Exhibit 10.1

LOCK UP, VOTING AND CONSENT AGREEMENT

This LOCK UP, VOTING AND CONSENT AGREEMENT is made and entered into as of
October 14, 2007 (the “Agreement”) by and among the following parties:

(a) The undersigned Holders (each, a “Consenting Second Lien Holder”;
collectively, the “Consenting Second Lien Holders”) of certain Claims under the
Second Lien Credit Agreement dated as of March 8, 2007, among Movie Gallery,
Inc. (the “Company”), as borrower, the lenders party thereto (the “Second Lien
Lenders”), Goldman Sachs Credit Partners L.P., as lead arranger and syndication
agent (the “Second Lien Syndication Agent”), and Wells Fargo Bank, N.A., as
successor to CapitalSource Inc., as collateral agent and administrative agent
(the “Second Lien Administrative Agent,” and together with the Second Lien
Syndication Agent, the “Second Lien Agents”) (the “Second Lien Credit
Agreement”), providing for a $175 million second lien term loan (the “Second
Lien Term Loan”);

(b) The undersigned Holders (each, a “Consenting 11% Senior Note Holder”;
collectively, the “Consenting 11% Senior Note Holders” and together with the
Consenting Second Lien Holders, the “Consenting Holders”) of certain Claims
under the 11% Senior Unsecured Notes Indenture dated as of April 27, 2005,
between Movie Gallery, Inc. as issuer, certain Movie Gallery, Inc. subsidiaries,
as guarantors and U.S. Bank N.A., as trustee (the “11% Senior Notes Indenture”);

(c) Movie Gallery, Inc. and each of its affiliates that will or may constitute
one of the “Debtors” (as defined below) (each of the foregoing Consenting
Holders and the Debtors, a “Party”; collectively, the “Parties”).

RECITALS

WHEREAS, the Company has determined that a prompt restructuring concerning or
impacting, inter alia, the First Lien Credit Agreement (as defined below), the
Second Lien Credit Agreement and the 11% Senior Notes Indenture would be in the
best interests of its creditors and shareholders;

WHEREAS, each Consenting Holder is the Holder of a Claim, as defined in section
101(5) of the Bankruptcy Code, 11 U.S.C. §§ 101-1532 (the “Bankruptcy Code”)
arising out of, or related to, the Second Lien Credit Agreement (each, a “Second
Lien Claim”) and/or the 11% Senior Notes Indenture (each, a “Senior Note Claim,”
and together with the Second Lien Claims, the “Movie Gallery Claims”);

WHEREAS, Movie Gallery, Inc. is a party to that certain First Lien Credit
Agreement dated as of March 8, 2007, among Movie Gallery, Inc. as borrower,
certain Movie Gallery, Inc. subsidiaries as guarantors, the lenders party
thereto (the “First Lien Lenders”), Goldman Sachs Credit Partners L.P., as lead
arranger, syndication agent and administrative agent, and Wachovia Bank,
National Association, as collateral agent and documentation agent (the “First
Lien Credit Agreement”), providing for (a) a $600 million first lien revolving
term loan (the “First Lien Term Loan”); (b) a $100 million first lien revolving
facility (the “First Lien Revolving Facility”) and (c) a $25 million first lien
synthetic letter of credit facility (the “First Lien LC Facility”);

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WHEREAS, as of July 2, 2007, the Debtors were obligated for an aggregate
principal and interest amount of approximately $602,200,000 on account of the
First Lien Term Loan, an aggregate principal amount of approximately
$100,000,000 on account of the First Lien Revolving Facility, approximately
$25,000,000 in letters of credit under the First Lien LC Facility, approximately
$175,300,000 in aggregate principal and PIK Interest (as defined in the Second
Lien Credit Agreement) on account of the Second Lien Term Loan and approximately
$325,000,000 on account of the 11% Senior Notes Indenture;

WHEREAS, the Parties intend to implement the restructuring contemplated by this
Agreement through a confirmed plan of reorganization, the form and substance of
which shall be (a) reasonably satisfactory to the Debtors and Sopris Capital
Advisors LLC (“Sopris”) and consistent with the Amended and Restated Second Lien
Credit Agreement Term Sheet (as defined in the Plan Term Sheet) and
(b) consistent in all material respects with, and on terms and conditions no
less favorable than, the terms set forth in this Agreement and that certain term
sheet attached hereto as Exhibit A (the “Plan Term Sheet,” and the plan of
reorganization contemplated thereby, as the same may be amended from time to
time in accordance with the terms of this Agreement, the “Plan”), for the
Company and certain of its affiliates, including, but not limited to, Hollywood
Entertainment Corporation; M.G. Digital, LLC; M.G.A. Realty I, LLC; MG
Automation LLC; and Movie Gallery US, LLC (together with the Company, the
“Debtors”) in voluntary bankruptcy cases (the “Chapter 11 Cases”) to be
commenced by the Debtors by filing petitions (the “Petitions”) under chapter 11
of the Bankruptcy Code (the date of that event being the “Petition Date”);

WHEREAS, the Parties have engaged in good faith negotiations with the objective
of reaching an agreement with regard to restructuring the outstanding Claims of,
and Equity Interests in, the Debtors in accordance with the terms set forth in
this Agreement and the Plan Term Sheet;

WHEREAS, each Consenting Holder has reviewed, or has had the opportunity to
review, the Plan Term Sheet and this Agreement with the assistance of
professional legal advisors of its own choosing;

WHEREAS, each Consenting Holder desires to support and vote to accept the Plan,
and the Company desires to obtain the commitment of the Consenting Holders to
support and vote to accept the Plan, in each case subject to the terms and
conditions set forth herein; and

WHEREAS, subject to execution of definitive documentation and appropriate
approvals by the United States Bankruptcy Court for the Eastern District of
Virginia, Richmond Division (the “Bankruptcy Court”) of the Plan and the
associated disclosure statement, as the same may be amended from time to time
(the “Disclosure Statement”), each of which shall be in form and substance
satisfactory to the Debtors and Sopris, and which shall be consistent with the
Amended and Restated Second Lien Credit Agreement Term Sheet (as defined in the
Plan Term Sheet), the following sets forth the agreement between the Parties
concerning their respective obligations.

NOW, THEREFORE, in consideration of the foregoing and the promises, mutual
covenants and agreements set forth herein and for other good and valuable
consideration, the Parties agree as follows:

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AGREEMENT

Section 1. Means for Implementing the Plan Term Sheet.

To implement the Plan Term Sheet, the Debtors and each of the signatories hereto
have agreed, on the terms and conditions set forth herein, that the Debtors
shall use their commercially reasonable efforts to:

 

  (a) solicit the requisite acceptances of the Plan in accordance with section
1125 of the Bankruptcy Code after: (i) the Chapter 11 Cases have commenced; and
(ii) the Bankruptcy Court has approved the Disclosure Statement;

 

  (b) move the Bankruptcy Court to confirm the Plan as expeditiously as
practicable under the Bankruptcy Code, the Federal Rules of Bankruptcy Procedure
and the Bankruptcy Court’s local rules (the federal and local rules being the
“Bankruptcy Rules”); and

 

  (c) Consummate the Plan;

provided, however, that the form and substance of the Plan (including any Plan
Supplement filed in connection therewith) and the Disclosure Statement shall be
in form and substance satisfactory to the Debtors and Sopris and shall be
consistent with the Amended and Restated Second Lien Credit Agreement Term Sheet
(as defined in the Plan Term Sheet).

Section 2. Plan Term Sheet

The Plan Term Sheet is incorporated herein by reference and is made part of this
Agreement. Capitalized terms used herein without definition shall have the
meanings ascribed to any such terms in the Plan Term Sheet. The general terms
and conditions of the Restructuring are set forth in the Plan Term Sheet;
provided, however, that the Plan Term Sheet is supplemented by the terms and
conditions of this Agreement. In the event the terms and conditions as set forth
in the Plan Term Sheet and this Agreement are inconsistent, the terms and
conditions as set forth in the Plan Term Sheet shall govern.

Section 3. Commitments of the Consenting Holders Under this Agreement and the
Plan Term Sheet.

 

3.1 Voting by Consenting Holders.

As long as a Termination Event (as defined herein) has not occurred, or has
occurred but has been duly waived or cured in accordance with the terms hereof,
each Consenting Holder agrees for itself that, so long as it is the legal owner,
beneficial owner and/or the investment advisor or manager of or with power
and/or authority to bind any Movie Gallery Claims and has been properly
solicited pursuant to sections 1125 and 1126 of the Bankruptcy Code, it shall
timely vote its Movie Gallery Claims (and not revoke or withdraw its vote) to
accept the Plan, subject to Section 1 hereof.

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3.2 Support of Plan.

 

  (a) As long as a Termination Event has not occurred, or has occurred but has
been duly waived or cured in accordance with the terms hereof, each of the
Consenting Holders, as long as each such Consenting Holder remains the legal
owner, beneficial owner and/or the investment advisor or manager of or with
power and/or authority to bind any Movie Gallery Claims, agrees that, subject to
Section 1 hereof, by having executed and become party to this Agreement, it
will:

 

  (i) from and after the date hereof not directly or indirectly seek, solicit,
support or vote in favor of any other plan, sale, proposal or offer of
dissolution, winding up, liquidation, reorganization, merger or restructuring of
the Debtors that could reasonably be expected to prevent, delay or impede the
restructuring of the Debtors as contemplated by the Plan Term Sheet, the Plan or
any other document filed in connection with confirming the Plan (each, a
“Reorganization Document”); and

 

  (ii) agree to permit disclosure in the Disclosure Statement and any filings by
the Debtors with the Securities and Exchange Commission of the contents of this
Agreement, including the aggregate Movie Gallery Claims held by all Consenting
Holders; provided that the amount of the Movie Gallery Claims held by any
individual Consenting Holder shall be disclosed only to the Debtors and shall
not be disclosed by the Debtors to any other person or Entity.

 

  (b) As long as a Termination Event has not occurred, or has occurred but has
been duly waived or cured in accordance with the terms hereof, the Debtors and
each Consenting Holder, so long as it is a Holder of any Movie Gallery Claim,
further agree that they shall not:

 

  (i) object to or otherwise commence any proceeding opposing any of the terms
of this Agreement, the Plan Term Sheet, the Disclosure Statement or the Plan;
and

 

  (ii) take any action that is inconsistent with, or that would delay approval
of the Disclosure Statement or confirmation of the Plan.

 

3.3 Transfer of Claims, Interests and Securities.

Each of the Consenting Holders hereby agrees, for so long as this Agreement
shall remain in effect (such period, the “Restricted Period”), not to sell,
assign, transfer, hypothecate or otherwise dispose of, directly or indirectly
(each such transfer, a “Transfer”), all or any of its Movie Gallery Claims (or
any right related thereto and including any voting rights associated with such
Movie Gallery Claims), unless the transferee thereof (a) agrees in writing to
assume and be bound by this Agreement and the Plan Term Sheet, and to assume the
rights and obligations of a Consenting Holder under this Agreement and
(b) delivers such writing to the Company before the close of two (2) Business
Days after the relevant Transfer (each such transferee becoming, upon the
Transfer, a Consenting Holder hereunder). The Company shall

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promptly acknowledge any such Transfer in writing and provide a copy of that
acknowledgement to the transferor. By its acknowledgement of the relevant
Transfer, the Company shall be deemed to have acknowledged that its obligations
to the Consenting Holders hereunder shall be deemed to constitute obligations in
favor of the relevant transferee as a Consenting Holder hereunder. Any sale,
transfer or assignment of any Relevant Claim (as defined below) that does not
comply with the procedure set forth in the first sentence of this Subsection 3.3
shall be deemed void ab initio.

 

3.4 Further Acquisition of Movie Gallery Claims.

This Agreement shall in no way be construed to preclude any Consenting Holder or
any of its respective subsidiaries from acquiring additional Movie Gallery
Claims; provided that any such additional Movie Gallery Claims acquired by a
Consenting Holder or any subsidiary thereof shall automatically be deemed to be
subject to the terms of this Agreement. Upon the request of the Debtors, each
Consenting Holder shall, in writing and within five (5) Business Days, provide
an accurate and current list of all Movie Gallery Claims that it and any
affiliate holds at that time, subject to any applicable confidentiality
restrictions and applicable law.

 

3.5 Representation of Consenting Holders’ Holdings.

Each of the Consenting Holders represents that, as of the date hereof:

 

  (a) it is the legal owner, beneficial owner and/or the investment advisor or
manager for the beneficial owner of such legal or beneficial owner’s Movie
Gallery Claims set forth on its respective signature page (collectively, the
“Relevant Claims”);

 

  (b) there are no Movie Gallery Claims of which it is the legal owner,
beneficial owner and/or investment advisor or manager for such legal or
beneficial owner that are not part of its Relevant Claims unless such Consenting
Holder does not possess the full power to vote and dispose of such Claims; and

 

  (c) it has full power to vote, dispose of and compromise the aggregate
principal amount of the Relevant Claims.

Section 4. The Debtor’s Responsibilities.

 

4.1 Implementation of Plan.

The Debtors shall use their commercially reasonable efforts to:

 

  (a) effectuate and consummate the Restructuring on the terms contemplated by
the Plan Term Sheet and the Plan;

 

  (b) file the Disclosure Statement along with a motion seeking its approval by
the Bankruptcy Court within the time frame set forth in the Plan Term Sheet;

 

  (c)

implement all steps necessary and desirable to obtain from the Bankruptcy Court
an order confirming the Plan (the “Confirmation Order”) within the time frame
set

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forth in the Plan Term Sheet, which Confirmation Order shall be in form and
substance satisfactory to the Debtors and Sopris and consistent with the Amended
and Restated Second Lien Credit Agreement Term Sheet (as defined in the Plan
Term Sheet); and

 

  (d) take no actions inconsistent with this Agreement, the Plan Term Sheet and
the Plan or the expeditious Confirmation and Consummation of the Plan.

 

4.2 Representation of the Debtors.

None of the materials and information provided by or on behalf of the Debtors to
the Consenting Holders in connection with the Restructuring contemplated by this
Agreement, when read or considered together, contains any untrue statement of a
material fact or omits to state a material fact necessary in order to prevent
the statements made therein from being materially misleading.

 

4.3 The Debtors’ Fiduciary Obligations.

Notwithstanding anything to the contrary contained in this Agreement:

 

  (a) The Debtors may furnish or cause to be furnished information concerning
the Company and its affiliates to a party (a “Potential Acquirer”) that the
Company’s Board of Directors believes in good faith has expressed an unsolicited
legitimate interest in, and has the financial wherewithal to consummate, a
Business Combination (as defined below) on terms, including confidentiality
terms, approved by the Company’s Board of Directors;

 

  (b) Following receipt of a proposal or offer for a Business Combination from a
Potential Acquirer, after delivery of such proposal or offer to Sopris, the
Debtors may negotiate and discuss such proposal or offer with the Potential
Acquirer;

 

  (c) Following the good faith determination by the Company and its Board of
Directors that such a proposal or offer for a Business Combination constitutes a
Topping Proposal, the Debtors may immediately terminate their obligations under
this Agreement by written notice to Sopris; and

 

  (d) The Debtors may terminate their obligations under this Agreement by
written notice to Sopris if the Debtors, in good faith exercise of their
business judgment, determine that there is a sufficient risk of non-performance
by the Debtors with respect to the financial obligations contemplated under the
Plan such that the Sopris proposal is not in the best interests of the Debtors’
estate.

