction, except for payments on account of reimbursable expenses. 9 For example, Apax did not receive any management fees from the Debtors after the Take-Private Transaction. Additionally, the funds affiliated with Saunders Karp & Megrue (the SKM Funds that held approximately 29% of the Debtors publicly traded common equity prior to the Take-Private Transaction received the same recoveries as other public shareholders in connection with the Take-Private Transaction. And, while the SKM Funds received approximately $300 million in connection with the Take-Private Transaction (consistent with the per-share recoveries provided to other shareholders, Apax managed funds made a $270 million investment in the Debtors in connection with that same transaction. The SKM Funds and Apax were separate legal entities at the time that any proceeds were distributed. Notably, I understand that the SKM Funds have distributed all of their assets to their investors and have wound down. As noted in the Investigation Report, it is unclear how any hypothetical judgment against the SKM Funds related to the Take-Private Transaction could be collected upon, even if colorable claims existed. 7 Id., Section I, at p Id. 9 Id., Section I, at p. 3; see also id. at Section V, at p

7 Document Page 7 of Based on the findings of the Investigation, Ms. Hauk and I concluded that releasing potential Debtor claims based on the Take-Private Transaction was in the best interest of the Debtors. Because those claims are not colorable, there is little to no chance of a potential recovery for the estate. Furthermore, litigating any claims in connection with the Take-Private Transaction would be costly, time consuming, and a disruption to both the Debtors restructuring efforts and ongoing business operations. Given the costs that the estate would incur in litigating such claims, and the remote chances of any recovery in connection with such claims, pursuing them (or creating a risk that third party creditors may seek standing to pursue them would be an unnecessary and wasteful drain on estate resources. 17. For all of these reasons, I believe that the results of the Investigation and the conclusions contained in the Investigation Report support the Debtor Releases, and that the Debtor Releases are a proper exercise of the Debtors business judgment. 18. I have reviewed the Limited Objection of the Official Committee of Unsecured Creditors to the Debtors First Amended Joint Plan of Reorganization Pursuant to Chapter 11 of the Bankruptcy Code [Docket No. 917] (the Committee Objection and I disagree with its assertions that the Debtor Releases release colorable claims that could be asserted against Apax, for the reasons outlined above and in the Investigation Report. Notably, despite the Debtors declining performance in the months following the Take-Private Transaction, the Debtors continued to experience revenue growth. Rather than any wrongdoing by the Debtors or Apax, I believe that the reasons for the Debtors current financial difficulties are simply a shifting of consumer spending to online forums, historic difficulty in competing with fast fashion retailers, and an industry-wide down turn in retail apparel. 7

8 Document Page 8 of Accordingly, for the reasons set forth in this Declaration, I believe that the Debtor Releases are a sound exercise of the Debtors business judgment and are in the best interests of the Debtors. [Remainder of Page Left Intentionally Blank] 8

9 Document Page 9 of 9 Pursuant to 28 U.S.C. 1746, I declare under penalty of perjury that the forgoing is true and correct. New York, New York Dated: August 28, 2017 Neal Goldman Independent Director rue21, inc. and its affiliated Debtors and Debtors-in- Possession 9