Case 17-12881-LSS Doc 3 Filed 12/08/17 Page 1 of 30

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF DELAWARE

In re: Chapter 11

HERALD MEDIA HOLDINGS, INC., et al.,1

Case No. 17-12881 (LSS)
Debtors
Joint Administration Requested

DECLARATION OF JEFFERY W. MAGRAM

IN SUPPORT OF FIRST DAY PLEADINGS

I, Jeffery W. Magram, declare under penalty of perjury:

1. I am the Chief Operating Officer of Boston Herald, Inc. (Boston Herald and

together with Herald Media Holdings, Inc., Herald Interactive, Inc. and Herald Media, Inc.,

collectively, the Debtors in these Chapter 11 Cases) and have held such position at Boston

Herald since 2001.

2. I am generally familiar with the Debtors day-to-day operations, business affairs

and books and records. Except as otherwise indicated, all facts set forth in this Statement are

offered to the best of my knowledge, information and belief, and are based upon my personal

knowledge, my review of relevant documents, information provided to me by the Debtors

management or professionals working with me or under my supervision, or my informed opinion

based upon my experience and knowledge of the Debtors industry, operations and financial

condition. If I were called upon to testify, I could and would testify competently to the facts set

forth herein. I am authorized to submit this Statement on behalf of the Debtors.

3. On the date hereof (the Petition Date), each of the Debtors filed a voluntary

petition for relief with the Court under chapter 11 of title 11 of the United States Code, 11 U.S.C.

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The Debtors in these Chapter 11 Cases and the last four digits of each Debtors taxpayer identification
number are as follows: Herald Media Holdings, Inc. (5048); Herald Media, Inc. (1468); Boston Herald, Inc.
(5341) and Herald Interactive, Inc. (2359). The Debtors headquarters are located at 70 Fargo Street, Suite
600, Boston, MA 02210.
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101, et seq., as amended (the Bankruptcy Code). To enable the Debtors to operate

effectively and preserve the value of estate assets, the Debtors have requested various types of

relief in first-day applications and motions filed with this Court contemporaneously herewith

(the First Day Pleadings).

4. I submit this Statement in support of the First Day Pleadings. Any capitalized

term not defined herein shall have the meaning ascribed to such term in the relevant First Day

Pleadings. The First Day Pleadings seek to preserve the Debtors going concern value by,

among other things: (a) ensuring the continuation of the Debtors cash management systems and

other business operations without interruption; (b) maintaining market confidence; (c)

maintaining employee morale and confidence; and (d) establishing certain other administrative

procedures to promote a smooth transition into chapter 11. Gaining and maintaining the support

of the Debtors employees, customers and others, as well as maintaining the day-to-day

operations of the Debtors business with minimal disruption, will be critical to the Debtors

reorganization.

5. Part I of this Statement describes the Debtors business and the circumstances

surrounding the filing of the chapter 11 petitions. Part II sets forth the relevant facts in support

of the First Day Pleadings. Part III concludes that the relief requested in the First Day Pleadings

is in the best interests of the Debtors, their creditors and estates and therefore should be granted.

PART I: BACKGROUND
A. General Background

6. On the date hereof, each of the Debtors filed a voluntary petition for relief with

the Court under chapter 11 of the Bankruptcy Code.

7. The Debtors consist of Herald Media Holdings, Inc., Herald Media, Inc., Boston

Herald, Inc. and Herald Interactive, Inc.

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8. The Debtors continue to operate their businesses and manage their properties as

debtors and debtors-in-possession pursuant to sections 1107(a) and 1108 of the Bankruptcy

Code.

9. The Debtors have requested joint administration of the Chapter 11 Cases pursuant

to Rule 1015(b) of the Federal Rules of Bankruptcy Procedure (the Bankruptcy Rules).

10. To date, no party has requested the appointment of a trustee or examiner and no

committees have been appointed or designated, although I expect that one or more official

committees of unsecured creditors may be appointed.

11. For the past 170 years, the Debtors businesses have focused on the distribution of

print news media, generating their revenue primarily from the distribution of newspapers in the

Eastern Massachusetts area and from related advertising revenue.

12. In an effort to reduce their reliance on a single printed product, the Debtors began

approximately 20 years ago to diversify their business model by distributing content and

advertising on digital platforms, including desktops, laptops, and more recently mobile devices.

The Debtors continue to support their legacy products while investing in digital technologies.

13. Pursuant to those efforts, the Debtors have developed a portfolio of valuable

media brands led by the Boston Herald newspaper and its website, bostonherald.com. The

Boston Herald is known throughout New England and across multiple media platforms for its

high-quality and unique local content. Accordingly, the Debtors have gathered an unusually

high percentage of exclusive newspaper readers relative to competing print media products in

their marketplace, and similarly a high degree of consumer engagement on bostonherald.com

relative to other local websites.

14. However, over the past years, there has been an increase in news source and

advertising alternatives that has continued to erode traditional print media sources of revenue.

Incremental digital revenue has not been sufficient to offset the decline in print revenue.

15. In response to these challenges, the Debtors took steps to realign costs, including
by consolidating operational functions, introducing new business models, and outsourcing

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selected printing, distribution, and customer service activities, while limiting employee hardship

to the greatest extent possible. The Debtors are no longer able to reduce costs to keep pace with

declining revenues without impairing the value of the business.

16. Given the general economic climate for the newspaper industry and the

companys significant pension and retirement liabilities, no financing options are available for

the company to continue with its current capital structure.

17. The Debtors have filed the Chapter 11 Cases in order to maximize the value of the

Debtors and their assets by selling their business operations as a going concern under the

supervision of the Bankruptcy Court.

18. The Debtors believe that the contemplated sale will allow the Debtors operations

to continue as a going concern, saving hundreds of jobs and providing a return to unsecured

creditors.

19. The Debtors believe that a chapter 11 process and a sale consummated pursuant to

section 363 of the Bankruptcy Code will maximize value for the Debtors estates and creditors

and provide the greatest possible stability for the Debtors employees, customers, and vendors.

B. The Debtors Business

20. The Debtors, headquartered in Boston, Massachusetts, are collectively a privately

owned information and entertainment company consisting of the flagship Boston Herald

newspaper as well as a related website, internet radio station, and mobile applications.