For the purposes of this Section 4.3:

 

  (e) “Business Combination” means any merger, consolidation or combination to
which the Company or any of its subsidiaries is a party; any proposed sale or
other disposition of capital stock or other ownership interests of the Company
and its subsidiaries, including a rights offering; or any proposed sale or other
disposition of all or substantially all of the assets or properties of the
Company and its subsidiaries; and

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  (f) “Topping Proposal” means a proposal or offer or indication of interest for
a Business Combination from a Potential Acquirer that the Company and its Board
of Directors determines in good faith is reasonably likely to be more favorable
to the Debtors’ estates and their creditors and other parties to whom the
Debtors owe fiduciary duties than is proposed under the Plan Term Sheet, taking
into account, among other factors, the identity of the Potential Acquirer, the
likelihood that any such offer or proposal will be negotiated to finality within
a reasonable time, and the potential loss to the Debtors’ estates and their
creditors and other parties to whom the Debtors owe fiduciary duties if any such
Business Combination is not consummated; provided, however, that such Topping
Proposal provides a full recovery to the First Lien Lenders and Second Lien
Lenders and more favorable treatment for unsecured creditors and equity holders
than the Plan.

Section 5. Mutual Representations, Warranties, and Covenants.

Each Party makes the following representations, warranties and covenants to each
of the other Parties, each of which are continuing representations, warranties
and covenants:

 

5.1 Enforceability.

Subject to the provisions of sections 1125 and 1126 of the Bankruptcy Code, this
Agreement is a legal, valid and binding obligation of the Party, enforceable
against it in accordance with its terms, except as enforcement may be limited by
applicable laws relating to or limiting creditors’ rights generally or by
equitable principles relating to enforceability.

 

5.2 No Consent or Approval.

Except as expressly provided in this Agreement, no consent or approval is
required by any other Entity in order for it to carry out the provisions of this
Agreement.

 

5.3 Power and Authority.

It has all requisite power and authority to enter into this Agreement and to
carry out the transactions contemplated by, and perform its respective
obligations under, this Agreement, the Plan Term Sheet and the Plan.

 

5.4 Authorization.

The execution and delivery of this Agreement and the performance of its
obligations hereunder have been duly authorized by all necessary action on its
part.

 

5.5 Governmental Consents.

The execution, delivery and performance by it of this Agreement does not and
shall not require any registration or filing with consent or approval of, or
notice to, or other action to, with

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or by, any federal, state or other governmental authority or regulatory body,
except such filings as may be necessary and/or required under the federal
securities laws and, in connection with the commencement of the Chapter 11
Cases, the approval of the DIP Order,1 the approval of the Disclosure Statement
and Confirmation of the Plan by the Bankruptcy Court.

 

5.6 No Conflicts.

The execution, delivery and performance of this Agreement does not and shall
not: (a) violate any provision of law, rule or regulations applicable to it or
any of its subsidiaries; (b) violate its certificate of incorporation, bylaws or
other organizational documents or those of any of its subsidiaries; or
(c) conflict with, result in a breach of or constitute (with due notice or lapse
of time or both) a default under any material contractual obligation to which it
or any of its subsidiaries is a party.

Section 6. No Waiver of Participation and Preservation of Rights.

This Agreement and the Plan are part of a proposed settlement of disputes among
the Parties. Except as expressly provided in this Agreement, nothing herein is
intended to, does or shall be deemed in any manner to waive, limit, impair or
restrict the ability of each of the Consenting Holders to protect and preserve
its rights, remedies and interests, including, but not limited to, its claims
against any of the Debtors, any liens or security interests it may have in any
assets of any of the Debtors, or its full participation in the Chapter 11 Cases.
Without limiting the foregoing sentence in any way, if the transactions
contemplated by this Agreement or otherwise set forth in the Plan are not
consummated as provided herein, if a Termination Event occurs, or if this
Agreement is otherwise terminated for any reason, the Parties each fully reserve
any and all of their respective rights, remedies and interests.

Section 7. Acknowledgement.

This Agreement and the Plan Term Sheet and the transactions contemplated herein
and therein are the product of negotiations between the Parties and their
respective representatives. This Agreement is not and shall not be deemed to be
a solicitation of votes for the acceptance of a plan of reorganization for the
purposes of sections 1125 and 1126 of the Bankruptcy Code or otherwise. The
Debtors will not solicit acceptances of the Plan from any Consenting Holder
until the Consenting Holders have been provided with copies of a Disclosure
Statement approved by the Bankruptcy Court.

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1

The “DIP Order” shall mean the interim and final orders entered by the
Bankruptcy Court approving the postpetition financing and use of cash collateral
contemplated in the Plan Term Sheet.

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Section 8. Termination.

 

8.1 Termination Events.

The term “Termination Event,” wherever used in this Agreement, means any of the
following events (whatever the reason for such Termination Event and whether it
is voluntary or involuntary):

 

  (a) the Plan or any subsequent Plan filed by the Debtors with the Bankruptcy
Court (or a Plan supported or endorsed by the Debtors) is not in a form and
substance that is reasonably satisfactory to the Debtors and Sopris;

 

  (b) the Debtors shall not have filed for chapter 11 bankruptcy protection
before the Bankruptcy Court on or before October 19, 2007;

 

  (c) the Debtors shall not have filed the Plan and Disclosure Statement with
the Bankruptcy Court on or before 30 days following the Petition Date, or such
later date as may be mutually agreed upon by the Company and Sopris;

 

  (d) the Disclosure Statement is not approved on or before 75 days following
the Petition Date, or such later date as may be mutually agreed upon by the
Company and Sopris;

 

  (e) an order, in form and substance satisfactory to the Debtors and Sopris,
confirming the Plan is not entered on or before 120 days following the Petition
Date, or such later date as may be mutually agreed upon by the Company and
Sopris;

 

  (f) the Effective Date shall not have occurred on or before 150 days following
the Petition Date, or such later date as may be mutually agreed upon by the
Company and Sopris;

 

  (g) any of the Chapter 11 Cases of Movie Gallery, Inc., Hollywood
Entertainment Corporation or Movie Gallery US, LLC are converted to cases under
chapter 7 of the Bankruptcy Code;

 

  (h) the Bankruptcy Court shall enter an order in any of the Chapter 11 Cases
appointing (i) a trustee under chapter 7 or chapter 11 of the Bankruptcy Code,
(ii) a responsible officer or (iii) an examiner, in each case with enlarged
powers relating to the operation of the business (powers beyond those set forth
in subclauses (3) and (4) of Section 1106(a)) under Section 1106(b) of the
Bankruptcy Code;

 

  (i) any of the Chapter 11 Cases of Movie Gallery, Inc., Hollywood
Entertainment Corporation or Movie Gallery US, LLC are dismissed;

 

  (j) the order confirming the Plan is reversed on appeal or vacated;

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  (k) any Party has breached any material provision of this Agreement or the
Plan Term Sheet and any such breach has not been duly waived or cured in
accordance with the terms hereof after a period of five (5) days;

 

  (l) the Bankruptcy Court does not enter, within 45 days after the Petition
Date, a final, non-appealable DIP Order;

 

  (m) any court shall enter a final, non-appealable judgment or order declaring
this Agreement or any material portion hereof to be unenforceable;

 

  (n) the Debtors shall withdraw the Plan or publicly announce their intention
not to support the Plan;

 

  (o) the Debtors inform Sopris in writing of their decision to accept a Topping
Proposal; or

 

  (p) the Debtors file a motion with the Bankruptcy Court seeking approval of a
Topping Proposal.

The foregoing Termination Events are intended solely for the benefit of the
Debtors and the Consenting Holders; provided that no Consenting Holder may seek
to terminate this Agreement based upon a material breach or a failure of a
condition (if any) in this Agreement arising out of its own actions or
omissions.

 

8.2 Termination Event Procedures.

 

  (a) Upon the occurrence of a Termination Event pursuant to Section 8.1(k)
hereof due to a material breach of this Agreement by Sopris, then the Debtors
shall have the right to terminate this Agreement and the Plan Term Sheet by
giving written notice thereof to the other Parties.

 

  (b) Upon the occurrence of a Termination Event contemplated by clauses (a),
(g), (h), (i), (j), (m), (n) or (o) of Section 8.1 hereof, this Agreement and
the Plan Term Sheet shall automatically terminate without further action.

 

  (c)

Except as set forth in Section 8.2(a) and 8.2(b) hereof, upon the occurrence of
a Termination Event, this Agreement and the Plan Term Sheet shall automatically
terminate without further action unless no later than three (3) Business Days
after the occurrence of any such Termination Event, the occurrence of such
Termination Event is waived in writing by each of: (a) Holders of 51% of the
aggregate outstanding principal amount of the Second Lien Claims held by
Consenting Holders (the “Second Lien Requisite Holders”); and (b) Holders of 51%
of the aggregate outstanding principal amount of the Senior Note Claims held by
Consenting Holders (the “Senior Note Requisite Holders”). The Parties hereby
waive any requirement under section 362 of the Bankruptcy Code to lift the
automatic stay thereunder (the “Automatic Stay”) in connection with giving any
such notice (and agree not to object to any non-breaching Party seeking to lift
the Automatic Stay in connection with giving any such notice, if necessary). Any

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such termination (or partial termination) of the Agreement shall not restrict
the Parties’ rights and remedies for any breach of the Agreement by any Party,
including, but not limited to, the reservation of rights set forth in Section 6
hereof.

 

8.3 Consent to Termination.

In addition to the Termination Events set forth in Section 8.1 hereof, this
Agreement shall be terminable immediately upon written notice to all of the
Parties of the written agreement of the Company, the Second Lien Requisite
Holders and the Senior Note Requisite Holders to terminate this Agreement.

 

8.4 Termination Fee.

If the Debtors close a Business Combination based on and embodying a Topping
Proposal (a “Termination Fee Event”) within the earlier of the effective date of
a chapter 11 plan confirmed by the Debtors or 18 months after the date hereof,
the Debtors shall pay a termination fee (the “Termination Fee”) upon such
closing, which shall be equal to $2 million plus any unpaid Expense
Reimbursements (as defined in the Rights Offering Term Sheet), to the Backstop
Party in cash; provided, however, that the Termination Fee will not be payable
if this Lock Up Agreement has been terminated by the Backstop Party prior to the
occurrence of a Termination Fee Event for any reason other than a Termination
Event set forth in Section 8.1(o) or 8.1(p) hereof.

 

8.5 Termination by Consenting Second Lien Holders other than Sopris.

Notwithstanding anything to the contrary elsewhere in this Agreement, any
Consenting Second Lien Holder other than Sopris may terminate its own
obligations and undertakings under this Agreement upon three (3) days written
notice to the Debtors following the occurrence of any of the following events:

 

  (a) the Plan or any subsequent Plan filed by the Debtors with the Bankruptcy
Court (or a Plan supported or endorsed by the Debtors) is not consistent with
the Amended and Restated Second Lien Credit Agreement Term Sheet (as defined in
the Plan Term Sheet);

 

  (b) the Debtors shall not have filed the Plan and Disclosure Statement with
the Bankruptcy Court on or before 45 days following the Petition Date, or such
later date as may be mutually agreed upon by the Company and such Consenting
Second Lien Holder;

 

  (c) the Disclosure Statement is not approved on or before 90 days following
the Petition Date;

 

  (d) an order, in form and substance satisfactory to to such Consenting Second
Lien Holder with respect to those provisions that relate to the recovery
provided to the Consenting Second Lien Holders under the Plan, confirming the
Plan is not entered on or before 150 days following the Petition Date; or

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  (e) the Debtors shall withdraw the Plan or publicly announce their intention
not to support the Plan.

Any termination by any Consenting Second Lien Lender of its obligations or
undertakings under this Section 8.5 shall not terminate this Agreement with
respect to any other party hereto.

Section 9. Miscellaneous Terms.

 

9.1 Binding Obligation; Assignment.

Binding Obligation. Subject to the provision of sections 1125 and 1126 of the
Bankruptcy Code, this Agreement is a legally valid and binding obligation of the
Parties and their respective members, officers, directors, agents, financial
advisors, attorneys, employees, partners, Affiliates, successors, assigns,
heirs, executors, administrators and representatives, other than a trustee or
similar representative appointed in the Chapter 11 Cases, enforceable in
accordance with its terms, and shall inure to the benefit of the Parties and
their respective members, officers, directors, agents, financial advisors,
attorneys, employees, partners, Affiliates, successors, assigns, heirs,
executors, administrators and representatives. Nothing in this Agreement,
express or implied, shall give to any Entity, other than the Parties and their
respective members, officers, directors, agents, financial advisors, attorneys,
employees, partners, Affiliates, successors, assigns, heirs, executors,
administrators and representatives, any benefit or any legal or equitable right,
remedy or claim under this Agreement. The agreements, representations,
warranties, covenants and obligations of the Consenting Holders contained in
this Agreement are, in all respects, several and not joint.

Assignment. No rights or obligations of any Party under this Agreement may be
assigned or transferred to any other Entity except as provided in Section 3.3
hereof.

 

9.2 Further Assurances.

The Parties agree to execute and deliver such other instruments and perform such
acts, in addition to the matters herein specified, as may be reasonably
appropriate or necessary, from time to time, to effectuate the agreements and
understandings of the Parties, whether the same occurs before or after the date
of this Agreement.

 

9.3 Headings.

The headings of all sections of this Agreement are inserted solely for the
convenience of reference and are not a part of and are not intended to govern,
limit or aid in the construction or interpretation of any term or provision
hereof.

 

9.4 Governing Law.

THIS AGREEMENT IS TO BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED IN SUCH
STATE, WITHOUT GIVING EFFECT TO THE CHOICE OF LAWS PRINCIPLES THEREOF. By its
execution and

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delivery of this Agreement, each of the Parties hereto hereby irrevocably and
unconditionally agrees for itself that any legal action, suit or proceeding
against it with respect to any matter under or arising out of or in connection
with this Agreement or for recognition or enforcement of any judgment rendered
in any such action, suit or proceeding, may be brought in either a state or
federal court of competent jurisdiction in the State of New York. By execution
and delivery of this Agreement, each of the Parties hereto hereby irrevocably
accepts and submits itself to the nonexclusive jurisdiction of each such court,
generally and unconditionally, with respect to any such action, suit or
proceeding. Notwithstanding the foregoing consent to jurisdiction in either a
state or federal court of competent jurisdiction in the State of New York, upon
the commencement of the Chapter 11 Cases, each of the Parties hereto hereby
agrees that, if the Petitions have been filed and the Chapter 11 Cases are
pending, the Bankruptcy Court shall have exclusive jurisdiction of all matters
arising out of or in connection with this Agreement.

 

9.5 Complete Agreement, Interpretation and Modification.

 

  (a) Complete Agreement. This Agreement, the Plan Term Sheet and the other
agreements, exhibits and other documents referenced herein and therein
constitute the complete agreement between the Parties with respect to the
subject matter hereof and supersedes all prior agreements, oral or written,
between or among the Parties with respect thereto.

 

  (b) Interpretation. This Agreement is the product of negotiation by and among
the Parties. Any Party enforcing or interpreting this Agreement shall interpret
it in a neutral manner. There shall be no presumption concerning whether to
interpret this Agreement for or against any Party by reason of that Party having
drafted this Agreement, or any portion thereof, or caused it or any portion
thereof to be drafted.

 

  (c) Modification of this Agreement and the Plan Term Sheet. Except as set
forth in Section 8.2 and except for Section 8.5 hereof, as it applies to
Termination Events, this Agreement and the Plan Term Sheet may only be modified,
altered, amended or supplemented by an agreement in writing signed by the
Company, the Requisite Second Lien Holders and the Requisite Senior Note
Holders; provided, however, that if the modification or amendment at issue
materially adversely impacts the economic treatment or rights of any Consenting
Holder, the agreement in writing of such Consenting Holder whose economic
treatment or rights are materially adversely impacted shall also be required for
such modification or amendment; provided, further, however, that, if the
modification of amendment at issue only materially adversely impacts the
economic treatment or rights of some or all of the Consenting Holders, then only
the agreement in writing of such Consenting Holders and related agents, if any,
and the Debtors shall be required for such modification or amendment.

