Movie Gallery lenders agree to forbearance

DOTHAN, Ala. Movie Gallery Inc. today announced that the company and certain lenders under its First Lien Credit Facility have executed a forbearance agreement that is effective as of July 2. Under the agreement, the senior lender group will forbear until August 14 from exercising rights and remedies arising from existing defaults, absent any new defaults under the senior credit facility or the forbearance agreement.

Joe Malugen, chairman, president and ceo of Movie Gallery, said, "We are pleased to be working cooperatively with our lenders to address the company's current financial situation. In the near future, we expect to present a longer-term solution to the lender group that will address the operational and financial issues currently impacting our business. Meanwhile, our plan is to operate our stores and, together with our outside advisors, execute on our plan to conserve cash and improve profitability. We appreciate the strong support of our customers, the continued dedication of our employees, and the cooperation of our trusted business partners as we work through this challenging period."

Earlier this month, Movie Gallery said it was unable to meet loan payments for its quarter ended July 1 and is exploring restructuring alternatives that include a possible sale of the company.

Movie Gallery has been saddled with declining sales for more than a year and reported a $14.9 million loss in the first quarter of 2007 compared to a profit of $40.3 million the same period last year. The chain also reported a 6.7% drop in first quarter revenue, a 5.9% decline in same-store sales and closed 184 stores.