21. The Boston Herald was founded in 1846 by a group of Boston printers who

published a single two-sided sheet. Following a number of mergers and name changes during the

20th century, the newspaper was purchased in 1982 by News Corp. In 1994 News Corp. sold the

Boston Herald to its publisher, Patrick J. Purcell, to facilitate News Corp.s acquisition of a

Boston television station.

22. Mr. Purcell remains the publisher of the Boston Herald.

23. The Debtors publish proprietary content, third-party generated content, and
advertising on their website, www.bostonherald.com, which regularly draws over 1.5 million

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unique visitors per month. The Debtors use social media to expand the audience for their digital

content.

24. The Debtors also operate an internet radio station available online, through mobile

applications, and by live broadcast through an AM radio station partner. They also offer free

mobile applications with news and sports content that can be accessed on smartphones and

tablets.

25. The Boston Herald publishes an e-edition, which is a complete digital replica of

its newspaper, provided free of charge to print home delivery subscribers and at varying cost for

online-only subscribers.

C. Revenue, Assets, and Liabilities

26. Revenue for the Debtors operations is derived approximately two-thirds from

paid circulation (including single copy sales and subscription sales) and one-third from

advertising (both print and online). The Debtors project that, notwithstanding restructuring costs

and resulting savings, total combined revenue from all operations in fiscal year 2018 (from July

3, 2017 to July 1, 2018) will be approximately $33.83 million, with negative EBITDA of $2.89

million.

27. The Debtors largest expenses by far are its payroll and benefits, which include

wages, payroll taxes, medical insurance, and pension and retirement contributions altogether

accounting for approximately 58% of total operating expenses. Other significant costs are for

the production and delivery of the newspaper, which accounts for approximately 23% of total

operating expenses.

28. The Debtors most recent financial statements reflect total assets of

approximately $6,025,000, consisting primarily of cash on hand and accounts receivable. Total

undisputed liabilities were approximately $31,005,000, consisting primarily of pension and

severance liabilities.

29. The Debtors have no long-term funded debt. Their unsecured debts consist
primarily of employee pension and retirement benefit liabilities.

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30. As demonstrated by the above, the Debtors value lies substantially in the

employees that run the paper, produce its content, and execute advertising and circulation

functions. The Debtors currently employ approximately 240 individuals, approximately 140 of

whom belong to a union. The Debtors union employees are employed under four different

collective bargaining agreements. The Debtors current staffing level reflects significant

headcount reductions and voluntary attrition in the period prior to these Chapter 11 Cases.

D. Events Leading to the Commencement of the Chapter 11 Cases

31. In the past several years, competition from alternative news sources and a general

decline in newspaper advertising spending have contributed to a decline in the Debtors revenue.

Additionally, competition from internet-based advertising alternatives has eroded traditional

print media sources of revenue.

32. In response to declining revenues, the Debtors have been actively engaged in

efforts to right-size their expenses. As much as possible, and with the goal to minimize the

effects on its employees, advertisers and readers, the Debtors have reduced headcount, cut back

on unprofitable activities, and diversified operations and revenue sources to grow readership.

33. Despite the Debtors best efforts to increase revenues and decrease expenses

while continuing to maintain the highest quality product, the Debtors have been unable to fully

achieve their financial goals to such a degree that would enable them to continue to operate

under their current capital structure and comply with their current pension and employment

obligations. Accordingly, the Debtors have made the decision to sell substantially all of their

assets pursuant to section 363 of the Bankruptcy Code. The Debtors believe that a sale of their

assets and operations will maximize the potential return for creditors while ensuring the ongoing

viability of their news and information products and the ongoing employment of hundreds of

people.

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E. Pre-Petition Marketing

34. The proposed centerpiece of the Debtors Chapter 11 Cases is their proposed sale

of all of their assets, pursuant to section 363 of the Bankruptcy Code.

35. In September 2017 the Debtors, with the assistance of their advisors, began

actively marketing the Debtors assets to potential buyers.

36. Specifically, on September 6, 2017 the Debtors engaged Dirks, Van Essen &

Murray (Dirks Van Essen) to market the Debtors assets.

37. Dirks Van Essen began the marketing process by developing a confidential

information memorandum (the CIM) and identifying a list of 15 potentially interested parties

to engage in marketing discussions.

38. Dirks Van Essen contacted the potentially interested parties and requested that

they sign a non-disclosure agreement (NDA) prior to reviewing the CIM. Nine of the parties

(together, the Potential Buyers) signed the NDA. Dirks Van Essen then distributed the CIM to

the Potential Buyers.

39. Dirks Van Essen then engaged the Potential Buyers in telephone conversations

and exchanges of further diligence information. Dirks Van Essen further offered to provide

Potential Buyers access to a data room containing additional confidential financial information.

40. Ultimately, the only Potential Buyer interested in data room access, and in
offering to purchase the Debtors assets at that time, was Gatehouse Media Massachusetts I, Inc.

(the Stalking Horse Bidder).

41. Accordingly, on December 7, 2017, the Debtors entered into an agreement (the

Stalking Horse APA) with the Stalking Horse Bidder. The Stalking Horse APA evidences a

value-maximizing bid with an all-in value of not less than $5,000,000, including a cash

component of $4,500,000, plus assumption of certain liabilities including up to $500,000 of

employee paid time off, plus the payment of defined cure amounts by the Stalking Horse Bidder,

in exchange for substantially all of the assets of the Debtors, subject to competitive bids.

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42. The Stalking Horse APA preserves the Debtors business as a going concern and

provides that certain of the Debtors employees will have the ability to keep their jobs. The

Stalking Horse APA is not conditioned on financing or the completion of due diligence. It is

conditioned on approval by the Court of bidding, auction, and sale procedures, including post-

petition marketing and competitive bidding, in consultation with the United States Trustee and

any official committee appointed in these Chapter 11 Cases.

43. The Stalking Horse APA is also conditioned on the Debtors rejecting all

collective bargaining agreements with their employees and modifying all legacy pension and

health and welfare obligations so that the Stalking Horse Bidder may purchase the assets free and

clear of these obligations. While the Debtors would consider assumption of these obligations a

valuable component of any competing bid for their assets, the results of the marketing process so

far suggests that no competing bidder is likely to emerge that is willing to purchase the Debtors

assets and assume their current employment, pension, and benefits obligations. Accordingly, the

Debtors will immediately engage the representatives of their employees unions to propose

appropriate measures to facilitate the sale, and will likewise and subsequently request

appropriate relief from the Court.