 

9.6 Execution of this Agreement.

This Agreement may be executed and delivered (by facsimile or otherwise) in any
number of counterparts, each of which, when executed and delivered, shall be
deemed an

--------------------------------------------------------------------------------

original, and all of which together shall constitute the same agreement. Except
as expressly provided in this Agreement, each individual executing this
Agreement on behalf of a Party has been duly authorized and empowered to execute
and deliver this Agreement on behalf of said Party; provided, however, that no
Holder of a Second Lien Claim or Senior Note Claim may become a Consenting
Holder by executing this Agreement at any time on or after the Petition Date nor
shall the Parties agree to treat any such Holder as a Party to this Agreement.

 

9.7 Settlement Discussions.

This Agreement and the Restructuring are part of a proposed settlement of a
dispute among the Parties. Nothing herein shall be deemed an admission of any
kind. Pursuant to Federal Rule of Evidence 408 and any applicable state rules of
evidence, this Agreement and all negotiations relating thereto shall not be
admissible into evidence in any proceeding other than a proceeding to enforce
the terms of this Agreement.

 

9.8 Consideration.

The Debtors and each Consenting Holder hereby acknowledge that no consideration,
other than that specifically described herein and in the Plan Term Sheet, shall
be due or paid to the Consenting Holders for their agreement to vote to accept
the Plan in accordance with the terms and conditions of this Agreement, other
than the Debtors’ agreement to use commercially reasonable efforts to obtain
approval of the Disclosure Statement and to seek to confirm the Plan in
accordance with the terms and conditions of the Plan Term Sheet.

 

9.9 Notices.

All notices hereunder shall be deemed given if in writing and delivered, if sent
by facsimile, courier or by registered or certified mail (return receipt
requested) to the following addresses and facsimile numbers (or at such other
addresses or facsimile numbers as shall be specified by like notice):

 

  (a) If to the Debtors, to: Movie Gallery, Inc., 900 West Main Street, Dothan,
AL 36301; Attn: S. Page Todd; with copies to: Kirkland & Ellis, LLP, 200 E.
Randolph, Suite 5400; Attn: Anup Sathy and Ross M. Kwasteniet;

 

  (b) If to a Consenting Second Lien Holder or a transferee thereof, to the
addresses or facsimile numbers set forth below following the Consenting Holder’s
signature (or as directed by any transferee thereof), as the case may be, with
copies to: Sonnenschein Nath & Rosenthal LLP, 1221 Avenue of the Americas, New
York, New York 10022; Attn: Peter D. Wolfson;

 

  (c) If to a Consenting 11% Senior Note Holder of a transferee thereof, to the
addresses or facsimile numbers set forth below following the Consenting Holder’s
signature (or as directed by any transferee thereof), as the case may be, with
copies to: Sonnenschein Nath & Rosenthal LLP, 1221 Avenue of the Americas, New
York, New York 10022; Attn: Peter D. Wolfson;

--------------------------------------------------------------------------------

  (d) Any notice given by delivery, mail or courier shall be effective when
received. Any notice given by facsimile shall be effective upon oral or machine
confirmation of transmission.

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the parties have entered into this Agreement on the day and
year first above written.

Dated: October 14, 2007

 

MOVIE GALLERY, INC By:  

 

Name:  

 

Its:  

 

HOLLYWOOD ENTERTAINMENT CORPORATION By:  

 

Name:  

 

Its:  

 

M.G. DIGITAL, LLC By:  

 

Name:  

 

Its:  

 

M.G.A. REALTY I, LLC By:  

 

Name:  

 

Its:  

 

MG AUTOMATION LLC By:  

 

Name:  

 

Its:  

 

MOVIE GALLERY US, LLC By:  

 

Name:  

 

Its:  

 

 

--------------------------------------------------------------------------------

Dated: October 14, 2007

 

CONSENTING SECOND LIEN LENDER Name of Institution:  

 

By:  

 

Name:  

 

Its:  

 

Telephone:  

 

Facsimile:  

 

Aggregate amount of Second Lien Claims held by such Consenting Second Lien
Holder as of the date above: $  

 

Description and aggregate amount of any additional Movie Gallery Claims other
than Second Lien Claims: $  

 

Description:  

 

 

--------------------------------------------------------------------------------

Dated: October 14, 2007

 

CONSENTING 11% SENIOR NOTE HOLDER Name of Institution:  

 

By:  

 

Name:  

 

Its:  

 

Telephone:  

 

Facsimile:  

 

Aggregate amount of Senior Note Claims held by such Consenting 11% Senior Note
Holder as of the date above: $  

 

*Description and aggregate amount of any additional Claims against the Company
other than Senior Note Claims: $  

 

Description:  

 

--------------------------------------------------------------------------------

EXHIBIT A

PLAN TERM SHEET

--------------------------------------------------------------------------------

MOVIE GALLERY, INC., ET AL.

PROPOSED RESTRUCTURING TERM SHEET

 

--------------------------------------------------------------------------------

THIS TERM SHEET IS NOT AN OFFER OR A SOLICITATION WITH RESPECT TO ANY SECURITIES
OF THE COMPANY OR A SOLICITATION OF ACCEPTANCES OF A CHAPTER 11 PLAN WITHIN THE
MEANING OF SECTION 1125 OF THE BANKRUPTCY CODE. ANY SUCH OFFER OR SOLICITATION
WILL COMPLY WITH ALL APPLICABLE SECURITIES LAWS AND/OR PROVISIONS OF THE
BANKRUPTCY CODE. THIS TERM SHEET CONTAINS MATERIAL NON-PUBLIC INFORMATION ABOUT
A PUBLIC COMPANY AND, THEREFORE, IS SUBJECT TO FEDERAL SECURITIES LAWS.

THIS TERM SHEET IS PROVIDED IN THE NATURE OF A SETTLEMENT PROPOSAL IN
FURTHERANCE OF SETTLEMENT DISCUSSIONS. ACCORDINGLY, THIS TERM SHEET IS INTENDED
TO BE ENTITLED TO THE PROTECTIONS OF RULE 408 OF THE FEDERAL RULES OF EVIDENCE
AND ANY OTHER APPLICABLE STATUTES OR DOCTRINES PROTECTING THE USE OR DISCLOSURE
OF CONFIDENTIAL INFORMATION AND INFORMATION EXCHANGED IN THE CONTEXT OF
SETTLEMENT DISCUSSIONS. FURTHER, NOTHING IN THIS TERM SHEET SHALL BE AN
ADMISSION OF FACT OR LIABILITY OR DEEMED BINDING ON THE COMPANY.

 

(d) Overview

 

  Section 1. Purpose

This term sheet (the “Term Sheet”) outlines the proposed restructuring
transaction (the “Restructuring”) and other material terms of a joint plan of
reorganization (the “Plan”) pursuant to chapter 11 of the Bankruptcy Code, 11
U.S.C. §§ 101-1532 (the “Bankruptcy Code”) for Movie Gallery, Inc. and certain
of its Affiliates (the “Company”). Capitalized terms used but not otherwise
defined in the Term Sheet have the meaning given to such terms in the glossary
of defined terms attached hereto as Exhibit A-1, and capitalized terms not
otherwise defined in the Term Sheet or in Exhibit A-1 shall have the meanings
given to such terms in the Bankruptcy Code. The terms “include,” “includes,” or
“including” are not limiting. The Term Sheet does not include a description of
all of the terms, conditions and other provisions that are to be contained in
the definitive documentation governing the Plan, which remain subject to
discussion and negotiation.

 

  Section 2. Proposed Filing Entities

The Company expects that voluntary Chapter 11 Cases will be commenced by Movie
Gallery, Inc., Hollywood Entertainment Corporation, M.G. Digital, LLC, M.G.A.
Realty I, LLC, MG Automation LLC and Movie Gallery US, LLC (each individually a
“Debtor” and collectively, the “Debtors”).

 

  Section 3. Proposed Caption and Venue

In re Movie Gallery, Inc., et al., to be filed in the United States Bankruptcy
Court for the Eastern District of Virginia, Richmond Division (the “Bankruptcy
Court”).

--------------------------------------------------------------------------------

  Section 4. Sources of Capital for the Plan

The Plan contemplates using proceeds from the Exit Facility and Rights Offering
to fund certain Cash payments to be made pursuant to the Plan, as well as the
Debtors’ post-emergence operations. In addition, the Plan provides for the
issuance of the New MG Common Stock to Holders of certain Claims and Interests
as set forth in the Term Sheet.

 

  4.1 Exit Facility

The Plan will provide that the Reorganized Debtors shall enter into the Exit
Facility, which provides for a $100 million revolving credit facility and may
include a $25 million letter of credit supplement, upon commercially reasonable
terms reasonably acceptable to Sopris.

 

  4.2 Rights Offering

The Plan will be predicated on raising $50 million through the Rights Offering.
It is contemplated that the Rights Offering will dilute the New MG Common Stock
issued on account of Claims and Interests under the Plan.

 

  4.3 New MG Common Stock

The Plan will provide that Reorganized Movie Gallery will issue on the Effective
Date up to 20,000,000 shares of New MG Common Stock to certain Holders of
Allowed Claims and Interests in full satisfaction of such Claims and Interests,
pursuant to the terms forth in the Term Sheet, subject to dilution as set forth
in this Term Sheet.

 

  Section 5. Management and Director Equity Incentive Programs

The Plan will provide for 10% of the New MG Common Stock, on a fully-diluted
basis, to be reserved for issuance as grants of equity, restricted stock or
options in connection with the Reorganized Debtors’ Management and Director
Equity Incentive Program. At a minimum, 50% of such awards shall be granted not
later than 60 days after the Effective Date. It is contemplated that the
Reorganized Debtors’ Management and Director Equity Incentive Program will
dilute the New MG Common Stock issued through the Rights Offering and on account
of Claims and Interests under the Plan.

 

(e) Classification and Treatment of Claims and Interests

Classification and treatment of Claims and Interests under the Plan shall be as
follows:

--------------------------------------------------------------------------------

  Section 1. Unclassified Claims

 

  1.1 DIP Facility Claims

Allowed DIP Facility Claims shall not be classified under the Plan and shall be
paid in full in Cash with the proceeds of the Exit Facility.

 

  1.2 Administrative Claims

Each Holder thereof will receive payment in full in Cash of the unpaid portion
of an Allowed Administrative Claim on the Effective Date or as soon thereafter
as practicable (or, if not then due, in accordance with its terms).

 

  1.3 Priority Tax Claims

On the later of the Effective Date or the date on which a Priority Tax Claim
becomes an Allowed Priority Tax Claim, or, in each such case, as soon as
practicable thereafter, each Holder of an Allowed Priority Tax Claim due and
payable on or prior to the Effective Date will receive on account of such Claim,
an amount in Cash equal to the amount of such Allowed Priority Tax Claim.

--------------------------------------------------------------------------------

  Section 2. Classified Claims and Interests

 

  2.1 Class 1—Other Priority Claims

Classification: Class 1 consists of the Other Priority Claims against the
Debtors.

Treatment: The legal, equitable and contractual rights of the Holders of Allowed
Class 1 Claims will be unaltered by the Plan. Unless otherwise agreed to by the
Holders of the Allowed Class 1 Claims and the Debtors, each Holder of an Allowed
Class 1 Claim shall receive, in full and final satisfaction of such Allowed
Class 1 Claim, payment of the Allowed Class 1 Claim in full in Cash on the
Effective Date.

Voting: Class 1 is an Unimpaired Class, and the Holders of Class 1 Claims will
be conclusively deemed to have accepted the Plan pursuant to section 1126(f) of
the Bankruptcy Code. Therefore, the Holders of Class 1 Claims will not be
entitled to vote to accept or reject the Plan.

 

  2.2 Class 2—Other Secured Claims

Classification: Class 2 consists of Other Secured Claims against the Debtors.

Treatment: Holders of Allowed Class 2 Claims will be paid in full in Cash or
otherwise made Unimpaired, in full and final satisfaction of such Allowed Class
2 Claims.

Voting: Class 2 is an Unimpaired Class, and the Holders of Class 2 Claims will
be conclusively deemed to have accepted the Plan pursuant to section 1126(f) of
the Bankruptcy Code. Therefore, the Holders of Class 2 Claims will not be
entitled to vote to accept or reject the Plan.

 

  2.3 Class 3—First Lien Claims

Classification: Class 3 consists of First Lien Claims against the Debtors.

Treatment: Holders of Allowed Class 3 Claims will receive, in full and final
satisfaction of such Allowed Class 3 Claims, their pro rata share of the
Company’s obligations under the Amended and Restated First Lien Credit
Agreement.

Voting: Class 3 is Impaired, and Holders of Class 3 Claims will be entitled to
vote to accept or reject the Plan.

 

  2.4 Class 4—Second Lien Claims

Classification: Class 4 consists of Second Lien Claims against the Debtors,
including the Reinstated Second Lien Claims and the Sopris Second Lien Claims.

Treatment: Holders of Allowed Reinstated Second Lien Claims (not including the
Sopris Second Lien Claims) will receive, in full and final satisfaction of such
Allowed Class 4 Claims, their pro rata share of the Company’s obligations under
the Amended and Restated Second Lien Credit Agreement (taking into account the
Second Lien Conversion).

--------------------------------------------------------------------------------

The Allowed Sopris Second Lien Claims will receive the Second Lien Conversion
Equity Allocation, in full and final satisfaction of such Allowed Class 4
Claims.

Voting: Class 4 is Impaired, and Holders of Class 4 Claims will be entitled to
vote to accept or reject the Plan.

 

  2.5 Class 5—Studio Claims

Classification: Class 5 consists of Claims of Studios who have entered into
Accommodation Agreements with the Debtors.

Treatment: Holders of Allowed Class 5 Claims will receive, in full and final
satisfaction of such Allowed Class 5 Claims, the consideration contained in each
Holder’s respective Accommodation Agreement.

Voting: Class 5 is Impaired, and Holders of Class 5 Claims will be entitled to
vote to accept or reject the Plan.

 

  2.6 Class 6—11% Senior Note Claims

(a) Class 6A - 11% Senior Note Claims against Movie Gallery, Inc.

Classification: Class 6A consists of 11% Senior Note Claims against Movie
Gallery, Inc.

Treatment: Holders of Allowed Class 6A Claims will receive, in full and final
satisfaction of such Allowed Class 6A Claims, their pro rata share of [XX]%2 of
the Unsecured Claim Equity Allocation, subject to dilution by the issuance of
options, equity or equity-based grants in connection with the Reorganized
Debtors’ Management and Director Equity Incentive Program.

Voting: Class 6A is Impaired, and Holders of Class 6A Claims will be entitled to
vote to accept or reject the Plan.

(b) Class 6B - 11% Senior Note Claims against Movie Gallery US, LLC

Classification: Class 6B consists of 11% Senior Note Claims against Movie
Gallery US, LLC.

Treatment: Holders of Allowed Class 6B Claims will receive, in full and final
satisfaction of such Allowed Class 6B Claims, their pro rata share of [XX%] of
the Unsecured Claim Equity Allocation, subject to dilution by the issuance of
options, equity or equity-based grants in connection with the Reorganized
Debtors’ Management and Director Equity Incentive Program.

--------------------------------------------------------------------------------

2 This percentage, and all percentages indicated “[XX%]” in this Article II,
shall be determined in accordance with the principles described in
“Understanding Regarding Claim Treatments” at the end of this Article II.

--------------------------------------------------------------------------------

Voting: Class 6B is Impaired, and Holders of Class 6B Claims will be entitled to
vote to accept or reject the Plan.

(c) Class 6C - 11% Senior Note Claims against M.G.A. Realty I, LLC

Classification: Class 6C consists of 11% Senior Note Claims against M.G.A.
Realty I, LLC.

Treatment: Holders of Allowed Class 6C Claims will receive, in full and final
satisfaction of such Allowed Class 6C Claims, their pro rata share of [XX%] of
the Unsecured Claim Equity Allocation, subject to dilution by the issuance of
options, equity or equity-based grants in connection with the Reorganized
Debtors’ Management and Director Equity Incentive Program.

