DOTHAN, AL-Movie Gallery and its debtor subsidiaries has filed a reorganization plan with the US Bankruptcy Court that could see it emerge from Chapter 11 in the second quarter of 2008. The plan is supported by major creditor Sopris Capital Advisors and the steering committee for claim holders under the chain’s first lien credit agreement. If the plan is confirmed as requested in the second quarter of 2008, the troubled video rental chain hopes to emerge from Chapter 11 shortly afterward.

“The filing of our plan is a significant step towards emerging fromChapter 11 as a stronger, more competitive company,” says Joe Malugen, chairman, president and CEO, in a statement announcing the filing. “We have made substantial progress in addressing our operational and financial challenges and we are confident that the company will be well-positioned to operate profitably and create value for all of its stakeholders upon emergence.”

When the chain filed for a prenegotiated Chapter 11 bankruptcy protection on October 16, 2007, it operated 4,430 stores. Faced with continuing competition from on-demand video services from cable companies, Internet-based rental companies such as Netflix, and direct downloads, the chain now operates approximately 3,650 stores in the US and Canada. It remains the second-largest video rental chain after Blockbuster Video, using the names Movie Gallery, Hollywood Video and Game Crazy.

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