PART II: FIRST DAY PLEADINGS

44. An important (and in many respects critical) element of the success of these

Chapter 11 Cases will be the entry of orders granting the relief requested in each of the First Day

Pleadings. Generally, the First Day Pleadings are designed to facilitate: (a) the continuation of

the Debtors existing cash management systems and other business operations without

interruption; (b) preservation of customer and vendor relationships; (c) maintenance of employee

morale and confidence; (d) establishment of certain other administrative procedures to promote a

smooth transition into chapter 11; and (e) sale of the Debtors assets under the terms specified by

any Successful Bidder, in the manner required by and subject to the approval of the Court. The
factual background in support of each First Day Pleading is provided below:

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A. Motion of the Debtors for Order Authorizing Joint Administration of Their

Chapter 11 Cases Pursuant to Fed. R. Bankr. P. 1015(b) and Local Rule 1015-1 (the
Joint Administration Motion)
45. In the Joint Administration Motion, the Debtors seek the joint administration of

their chapter 11 cases for procedural purposes only. The Debtors are affiliates as defined in

Section 101(2) of the Bankruptcy Code. Joint administration of their cases will promote the

economical, efficient, and convenient administration of the Debtors estates.

46. The Debtors operations are closely integrated and there will be numerous

motions, applications, and other pleadings filed in these Chapter 11 Cases that will affect all of

the Debtors. Joint administration will allow for the efficient administration of the Debtors four

(4) Chapter 11 Cases.

47. Joint administration of the Debtors Chapter 11 Cases will permit the Clerk of the

Court to use a single general docket for each of the Debtors cases and for the proposed claims

agent to combine notices to creditors and other parties-in-interest of the Debtors respective

estates.

48. Allowing joint administration will significantly reduce the volume of pleadings

that otherwise would be filed with the Clerk of this Court, render the completion of various

administrative tasks less costly and minimize the number of unnecessary delays. Moreover, the

relief requested by this Motion will simplify supervision of the administrative aspects of these

cases by the Office of the United States Trustee.

49. The proposed joint administration order also will save time and money and avoid

duplicative and potentially confusing filings by permitting counsel for all parties-in-interest to:

(a) use a single caption on the numerous documents that will be served and filed herein; and (b)

file the papers in one case rather than in multiple cases. Finally, joint administration will protect

parties-in-interest by ensuring that parties in each of the Debtors respective Chapter 11 Cases

will be apprised of the various matters before the Court in these cases.

50. I have read the Joint Administration Motion and believe that the relief requested
in the Motion is in the best interests of the Debtors and the Debtors estate.

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B. Debtors Motion for an Order Authorizing Debtors to: (I) File a Consolidated List
of Creditors; (II) File a Consolidated List of Debtors Thirty Creditors Holding
Largest Unsecured Claims; and (III) Mail Initial Notices (the Consolidated
Creditor List Motion)
51. In the Consolidated Creditor List Motion, the Debtors seek permission to file (i) a

consolidated list of creditors and (ii) a consolidated list of the Debtors thirty (30) largest

unsecured creditors. The Debtors also seek permission to complete all mailings of notices,

including notices of the commencement of these cases and of the meeting of creditors.

52. The Debtors have identified approximately 2,700 entities to which notice of

certain proceedings in these chapter 11 cases must be provided. The Debtors presently maintain
various computerized lists of the names and addresses of their respective creditors that are

entitled to receive notices and other documents in these cases. The information, as maintained in

the Debtors computer files (or those of the Debtors agents), may be consolidated and utilized

efficiently to provide parties with notices and other similar documents in accordance with the

Bankruptcy Rules.

53. A single consolidated list of the Debtors thirty (30) largest unsecured creditors

would be more reflective of the body of unsecured creditors that have the greatest stake in these

cases.

54. For the foregoing reasons, the relief requested in the Creditor List Motion should

be granted.

C. Debtors Application for an Order Appointing Epiq Bankruptcy Solutions, LLC as

Official Claims and Noticing Agent for the Debtors Pursuant to 28 U.S.C. 156(c),
11 U.S.C. 105(a) and LBR 2002-1(f), Nunc Pro Tunc to the Petition Date (the
Claims Agent Retention Application)
55. The Debtors seek to employ and retain Epiq Bankruptcy Solutions, LLC (Epiq)

as the Debtors noticing and claims agent pursuant to Local Bankruptcy Rule 2002-1(f).

56. In that capacity, the Debtors anticipate that Epiq will: (i) give notice of the order

for relief, the hearings, and orders filed in the case, the meeting of creditors pursuant to section
341 of the Bankruptcy Code, and the setting of a claims bar date; (ii) provide record keeping and

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claims docketing and reconciliation; and (iii) mail and tabulate ballots for the purposes of voting

in chapter 11 cases. The Debtors have identified approximately 2,500 entities to which notice of

certain proceedings in these chapter 11 cases must be provided and believe that Epiqs retention

is the most effective and efficient manner of providing notice to the Debtors creditors and other

parties in interest of the commencement of these chapter 11 cases and any other developments

that occur in these chapter 11 cases.

57. Epiq is a well-known and highly experienced notice and claims administration

firm that has substantial experience in assisting with the orderly administration of chapter 11

bankruptcy cases.

58. The Debtors believe that Epiq is well qualified to serve as the Debtors noticing

and claims agent in these chapter 11 cases.

59. I have read the Claims Agent Retention Application and believe that the retention

of Epiq is in the best interests of the Debtors and their estates.

D. Debtors Motion for Entry of Interim and Final Orders (A) Authorizing (I) Payment
of Pre-petition Employee Wages, Salaries, and Other Compensation; (II)
Reimbursement of Pre-petition Employee Business Expenses; (III) Payment of Pre-
petition Tax and Other Withholdings to Third-Parties; (IV) Contributions to Pre-
petition Employee Health and Other Benefit Programs and Continuation of Such
Programs; (V) Payment of Workers Compensation Obligations and Other
Insurance Premiums; (B) Scheduling a Final Hearing; and (C) Granting Related
Relief (the Wage Motion)
60. Pursuant to the Wage Motion, the Debtors seek the ability to pay certain pre-

petition employee wages, expenses and to continue employee benefit programs in the ordinary

course of business.