Voting: Class 6C is Impaired, and Holders of Class 6C Claims will be entitled to
vote to accept or reject the Plan.

--------------------------------------------------------------------------------

(d) Class 6D—11% Senior Note Claims against M.G. Digital, LLC

Classification: Class 6D consists of 11% Senior Note Claims against M.G.
Digital, LLC.

Treatment: Holders of Allowed Class 6D Claims will receive, in full and final
satisfaction of such Allowed Class 6D Claims, their pro rata share of [XX%] of
the Unsecured Claim Equity Allocation, subject to dilution by the issuance of
options, equity or equity-based grants in connection with the Reorganized
Debtors’ Management and Director Equity Incentive Program.

Voting: Class 6D is Impaired, and Holders of Class 6D Claims will be entitled to
vote to accept or reject the Plan.

(e) Class 6E—11% Senior Note Claims against Hollywood Entertainment Corporation

Classification: Class 6E consists of 11% Senior Note Claims against Hollywood
Entertainment Corporation.

Treatment: Holders of Allowed Class 6E Claims will receive, in full and final
satisfaction of such Allowed Class 6E Claims, their pro rata share of [XX%] of
the Unsecured Claim Equity Allocation, subject to dilution by the issuance of
options, equity or equity-based grants in connection with the Reorganized
Debtors’ Management and Director Equity Incentive Program.

Voting: Class 6E is Impaired, and Holders of Class 6E Claims will be entitled to
vote to accept or reject the Plan.

(f) Class 6F—11% Senior Note Claims against M.G. Automation LLC

Classification: Class 6F consists of 11% Senior Note Claims against M.G.
Automation LLC.

Treatment: Holders of Allowed Class 6F Claims will receive, in full and final
satisfaction of such Allowed Class 6F Claims, their pro rata share of [XX%] of
the Unsecured Claim Equity Allocation, subject to dilution by the issuance of
options, equity or equity-based grants in connection with the Reorganized
Debtors’ Management and Director Equity Incentive Program.

Voting: Class 6F is Impaired, and Holders of Class 6F Claims will be entitled to
vote to accept or reject the Plan.

 

  2.7 Class 7—General Unsecured Claims

(g) Class 7A—General Unsecured Claims against Movie Gallery, Inc.

Classification: Class 7A consists of General Unsecured Claims against Movie
Gallery, Inc.

Treatment: Holders of Allowed Class 7A Claims will receive, in full and final
satisfaction of such Allowed Class 7A Claims, at their option, either (a) their
pro rata share of [XX%] of the Unsecured Claim Equity Allocation, or (b) in
exchange for assigning to Sopris such Holder’s Allowed Class 7A Claim, an amount
in Cash to be paid by Sopris equal to that Holder’s pro rata percentage of the
total Allowed Class 7A Claims multiplied by [$XX].(3)

  

--------------------------------------------------------------------------------

(3) This amount, and all amounts indicated “[$XX]” in this Article II, shall be
determined in accordance with the principles described in “Understanding
Regarding Claim Treatments” at the end of this Article II.

--------------------------------------------------------------------------------

Voting: Class 7A is Impaired, and Holders of Class 7A Claims will be entitled to
vote to accept or reject the Plan.

(h) Class 7B —Movie Gallery US, LLC General Unsecured Claims

Classification: Class 7B consists of General Unsecured Claims against Movie
Gallery US, LLC.

Treatment: Holders of Allowed Class 7B Claims will receive, in full and final
satisfaction of such Allowed Class 7B Claims, at their option, either (a) their
pro rata share of [XX%] of the Unsecured Claim Equity Allocation, or (b) in
exchange for assigning to Sopris such Holder’s Allowed Class 7B Claim, an amount
in Cash to be paid by Sopris equal to that Holder’s pro rata percentage of the
total Allowed Class 7B Claims multiplied by [$XX].

Voting: Class 7B is Impaired, and Holders of Class 7B Claims will be entitled to
vote to accept or reject the Plan.

(i) Class 7C — M.G.A. Realty I, LLC General Unsecured Claims

Classification: Class 7C consists of General Unsecured Claims against M.G.A.
Realty I, LLC.

Treatment: Holders of Allowed Class 7C Claims will receive, in full and final
satisfaction of such Allowed Class 7C Claims, at their option, either (a) their
pro rata share of [XX%] of the Unsecured Claim Equity Allocation, or (b) in
exchange for assigning to Sopris such Holder’s Allowed Class 7C Claim, an amount
in Cash to be paid by Sopris equal to that Holder’s pro rata percentage of the
total Allowed Class 7C Claims multiplied by [$XX].

Voting: Class 7C is Impaired, and Holders of Class 7C Claims will be entitled to
vote to accept or reject the Plan.

(j) Class 7D —M.G. Digital, LLC General Unsecured Claims

Classification: Class 7D consists of General Unsecured Claims against M.G.
Digital, LLC.

Treatment: Holders of Allowed Class 7D Claims will receive, in full and final
satisfaction of such Allowed Class 7D Claims, at their option, either (a) their
pro rata share of [XX%] of the Unsecured Claim Equity Allocation, or (b) in
exchange for assigning to Sopris such Holder’s Allowed Class 7D Claim, an amount
in Cash to be paid by Sopris equal to that Holder’s pro rata percentage of the
total Allowed class 7D Claims multiplied by [$XX].

--------------------------------------------------------------------------------

Voting: Class 7D is Impaired, and Holders of Class 7D Claims will be entitled to
vote to accept or reject the Plan.

(k) Class 7E—Hollywood Entertainment Corporation General Unsecured Claims

Classification: Class 7E consists of the General Unsecured Claims against
Hollywood Entertainment Corporation and the 9.625% Senior Subordinated Note
Claims.

Treatment: Holders of Allowed Class 7E Claims will receive, in full and final
satisfaction of such Allowed Class 7E Claims, at their option, either (a) their
pro rata share of [XX%] of the Unsecured Claim Equity Allocation, or (b) in
exchange for assigning to Sopris such Holder’s Allowed Class 7E Claim, an amount
in Cash to be paid by Sopris equal to that Holder’s pro rata percentage of the
total Allowed Class 7E Claims multiplied by [$XX].

Voting: Class 7E is Impaired, and Holders of Class 7E Claims will be entitled to
vote to accept or reject the Plan.

(l) Class 7F—MG Automation LLC General Unsecured Claims

Classification: Class 7F consists of the General Unsecured Claims against MG
Automation LLC and the 9.625% Senior Subordinated Note Claims.

Treatment: Holders of Allowed Class 7F Claims will receive, in full and final
satisfaction of such Allowed Class 7F Claims, at their option, either (a) their
pro rata share of [XX%] of the Unsecured Claim Equity Allocation, or (b) in
exchange for assigning to Sopris such Holder’s Allowed Class 7F Claim, an amount
in Cash to be paid by Sopris equal to that Holder’s pro rata percentage of the
total Allowed Class 7F Claims multiplied by [$XX].

Voting: Class 7F is Impaired, and Holders of Class 7F Claims will be entitled to
vote to accept or reject the Plan.

 

  2.8 Class 8—Equity Interests

Classification: Class 8 consists of all Equity Interests in Movie Gallery, Inc.

Treatment: If Class 8 votes to accept the Plan, Holders of Allowed Class 8
Equity Interests will receive, in full and final satisfaction of such Allowed
Class 8 Equity Interests, their pro rata share of 5% of the Unsecured Claim
Equity Allocation. If Class 8 votes to reject the Plan, Holders of Allowed Class
8 Equity Interests will not receive any distribution on account of the Allowed
Class 8 Equity Interests.

Voting: Class 8 is Impaired, and Holders of Class 8 Equity Interests will be
entitled to vote to accept or reject the Plan.

 

  2.9 Class 9—Intercompany Interests

Classification: Class 9 consists of all Intercompany Interests in the Debtors.

--------------------------------------------------------------------------------

Treatment: Class 9 Intercompany Interests shall be retained and the legal,
equitable, and contractual rights to which the Holder of such Intercompany
Interest is entitled shall remain unaltered.

Voting: Class 9 is Unimpaired, and the Holders of Class 9 Claims will be
conclusively deemed to have accepted the Plan pursuant to section 1126(f) of the
Bankruptcy Code.

Understanding Regarding Claim Treatments: The Debtors and Sopris will work
together to appropriately allocate the Pre-Money Equity Value among the Debtors.
Holders of Claims in Classes 6A through 6F and Classes 7A through 7F shall
receive, in the aggregate, 95% of the Unsecured Claim Equity Allocation and
Class 8 shall receive, in the aggregate, 5% of the Unsecured Claim Equity
Allocation so long as Class 8 votes to accept the Plan; provided, however, if
Class 8 votes to reject the Plan, Holders of Claims in Classes 6A through 6F and
Classes 7A through 7F shall receive, in the aggregate, 100% of the Unsecured
Claim Equity Allocation and Class 8 shall receive no distribution. The Unsecured
Claim Equity Allocation will be allocated among the Debtors in the same
proportion that the Pre-Money Equity Value is ascribed to each Debtor. The
Debtors will also determine, in consultation with Sopris, an estimate of the
General Unsecured Claims against each Debtor. The Debtors, in consultation with
Sopris, will then take the Unsecured Claim Equity Allocation for each Debtor and
divide such allocation pro rata between the 11% Senior Note Claims against such
Debtor and the estimated General Unsecured Claims against such Debtor in the
same proportion as their relative claims against such Debtor. The Holders of 11%
Senior Note Claims shall be entitled to assert the full amount of their claims
against each of the Debtors. The General Unsecured Claims shall be entitled to
receive their recoveries on the Effective Date, or as soon thereafter as
practical, subject to appropriate reserves for disputed claims, and the balance
upon the resolution of the final amount of allowed claims in the particular
class. Furthermore, in the case of each Debtor, the cash election contemplated
for Classes 7A through 7F shall be calculated by Sopris, in consultation with
the Debtors, in an amount designed to be at a discount to the implied value of
the portion of the Unsecured Claim Equity Allocation that such creditor would
receive on account of its claim. The aggregate amount of cash to be made
available by Sopris to fund cash elections for any given class of claims will be
capped at an amount to be determined by Sopris in consultation with the Debtors.
Intercompany Claims shall be allowed in their respective Debtor class and shall
receive the same treatment as General Unsecured Claims against that Debtor, but
no cash option. If one of Classes 6A through 6F or 7A through 7F rejects the
Plan but Class 8 accepts the Plan, the recovery for Class 8 shall be decreased
by an amount equal to the pro rata percentage of the Unsecured Claim Equity
Allocation allocated to such non-consenting Class.

 

(f) Proposed Reorganization Schedule

 

Item

  

Description

First-Day Pleadings to Be Filed   

First Day: See Proposed Agenda attached hereto as Exhibit A-2 (the “First Day
Pleadings”).

 

Within Five (5) Business Days of Petition Date: Motion seeking approval of the
Debtors’ performance of all of their obligations under the Lock Up Agreement and
all exhibits thereto, including, without limitation, payment on a current basis
of all required fees and expenses.

    Plan-Related Pleadings to Be Filed   

On or before 30 days after the Petition Date, the Company shall file:

 

1.      the Plan;

 

2.      the Disclosure Statement; and

 

3.      all related solicitation materials.

    Approval of Disclosure Statement   

The Company shall use commercially reasonable efforts to obtain the following
schedule from the Bankruptcy Court:

 

a hearing on or within 60 days after the Petition Date to approve the adequacy
of the Disclosure Statement; and

--------------------------------------------------------------------------------

    

4.      at such hearing (or a continuation thereof), obtain an order from the
Bankruptcy Court establishing deadlines for voting on the Plan and setting the
confirmation hearing for a date no later than 40 days after entry of an order
approving the Disclosure Statement.

    Entry of Confirmation Order    The Company shall use commercially reasonable
efforts to obtain entry by the Bankruptcy Court of the Confirmation Order no
later than 45 days after entry of the order approving the Disclosure Statement.

 

(g) Release Provisions

 

Release

  

Provision

Compromise and Settlement    The allowance, classification and treatment of all
Allowed Claims and Equity Interests and their respective distributions and
treatments under the Plan takes into account and/or conforms to the relative
priority and rights of the Claims and Equity Interests in each Class in
connection with any contractual, legal and equitable subordination rights
relating thereto whether arising under general principles of equitable
subordination, section 510(c) of the Bankruptcy Code, or otherwise. As of the
Effective Date, any and all such rights described in the preceding sentence will
be settled, compromised and released pursuant to the Plan. In addition, the
allowance, classification and treatment of Allowed Claims takes into account any
Causes of Action, whether under the Bankruptcy Code or otherwise under
applicable law, that may exist: (i) between the Debtors, on the one hand, and
the Releasing Parties, on the other, and (ii) as between the Releasing Parties
(to the extent set forth in the Third Party Release); and, as of the Effective
Date, any and all such Causes of Action are settled, compromised and released
pursuant hereto. The Confirmation Order shall approve the releases by all
Entities of all such contractual, legal and equitable subordination rights or
Causes of Action against each such Releasing Party that are satisfied,
compromised and settled in this manner. Nothing in this section will compromise
or settle in any way whatsoever, any Causes of Action that the Debtors or the
Reorganized Debtors may have against the Non-Released Parties.    

Debtor Release

   On the Effective Date and effective as of the Effective Date, for the good
and valuable consideration provided by each of the Debtor Releasees, including,
but not limited to: (i) the discharge of debt and all other good and valuable
consideration paid pursuant to the Plan; (ii) the obligations of the Consenting
First Lien Lenders, Consenting Second Lien Lenders and Consenting 11% Senior
Note Holders to provide the support necessary for Consummation of the Plan; and
(iii) the services of the Debtors’ present and former officers and directors in
facilitating the expeditious implementation of the Restructuring contemplated by
the Plan, each of the Debtors shall provide a full discharge and release to each
Releasing Party and each of their respective members, officers, directors,
agents, financial advisors, attorneys, employees, partners, Affiliates and
representatives (collectively, the “Debtor Releasees” (and each such Debtor
Releasee so released shall be deemed released and discharged by the Debtors))
and their respective properties from any and all Causes of Action, whether known
or unknown, whether for tort, fraud, contract, violations of federal or state
securities laws, or otherwise, arising from or

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Release

 

Provision

   

related in any way to the Debtors, including, without limitation, those that any
of the Debtors or Reorganized Debtors would have been legally entitled to assert
in their own right (whether individually or collectively) or that any Holder of
a Claim or Equity Interest or other Entity including, but not limited to the
Holders of First Lien Claims, Second Lien Claims and 11% Senior Note Claims,
would have been legally entitled to assert on behalf of any of the Debtors or
any of their Estates, and further including those in any way related to the
Chapter 11 Cases or the Plan to the fullest extent of the law; provided,
however, that the foregoing “Debtor Release” shall not operate to waive or
release any Releasing Party from any Causes of Action: (i) expressly set forth
in and preserved by the Plan, the Plan Supplement or related documents; (ii)
arising from any obligations under the Lock Up Agreement; or (iii) arising under
the Amended and Restated First Lien Credit Agreement or the Amended and Restated
Second Lien Credit Agreement. Notwithstanding anything in the Plan to the
contrary, the Debtors or the Reorganized Debtors will not release any Causes of
Action that they may have now or in the future against the Non-Released Parties.

 

Entry of the Confirmation Order shall constitute the Bankruptcy Court’s
approval, pursuant to Fed. R. Bankr. P. 9019, of the Debtor Release, which
includes by reference each of the related provisions and definitions contained
in this Term Sheet, and further, shall constitute its finding that the Debtor
Release is: (i) in exchange for the good and valuable consideration provided by
the Debtor Releasees, a good faith settlement and compromise of the claims
released by the Debtor Release; (ii) in the best interests of the Debtors and
all Holders of Claims; (iii) fair, equitable and reasonable; (iv) given and made
after due notice and opportunity for hearing; and (v) a bar to any of the
Debtors or Reorganized Debtors asserting any Claim released by the Debtor
Release against any of the Debtor Releasees.

