Movie Gallery Files Plan of Reorganization and Disclosure Statement With Support of Major Constituents

    DOTHAN, Ala., Dec. 22 /PRNewswire-FirstCall/ -- Movie Gallery, Inc.
 ("Movie Gallery" or the "Company") (OTC Pink Sheets: MOVIQ) today announced
 that the Company and its debtor subsidiaries have filed a Joint Plan of
 Reorganization (the "Plan") and Disclosure Statement (the "Disclosure
 Statement") with the United States Bankruptcy Court for the Eastern
 District of Virginia, Richmond Division (the "Bankruptcy Court"). A hearing
 to consider approval of the Disclosure Statement has been scheduled for
 January 29, 2008.
 
     The Company also announced that the Plan filed today is supported by
 both Sopris Capital Advisors LLC ("Sopris"), in its capacity as the largest
 holder of Movie Gallery's 11% Senior Notes and in its capacity as a
 substantial holder of claims under Movie Gallery's second lien credit
 agreement, as well as the steering committee for holders of claims under
 Movie Gallery's first lien credit agreement. Movie Gallery expects that it
 will ask the Bankruptcy Court to confirm the Plan early in the second
 quarter of 2008, and hopes to emerge from bankruptcy shortly thereafter.
 
     "The filing of our Plan is a significant step towards emerging from
 Chapter 11 as a stronger, more competitive company," said Joe Malugen,
 Chairman, President and Chief Executive Officer of Movie Gallery. "We have
 made substantial progress in addressing our operational and financial
 challenges and we are confident that the company will be well-positioned to
 operate profitably and create value for all of its stakeholders upon
 emergence."
 
 

     The Plan provides for the following:
 
     -- Conversion of the Company's $325 million 11% Senior Notes and other
        general unsecured claims into new equity of reorganized Movie Gallery;
     -- Conversion of approximately $72 million of the Company's $175 million
        second lien indebtedness, held by Sopris, into equity of reorganized
        Movie Gallery;
     -- The Company's first lien indebtedness would remain in place on
        restructured terms in accordance with that certain First Lien Term
        Sheet attached to the Plan;
     -- The Company's remaining second lien debt (following conversion of the
        second lien debt held by Sopris) would remain in place on restructured
        terms set forth in that certain Second Lien Term Sheet attached to the
        Plan;
     -- A commitment by Sopris to backstop a $50 million equity rights offering
        to be made available to eligible 11% Senior Noteholders; and
     -- Existing shares of the Company's common stock will be cancelled.
 
     Mr. Malugen added, "I want to thank all of our partners and associates,
 whose perseverance and commitment to Movie Gallery has played a significant
 role in helping us reach this significant milestone."
 
     The Disclosure Statement filed today contains a historical profile of
 the company, a description of proposed distributions to creditors, as well
 as many of the technical matters required for the solicitation process,
 such as descriptions of who will be eligible to vote on the Plan and the
 voting process itself.
 
     Movie Gallery's Plan and Disclosure Statement are available at
 www.kccllc.net/moviegallery.
 
     This release is not intended as a solicitation for a vote on the Plan.
 
     About Movie Gallery
 
     The Company is the second largest North American video rental company
 with approximately 3,650 stores located in all 50 U.S. states and Canada
 operating under the brands Movie Gallery, Hollywood Video and Game Crazy.
 Since Movie Gallery's initial public offering in August 1994, the Company
 has grown from 97 stores to its present size through acquisitions and new
 store openings. For more information about the Company, please visit our
 website: www.moviegallery.com.
 
     Forward-looking Statements
 
     This press release, as well as other statements made by Movie Gallery
 may contain forward-looking statements within the "safe harbor" provisions
 of the Private Securities Litigation Reform Act of 1995, that reflect, when
 made, the Company's current views with respect to current events and
 financial performance. Such forward-looking statements are and will be, as
 the case may be, subject to many risks, uncertainties and factors relating
 to the Company's operations and business environment, which may cause the
 actual results of the Company to be materially different from any future
 results, express or implied, by such forward-looking statements. Factors
 that could cause actual results to differ materially from these
 forward-looking statements include, but are not limited to, the following:
 (i) the ability of the Company to continue as a going concern; (ii) the
 ability of the Company to operate subject to the terms of the debtor in
 possession financing facility; (iii) the Company's ability to obtain court
 approval with respect to motions in the Chapter 11 proceeding prosecuted by
 it from time to time; (iv) the ability of the Company to develop,
 prosecute, confirm and consummate one or more plans of reorganization with
 respect to the Chapter 11 cases including a plan consistent with the terms
 set forth in the Plan Support Agreement; (v) risks associated with a
 termination of the agreement and financing availability; (vi) risks
 associated with third parties seeking and obtaining court approval to
 terminate or shorten the exclusivity period for the Company to propose and
 confirm one or more plans of reorganization, for the appointment of a
 Chapter 11 trustee or to convert the cases to Chapter 7 cases; (vii) the
 ability of the Company to obtain and maintain normal terms with vendors and
 service providers; (viii) the Company's ability to maintain contracts and
 leases that are critical to its operations; (ix) the potential adverse
 impact of the Chapter 11 cases on the Company's liquidity or results of
 operations; (x) the ability of the Company to execute its business plans
 and strategy, including the operational restructuring initially announced
 in 2007, and to do so in a timely fashion; (xi) the ability of the Company
 to attract, motivate and/or retain key executives and associates; (xii)
 general economic or business conditions affecting the video and game rental
 and sale industry (which is dependent on consumer spending), either
 nationally or regionally, being less favorable than expected; and (xiii)
 increased competition in the video and game rental and sale industry. Other
 risk factors are listed from time to time in the Company's United States
 Securities and Exchange Commission reports, including but not limited to
 the Annual Report on Form 10-K for the year ended December 31, 2006. Movie
 Gallery disclaims any intention or obligation to update or revise any
 forward-looking statements, whether as a result of new information, future
 events and/or otherwise.
 
     Similarly, these and other factors, including the terms of any plan of
 reorganization ultimately confirmed, can affect the value of the Company's
 various prepetition liabilities, common stock and/or other equity
 securities. Additionally, no assurance can be given as to what values, if
 any, will be ascribed in the bankruptcy proceedings to each of these
 constituencies. A plan or plans of reorganization could result in holders
 of Movie Gallery's common stock or other equity interests and claims
 relating to prepetition liabilities receiving no distribution on account of
 their interest and cancellation of their interests and their claims and
 cancellation of their claims. Under certain conditions specified in the
 Bankruptcy Code, a plan of reorganization may be confirmed notwithstanding
 its rejection by an impaired class of creditors or equity holders and
 notwithstanding the fact that certain creditors or equity holders do not
 receive or retain property on account of their claims or equity interests
 under the plan. In light of the foregoing, the Company considers the value
 of the common stock and claims to be highly speculative and cautions equity
 holders that the stock and creditors that the claims may ultimately be
 determined to have no value. Accordingly, the Company urges that
 appropriate caution be exercised with respect to existing and future
 investments in Movie Gallery's common stock or other equity interest or any
 claims relating to pre-petition liabilities.
 
 

     Contacts:
     Analysts and Investors: Thomas Johnson, Movie Gallery, Inc., 334-702-2400
     Media: Andrew B. Siegel or Meaghan A. Repko of Joele Frank, Wilkinson
     Brimmer Katcher, 212-355-4449
 
 

SOURCE Movie Gallery