61. As of the Petition Date, the Debtors employ approximately 240 individuals,

approximately 140 of whom are members of four different unions.

62. The Employees perform a variety of critical functions for the Debtors businesses,

and the Employees skills and their specialized knowledge and understanding of the Debtors
infrastructure and operations are essential to the Debtors continuing operations and their

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reorganization effort. The continued and uninterrupted service of the Employees is critical to the

successful reorganization of the Debtor.

63. To avoid the personal hardship that the Employees will suffer if pre-petition

employee related obligations are not paid when due or as expected, and to maintain morale, the

Debtors seek authority to pay Employees accrued pre-petition wages and other benefits, in their

sole discretion, to pay and honor certain pre-petition claims for, among other items, wages,

salaries and other compensation, other amounts withheld (e.g., garnishments, employee share of

insurance premiums, paid time off, medical benefits, insurance benefits) and all other employee

benefits that the Debtors historically paid or honored in the ordinary course of business to

Employees and to pay all costs incident to the foregoing. The Debtors also seek authority, in

their discretion, to pay reimbursable business expenses of Employees.

(a) Unpaid Compensation

64. In the ordinary course of business, the Debtors incur payroll obligations to the

Employees. Such obligations comprise wages and salaries. Historically, the Debtors have paid

all of their employees wages and salaries on a bi-weekly basis every second Thursday in arrears

for work performed during the two weeks preceding and inclusive of the previous Saturday.

65. On the Petition Date, immediately prior to filing these Chapter 11 Cases and in

preparation therefor, the Debtors paid all wages and salaries due to all employees. Accordingly,
the Debtors expect that all of their employees have been paid all pre-petition wages and

compensation. Nevertheless, some employees may be entitled to compensation because (a)

discrepancies may exist between the amounts paid and the amounts that should have been paid,

(b) some payments issued to on or prior to the Petition Date may not have cleared the banking

system and, accordingly, have not been honored and paid as of the Petition Date, and (c)

employees will not have submitted records for overtime and other payment categories outside

base pay.

66. Accordingly, as of the Petition Date, an indeterminate amount estimated to be less

than $18,000 in accrued pre-petition wages, salaries, and other compensation (but excluding paid

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time off, reimbursement of business expenses, and bonuses) was earned prior to the Petition Date

but was not yet paid, together with associated withholding and payroll taxes (collectively, the

Unpaid Compensation). Accordingly, the Debtors request authorization, in their discretion, to

pay the Unpaid Compensation in the ordinary course of their businesses.

67. To the best of my knowledge, as of the Petition Date no Employees were owed

Unpaid Compensation in excess of the $12,850 statutory priority cap imposed by sections

507(a)(4) and (5) of the Bankruptcy Code.

(b) Reimbursement of Expenses

68. Prior to the Petition Date and in the ordinary course of their business, the Debtors

reimbursed Employees for certain reasonable and customary expenses incurred on behalf of the

Debtors in the scope of their employment (the Reimbursable Business Expenses). The

Reimbursable Business Expenses include, but are not limited to, reimbursements for (a)

business-related travel, such as hotels, airfare, car rental, meals and related expenses; (b)

mileage; (c) telephone expenses; (d) membership dues; (e) attendance at conferences; (f) office

supplies and equipment; (g) publication expenses; (h) professional development and education

expenses; (h) relocation expenses for new hires; and (h) other business-related expenses that are

paid by the Employee.

69. Reimbursable Business Expenses are all incurred on the Debtors behalf and with
the understanding that the Employees will be reimbursed in the normal course of business.

Accordingly, to avoid harming those who may have incurred the Reimbursable Business

Expenses, the Debtors request authority, to be exercised in their sole discretion, to (a) continue

paying Reimbursable Business Expenses in accordance with pre-petition practices, (b) modify

their pre-petition policies relating thereto as they deem appropriate, and (c) pay all Reimbursable

Business Expenses that relate to the pre-petition period and are submitted to the Debtors post-

petition. The Debtors estimate that outstanding pre-petition Reimbursable Business Expenses

total not more than $50,000.

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(c) Deductions and Withholdings

70. During each applicable pay period, the Debtors routinely deduct certain amounts

from Employees paychecks, including, without limitation, (a) any legally ordered deductions

such as wage garnishments, child support, and tax levies; and (b) other pre-tax and after tax

deductions payable pursuant to certain of the Employee benefit plans described herein, such as

an Employees share of medical, dental and vision benefits and insurance premiums, Employee

contributions to retirement plans, contributions under flexible spending plans, union dues, and

other miscellaneous deductions (collectively, the Employee Deductions). The Debtors forward

the amount of the Employee Deductions to the appropriate third-party recipients. On average,

the Debtors have deducted approximately $91,000 per each bi-weekly payroll.

71. Due to the commencement of the Chapter 11 Cases, however, certain Employee

Deductions that were deducted from Employees earnings may not have been forwarded to the

appropriate third-party recipients prior to the Petition Date. Failure to forward 401(k) deductions

from Employees paychecks to the plan administrator may be a violation of the Employee

Retirement Income Security Act of 1974, potentially resulting in the Debtors officers and

directors being held personally liable for such amounts. Accordingly, the Debtors request

authority, but not direction, to forward any unpaid Employee Deductions to the appropriate third

party recipients and to continue to forward these pre-petition Employee Deductions to the

applicable third party recipients on a post-petition basis, in the ordinary course of business as

routinely done prior to the Petition Date.

72. Further, the Debtors are required by law to withhold from Employees wages

amounts related to federal, state and local income taxes, social security and Medicare taxes for

remittance to the appropriate federal, state, or local taxing authority (collectively, the Withheld

Amounts). The Debtors must then pay, inter alia, FICA, social security and Medicare taxes and

federal and state unemployment insurance (collectively, the Employer Payroll Taxes and,

together with the Withheld Amounts, the Payroll Taxes). Based on the Debtors most recent
payroll, the Payroll Tax withholdings are approximately $175,000 per bi-weekly payroll and the

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Debtors are directly liable to federal, state, and local taxing authorities in the amount of $55,000;

however, Payroll Tax liability is subject to seasonal fluctuation and is expected to increase in

January, 2018.