    Third Party Release  

On the Effective Date and effective as of the Effective Date, the Releasing
Parties shall provide a full discharge and release (and each Entity so released
shall be deemed released by the Releasing Parties) to the Third Party Releasees
and their respective property from any and all Causes of Action, whether known
or unknown, whether for tort, fraud, contract, violations of federal or state
securities laws, or otherwise, arising from or related in any way to the
Debtors, including, without limitation, those in any way related to the Chapter
11 Cases or the Plan to the fullest extent of the law; provided, however, that
the foregoing “Third Party Release” shall not operate to waive or release any of
the Third Party Releasees from any Causes of Action: (i) expressly set forth in
and preserved by the Plan, the Plan Supplement or related documents;
(ii) arising from any obligations under the Lock Up Agreement or (iii) arising
under the Amended and Restated First Lien Credit Agreement or the Amended and
Restated Second Lien Credit Agreement. Notwithstanding anything in the Plan to
the contrary, the Releasing Parties will not release any Causes of Action that
they, the Debtors or the Reorganized Debtors may have now or in the future
against the Non-Released Parties.

 

Entry of the Confirmation Order shall constitute the Bankruptcy Court’s
approval, pursuant to Fed. R. Bankr. P. 9019, of the Third Party Release, which
includes by reference each of the related provisions and definitions contained
in this Term Sheet, and further, shall constitute its finding that the Third
Party Release is: (i) in exchange for the good and valuable consideration
provided by the Third Party Releasees, a good faith settlement and compromise of
the claims released by the Third Party Release; (ii) in the best interests of
the Debtors and all Holders of Claims; (iii) fair, equitable and

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Release  

Provision

    reasonable; (iv) given and made after due notice and opportunity for
hearing; and (v) a bar to any of the Releasing Parties asserting any claim
released by the Third Party Release against any of the Third Party Releasees.  
  Injunction   From and after the Effective Date, all Entities are permanently
enjoined from commencing or continuing in any manner, any Cause of Action
released or to be released pursuant to the Plan or the Confirmation Order.    
Exculpation   The Exculpated Parties shall neither have, nor incur any liability
to any Entity for any prepetition or postpetition act taken or omitted to be
taken in connection with, or related to formulating, negotiating, preparing,
disseminating, implementing, administering, confirming or effecting the
Consummation of the Plan, the Disclosure Statement or any contract, instrument,
release or other agreement or document created or entered into in connection
with the Plan or any other prepetition or postpetition act taken or omitted to
be taken in connection with or in contemplation of the restructuring of the
Company; provided, however, that the foregoing provisions of this release shall
have no effect on the liability of any Entity that results from any such act or
omission that is determined in a Final Order to have constituted gross
negligence or willful misconduct; provided further, that each Exculpated Party
shall be entitled to rely upon the advice of counsel concerning his, her or its
duties pursuant to, or in connection with, the Plan; provided still further,
that the foregoing Exculpation shall not apply to any acts or omissions:
(i) expressly set forth in and preserved by the Plan, the Plan Supplement or
related documents; or (ii) arising from any obligations under the Lock Up
Agreement.     Indemnification of
Prepetition Officers and
Directors   Under the Plan, all indemnification provisions currently in place
(whether in the by-laws, certificates of incorporation, articles of limited
partnership, board resolutions or employment contracts) for the current and
former directors, officers, employees, attorneys, other professionals and agents
of the Debtors and such current and former directors and officers’ respective
Affiliates shall be assumed, and shall survive effectiveness of the Plan. All
indemnification provisions in place on and prior to the Effective Date for
current and former directors and officers of the Debtors and their subsidiaries
and such current and former directors and officers’ respective Affiliates shall
survive the Effective Date of the Plan for Claims related to or in connection
with any actions, omissions or transactions occurring prior to the Effective
Date; provided, however, that, notwithstanding the foregoing and notwithstanding
anything in the Plan to the contrary, the Plan will not indemnify any of the
Non-Released Parties for any matter.     Director and Officer
Liability Policy   Reorganized Movie Gallery will obtain reasonably sufficient
tail coverage under a directors and officers’ liability insurance policy for the
current and former directors and officers for a period of six years. As of the
Effective Date, the Debtors shall assume all of the D&O Liability Insurance
Policies pursuant to section 365(a) of the Bankruptcy Code. Entry of the
Confirmation Order will constitute the Bankruptcy Court’s approval of the
Debtors’ foregoing assumption of each of D&O Liability Insurance Policies.
Notwithstanding anything to the contrary contained in the Plan, Confirmation of
the Plan shall not discharge, impair or otherwise modify any indemnity
obligations assumed by the foregoing assumption of the D&O Liability Insurance
Policies, and each such indemnity obligation will be deemed and treated as an
Executory Contract that has been assumed by the Debtors under the Plan as to
which no proof of claim need be Filed; provided, however, the D&O Liability
Insurance Policies will not cover any of the Non-Released Parties for any
matter.

--------------------------------------------------------------------------------

Release

 

Provision

Discharge of the Debtors   Except as otherwise provided herein, on the Effective
Date and effective as of the Effective Date: (i) the rights afforded in the Plan
and the treatment of all Claims and Equity Interests herein shall be in exchange
for and in complete satisfaction, discharge and release of all Claims and Equity
Interests of any nature whatsoever, including any interest accrued on such
Claims from and after the Petition Date, against the Debtors, or any of their
assets, property or Estates; (ii) the Plan shall bind all Holders of Claims and
Equity Interests, notwithstanding whether any such Holders failed to vote to
accept or reject the Plan or voted to reject the Plan; (iii) all Claims against
and Equity Interests in the Debtors shall be satisfied, discharged and released
in full, and the Debtors’ liability with respect thereto shall be extinguished
completely, including, without limitation, any liability of the kind specified
under section 502(g) of the Bankruptcy Code; and (iv) all Entities shall be
precluded from asserting against the Debtors, the Debtors’ Estates, the
Reorganized Debtors, each of their successors and assigns, each of their assets
and properties, any other Claims or Equity Interests based upon any documents,
instruments or any act or omission, transaction or other activity of any kind or
nature that occurred prior to the Effective Date.     DIP Facility   Sopris will
not oppose entry of interim or final orders approving the DIP Facility in the
form submitted to Sopris on October 14, 2007, and as acknowledged by Sopris,
provided, however, that Sopris reserves all rights with respect to any material
amendment, modification, ratification, extension, renewal restatement or
replacement thereof.

(h)    Governance of Reorganized Movie Gallery

 

Board of Directors   There will be an initial board of directors of Reorganized
Movie Gallery (the “New Board”), which will consist of 7 directors, consisting
of: (a) Joe Malugen; (b) 4 directors designated by Sopris in its sole
discretion; and (c) 2 directors designated by Sopris, subject (solely with
respect to this clause (c)) to the reasonable approval of the Debtors. Any
directors designated pursuant to clause (b) or (c) hereof shall be subject to
approval of the Bankruptcy Court pursuant to section 1129(a)(5) of the
Bankruptcy Code.     Organizational Documents   Reorganized Movie Gallery will
adopt revised by-laws and a revised certificate of incorporation, subject to the
reasonable approval of Sopris.

(i)     Other Key Proposed Plan Provisions

 

Other Key Proposed Plan Terms  

Resolution of Disputed Claims and any reserves therefore;

 

The assumption or rejection, as the case may be, of Executory Contracts and
Unexpired Leases; and

 

Retention of jurisdiction by the Bankruptcy Court for Claims resolution and
certain other purposes.

    Employee-related Provisions   The Plan will provide for the assumption of
the Employee-Related Agreements.

--------------------------------------------------------------------------------

Fees and Expenses of
Sopris   The Company shall pay, on a current basis, all reasonable and
documented fees and expenses of Sopris associated with the Restructuring
(including the Rights Offering), including, but not limited to, the fees of
Sonnenschein Nath & Rosenthal LLP, Tavenner & Beran, PC and Jefferies & Co.,
Inc.     Fees and Expenses of
Second Lien
Administrative Agent
and Second Lien
Collateral Agent   On the Effective Date, all reasonable and documented fees and
expenses of the Second Lien Administrative Agent and the Second Lien Collateral
Agent and their advisors (including, without limitation, the fees and expenses
of Milbank, Tweed, Hadley & McCloy LLP, Venable LLP, and Blackstone Advisory
Services LP) not previously paid by the Debtors shall be paid in full in Cash.  
  Public Listing   The New Board shall determine the timing of any public
listing of the New MG Common Stock.     Tax Structure   The Debtors shall
consult with counsel to Sopris on tax issues and matters of tax structure
relating to the Restructuring.     Conditions Precedent to
Plan Confirmation  

(i)     No Termination Event (as defined in the Lock Up Agreement) has
terminated the Lock Up Agreement.

(ii)    The Disclosure Statement has been approved.

(iii)  The Plan and all Plan Supplement documents, including any amendments,
modifications or supplements thereto, shall be acceptable to Sopris.

(iv)   The Bankruptcy Court shall have entered an order confirming the Plan,
which order shall be in form and substance reasonably satisfactory to the
Debtors and Sopris.

(v)    The Company shall have entered into Accommodation Agreements on terms and
conditions reasonably acceptable to Sopris.

    Conditions Precedent

to Plan Consummation

 

(i)     The Plan shall contain such additional conditions to Consummation of the
Plan customary in plans of reorganization of this type, which shall be in form
and substance reasonably satisfactory to the Debtors and Sopris; provided,
however, that public listing of the Reorganized Movie Gallery’s stock shall not
be a condition precedent to Plan Consummation.

 

(ii)    The Plan and all Plan Supplement documents, including any amendments,
modifications or supplements thereto, shall be reasonably acceptable to Sopris;
and

 

(iii)  Total funded secured indebtedness of the Debtors on the Effective Date,
after giving effect to the transactions contemplated herein, shall not exceed
$800 million (plus any PIK amounts under the Amended and Restated Second Lien
Credit Agreement), or such greater amount acceptable to Sopris.

--------------------------------------------------------------------------------

EXHIBIT A-1

DEFINITIONS

 

Term

  

Definition

9.625% Senior Subordinated Notes    The 9.625% Senior Subordinated Notes due
March 15, 2011, issued by Hollywood Entertainment Corporation and guaranteed by
Hollywood Management Company pursuant to the 9.625% Senior Subordinated Notes
Indenture.     9.625% Senior Subordinated Note Claims    All Claims derived from
or based upon the 9.625% Senior Subordinated Notes Indenture.     9.625% Senior
Subordinated Notes Indenture    That certain Indenture, dated as of January 25,
2002, among Hollywood Entertainment Corporation, as issuer, Hollywood Management
Company, as guarantor, and BNY Western Trust Company, as trustee, as amended by
the supplemental indenture dated as of December 18, 2002.     11% Senior Notes
   The 11% Senior Unsecured Notes due May 1, 2012, issued by Movie Gallery, Inc.
pursuant to the 11% Senior Notes Indenture.     11% Senior Note Claims    All
Claims derived from or based upon the 11% Senior Notes and 11% Senior Notes
Indenture.     11% Senior Notes Indenture    That certain Indenture, dated as
April 27, 2005, among Movie Gallery, Inc., as issuer, Movie Gallery US, Inc.,
Movie Gallery Services, Inc., Movie Gallery Licenses, Inc., Movie Gallery
Finance Inc., Movie Gallery Asset Management, Inc., M.G.A. Realty I, LLC, M.G.
Digital, LLC, Hollywood Entertainment Corporation and Hollywood Management
Company, as guarantors, and SunTrust Bank, as trustee.    

11% Senior Notes

Trustee

   U.S. Bank National Association.     Accommodation Agreement    An agreement
between the Debtors and a major Studio, reasonably satisfactory to Sopris,
consistent with an order of the Bankruptcy Court approving the Studio Motion.  
  Adjusted Equity Value    A number equal to the Pre-Money Equity Value plus the
Second Lien Conversion Amount plus the Rights Offering Amount plus the Rights
Offering Commitment Fee.     Administrative Claim    A Claim for costs and
expenses of administration of the Estates under sections 503(b), 507(b) or
1114(e)(2) of the Bankruptcy Code, including, without limitation, for: (a) the
actual and necessary costs and expenses incurred after the Petition Date of
preserving the respective Estates and operating the businesses of the Debtors;
(b) Allowed Claims of retained professionals in the Chapter 11 Cases; and (c)
all fees and charges assessed against the Estates under chapter 123 of title 28
of the United States Code, 28 U.S.C. §§ 1911-1930.     Affiliate    As defined
in section 101(2) of the Bankruptcy Code.     Allowed    With respect to any
Claim, except as otherwise provided herein: (a) a Claim that is scheduled by the
Debtors in their Schedules as neither disputed, contingent nor unliquidated and
for which the claim amount has not been identified as unknown and as to which
Debtors or other party in interest has not filed an objection by the Claims
Objection Bar Date; (b) a Claim that either is not a Disputed Claim or has been
allowed by a Final Order; (c) a Claim that is allowed: (i) pursuant to the Plan;
(ii) in any stipulation of amount and nature of Claim executed prior to the
Confirmation Date and approved by the Bankruptcy Court; (iii) in any stipulation
with the Debtors of amount and nature of Claim executed on or after the
Confirmation Date and approved by the Bankruptcy

--------------------------------------------------------------------------------

Term

 

Definition

    Court; or (iv) in or pursuant to any contract, instrument, indenture or
other agreement entered into or assumed in connection herewith; (d) a Claim
relating to a rejected Executory Contract or Unexpired Lease that either (i) is
not a Disputed Claim or (ii) has been allowed by a Final Order, in either case
only if a proof of Claim has been Filed by the applicable bar date or has
otherwise been deemed timely filed under applicable law; (e) a Claim that is
allowed pursuant to the terms of the Plan; or (f) a Disputed Claim as to which a
proof of Claim has been timely filed and as to which no objection has been filed
by the Claims Objection Bar Date.    

Amended and Restated

First Lien Credit Agreement

  An Amended and Restated First Lien Credit Agreement on terms reasonably
acceptable to Sopris and the Debtors.     Amended and Restated Second Lien
Credit Agreement   An Amended and Restated Second Lien Credit Agreement on
substantially the same terms as the Second Lien Credit Agreement and consistent
with the Amended and Restated Second Lien Credit Agreement Term Sheet.    

Amended and Restated Second Lien Credit Agreement Term

Sheet

  That certain Amended and Restated Second Lien Credit Agreement Term Sheet
attached as Exhibit A-3.     Bankruptcy Code   Chapter 11 of the Bankruptcy
Code, 11 U.S.C. §§ 101-1532.     Bankruptcy Court   The United States Bankruptcy
Court for the Eastern District of Virginia, Richmond Division, having
jurisdiction over the Chapter 11 Cases and, to the extent of the withdrawal of
any reference under section 157 of title 28 of the United States Code and/or the
General Order of the District Court pursuant to section 151 of title 28 of the
United States Code, the United States District Court for the Eastern District of
Virginia.     Bankruptcy Rules   The Federal Rules of Bankruptcy Procedure, as
applicable to the Chapter 11 Cases, promulgated under 28 U.S.C. § 2075 and the
general, local and chambers rules of the Bankruptcy Court.     Business Day  
Any day, other than a Saturday, Sunday or “legal holiday” (as defined in
Bankruptcy Rule 9006(a)).     Cash   The legal tender of the United States of
America or the equivalent thereof, including bank deposits, checks and Cash
Equivalents.     Cash Equivalents   Equivalents of Cash in the form of readily
marketable securities or instruments issued by an Entity, including, without
limitation, readily marketable direct obligations of, or obligations guaranteed
by, the United States of America, commercial paper of domestic corporations
carrying a Moody’s rating of “A2” or better, or equivalent rating of any other
nationally recognized rating service, or interest bearing certificates of
deposit or other similar obligations of domestic banks or other financial
institutions having a shareholders’ equity or capital of not less than one
hundred million dollars ($100,000,000) having maturities of not more than one
(1) year, at the then best generally available rates of interest for like
amounts and like periods.     Causes of Action   All actions, causes of action,
Claims, liabilities, obligations, rights, suits, debts, damages, judgments,
remedies, demands, setoffs, defenses, recoupments, crossclaims, counterclaims,
third-party claims, indemnity claims, contribution claims or any other claims
disputed or undisputed, suspected or unsuspected, foreseen or unforeseen, direct
or indirect, choate or inchoate, existing or hereafter arising, in law, equity
or otherwise, based on whole or in part upon any act or omission or other event
occurring prior to the Petition Date or during the course of the Chapter 11
Cases, including through the Effective Date.

