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Declaration by Reader's Digest Chief Executive

Declaration by Reader's Digest Chief Executive

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Published by DealBook
Bankruptcy declaration by the chief executive of Reader's Digest, Robert Guth.
Bankruptcy declaration by the chief executive of Reader's Digest, Robert Guth.

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categoriesBusiness/Law
Published by: DealBook on Feb 18, 2013
Copyright:Attribution Non-commercial

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07/10/2013

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US_ACTIVE:\44121947\18\69252.0040
UNITED STATES BANKRUPTCY COURTSOUTHERN DISTRICT OF NEW YORK---------------------------------------------------------------x:In re : Chapter 11 Case No.:RDA HOLDING CO.,
et al.
, : 13-_____ (___):Debtors. : (Jointly Administered):---------------------------------------------------------------xDECLARATION OF ROBERT E. GUTHPURSUANT TO LOCAL BANKRUPTCY RULE 1007-2
I, Robert E. Guth, make this declaration under 28 U.S.C. § 1746:1.
 
I am the President and Chief Executive Officer of RDA Holding Co.(“
RDA Holding
”) and The Reader’s Digest Association, Inc. (“
Reader’s Digest
”). I also serveas a member of the board of directors for both RDA Holding and Reader’s Digest. OnFebruary 17, 2013 (the “
Commencement Date
”), RDA Holding, Reader’s Digest, and certain of their subsidiaries and affiliates (collectively, the “
Debtors
,” and together with their non-Debtorsubsidiaries, “
RDA
”) each commenced a case under chapter 11 of title 11 of the United StatesCode (the “
Bankruptcy Code
”).2.
 
I am knowledgeable and familiar with the business and financial affairs of RDA. I became a director of RDA Holding and Reader’s Digest in April 2011 and have servedas the President and Chief Executive Officer of both those entities since September 2011.Except as otherwise indicated herein, the facts set forth in this Declaration are based upon mypersonal knowledge, my review of relevant documents, information provided to me byemployees working under my supervision, or my opinion based upon experience, knowledge,and information concerning the operations of RDA and the media and marketing industry. If called upon to testify, I would testify competently to the facts set forth in this Declaration.
13-22233-rdd Doc 3 Filed 02/17/13 Entered 02/17/13 23:50:04 Main DocumentPg 1 of 173
 
 2
US_ACTIVE:\44121947\18\69252.0040
Unless otherwise indicated, the financial information contained herein, and in the schedulesattached hereto, is unaudited and provided on a consolidated basis for RDA, which includescertain of its non-Debtor subsidiaries.3.
 
This Declaration is submitted pursuant to Rule 1007-2 of the LocalBankruptcy Rules for the Southern District of New York (the “
Local Rules
”) for the purpose of apprising the Court and other parties in interest of the circumstances that compelled thecommencement of these chapter 11 cases and in support of (a) the Debtors’ chapter 11 petitionsand (b) the motions and applications that the Debtors have filed with the Court, including, butnot limited to, the “first-day motions” (the “
First-Day Pleadings
”). I am authorized to submitthis Declaration on behalf of the Debtors.
Preliminary Statement
4.
 
The Debtors appear before the Court with a prenegotiated restructuringthat will enable the Debtors to right-size their debt, reduce their operational overhead, andcomplete an ongoing transformation of the Debtors and their core businesses. The Debtors havereached a consensual agreement on the terms of a financial restructuring with both their securedlender and their secured noteholders, and anticipate exiting chapter 11 with an 80% reduction of their indebtedness.5.
 
These filings mark the Debtors’ second trip through chapter 11. Uponemerging from chapter 11 in early 2010, RDA continued to be buffeted by economic downturns,domestically and internationally, and the accelerated shift from traditional print media andmarketing to digital media and marketing, severely hampering the Debtors’ ability to thrive.Since the installation of the Debtors’ new management team in 2011, the Debtors have embarkedon an ambitious but necessary set of initiatives to transform the Debtors’ core businesses around
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 3
US_ACTIVE:\44121947\18\69252.0040
their iconic brands, reduce overhead and structural complexity, and sell underperforming andnon-core businesses. RDA now is a healthier, smaller company that is poised to generatesignificant cash flows, but its over-sized debt load is too burdensome.6.
 
In 2012, facing a near-term liquidity crisis, the Debtors and theirprofessionals commenced negotiations with the Debtors’ major stakeholders, including WellsFargo Bank, N.A. (and, together with Wells Fargo Principal Lending, LLC, “
Wells Fargo
”) andan ad hoc committee holding more than two-thirds of the Debtors’ senior secured notes (the “
AdHoc Committee
”). These negotiations culminated in a prenegotiated chapter 11 restructuringagreement (the “
Restructuring Agreement
”) that provides the Debtors with an approximately$105 million debtor-in-possession financing and adequate exit financing. A copy of theRestructuring Support Agreement evidencing the Ad Hoc Committee’s and Wells Fargo’ssupport of the Restructuring Agreement is attached hereto as
Exhibit “A”
(the “
RestructuringSupport Agreement
”). The Restructuring Agreement also provides for the Debtors’ promptemergence from chapter 11. The Debtors will shortly file a chapter 11 reorganization plan withthe hope that confirmation of such plan will occur within four months.7.
 
By commencing these chapter 11 cases, the Debtors are seeking toimplement the proposed Restructuring Agreement that will substantially enhance their liquidityand maximize revenue growth potential. The Debtors believe that the contemplated consensualreorganization will enable the Debtors to restructure their capital structure and global operationsin accordance with the current management’s revised business plan.8.
 
This Declaration is intended to provide a summary overview of thebusiness of RDA and the need for restructuring the business pursuant to chapter 11. Section Idescribes the nature of RDA’s businesses. Section II describes the current capital structure of 
13-22233-rdd Doc 3 Filed 02/17/13 Entered 02/17/13 23:50:04 Main DocumentPg 3 of 173

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