73. Prior to the Petition Date, the Debtors withheld the appropriate amounts from

Employees earnings for the Payroll Taxes, but such funds may not yet have been forwarded to

the appropriate taxing authorities. The Debtors request authority, but not direction, to forward,

or to direct third parties to forward, any outstanding Payroll Taxes to the appropriate third

parties, and to continue to honor and process the pre-petition payments for Payroll Taxes on a

post-petition basis, in the ordinary course of business, as routinely done prior to the Petition

Date.

(d) Employee Benefits

74. The Debtors maintain various plans and policies to provide their employees with

various benefits, including (i) medical, dental, and vision coverage through employee benefit

plans and flexible spending accounts, (ii) vacation time and other paid time off, (iii) short-term

and long-term disability and life insurance, and (iv) retirement plans (collectively, the

Employee Benefits). The Employee Benefits are described in detail in the Wage Motion.

75. The Employee Benefits represent an integral component of each employees

benefits package, and without these benefits, the Debtors believe they would be unable to retain
all of their personnel and would impose a severe hardship on the employees and their families.

The Debtors request the authority, but not the direction, to continue to honor the Employee

Benefits in the ordinary course of business, and to honor and pay any pre-petition amounts

related thereto.

76. I have read the Wage Motion and I believe that the relief requested by the Wage

Motion is in the best interest of the Debtors and their estates.

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E. Debtors Motion for Entry of Interim and Final Orders Authorizing the Debtors to
(A) Maintain Existing Bank Accounts and Continue Use of Cash Management
System, (B) Continue Use of Existing Business Forms and (C) Open New Debtor-in-
Possession Accounts (the Cash Management Motion)
77. In the Cash Management Motion, the Debtors seek authority to maintain existing

bank accounts, business forms and cash management system and, if required, to obtain a limited

waiver of the requirements of 11 U.S.C. 345(b). In addition, the Debtors seek entry of an order

granting post-petition intercompany claims administrative priority.

(a) Maintenance of Existing Bank Accounts

78. Prior to the Petition Date, the Debtors, in the ordinary course of their business,

maintained nine bank accounts, one of which contained a number of subaccounts, which are

described more fully on Exhibit A to the Cash Management Motion (collectively, the Bank
Accounts). Prior to the Petition Date, the Debtors cash management system operated in the

manner described in the Cash Management Motion. The flow of each of the Debtors funds

through the Bank Accounts is described in the Cash Management Motion and incorporated by

reference herein.

79. I understand that the United States Trustee has established Operating Guidelines

for chapter 11 cases (the Operating Guidelines) applicable to debtors-in-possession that

continue to operate their businesses after the commencement of their chapter 11 cases. One

provision of the Operating Guidelines requires a chapter 11 debtor-in-possession to open new

bank accounts and to close all existing accounts.

80. Immediate enforcement of the UST Guidelines in these Chapter 11 Cases,

however, would severely disrupt the Debtors financial operations and be antithetical to the

stabilization of the Debtors operations during this critical period immediately following the

filing of the Chapter 11 petitions. The Debtors are not seeking to be excused from complying

with the UST Guidelines in this case, but are instead seeking additional time in which to use its

existing Bank Accounts and Cash Management System during the Grace Period, while it

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undertakes to transfer its Bank Accounts to Authorized Accounts in accordance with the UST

Guidelines.

(b) Continued Use of Existing Business Forms

81. To minimize expense and inconvenience to their estates, the Debtors have also

requested authority to continue to use their existing supplies of correspondence and business

forms (including, but not limited to, letterhead, purchase orders, invoices, and checks), without

reference to their status as debtors in possession.

82. The Debtors will, of course, ensure that the Debtor In Possession designation is

placed on any new checks ordered or printed after the Petition Date.

83. The continued use of the Debtors existing business forms and checks will avoid

the expense and disruption that might otherwise result from ordering and instituting the use of

new business forms during the initial days of these Chapter 11 Cases.

(c) Continuation of the Existing Cash Management System

84. The Debtors maintain current and accurate accounting records of daily cash

transactions and submit that maintenance of their current cash management system will prevent

undue disruption to their businesses and operations, while protecting their existing cash assets for

the benefit of their estates. The components of the Debtors cash management system and the

flow of funds among the various Bank Accounts are set forth in detail in the Cash Management

Motion.

85. If the Debtors are not permitted to continue to use their cash management system

as described therein, it will impair the orderly operation of the Debtors businesses.

(d) The Requirements of Bankruptcy Code Section 345 are Satisfied

86. The Debtors represent that money deposited or invested is in compliance with 11

U.S.C. 345(b) as more specifically identified on Exhibit A to the Cash Management Motion. In

the event that any of the Bank Accounts do not comply with Section 345(b) of the Bankruptcy

Code, the Debtors request a limited waiver of the requirements of Bankruptcy Code Section
345(b) at this time, and will comply with any direction of the United States Trustee to ensure that

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deposit or investment of money of the Debtors estates will comply with Section 345(b) of the

Bankruptcy Code.

87. I have read the Cash Management Motion and believe that the relief requested by

the Cash Management Motion is in the best interests of the Debtors and their estates.

F. Debtors Motion for an Interim and Final Order Pursuant to 11 U.S.C. 105 and
366 of the Bankruptcy Code (I) Finding Utilities Adequately Assured of Future
Performance, (II) Enjoining Utilities from Altering, Refusing, Discontinuing, or
Interfering with Utility Service, and (III) Establishing Procedures for Determining
Requests for Additional Adequate Assurance (the Utilities Motion)
88. The Debtors seek entry of an interim order (the Interim Order) (i) prohibiting

any utility companies (each a Utility Company and, collectively, the, Utility Companies)

that provide service to the Debtors from altering, refusing, or discontinuing services to, or

discriminating against, the Debtors on account of pre-petition amounts due to them from the

Debtors, pending entry of a final order (the Final Order) granting the relief sought in the

Utilities Motion; (ii) approving the adequate assurance deposit proposed therein; and (iii)

approving a procedure for resolving any disputes regarding the appropriate amount of adequate

assurance to be provided with respect to each utility provider.

89. In the ordinary course of business, the Debtors regularly incur utility expenses for

water, sewer services, electricity, gas, local and long-distance telecom services, data services,

and other similar services. The Utility Companies, the particular services they provide and the
average monthly cost for these services are set forth more fully in the Utilities Motion and

incorporated by reference herein.