--------------------------------------------------------------------------------

Term

 

Definition

Chapter 11 Cases   (a) When used with reference to a particular Debtor, the
chapter 11 case to be filed for that Debtor under chapter 11 of the Bankruptcy
Code in the Bankruptcy Court and (b) when used with reference to all Debtors,
the procedurally consolidated chapter 11 cases for all of the Debtors.     Claim
  Any claim against a Debtor as defined in section 101(5) of the Bankruptcy
Code.     Claims Objection Bar Date   The date or dates to be fixed by the Plan
or an order of the Bankruptcy Court for objecting to Claims.     Class   A
category of Holders of Claims or Equity Interests pursuant to section 1122(a) of
the Bankruptcy Code as set forth in Article II.B of the Term Sheet.     Company
  Movie Gallery, Inc. and certain of its Affiliates.     Confirmation   The
entry of the Confirmation Order on the docket of the Chapter 11 Cases, subject
to all conditions specified having been: (a) satisfied; or (b) waived.    
Confirmation Date   The date upon which the Bankruptcy Court enters the
Confirmation Order on the docket of the Chapter 11 Cases, within the meaning of
Bankruptcy Rules 5003 and 9021.     Confirmation Order   The order of the
Bankruptcy Court confirming the Plan pursuant to, among others, section 1129 of
the Bankruptcy Code.     Consenting First Lien Holders   Those Holders of First
Lien Claims, if any, that are parties to the Lock Up Agreement.     Consenting
Second Lien Holders   Those Holders of Second Lien Claims that are parties to
the Lock Up Agreement.     Consenting 11% Senior Note Holders   Those Holders of
11% Senior Note Claims that are parties to the Lock Up Agreement.    
Consummation   The occurrence of the Effective Date.     Creditor   Any Holder
of a Claim.     D&O Liability Insurance Policies   All insurance policies for
directors and officers’ liability maintained by the Debtors as of the Petition
Date, including the Directors and Officers’ Liability (Traditional) policy
issued by XL Specialty Insurance and expiring on September 9, 2008 and the
Directors and Officers’ Liability (Side A Excess) issued by XL Specialty
Insurance and expiring on September 9, 2008 with an automatic six year run off.
    Debtor   One of the Debtors, in its individual capacity as a debtor in the
Chapter 11 Cases.     Debtors   Collectively, Movie Gallery, Inc.; Hollywood
Entertainment Corporation; M.G. Digital, LLC; M.G.A. Realty I, LLC;
MG Automation LLC; and Movie Gallery US, LLC.     Debtor Releasees   Each
Releasing Party and each of their respective members, officers, directors,
agents, financial advisors, attorneys, employees, partners, Affiliates and
representatives.     DIP Facility   That certain $150 million Secured
Super-Priority Debtor in Possession Credit and Guaranty Agreement among Movie
Gallery, Inc., as borrower, and the other 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, Goldman Sachs Credit
Partners L.P., as documentation agent and the banks, financial institutions and
other lenders parties thereto, as may be amended, modified, ratified, extended,
renewed, restated or replaced, provided, however, that Sopris reserves all
rights with respect to any material amendment, modification, ratification,
extension, renewal restatement or replacement thereof.

--------------------------------------------------------------------------------

Term

 

Definition

DIP Facility Claim   Any Claim on account of the DIP Facility.    
Disclosure Statement   The disclosure statement for the Plan, as amended,
supplemented or modified from time to time, describing the Plan, that is
prepared and distributed in accordance with, among others, sections 1125,
1126(b) and 1145 of the Bankruptcy Code, Bankruptcy Rule 3018 and other
applicable law.     Disputed Claim   (a) If no proof of Claim has been filed by
the applicable Bar Date or has otherwise been deemed timely filed under
applicable law: (i) a Claim that is listed on a Debtor’s Schedules as other than
disputed, contingent or unliquidated, but as to which the applicable Debtor or
Reorganized Debtor or, prior to the Confirmation Date, any other party in
interest, has filed an objection by the Claims Objection Bar Date, and such
objection has not been withdrawn or denied by a Final Order; or (ii) a Claim
that is listed on a Debtor’s Schedules as disputed, contingent or unliquidated;
or (b) if a proof of Claim or request for payment of an Administrative Claim has
been filed by the applicable Bar Date or has otherwise been deemed timely filed
under applicable law: (i) a Claim for which no corresponding Claim is listed on
a Debtor’s Schedules; (ii) a Claim for which a corresponding Claim is listed on
a Debtor’s Schedules as other than disputed, contingent or unliquidated, but the
nature or amount of the Claim as asserted in the proof of Claim varies from the
nature and amount of such Claim as it is listed on the Schedules; (iii) a Claim
for which a corresponding Claim is listed on a Debtor’s Schedules as disputed,
contingent or unliquidated; (iv) a Claim for which an objection has been filed
by the applicable Debtor or Reorganized Debtor or, prior to the Confirmation
Date, any other party in interest, by the Claims Objection Bar Date, and such
objection has not been withdrawn or denied by a Final Order; or (v) a Tort
Claim.     Effective Date   The day that is the first Business Day after the
Confirmation Date on which: (a) no stay of the Confirmation Order is in effect;
and (b) all conditions precedent to the Effective Date have been satisfied or
waived.     Employee-Related Agreements   Those certain employee-related
agreements including, without limitation, (a) senior management employee
agreements; (b) change of control agreements; (c) indemnification agreements;
and (d) D&O Liability Insurance Policies (and any tail policy with respect
thereto) in effect as of the Petition Date and that have been made available to
Sopris and/or its advisors prior to the Petition Date.     Entity   An entity as
defined in section 101(15) of the Bankruptcy Code.     Equity Interest   Any
share of common stock, preferred stock or other instrument evidencing an
ownership interest in a Debtor, whether or not transferable, and any option,
warrant or right, contractual or otherwise, to acquire any such interest in a
Debtor that existed immediately prior to the Effective Date; provided, however,
that Equity Interest does not include any Intercompany Interest.     Equity
Security Holder   An Equity Interest Holder.     Estate   As to each Debtor, the
estate created for the Debtor in its Chapter 11 Case pursuant to section 541 of
the Bankruptcy Code.     Exculpated Parties   (a) The Debtors; (b) Reorganized
Debtors; (c) the Releasing Parties; (d) Sopris and (e) all of the officers,
directors, employees, members, attorneys, actuaries, financial advisors,
accountants, investment bankers, agents, professionals and representatives of
each of the foregoing Entities (whether current or former, in each case in his,
her or its capacity as such); provided, however, that no Non-Released Party will
be an Exculpated Party.     Executory Contract   A contract to which one or more
of the Debtors is a party that is subject to assumption or rejection under
section 365 of the Bankruptcy Code.     Exit Facility   The credit facility to
be entered into by the Reorganized Debtors on the Effective Date.

--------------------------------------------------------------------------------

Term

 

Definition

Final Order   An order or judgment of the Bankruptcy Court, or other court of
competent jurisdiction with respect to the subject matter, as entered on the
docket in any Chapter 11 Case or the docket of any court of competent
jurisdiction, that has not been reversed, stayed, modified or amended, and as to
which the time to appeal, or seek certiorari or move for a new trial, reargument
or rehearing has been timely taken, or as to which any appeal that has been
taken or any petition for certiorari that has been timely filed has been
withdrawn or resolved by the highest court to which the order or judgment was
appealed or from which certiorari was sought or the new trial, reargument or
rehearing will have been denied, resulted in no modification of such order or
has otherwise been dismissed with prejudice.     First Lien Administrative Agent
  Goldman Sachs Credit Partners, L.P.     First Lien Agents   First Lien
Administrative Agent, First Lien Collateral Agent and First Lien Documentation
Agent.     First Lien Claims   All Claims derived from or based upon the First
Lien Credit Facilities, including fees and expenses of the First Lien Agents and
their advisors (including, without limitation, the reasonable and documented
fees and expenses of Skadden, Arps, Slate, Meagher & Flom, LLP and Houlihan
Lokey Howard & Zukin) not previously paid by the Debtors.     First Lien
Collateral Agent   Wachovia.     First Lien Credit Agreement   That certain
First Lien Credit and Guaranty Agreement dated March 8, 2007, among Movie
Gallery, Inc., as borrower, and Wachovia, as First Lien Collateral Agent and as
Documentation Agent.     First Lien Credit Facilities   The $725,000,000 Senior
Secured First Priority Credit Facilities between Movie Gallery, Inc. and certain
Movie Gallery, Inc. subsidiaries as guarantors, Goldman Sachs Credit Partners
L.P., as lead arranger, syndication agent and First Lien Administrative Agent,
and Wachovia, as First Lien Collateral Agent and Documentation Agent.     First
Lien Documentation Agent   Wachovia.     First Lien Lenders   Those lenders
party to the First Lien Credit Facilities.     First Lien Pledge and Security
Agreement   That certain First Lien Pledge and Security Agreement dated March 8,
2007, between Movie Gallery, Inc. and Wachovia, as First Lien Collateral Agent.
    General Unsecured Claim   Any unsecured Claim against any Debtor that is not
an Other Priority Claim, 11% Senior Note Claim, 9.625% Senior Subordinated Note
Claim or Intercompany Claim.     Holder   An Entity holding an Equity Interest
or Claim.     Impaired   Claims in an Impaired Class.     Impaired Class   An
impaired Class within the meaning of section 1124 of the Bankruptcy Code.    
Intercompany Claims   Any and all Claims of a Debtor against and in another
Debtor.     Intercompany Interest   An Interest in a Debtor held by another
Debtor or an Interest in a Debtor held by an Affiliate of the Debtors.    
Intercreditor Agreement   That certain intercreditor agreement dated March 8,
2007, between Movie Gallery, Inc., the First Lien Collateral Agent and the
Second Lien Collateral Agent.     Lock Up Agreement   That certain Lock Up,
Voting and Consent Agreement dated October 14, 2007, between the Consenting
First Lien Lenders, if any, the Consenting Second Lien Lenders, the Consenting
11% Senior Note Holders, Sopris and the Debtors.

--------------------------------------------------------------------------------

Term

 

Definition

Management and

Director Equity Incentive Program

  A post-Effective Date director and officer compensation incentive program,
approved by the New Board, providing for New MG Common Stock equal to 10%, on a
fully-diluted basis, to be reserved for issuance as grants of equity, restricted
stock or options.     New Board   The initial board of directors of Reorganized
Movie Gallery.     New MG Common Stock   50,000,000 shares of common stock in
the Reorganized Movie Gallery, par value [$.01] per share, to be authorized
pursuant to the Reorganized Movie Gallery charter, of which up to 20,000,000
shares shall be initially issued on the Effective Date pursuant to the Plan.    
Non-Released Parties   Those Persons listed in the Plan Supplement.    
Other Priority Claims   Any and all Claims accorded priority in right of payment
under section 507(a) of the Bankruptcy Code, other than a Priority Tax Claim.  
  Other Secured Claims   Any secured Claim, other than a: (a) DIP Facility
Claim; (b) First Lien Claim; or (c) Second Lien Claim.     Person   A person as
defined in section 101(41) of the Bankruptcy Code.     Petition Date   The date
on which the Debtors will commence the Chapter 11 Cases.     Plan   The Debtors’
joint plan of reorganization under chapter 11 of the Bankruptcy Code, as it may
be altered, amended, modified or supplemented from time to time in accordance
with this Term Sheet, the Lock Up Agreement and the Bankruptcy Code or the
Bankruptcy Rules, and in each case, in form and substance reasonably acceptable
to Sopris.     Plan Supplement   The compilation of documents and forms of
documents, schedules and exhibits to be filed no later than 5 Business Days
prior to the hearing at which the Bankruptcy Court considers whether to confirm
the Plan, as may thereafter be altered, amended, modified or supplemented from
time to time in accordance with the terms hereof and in accordance with the
Bankruptcy Code and the Bankruptcy Rules, comprising, without limitation, the
following documents: (a) new organizational documents; (b) to the extent known,
the identity of New Board members and the nature of any compensation for any
member of the New Board who is an “insider” under the Bankruptcy Code; (c) the
list of Non-Released Parties; (d) the list of Executory Contracts and Unexpired
Leases to be assumed; and (e) the list of Executory Contracts and Unexpired
Leases to be rejected.     Pre-Money Equity Value   $100 million.     Priority
Tax Claim   Any and all Claims of a governmental unit of the kind specified in
section 507(a)(8) of the Bankruptcy Code.     Reinstated Second Lien Claim   Any
Second Lien Claim other than a Sopris Second Lien Claim.     Releasing Parties  
All current and former First Lien Agents, all current and former Second Lien
Agents, the DIP agent(s), the DIP arrangers, the Consenting First Lien Holders,
the Consenting Second Lien Holders, the Consenting 11% Senior Note Holders, the
Exculpated Parties, the Equity Security Holders, and all Holders of Claims,
provided, however, that no Non-Released Party shall be a Releasing Party.    
Reorganized Debtors   The Debtors, in each case, or any successor thereto, by
merger, consolidation, or otherwise, on or after the Effective Date.    
Reorganized Movie Gallery   Movie Gallery, Inc. or any successor thereto, by
merger, consolidation or otherwise, on or after the Effective Date.     Retained
Professional   An Entity: (a) employed in these Chapter 11 Cases pursuant to a
Final Order in

--------------------------------------------------------------------------------

Term  

Definition

    accordance with sections 327 and 1103 of the Bankruptcy Code and to be
compensated for services rendered prior to the Effective Date, pursuant to
sections 327, 328, 329, 330 and 331 of the Bankruptcy Code; or (b) for which
compensation and reimbursement has been allowed by the Bankruptcy Court pursuant
to section 503(b)(4) of the Bankruptcy Code.     Rights Offering   That certain
$50 million New MG Common Stock rights offering backstopped by Sopris, the terms
of which are set forth in the Rights Offering Term Sheet.     Rights Offering
Amount   $50 million.     Rights Offering Commitment Fee   2.3% of the Rights
Offering Amount.     Rights Offering Commitment Fee Equity Allocation   A
percentage of New MG Common Stock to be issued to Sopris on the Effective Date
equal to the Rights Offering Commitment Fee divided by the Adjusted Equity
Value, subject to dilution by the issuance of options, equity or equity-based
grants in connection with the Reorganized Debtors’ Management and Director
Equity Incentive Program.     Rights Offering Equity Allocation   A percentage
of New MG Common Stock to be issued on the Effective Date equal to the Rights
Offering Amount divided by the Adjusted Equity Value, subject to dilution by the
issuance of options, equity or equity-based grants in connection with the
Reorganized Debtors’ Management and Director Equity Incentive Program.    
Rights Offering Term Sheet   That certain Rights Offering Term Sheet attached as
Exhibit A-4.     Schedules   The schedules of assets and liabilities, schedules
of Executory Contracts and Unexpired Leases and statements of financial affairs
filed by the Debtors pursuant to section 521 of the Bankruptcy Code and in
substantial accordance with the Official Bankruptcy Forms, as the same may have
been amended, modified or supplemented from time to time.     Second Lien
Administrative Agent   Wells Fargo Bank, N.A., as agent, as successor to
CapitalSource Finance LLC.     Second Lien Agents   Second Lien Administrative
Agent, Second Lien Collateral Agent and Second Lien Syndication Agent.    
Second Lien Claims   All Claims derived from or based upon the Second Lien
Credit Agreement, including reasonable and documented fees and expenses of the
Second Lien Administrative Agent and the Second Lien Collateral Agent and their
advisors (including, without limitation, the fees and expenses of Milbank,
Tweed, Hadley & McCloy LLP, Venable LLP and Blackstone Advisory Services LP) not
previously paid by the Debtors.     Second Lien Collateral Agent   Wells Fargo
Bank, N.A., as agent, as successor to CapitalSource Finance LLC.     Second Lien
Conversion   The conversion of the Allowed Sopris Second Lien Claims into the
Second Lien Conversion Equity Allocation.     Second Lien Conversion Amount  
The Allowed amount of Sopris Second Lien Claims.     Second Lien Conversion
Equity Allocation   A percentage of New MG Common Stock to be issued on the
Effective Date equal to the Second Lien Conversion Amount divided by the
Adjusted Equity Value, subject to dilution by the issuance of options, equity or
equity-based grants in connection with the Reorganized Debtors’ Management and
Director Equity Incentive Program.     Second Lien Credit Agreement   That
certain Second Lien Credit and Guaranty Agreement dated March 8, 2007, between
Movie Gallery, Inc., Goldman Sachs Credit Partners, L.P., as Lender, Syndication
Agent and Lead Arranger, those lenders party thereto and the Second Lien
Collateral Agent.

