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UPDATE: Gallery Exits Bankruptcy, Names New Chairman, President and CEO

20 May, 2008 By: Erik Gruenwedel

Movie Gallery Inc. is no longer bankrupt and co-founder Joe Malugen is out as chairman of the board, president and CEO.

Malugen remains on the board.

The Dothan, Ala.-based No. 2 DVD rental chain May 20 emerged from Chapter 11 protection seven months and four days after filing for bankruptcy with more than $1.4 billion in liabilities.

Gallery announced a new seven-member board of directors led by four private equity executives, including Neil Subin, managing director of Trendex Capital Management, who assumes the position of chairman.

C.J. Gabriel Jr. (Gabe) has been appointed as president and CEO.

“Gabe is a highly-experienced and proven executive with the right qualities -- inspirational leadership, strategic insight and operational discipline -- to lead Movie Gallery forward,” Malugen said. “Gabe knows what it takes to run a successful retail business and understands what actions can be taken in today's rapidly evolving video rental industry. Movie Gallery is emerging from bankruptcy with a talented new leader committed to meeting the needs of our customers, employees and other stakeholders. I am confident in Gabe's ability to return the Company to profitability.”

“This is a tremendous opportunity and it will be an honor for me to lead this Company's outstanding partners and associates,” Gabriel said. “I believe that the primary function of a leader is to inspire hope and enthusiasm throughout the organization and I look forward to working closely with the Company's talented managers and employees. I plan to foster a winning culture across our nearly 3,300 retail locations through a strong focus on achieving outstanding results. I am fully committed to enhancing store operations, improving operating metrics, further reducing debt and better integrating this great Company's brands and businesses. While there is a lot of work ahead, I am excited about all that can be achieved and energized by the tremendous potential I see at Movie Gallery.”

Gabriel brings more than 25 years of experience as a senior executive in the consumer products and retail industries. He most recently served as EVP of marketing, merchandising and supply chain management at Albertsons.

The other financial executives are: Mark Holliday, partner and portfolio manager at Camden Asset Management LP; Steven Scheiwe, president of Ontrac Advisors Inc.; and Richard Shorten, founder, principal and managing member of Silvermine Capital Resources LLC.

Other board members include Bob Fiorella, consultant and former SVP of finance at 20th Century Fox Home Entertainment; Thomas McGrath, senior managing director of Crossroads Media.

Exit from bankruptcy means all existing shares of common stock, its 11% senior notes and 9.625% senior subordinated notes (bonds) are erased. Gallery will issue new shares of common stock and warrants.

The $325 million in senior notes (bonds) and other unsecured claims will be converted into new equity of the reorganized company with Sopris Capital Advisors investing $50 million in new equity.

Sopris holds $72 million of Gallery's $175 million second-lien debt.

The exit — considered a formality following approval April 9 of the company's second amended plan of reorganization by the U.S. Bankruptcy Court in Richmond, Va. — included the closing of a $100 million financing facility. Gallery has an additional $25 million in credit as well.

“This is a great day for Movie Gallery and all of our customers, employees and business partners,” Malugen said. “Through this restructuring, we have effectively addressed our financial and operational challenges and laid a strong foundation for the future success of Movie Gallery.”

He said the company emerged with a stronger balance sheet, cash to fund operations and a streamlined store portfolio that will allow it to compete successfully in a rapidly changing home entertainment market.

“The rapid and successful restructuring of Gallery is a testament to our outstanding partners and associates, and we appreciate their hard work and dedication throughout this process,” Malugen said.

Gallery operates 3,300 stores under the Gallery, Hollywood Video and Game Crazy brands since going public in 1994.

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