90. The Debtors have a long and established payment history with most or all of the

Utility Providers, indicating generally consistent payment for utility service. As of the Petition

Date, however, the Debtors may have had (a) pre-Petition Date accounts payable to certain

Utility Providers, (b) outstanding checks issued to certain Utility Providers in payment for pre-

Petition Date charges for utility services that had not cleared the Debtors bank account prior to

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the Petition Date, or (c) liabilities for pre-Petition Date utility services for which the Debtors had

not yet been billed.

91. Uninterrupted service from the Utility Companies is essential to the Debtors

continued operation and the possibility of a successful restructuring. The Debtors simply could

not maintain their operations in the absence of continuous service. It is therefore critical that the

Utility Companies be ordered to provide uninterrupted services to the Debtors, subject only to

the Debtors provision of adequate assurance as set forth in the Utilities Motion and incorporated

by reference herein.

92. I have read the Utilities Motion and believe that the relief requested by the

Utilities Motion is in the best interests of the Debtors and their estates, and is necessary to protect

the Debtors from the irreparable harm that would otherwise result from a loss of utility service.

G. Debtors Motion for Entry of Interim and Final Orders, Pursuant to Sections 105(a)
and 363 of the Bankruptcy Code, (I) Authorizing the Debtors to (A) Continue
Insurance Coverage Entered into Pre-petition and Satisfy Pre-petition Obligations
Related Thereto, Including Administrative and Broker Fees, (B) Renew,
Supplement, or Purchase Insurance Policies, and (C) Honor the Terms of the
Premium Financing Agreements; (II) Authorizing Banks to Honor and Process
Check and Electronic Transfer Requests Related Thereto; and (III) Granting
Related Relief (the Insurance Motion)
93. The Debtors seek entry of an order (a) authorizing, but not directing, the Debtors

to (i) continue insurance coverage entered into pre-petition and satisfy pre-petition obligations

related thereto, including administrative and broker fees, (ii) renew, supplement, or purchase
insurance policies in the ordinary course of business, and (iii) honor the terms of the Premium

Financing Agreements (defined below) and pay premiums thereunder; (b) authorizing banks and

other financial institutions (collectively, the Banks) to honor and process check and electronic

transfer requests related to the foregoing; and (c) granting related relief. On an interim basis, the

Debtors only seek authority to pay $20,000 which will become due and payable prior to a hearing

(the Final Hearing) that is scheduled as soon as practicable after the 21st day following the
entry of the Interim Order to consider approval of the relief requested by the Motion on a final

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basis and establish the date that is seven days prior to the Final Hearing as the deadline for

parties to file objections to the Motion.

94. In the ordinary course of business, the Debtors maintain approximately thirteen

(13) insurance policies (collectively, the Insurance Policies) that are provided and/or

administered by multiple third-party insurance carriers (collectively, the Insurance Carriers).

The Insurance Policies include, among other things, publisher and broadcaster insurance,

security and privacy insurance, regulatory action sublimit insurance, event management

insurance, property insurance, excess liability insurance, employment practice liability insurance,

fiduciary liability insurance, directors and officers liability insurance, crime liability insurance,

commercial automobile liability insurance, umbrella policy insurance, commercial general

liability insurance, workers compensation insurance and blanket accident insurance (for

business travel).

95. The Debtors procure their Insurance Policies through Arthur J. Gallagher & Co.

and USI Insurance Service of Massachusetts Inc. (the Insurance Brokers).2 The Insurance

Brokers assist the Debtors in obtaining comprehensive insurance coverage at competitive rates

by evaluating benefit plan offerings. The Insurance Brokers collect commissions when the

Debtors purchase coverage or when they remit premiums. The Debtors currently owe $2,500 to

the Insurance Brokers. The Debtors seek authority to honor any amounts owed to the Insurance
Brokers to ensure uninterrupted coverage under the Insurance Policies.

96. The Insurance Policies are critical to the preservation of the Debtors property,

and nonpayment of any premiums, deductibles, or similar obligations under any of the Insurance

Policies could result in one or more of the Insurance Carriers (a) terminating the existing

policies, (b) declining to renew the Insurance Policies, or (c) refusing to enter into new insurance

2
The Debtors are in the process of consolidating their Insurance Brokers, and intend to utilize Arthur J.
Gallagher & Co. for their insurance needs going forward due to, among other things, savings and their
expertise. As of the date of this Motion, the process of consolidating the Insurance Brokers has not yet
been finalized.

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agreements with the Debtors in the future. Although the Debtors are current with their

obligations under their Insurance Policies, additional insurance premiums will become due and

owing. Any interruption in insurance coverage could expose the Debtors to serious risks, such as

(a) incurring direct liability for claims, material costs, and other losses that would have been

payable by the Insurance Carriers under the Insurance Policies, and (b) higher costs to re-

establish lapsed policies or obtain new insurance coverage.

97. Moreover, maintaining the Insurance Policies is required by the Bankruptcy Code

and the Office of the United States Trustees (the U.S. Trustee) Operating Guidelines.

Section 1112(b)(4)(C) of the Bankruptcy Code provides that failure to maintain appropriate

insurance that poses a risk to the estate or to the public is cause for mandatory conversion or

dismissal of a chapter 11 case. 11 U.S.C. 1112(b)(4)(C). The Debtors believe it is essential to

their estates, and consistent with the Bankruptcy Code and the U.S. Trustees Operating

Guidelines, to maintain and continue to make all payments required under their Insurance

Policies and have the authority to supplement, amend, extend, renew, or replace their Insurance

Policies as needed, in their judgment, without further order of the Court.

98. I have read the Insurance Motion and believe that the relief requested by the

Insurance Motion is in the best interests of the Debtors and their estates.

H. Motion for an Order Authorizing the Debtors to Honor Certain Pre-petition

Obligations for the Benefit of Customers, Subscribers and Advertisers and to
Otherwise Continue Customer Programs and Practices in the Ordinary Course of
Business (the Customer Programs Motion)
99. The Debtors seek entry of an order authorizing, but not directing, the Debtors to

honor, in their sole discretion, certain pre-petition obligations (Customer Programs) for the

benefit of their customers, advertisers, and subscribers in the ordinary course of their businesses.