--------------------------------------------------------------------------------

Term  

Definition

Second Lien Lenders   The lenders party to the Second Lien Credit Agreement.    
Second Lien Pledge and Security Agreement   That certain Second Lien Pledge and
Security Agreement dated March 8, 2007, between Movie Gallery, Inc. and
CapitalSource Finance LLC, as Second Lien Collateral Agent.     Second Lien
Syndication Agent   Goldman Sachs Credit Partners L.P.     Second Lien Term Loan
  The $175,000,000 Second Lien Term Loan issued pursuant to the Second Lien
Credit Agreement.     Sopris   Sopris Capital Advisors LLC.     Sopris Second
Lien Claims   All Second Lien Claims held by Sopris, the aggregate principal
amount of which is estimated to be $72 million plus accrued and PIK Interest (as
defined in the Second Lien Credit Agreement) thereon.     Sopris Senior Notes
Commitment   The commitment by Sopris, set forth in the Rights Offering Term
Sheet, to purchase shares in the Rights Offering in an amount equal to its
current proportionate ownership of the 11% Senior Notes.     Studio   One of the
Debtors’ movie studio suppliers.     Studio Claims   Any and all Claims based on
amounts owed to the Studios.     Studio Motion   That certain motion to be filed
by the Debtors in the Chapter 11 Cases seeking authorization to enter into
Accommodation Agreements and to pay prepetition obligations in connection
therewith.     Third Party Releasees   Collectively, each of the Debtors, the
Reorganized Debtors, each Releasing Party, and each of their respective members,
officers, directors, agents, financial advisors, attorneys, employees, partners,
Affiliates and representatives.     Tort Claim   Any Claim that has not been
settled, compromised or otherwise resolved that: (a) arises out of allegations
of personal injury, wrongful death, property damage, products liability or
similar legal theories of recovery; or (b) arises under any federal, state or
local statute, rule, regulation or ordinance governing, regulating or relating
to protection of human health, safety or the environment.     Unexpired Lease  
A lease of non-residential real property to which one or more of the Debtors is
a party that is subject to assumption or rejection under section 365 of the
Bankruptcy Code.     Unimpaired   Claims in an Unimpaired Class.     Unimpaired
Class   An unimpaired Class within the meaning of section 1124 of the Bankruptcy
Code.     Unsecured Claim Equity Allocation   A percentage of New MG Common
Stock to be issued on the Effective Date equal to the Pre-Money Equity Value
divided by the Adjusted Equity Value, subject to dilution by the issuance of
options, equity or equity-based grants in connection with the Reorganized
Debtors’ Management and Director Equity Incentive Program.     Voting Classes  
Classes 3, 4, 5, 6A through 6F, 7A through 7F, and 8.     Wachovia   Wachovia
Bank, National Association.

--------------------------------------------------------------------------------

EXHIBIT A-2

PROPOSED FIRST DAY AGENDA

--------------------------------------------------------------------------------

Richard M. Cieri (NY 4207122)    Michael A. Condyles (VA 27807) KIRKLAND & ELLIS
LLP    Peter J. Barrett (VA 46179) Citigroup Center    KUTAK ROCK LLP 153 East
53rd Street    Bank of America Center New York, New York 10022-4611    1111 East
Main Street, Suite 800 Telephone: (212) 446-4800    Richmond, Virginia
23219-3500    Telephone: (804) 644-1700 and       Anup Sathy, P.C. (IL 6230191)
   Marc J. Carmel (IL 6272032)    KIRKLAND & ELLIS LLP    200 East Randolph
Drive    Chicago, Illinois 60601-6636    Telephone: (312) 861-2000      
Proposed Co-Counsel to the Debtors   

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE EASTERN DISTRICT OF VIRGINIA

RICHMOND DIVISION

 

In re:    )    Case No. 07-                        )    Jointly Administered
MOVIE GALLERY, INC., et al.,4    )    Chapter 11    )   

Debtors.

   )         )   

PROPOSED FIRST DAY AGENDA

OCTOBER 16, 2007 AT 2:00 P.M. PREVAILING EASTERN TIME

--------------------------------------------------------------------------------

INTRODUCTION AND REQUEST FOR FIRST DAY HEARING

 

  1. [“First Day Hearing Motion”] Motion of the Debtors for an Order Setting an
Expedited Hearing on “First Day Motions” and for Related Relief

 

  2. [“Affidavit in Support of First Day Motions”] Affidavit of William C.
Kosturos, Chief Restructuring Officer of Movie Gallery, Inc., in Support of
First Day Motions

 

  3. [“Affidavit in Support of Restructuring Advisors”] Affidavit of Thomas D.
Johnson, Jr., Executive Vice President and Chief Financial Officer of Movie
Gallery, Inc., in Support of Restructuring Advisors

--------------------------------------------------------------------------------

4 The Debtors in the cases include: Movie Gallery, Inc.; Hollywood Entertainment
Corporation; M.G. Digital, LLC; M.G.A. Realty I, LLC; MG Automation LLC; and
Movie Gallery US, LLC.

--------------------------------------------------------------------------------

(j) FIRST DAY MATTERS

Section 1. Procedural Motions

 

  1. [“Pro Hac Vice”] Motion for an Order Authorizing Certain Attorneys from
Kirkland & Ellis LLP to Appear and Practice Pro Hac Vice on Behalf of the
Debtors

 

  2. [“Joint Administration”] Motion of the Debtors for an Order Directing Joint
Administration of their Related Chapter 11 Cases

 

  3. [“Matrix and Consolidated Creditors List”] Motion of the Debtors for
Authority to (A) Prepare a List of Creditors in Lieu of Submitting a Formatted
Mailing Matrix and (B) File a Consolidated List of the Debtors’ 30 Largest
Unsecured Creditors

 

  4. [“Extend Deadline for SoFAs and Schedules”] Motion of the Debtors for an
Order (A) Granting an Extension of Time to File Statements of Financial Affairs
and Schedules of Assets and Liabilities, Current Income and Expenditures and
Executory Contracts and Unexpired Leases and (B) Scheduling Meeting of Creditors
under Section 341 of the Bankruptcy Code

 

  5. [“Form of Notice of Commencement / Bar Date”] Motion of the Debtors for an
Order Establishing Bar Dates and Approving Form and Manner of Notice of
Commencement of Cases and Notice of Bar Dates for Creditors to File Proofs of
Claim

 

  6. [“Case Management”] Motion of the Debtors for an Order Establishing Certain
Notice, Case Management and Administrative Procedures

Section 2. Professional Retentions

 

  1. [“Counsel”] Application of the Debtors for an Order Authorizing the
Employment and Retention of Kirkland & Ellis LLP as Attorneys for the Debtors
and Debtors in Possession

 

  2. [“Local Counsel”] Application of the Debtors for an Order Authorizing the
Employment and Retention of Kutak Rock LLP as Attorneys for the Debtors and
Debtors in Possession

 

  3. [“Restructuring Advisors”] Motion of the Debtors for an Order Authorizing
the Employment and Retention of Alvarez & Marsal as Restructuring Advisors for
the Debtors and Debtors in Possession

 

  4. [“Investment Banker and Financial Advisor”] Application of the Debtors for
an Order Authorizing the Employment and Retention of Lazard Frères & Co. LLC as
Investment Banker and Financial Advisor for the Debtors and Debtors in
Possession

--------------------------------------------------------------------------------

  5. [“Real Estate Consultant”] Application of the Debtors for an Order
Authorizing the Employment and Retention of Keen Consultants, the Real Estate
Division of KPMG Corporate Finance LLC, as Real Estate Consultant for the
Debtors and Debtors in Possession

 

  6. [“Assume Store Closing Agency Agreement”] Motion of the Debtors for an
Order Authorizing the Assumption by the Debtors of the Store Closing Consulting
Agreement with Great American Group, LLC

 

  7. [“Notice, Claims and Balloting Agent”] Application of the Debtors for an
Order Authorizing the Employment and Retention of Kurtzman Carson Consultants
LLC as Notice, Claims and Balloting Agent for the Debtors and Debtors in
Possession

 

  8. [“OCP Motion”] Motion of the Debtors for an Order Authorizing the Retention
and Compensation of Certain Professionals Utilized in the Ordinary Course of
Business

Section 3. Operational Motions

 

  1. [“Wages and Employee Benefits”] Motion of the Debtors for an Order
(A) Authorizing, but not Directing, the Debtors to Pay Certain Prepetition
(I) Wages, Salaries, Bonuses and Other Compensation, (II) Reimbursable Employee
Expenses and (III) Employee Medical and Similar Benefits and (B) Authorizing and
Directing Banks and Other Financial Institutions to Honor All Related Checks and
Electronic Payment Requests

 

  2. [“Customer Programs”] Motion of the Debtors for an Order Authorizing, but
not Directing, the Debtors to Continue Their Customer Programs and Honor
Prepetition Commitments Related Thereto

 

  3. [“Insurance Coverage and Premium Financing”] Motion of the Debtors for an
Order Authorizing the Debtors to (A) Continue Insurance Coverage Entered into
Prepetition, (B) Enter into New Insurance Policies, (C) Maintain Postpetition
Financing of Insurance Premiums and (D) Enter into New Postpetition Financing
Agreements

 

  4. [“Taxes”] Motion of the Debtors for an Order (A) Authorizing, but not
Directing, the Debtors to Remit and Pay Certain Taxes and Fees and
(B) Authorizing and Directing Banks and Other Financial Institutions to Honor
Related Checks and Electronic Payment Requests

 

  5. [“Shippers and Other Lien Holders”] Motion of the Debtors for an Order
(A) Authorizing, but not Directing, the Debtors to Pay Prepetition Claims of
Shippers, Warehousemen and Other Lien Claimants and (B) Authorizing and
Directing Banks and Other Financial Institutions to Honor Related Checks and
Electronic Payment Requests

--------------------------------------------------------------------------------

  6. [“Utilities”] Motion of the Debtors for Entry of Interim and Final Orders
Determining Adequate Assurance of Payment for Future Utility Services

 

  7. [“Store Closing Procedures”] Motion of the Debtors for an Order
(A) Authorizing the Debtors to Conduct Store Closing Sales, (B) Approving
Procedures with Respect to Store Closing Sales and (C) Authorizing the Debtors
to Pay Limited Liquidation Bonuses and Severance Payments in Connecting with
Store Closing Sales

 

  8. [“Lease Auction Procedures”] Motion of the Debtors for an Order Authorizing
an Auction Process and Approving Bid Procedures for the Disposition of the
Debtors’ Interests in Certain Nonresidential Real Property Leases and Granting
Related Relief

 

  9. [“Reject Leases and Contracts”] Motion of the Debtors for an Order
Authorizing the Debtors to Reject Certain Unexpired Leases and Executory
Contracts Effective as of the Commencement Date

 

  10. [“Equity Trading Procedures”] Motion of the Debtors for the Entry of an
Order Establishing Notification and Hearing Procedures for Transfers of Certain
Common Stock and for Related Relief

 

  11. [“Movie Studio Motion”] Motion of the Debtors for Interim and Final Orders
Authorizing, but not Directing, the Debtors, in their Sole Discretion, to Enter
into Accommodation Agreements with Major Movie Studio Suppliers and to Pay
Prepetition Obligations in Connection Therewith

 

  12. [“Cash Management”] Motion of the Debtors for an Order (A) Authorizing the
Debtors to Continue Using their Existing Cash Management System, Bank Accounts
and Business Forms, (B) Granting Postpetition Intercompany Claims Administrative
Expense Priority and (C) Authorizing Continued Intercompany Arrangements and
Historical Practices

 

  13. [“DIP Financing”] Motion of the Debtors for Interim and Final Orders
Pursuant to 11 U.S.C. §§ 105, 361, 362, 363, 364(c), 364(d), and 364(e) And Fed.
R. Bankr. P. 4001 and 9014 (I) Authorizing Debtors to Obtain Secured
Postpetition Financing on Super-Priority Priming Lien Basis Granting Adequate
Protection For Priming and Modifying the Automatic Stay, (II) Authorizing
Debtors to Use Cash Collateral Of Existing Secured Lenders and Granting Adequate
Protection for Use, (III) Authorizing Debtors to Repay Existing Revolver
Indebtedness Upon Interim Approval and (IV) Prescribing Form and Manner of
Notice and Setting the Time For the Final Hearing

--------------------------------------------------------------------------------

Richmond, Virginia   

/s/

Dated: October 15, 2007    Richard M. Cieri (NY 4207122)    KIRKLAND & ELLIS LLP
   Citigroup Center    153 East 53rd Street    New York, New York 10022-4611   
Telephone:    (212) 446-4800    Facsimile:    (212) 446-4900    and    Anup
Sathy, P.C. (IL 6230191)    Marc J. Carmel (IL 6272032)    KIRKLAND & ELLIS LLP
   200 East Randolph Drive    Chicago, Illinois 60601-6636    Telephone:   
(312) 861-2000    Facsimile:    (312) 861-2200    and    Michael A. Condyles (VA
27807)    Peter J. Barrett (VA 46179)    KUTAK ROCK LLP    Bank of America
Center    1111 East Main Street, Suite 800    Richmond, Virginia 23219-3500   
Telephone:    (804) 644-1700    Facsimile:    (804) 783-6192    Proposed
Co-Counsel to the Debtors

--------------------------------------------------------------------------------

EXHIBIT A-3

AMENDED AND RESTATED SECOND LIEN CREDIT AGREEMENT TERM SHEET

1. On the Effective Date, holders of Second Lien Claims (other than the Sopris
Second Lien Claims) shall receive, in respect of the default occurring as a
result of the Company’s failure to pay the cash interest payment due on
September 10, 2007 under the Second Lien Credit Agreement, payment in cash of
all amounts due in connection with such default.

2. For all interest periods beginning September 10, 2007 through and including
the Effective Date (the “Initial PIK Period”), the Company will elect to pay
“PIK Interest” (as such term is defined in the Second Lien Credit Agreement).
During the Initial PIK Period, interest will accrue as Base Rate Loans (as
defined in the Second Lien Credit Agreement), plus the existing PIK margin
increase (“PIK Margin”) of 75 basis points and the default margin increase of
200 basis points.

