is incorporated into this Item 1.01 by reference.
Item 1.03 Bankruptcy or Receivership
As previously reported, on October 16, 2007, Movie Gallery, Inc. (the “Company”) and each of its United States subsidiaries (collectively,
the “Debtors”) filed voluntary petitions in the United States Bankruptcy Court for the Eastern District of Virginia, Richmond Division (the “Bankruptcy Court”) seeking reorganization relief under the provisions of Chapter 11 of
Title 11 of the United States Code (the “Bankruptcy Code”) (Consolidated Case No. 07-33849) (collectively, the “Cases”). The Cases have been assigned to the Honorable Douglas O. Tice, Jr. and are being jointly administered.
The Debtors continue to operate their businesses and manage their properties as debtors in possession under the jurisdiction of the Bankruptcy Court and in accordance with applicable provisions of the Bankruptcy Code and orders of the Bankruptcy
Court.
In connection with the Cases, the Debtors have entered into a $150 million secured super-priority debtor in possession credit and
guaranty agreement (the “DIP Credit Agreement”) among the Company, certain of the Company’s subsidiaries (all of whom are Debtors), as Guarantors, Goldman Sachs Credit Partners L.P., as Lead Arranger and Syndication Agent, The Bank of
New York, as Administrative Agent and Collateral Agent and the lenders. A copy of the DIP Credit Agreement is filed herewith as Exhibit 10.1 and is incorporated herein by reference.
The DIP Credit Agreement provides for (i) a $50 million revolving loan and letter of credit facility (the “Revolving Facility”) and
(ii) a $100 million term loan. The proceeds of the loans and other financial accommodations incurred under the Credit Agreement will be used to refinance the Company’s existing $100 million revolving credit facility, pay certain
transactional expenses and fees incurred by the Company and support the Debtors’ working capital needs and general corporate purposes. At the Company’s option, a portion of the Revolving Facility may be made available as swing line loans
or for the issuance of letters of credit. On October 16, 2007, the Debtors received interim approval from the Bankruptcy Court to access up to $140 million of the DIP Credit Agreement. On October 17, 2007, the Company closed on its DIP
financing facility and, in connection therewith, (i) refinanced in full the existing $100 million prepetition revolving credit facility and (ii) was granted access of up to $40 million under the Revolving Facility. The Bankruptcy Court has
scheduled a hearing for final approval of the DIP Credit Agreement on November 6, 2007. On October 16, 2007, the Company issued a press release (the “Press Release”) announcing the interim approval of the DIP Credit Agreement. A
copy of the release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.
Advances under the DIP Credit Agreement
will bear interest, at the Borrower’s option, (i) at the Base Rate plus 2.50% per annum plus the Applicable Case Milestone Margin (as defined below) then in effect (if any) or (ii) at the Adjusted Eurodollar Rate plus
3.50% per annum plus the Applicable Case Milestone Margin. As defined in the DIP Credit Agreement, Applicable Case Milestone Margin then in effect means: (i) 0.75%, in the event the Debtors fail to file a Chapter 11 plan of reorganization
or liquidation and a related disclosure
2
statement with the Bankruptcy Court on or prior to January 15, 2008, and/or in the event an order approving the Debtors’ disclosure statement is
not entered by the Bankruptcy Court in the Cases on or prior to March 1, 2008; (ii) 1.50%, in the event an order confirming the Debtors’ Chapter 11 plan of reorganization or liquidation is not entered by the Bankruptcy Court in the
Cases on or prior to April 30, 2008; and (iii) 2.25%, in the event the effective date of the Debtors’ Chapter 11 plan of reorganization or liquidation has not occurred on or prior to May 31, 2008.
Obligations under the DIP Credit Agreement are secured by (i) a lien on all of the assets of the Debtors (which lien will have a first priority with
respect to substantially all of the Debtors’ assets), including a pledge of all of the equity interests of each of the Company’s domestic subsidiaries and 65% of all of the equity interests of the Company’s foreign subsidiaries, and
(ii) a superpriority administrative claim in each of the Cases. In addition, the DIP Credit Agreement obligates the Debtors to pay certain fees to the agents and lenders thereunder, as described in the DIP Credit Agreement.
The DIP Credit Agreement contains various representations, warranties and covenants by the Debtors that are customary for transactions of this nature,
including (without limitation) reporting requirements and maintenance of financial covenants.
The Debtors’ obligations under the DIP
Credit Agreement may be accelerated following certain events of default, including (without limitation) any breach by the Debtors of any of the representations, warranties or covenants made in the DIP Credit Agreement or the conversion of any of the
Cases to a case under Chapter 7 of the Bankruptcy Code or the appointment of a trustee pursuant to Chapter 11 of the Bankruptcy Code.
The
DIP Credit Agreement matures on the earlier of (i) September 30, 2008, (ii) the effective date of a Chapter 11 plan of reorganization or liquidation confirmed in the Cases by the Bankruptcy Court and (iii) the date that all loans
under the DIP Credit Agreement shall become due and payable in full, whether by acceleration or otherwise.
The foregoing summary of the