100. Prior to the Petition Dates, and in the ordinary course of business, the Debtors

engaged in certain practices, in the form of the Customer Programs, to develop and sustain their

positive reputations with subscribers, advertisers, and the marketplace generally. The Customer
Programs, which are customary in the Debtors industry, are used to generate goodwill, meet

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competitive market pressures, and ensure customer satisfaction, thereby retaining current

customers, attracting new ones, and ultimately enhancing revenue and profitability. The

Customer Programs include:

(a) Billing Adjustments

101. Despite the Debtors best efforts, from time to time in the Debtors businesses,

subscribers, advertisers, and other customers are invoiced in error for amounts that they did not

actually incur. These errors include improper invoicing (e.g., when the invoice created does not

properly reflect the items ordered by a customer), duplicate payment (e.g., when a customer is

charged or pays an incorrect price - either too high or too low for the Debtors products or

services), adjustments for advertising errors, and various other billing and payment errors

(collectively, the Invoicing Errors). When a customer pays the amounts invoiced in error, the

Debtors correct the Invoicing Errors through billing adjustments (the Billing Adjustments),

which typically take the form of credits to a customers account. The Debtors maintain a reserve

for payment of these Billing Adjustments. As of the Petition Date, the Debtors reserve for

payment of these Billing Adjustments is approximately $10,000 to cover known and unknown

Billing Adjustments, which have not been processed as of the Petition Date.

(b) Refunds

102. Despite the Debtors best efforts, from time to time in the Debtors businesses,

subscribers, advertisers, and other customers are invoiced correctly for services that they do not

receive. In these instances, the Debtors owe their customers refunds (the Refunds) for the

services or products they did not receive or a cancellation of these services or products. The vast

majority of these Refunds are owed when customers report that their paper was not properly

delivered, and the majority of these Refunds are for home delivery accounts in an average of

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$75. The Debtors process these refunds in the ordinary course of business. Because there is

some delay from the time the Refund is first discovered to when the Refund is processed, it is

difficult to predict with certainty the amount outstanding on account of such errors. As of the

Petition Date, the Debtors estimate they owe Refunds to approximately 25 customers in the total

amount of approximately $2,000.

(c) Printing, Inserting, and Delivery Providers

103. The Debtors contract with outside companies to print their newspapers, add

advertising inserts, and deliver newspapers to subscribers and retail locations (the Printing and

Delivery Providers). The Printing and Delivery Providers services are critical to the Debtors

operation because without the Printing and Delivery Providers, none of the Debtors newspapers

would get to customers, effectively ending the Debtors business. The Debtors contract with

third party contractors, who each employ numerous individuals.

104. The bulk of the Debtors Printing and Delivery Provider expenses stem from

printing, inserting, and distribution agreements with the Boston Globe newspaper. The

distribution agreement requires, inter alia, that the Boston Globe pay the Debtors for newspapers

distributed by the Boston Globe to third-party vendors. The Debtors and the Boston Globe have

historically exchanged payments for services rendered, without respect to any right of setoff.

However, the amounts due from the Debtors to the Boston Globe are largely subject to rights of

setoff. As of the Petition Date, the Debtors estimate that they owe not more than $800,000 to the

Printing and Delivery Providers, subject to offsets totaling $300,000 to $400,000.

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(d) Prepaid Newpaper Delivery and Advertising

105. A significant portion of the Debtors revenue comes from subscriptions and single

copy newspaper sales, with the remainder primarily coming from advertising. A large portion of

the subscription and sales income is prepaid, and the Debtors receive payments from their

customers in advance of providing the newspaper delivery or advertising (the Prepayments).

For instance, all subscribers prepay for newspaper subscriptions in advance of being provided the

newspapers (the Prepaid Subscriptions). The Debtors also receive payments from many

advertisers in advance of providing advertising to the customer (the Prepaid Advertisements).

The Debtors generally do not incur actual cash liability on account of the Prepaid Subscriptions

and Prepaid Advertisements, but instead incur the obligation to deliver the prepaid subscriptions

and advertisements. As of the Petition Date, the Debtors are holding approximately $940,000 on

account of Prepayments, related to both subscriptions ($895,000) and advertisements ($45,000).

(e) Postage Obligations

106. In the ordinary course of business, the Debtors make regular payments to the

Postmaster for the payment of postage fees which are incurred when the Debtors use the United

States Postal Service to mail their newspapers to their customers. As of the Petition Date, the

Debtors have checks outstanding to the Postmaster in an amount not exceeding $1,000. Payment

of this postage is critical to the delivery of the Debtors publication to many of the Debtors

customers.

107. Additionally, the Debtors make regular payments to a service provider for

printing and mailing invoices to home delivery subscribers. As of the Petition Date, the Debtors

owe not more than $4,000 to the service provider. Payment to this provider is critical to ensure

continuous revenue from the Debtors subscriber base.

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(f) Advertising Infrastructure

108. The Debtors have monetary obligations connected with their online advertising

infrastructure (the Advertising Infrastructure). The Debtors liability for the Advertising

Infrastructure relates to, inter alia, the costs of serving advertisements to visitors to the Debtors

website.

109. The Debtors estimate that they owe approximately $7,000 in claims related to the

Advertising Infrastructure as of the Petition Date. The Debtors believe that if they are not able to

continue to pay amounts owed related to the Advertising Infrastructure, they will quickly lose the

benefits of their online advertising revenue.

(g) Credit Card Processing Fees

110. The Debtors are parties to certain agreements with credit card processors (the

Credit Card Processors) under which the Credit Card Processors accept and process credit card

payments made by the Debtors customers for subscription and advertising purchases, both by

phone and online. The Debtors desire to continue the processing arrangements in the ordinary

course, including honoring software fees, adjustments, returns, and refunds that may relate to the

prepetition period. Preserving the processing relationship is essential to the Debtors ability to

allow their customers to continue to pay by credit card and thus to the preservation of the

customer relationship and the maximization of estate value for all stakeholders. As of the

Petition Date, the Debtors estimate they may owe approximately $4,000 on account of

prepetition Credit Card Processing Fees, including approximately $2,000 for software fees to

third party processors and a reserve of $2,000 for potential returns and adjustments against

remitted balances.