3. Holders of Allowed Reinstated Second Lien Claims (other than the Sopris
Second Lien Claims) shall receive their pro-rata share of Company obligations to
be established under the Amended and Restated Second Lien Credit Agreement. The
Amended and Restated Second Lien Credit Agreement shall provide as follows (and
any inconsistent provisions in the Second Lien Credit Agreement shall not be
included in the Amended and Restated Second Lien Credit Agreement):

 

  •  

The Amended and Restated Second Lien Credit Agreement shall bear interest at a
rate equal to the Base Rate (as defined in the Second Lien Credit Agreement)
plus 550 basis points or the Adjusted Eurodollar Rate (as defined in the Second
Lien Credit Agreement) plus 800 basis points for Base Rate Loans and Eurodollar
Rate Loans, respectively; provided, however, that if the Amended and Restated
First Lien Credit Agreement (including any replacement or refinancing thereof
occurring prior to the Effective Date) provides for interest rates based on a
pricing matrix that is based on the Company’s leverage ratio, the Amended and
Restated Second Lien Credit Agreement shall bear interest at a rate that is 300
basis points higher than the blended interest rate under the Amended and
Restated First Lien Credit Agreement (including any replacement or refinancing
thereof occurring prior to the Effective Date) according to such pricing matrix
at any time, up to a maximum rate of the Base Rate plus 550 basis points or the
Adjusted Eurodollar Rate plus 800 basis points for Base Rate Loans and
Eurodollar Rate Loans, respectively.

 

  •  

Notwithstanding the forgoing, under no circumstances shall the applicable
interest rate margin under the Amended and Restated Second Lien Credit Agreement
be at any time less than 200 basis points greater than the highest interest rate
margin applicable to any portion of the Amended and Restated First Lien Credit
Agreement (including any replacement or refinancing thereof occurring prior to
the Effective Date).

--------------------------------------------------------------------------------

  •  

For twenty four (24) months following the Effective Date, the Company shall have
the option to make PIK Interest payments under the Amended and Restated Second
Lien Credit Agreement (“Optional PIK Period”) at a margin increase of 200 basis
points (“Optional PIK Period Margin”).

 

  •  

For twelve (12) months following the expiration of the Optional PIK Period, the
Company will retain the option to elect PIK Interest for any interest period
(“Conditional PIK Period”), provided, however, that the Company shall be
required to conduct a quarterly test of the Interest Coverage Ratio (as defined
in the First Lien Credit Agreement) based on trailing twelve month results. In
the event the Interest Coverage Ratio exceeds 2.0x for any trailing twelve month
period, the Company would be required to pay cash interest in the subsequent
quarter. In the event the Interest Coverage Ratio does not exceed 2.0x for any
trailing twelve month period, the Company will retain the option to elect to pay
PIK Interest for such subsequent quarter at a margin increase of 325 basis
points (“Conditional PIK Period Margin”).

 

  •  

After the expiration of the Conditional PIK Period, the Company would be
required to pay cash interest for any interest period.

 

  •  

The reorganized Company shall be prohibited from paying any cash dividends until
such time as the obligations under the Amended and Restated Second Lien Credit
Agreement have been satisfied in full in cash.

4. The Amended and Restated Second Lien Credit Agreement shall otherwise be on
the same terms as the Second Lien Credit Agreement (provided that any terms that
are inconsistent with the terms contained in this Amended and Restated Second
Lien Credit Agreement Term Sheet shall not be included in the Amended and
Restated Second Lien Credit Agreement) and contain such other terms as are
reasonably acceptable to both Sopris and the Second Lien Requisite Holders (as
defined in the Lock Up Agreement) (excluding those Second Lien Claims held by
Sopris for the purposes of this paragraph 4 only).

--------------------------------------------------------------------------------

EXHIBIT A-4

RIGHTS OFFERING TERM SHEET

MOVIE GALLERY, INC. ET AL.

RIGHTS OFFERING TERM SHEET5

 

TERM

  

DESCRIPTION

Plan Sponsor    The Debtors, including Movie Gallery, Inc., in the Chapter 11
Cases administered under case number [    ] in the United States Bankruptcy
Court for the Eastern District of Virginia, Richmond Division (the “Bankruptcy
Court”). Backstop Party    The “Backstop Party” means investment entities
affiliated with Sopris Capital Advisors LLC (“Sopris”). The Backstop Party shall
fund the Rights Offering Amount to the extent the Rights Offering is not fully
subscribed on the terms set forth in this rights offering term sheet (this
“Rights Offering Term Sheet”). One hundred percent (100%) of the Backstop
Commitment shall be undertaken by the Backstop Party.

Rights

Offering

  

A Rights Offering shall be made pursuant to, and in accordance with the terms
set forth in, this Rights Offering Term Sheet and the Plan Term Sheet (as
defined below). As used in this Rights Offering Term Sheet, the “Plan Term
Sheet” means the Proposed Restructuring Term Sheet attached as Exhibit A to the
Lock Up, Voting and Consent Agreement dated as of October 14, 2007 (the “Lock Up
Agreement”), by and among the Debtors, the Consenting Second Lien Holders and
the Consenting 11% Senior Note Holders (as each such term is defined in the Lock
Up Agreement). The Plan Term Sheet sets forth the principal terms of the plan of
reorganization contemplated by the Debtors (the “Plan”), and this Rights
Offering Term Sheet is attached as Exhibit A-3 to the Plan Term Sheet.

 

“Rights Offering” means the equity rights offering for the Rights Offering
Amount contemplated by this Rights Offering Term Sheet and the Plan Term Sheet,
and on terms reasonably acceptable to the Backstop Party.

Rights Offering

Amount

   The amount of the Rights Offering shall be $50 million (the “Rights Offering
Amount”) and the number of shares of New MG Common Stock to be issued pursuant
to the Rights Offering (the “Rights Offering Shares”) shall be determined
according to the Rights Offering Equity Allocation as defined in the Plan Term
Sheet.

--------------------------------------------------------------------------------

5

Capitalized terms not defined herein shall have the meaning ascribed to them in
the Plan Term Sheet. In the event of any contradiction, the Plan Term Sheet
shall apply.

--------------------------------------------------------------------------------

TERM

  

DESCRIPTION

Effective Date   

The “Effective Date” shall have the meaning set forth in the Plan Term Sheet.

Participation in Rights

Offering

   Each eligible Holder of 11% Senior Notes (each, a “Rights Offering
Participant”) may participate in the Rights Offering by purchasing that number
of Rights Offering Shares equal to its proportionate ownership of the 11% Senior
Notes. Sopris irrevocably commits to participate in the Rights Offering by
purchasing that number of Rights Offering Shares equal to its current
proportionate ownership of the 11% Senior Notes (currently estimated to be
$175.3 million in principal amount) (the “Sopris Senior Notes Commitment”).
Exercise Price    The purchase price per share of the Rights Offering Shares
will be determined by dividing the Rights Offering Amount by the number of
Rights Offering Shares (the “Exercise Price”). Dilution    All shares of New MG
Common Stock issued as of the Effective Date shall be subject to dilution by the
Management and Director Equity Incentive Program and any other subsequent
issuances of shares of New MG Common Stock. Transferability    The right to
participate in the Rights Offering shall be non-detachable from the 11% Senior
Notes. Accordingly, Rights Offering Participants may not separately transfer
their right to participate in the Rights Offering. Backstop Commitment   

The Backstop Party will purchase all Rights Offering Shares in excess of the
Sopris Senior Notes Commitment, at the Exercise Price, that are not purchased by
other Rights Offering Participants as part of the Rights Offering (the “Backstop
Commitment”).

 

The “Backstop Rights Purchase Agreement” means an agreement setting forth the
terms and conditions of the Rights Offering and the Backstop Commitment of the
Backstop Party, reasonably acceptable to the Backstop Party and consistent with
the terms set forth in this Rights Offering Term Sheet. The Backstop Rights
Purchase Agreement shall be filed in advance of the deadline for filing
objections to the Approval Motion.

Registration Rights   

On the Effective Date the Debtors will provide demand and piggy-back
registration rights (together, the “Registration Rights”) with respect to the
Rights Offering Shares.

 

The “Registration Rights Agreement” means an agreement setting forth the terms
and conditions of the Registration Rights, acceptable to the Backstop Party and
consistent with the terms set forth in this Rights Offering Term Sheet. The
Registration Rights Agreement shall be filed in advance of the deadline for
filing objections to the approval of the Disclosure Statement.

Treatment Under

Section 1145

   Rights Offering Shares will be exempt from registration under the Securities
Act of 1933 by virtue of Section 4(2) thereof or Regulation D promulgated
thereunder. Those shares will be exempted under section 1145 of the Bankruptcy
Code to the extent applicable.

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TERM

  

DESCRIPTION

Commitment Fee    The Debtors will pay the Backstop Party a Commitment Fee equal
to 2.3% of the Rights Offering Amount on the Effective Date (the “Commitment
Fee”). The Commitment Fee shall be paid in the form of New MG Common Stock and
the number of shares issued in connection therewith shall be a percentage of the
New MG Common Stock to be issued on the Effective Date in a percentage equal to
the amount of the Commitment Fee divided by the Adjusted Equity Value.

Debtors’ Representations

and Warranties

  

The Backstop Rights Purchase Agreement shall contain the following
representations and warranties of the Debtors:

 

•     corporate good standing;

 

•     requisite corporate power and authority;

 

•     delivery of documents;

 

•     due issuance and authorization of New MG Common Stock;

 

•     no governmental consents;

 

•     no conflicts; and

 

•     other customary representations and warranties.

Backstop Party’s

Representations and

Warranties

  

The Backstop Rights Purchase Agreement shall contain the following
representations and warranties of the Backstop Party:

 

•     corporate good standing;

 

•     requisite corporate power and authority;

 

•     acknowledgement of obligations under the Backstop Rights Purchase
Agreement;

 

•     acknowledgement of no registration under the Securities Act of 1933;

 

•     acquiring Rights Offering Shares for investment purposes, and not with a
view to distribution in violation of the Securities Act of 1933;

 

•     delivery of documents;

 

•     accredited investor;

 

•     due diligence has been performed; and

 

•     other customary representations and warranties.

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TERM

  

DESCRIPTION

Expense Reimbursements    The “Expense Reimbursements” means all reasonable and
documented fees and expenses of the Backstop Party associated with the Rights
Offering and the transactions contemplated by the Plan Term Sheet, including but
not limited to the fees of Sonnenschein Nath & Rosenthal LLP, Jeffries & Co.,
Inc. and Tavenner & Beran, P.C., and shall not include any amounts incurred
after termination of the Lock Up Agreement or the Backstop Rights Purchase
Agreement

Conditions to

Backstop Commitment

  

The Backstop Commitment will be subject to the following conditions precedent
(the “Conditions Precedent”):

 

•     entry of the Approval Motion Order;

 

•     the Disclosure Statement accompanying the Plan and the Plan shall be
materially consistent with the terms of the Backstop Rights Purchase Agreement,
and must be reasonably acceptable to the Backstop Party;

 

•     an order of the Bankruptcy Court confirming the Plan (the “Confirmation
Order”) that is reasonably acceptable to the Backstop Party must have been
entered by the Bankruptcy Court and no order staying the Confirmation Order may
be in effect;

 

•     no event of default has occurred and is continuing under any
debtor-in-possession financing of the Debtors;

 

•     the waiting period (and any extension thereof) applicable to the Plan
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the “HSR Act”)
shall have been terminated or shall have expired;

 

•     the Debtors shall have timely paid all Expense Reimbursements on a
continuing basis or within ten (10) business days after the Backstop Party
notifies the Debtors of their failure to pay such Expense Reimbursements;
provided that in the event the parties in good faith dispute whether the amount
of such Expense Reimbursements is “reasonable,” the Debtors shall separate the
disputed amount (each, a “Disputed Expense Reimbursement Amount”) and pay the
remainder pursuant to the terms hereof;

 

•     execution of all documents arising from or related to the Rights Offering
and the Restructuring (including, without limitation, if requested by the
Backstop Party, a stockholders agreement), which documents must be reasonably
satisfactory to the Backstop Party;

 

•     the Lock Up Agreement has not been terminated, whether by occurrence of a
Termination Event (as defined in the Lock Up Agreement) or otherwise;

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TERM

  

DESCRIPTION

  

•     from the Petition Date, no Material Adverse Effect has occurred.

 

The Backstop Commitment will not be conditioned on any of the following:

 

•     due diligence;

 

•     any cap or restriction on the amount of allowed unsecured claims against
the Debtors; and

 

•     any Disputed Expense Reimbursement Amounts.

Material Adverse Effect    The term “Material Adverse Effect” means an effect
that is reasonably likely to be materially adverse to the business, operations,
assets, liabilities, financial condition or results of operation of the Debtors,
taken as a whole, but shall exclude any effect or combination of effects
resulting or arising from (i) any change in law, rule, or regulation by the
United States, Canada or their subdivisions; (ii) any change in interest rates
or general economic conditions; (iii) any change in the industry in which the
Debtors operate generally; (iv) the entry into this Rights Offering Term Sheet
and the Backstop Rights Purchase Agreement; (v) any action taken by the Debtors
with the express prior written consent of the Backstop Party or any of its
affiliates; or (vi) any change in generally accepted accounting principles.
Approval Motion   

Within 5 business days after the Petition Date, the Debtors shall file a motion
requesting, among other things, that the Bankruptcy Court enter the Approval
Motion Order, authorizing the Debtors to enter into the Backstop Rights Purchase
Agreement (the “Approval Motion”). Such Approval Motion must request authority
from the Bankruptcy Court for the Debtors to pay:

 

•     the Commitment Fee on the Effective Date;

 

•     the Expense Reimbursements on a continuing basis; and

 

•     the Termination Fee as defined in and on the conditions set forth in the
Lock Up Agreement.

 

The “Approval Motion Hearing” means that hearing before the Bankruptcy Court to
consider the relief requested in the Approval Motion.

 

The “Approval Motion Order” means that order entered by the Bankruptcy Court
granting the Approval Motion on terms materially consistent with this Rights
Offering Term Sheet and Plan Term Sheet, and reasonably acceptable to the
Backstop Party.

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TERM

  

DESCRIPTION

Expiration of Backstop

Rights Purchase

Agreement

   The Backstop Rights Purchase Agreement shall expire upon termination of the
DIP Facility.

Termination of Backstop

Rights Purchase

Agreement

  

The Backstop Party will have the right, but not the obligation, to terminate the
Backstop Rights Purchase Agreement (the “Backstop Party Termination Rights”) if:

 

•     the Debtors file any pleading or document with the Bankruptcy Court with
respect to a Topping Proposal (as defined in the Lock Up Agreement);

 

•     the Lock Up Agreement has been terminated by reason of the occurrence of a
Termination Event (as defined in the Lock Up Agreement) or otherwise; or

 

•     the Debtors fails to pay any requested Expense Reimbursement to the
Backstop Party within ten days after the Backstop Party notifies the Debtors of
their failure to pay such Expense Reimbursement; provided that, in the event
that the parties dispute whether amounts are “reasonable,” the Debtors shall
separate the disputed amount and pay the rest pursuant to the terms hereof.

 

The Debtors will have the right, but not the obligation, to terminate the
Backstop Rights Purchase Agreement (the “Debtors Termination Rights”) if:

 

•     the Backstop Party materially breaches the Backstop Rights Purchase
Agreement, and that breach is not cured after a notice period of five (5)
business days (which may be extended by the Debtors) during which the breaching
Backstop Party may negotiate in good faith regarding any such cure; or

 

•     the Bankruptcy Court denies the relief set forth in the Approval Motion.

Binding Agreement    In the event of a conflict between this Rights Offering
Term Sheet and the Backstop Rights Purchase Agreement after that Backstop Rights
Purchase Agreement has been filed with the Bankruptcy Court, the terms of the
Backstop Rights Purchase Agreement shall control.

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