Enters into Restructuring Agreement with Sopris Capital Advisors to Invest $50
Million of New Capital and Convert More Than $70 Million of Second Lien Debt
Under Proposed Reorganization Plan
Seeks Approval to Borrow $150 Million Under Debtor-in-Possession Financing
Agreement Arranged by Goldman Sachs Credit Partners
Expects Normal Operations to Continue
DOTHAN, Ala., Oct. 16 /PRNewswire-FirstCall/ -- Movie Gallery, Inc.
(Nasdaq: MOVI) today announced that it and certain of its subsidiaries filed
voluntary petitions for relief under Chapter 11 of the United States
Bankruptcy Code in the United States Bankruptcy Court for the Eastern District
of Virginia, Richmond Division (the "Bankruptcy Court") to re-align the
Company's business operations and restructure its debt. The Company intends to
work with its constituencies to exit bankruptcy as expeditiously as possible
while executing on its reorganization plans. Movie Gallery's Canadian
subsidiary was not a part of the filing and will continue operating outside of
the Chapter 11 cases.
The Company also announced today that it has agreed to the terms of a
restructuring plan with Sopris Capital Advisors LLC ("Sopris"), a private
investment fund, under which Sopris has agreed to fund a plan of
reorganization consistent with the terms set forth in a restructuring term
sheet. If approved by the Bankruptcy Court, the plan of reorganization would
provide 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 new equity of
reorganized Movie Gallery;
-- The Company's first lien indebtedness would remain in place on
restructured terms to be agreed upon by the Company, Sopris and the
first lien lenders;
-- Amendments to the Company's remaining second lien debt (following
conversion of the second lien debt held by Sopris) to revise interest
rates based upon the terms of the restructured first lien debt and
modify certain PIK interest terms and conditions;
-- A commitment by Sopris to backstop a $50 million equity rights offering
to be made available to all eligible holders of the 11% senior notes;
and
-- Provisions for holders of the Company's common equity to receive under
certain circumstances a minority share of the equity in reorganized
Movie Gallery, estimated at approximately 2% of the total equity
interests. Under the proposal, existing shares of common stock will be
cancelled.
The proposed restructuring term sheet is supported by holders who own a
majority of the 11% senior note holders and a majority of the second lien
lenders, each of whom has signed an agreement to support a plan of
reorganization consistent with the terms set forth in a restructuring term
sheet. The Company is continuing to negotiate with its first lien lenders
regarding the revised terms and conditions of the first lien indebtedness
under the plan of reorganization and hopes to reach an agreement shortly.
Importantly, the proposed plan of reorganization would reduce the Company's
total indebtedness by approximately $400 million and would be expected to
improve cash flow by significantly reducing on-going interest expense.
The Company is also in advanced negotiations with a number of the major
motion picture studios. The Company has sought permission from the Bankruptcy
Court to enter into agreements with the studios to restore normal credit
terms.
"Movie Gallery needs to re-align its cost structure due to the ongoing
changes in our industry," said Joe Malugen, Chairman, President and Chief
Executive Officer of Movie Gallery. "Although the Company has taken numerous
steps to reduce its debt and strengthen its balance sheet through closing
unprofitable stores, headcount reductions and other means, these actions were
not sufficient to offset the significant shift in our business and the cost of
our substantial debt obligations. After careful consideration of all available
alternatives, the Company's Board of Directors determined that a Chapter 11
filing was a necessary and prudent step and the best way to obtain the
financing necessary to maintain regular operations and allow for a successful
restructuring."
Malugen continued, "Filing for Chapter 11 allows us to operate our
business without interruption while continuing to implement a debt
restructuring in a controlled, Court-supervised environment. The support we
are receiving from our creditors as we enter this process is a testament to
their confidence in Movie Gallery's ability to emerge from bankruptcy as a
stronger more competitive company. We are pleased to have a financial sponsor
that is deeply committed to the future success of the Company and we expect
that the support from our creditors and studio suppliers will significantly
accelerate Movie Gallery's emergence from bankruptcy protection."
In conjunction with the filing, the Company is seeking approval to enter
into a $150 million debtor-in-possession (DIP) financing agreement arranged by
Goldman Sachs Credit Partners. If approved by the Bankruptcy Court the DIP
financing will be used to provide up to $50 million of incremental liquidity
in the form of a new revolving loan, in addition to a letter of credit
facility and a $100 million term loan. The DIP financing will be made
available to refinance the Company's existing revolving credit facility at a
lower interest rate and provide the Company with additional working capital.
Movie Gallery has asked the Court for additional authorizations, including
permission to continue paying employee wages and salaries and to provide
employee benefits without interruption.
During the Chapter 11 process, vendors should expect to be paid for
post-petition purchases of goods and services in the ordinary course of
business. The Company has also asked for Court permission to continue to honor
its current customer policies regarding merchandise returns and outstanding
gift cards and customer loyalty programs so that the Chapter 11 process will
not impact the Company's customers.
Mr. Malugen, concluded, "I would like to thank our customers and vendors
for their continued support during this process. We also appreciate the
ongoing loyalty and support of our employees, whose dedication and hard work
are critical to our success and to the future of the Company. Our management
team is committed to making this financial restructuring successful and
leading Movie Gallery toward a bright future."
The Company and its domestic subsidiaries filed their voluntary Chapter 11
petitions in the United States Bankruptcy Court for the Eastern District of
Virginia, Richmond Division. The main case has been assigned case number
07-33849. Additional information about Movie Gallery's restructuring is
available at the Company's website www.moviegallery.com or via the Company's
restructuring information line, 888-647-1730. For access to Court documents
and other general information about the Chapter 11 cases, please visit
www.kccllc.net/moviegallery.
About Movie Gallery
The Company is the second largest North American video rental company with
approximately 4,430 stores located in all 50 U.S. states and Canada operating
under the brands Movie Gallery, Hollywood Video and Game Crazy. The Game Crazy
brand represents 595 in-store departments and 14 free-standing stores serving
the game market in urban locations across the United States. 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 obtain court
approval for, and operate subject to the terms of the DIP 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 restructuring term sheet; (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 pre-petition 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 pre-petition
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, Inc.
-0- 10/16/2007
/CONTACT: Analysts and Investors, Thomas Johnson of Movie Gallery, Inc.,
+1-334-702-2400; and Media, Andrew B. Siegel or Meaghan A. Repko of Joele
Frank, Wilkinson Brimmer Katcher, +1-212-355-4449, for Movie Gallery, Inc./
/Web site: http://www.moviegallery.com
http://www.kccllc.net/moviegallery/
(MOVI)
CO: Movie Gallery, Inc.
ST: Alabama
IN: ENT FLM GAM
SU: BCY RCN
RD-HB
-- NYTU058 --
9151 10/16/2007 01:48 EDT http://www.prnewswire.com