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(h) Customer Service and Telemarketing Programs

111. In order to best serve their customers, the Debtors have engaged the services of

certain third-party call centers to conduct certain telephone marketing activities and address

inquiries and issues related to the Debtors publications, including, but not limited to, newspaper

subscription issues, delivery issues, billing questions, advertising, customer accounting, online

technical issues, and debt collection services (the Call Centers). The Call Centers function as

critical intermediaries between the Debtors and their customers. Due to the direct level of contact

between the Call Centers and the Debtors customers, many customers perceive the Call Centers

as direct employees of the Debtors and purchase the Debtors products through Call Center

representatives. As a result, the failure of the Call Centers to adequately perform their services

could severely undermine revenue and customer loyalty. The Debtors estimate that they owe the

Call Centers approximately $30,000 as of the Petition Date.

(i) Trade Programs

112. The Debtors have entered into agreement with certain advertisers whereby the

Debtors exchange advertising space in their newspapers in return for services provided to the

Debtors by the advertiser (the Trade Agreements). As of the Petition Date, the Debtors

estimate that there is $35,000 of notional liability in connection with the Trade Agreements. The

Debtors do not anticipate having to make any payments on account of the Trade Agreements

because the Debtors will be able to satisfy any obligations under the Trade Agreements by

providing the counter parties with advertising in the publications owned by the Debtors.

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(j) Circulation System Management and Website Support

113. The Debtors rely on third-party vendors to provide critical circulation

management software and website support functions (all together, the Software Support

Providers). The Software Support Providers provide services that ensure the Debtors can, for

instance, receive and track subscriptions and ensure delivery to paid subscribers and manage

their website. Without the Software Support Providers, the Debtors would be unable to ensure

accurate delivery of both print and online news content to their customers. The Debtors estimate

that they may owe as much as $36,000 to the Software Support Providers as of the Petition Date.

114. I have read the Customer Programs Motion and believe that the relief requested

by the Customer Programs Motion is in the best interests of the Debtors and their estates.

I. Debtors Motion for an Order Authorizing the Retention and Employment of

Professionals Used in the Ordinary Course of Business (the Ordinary Course
Professional Motion)
115. The Debtors seek entry of an order authorizing them to retain and employ certain

professionals (collectively, the Ordinary Course Professionals) without the need to file formal

retention or fee applications under sections 327, 328, 329, and 330 of the Bankruptcy Code.

116. The Ordinary Course Professionals include various attorneys, advisors and

consultants. The Ordinary Course Professionals provide services which are unrelated to the
administration of these chapter 11 cases, but are nevertheless important to the day-to-day

operation of the Debtors business.

117. The Debtors propose that they be authorized to pay, without formal application to

the Court by any Ordinary Course Professional but subject to certain enumerated notice

requirements, 100% of the fees and expenses of each Ordinary Course Professional upon the

submission to the Debtors of an appropriate invoice setting forth in reasonable detail the nature

of the services rendered after the Petition Date (the Invoice), provided that such fees and

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 Case 17-12881-LSS Doc 3 Filed 12/08/17 Page 28 of 30

expenses do not exceed for each Ordinary Course Professional a total of $25,000 per month on

an annual basis.

118. The Debtors do not believe that the Ordinary Course Professionals are

professionals within the meaning of section 327 of the Bankruptcy Code because their services

are not directly related to the administration of the Debtors bankruptcy cases, but rather are

connected to the Debtors ongoing business operations. Moreover, without the Ordinary Course

Professionals services, the Debtors would incur additional and unnecessary expenses because

they would be forced to retain other professionals who lack the Ordinary Course Professionals

background and expertise. Therefore, the Debtors believe that it is in the best interest of the

Debtors estates, the Debtors creditors, and all other parties in interest to retain and compensate

the Ordinary Course Professionals in accordance with the requested procedures to prevent any

disruption in the services that are required for the Debtors day-to-day operations.

119. I have read the Ordinary Course Professionals Motion and believe that the relief

requested by the Ordinary Course Professionals Motion is in the best interests of the Debtors and

their estates.

J. Motion of Debtors and Debtors-in-Possession Pursuant to Sections 105(a), 363 and

365 of the Bankruptcy Code for (I) an Order (A) Approving and Authorizing
Bidding Procedures in Connection with the Sale of Substantially All the Debtors
Assets, (B) Approving and Authorizing the Bid Protections, (C) Scheduling the
Related Auction and Hearing to Consider Approval of the Sale, (D) Approving
Procedures Related to the Assumption and Assignment of Certain Executory
Contracts and Unexpired Leases, (E) Approving the Form and Manner of Notice
Thereof, and (F) Granting Related Relief; and (II) an Order (A) Authorizing the
Sale of Substantially All of the Debtors Assets Free and Clear of Liens, Claims,
Encumbrances, and Other Interests, (B) Authorizing and Approving the Debtors
Performance Under the Asset Purchase Agreement, (C) Approving the Assumption
and Assignment of Certain of the Debtors Executory Contracts and Unexpired
Leases Related Thereto, and (D) Granting Related Relief (the Sale Procedures
Motion)
120. The Debtors seek entry of orders approving proposed Bid Procedures in

connection with the sale of substantially all of the Debtors assets subject to the outcome of a

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competitive bidding process and, if the Debtors receive one or more timely and acceptable

Qualified Bids in addition to the Stalking Horse APA, an Auction.

121. Additionally, the Debtors seek related relief to facilitate the Bid Procedures and

Sale, including, inter alia, authorization of Bid Protections when and if payable pursuant to the

Stalking Horse APA; scheduling the Auction and such hearings and notice periods as appropriate

to consummate the Sale; and upon completion of the approved procedures, entry of an order

authorizing the Sale of the Debtors assets free and clear of liens, claims, encumbrances, and

other interests, except as provided by the terms of any purchase agreement constituting a

Successful Bidders Qualified Bid.

122. I have read the Bid Procedures Motion and believe that the relief requested by the

Bid Procedures Motion is in the best interests of the Debtors and their estates.

PART III: CONCLUSION

123. Accordingly, for the reasons stated herein and in each of the First Day Pleadings,

the relief sought therein is in the best interests of the Debtors, their creditors and estates; and

therefore, on behalf of the Debtors, I respectfully request that the First Day Pleadings be granted.

[The remainder of this page in intentionally blank]

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Ideclare under penalty of peijury that, to the best of my knowledge, and after reasonable

inquiry, the foregoing is true and correct.

Dated: December 8, 2017 _

-----
Name: Jeffrey W.~K?agram
Tme: Chief Operating Officer
for HeraldMedia Holdings, Inc., et al.
62921 172 v3

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