Movie Gallery, Inc. is a home entertainment specialty retailer focused on both rural and suburban markets in North America. As of January 1, 2006, Movie Gallery owned and operated approximately 4,800 retail stores located throughout the United States, Mexico and Canada that rent and sell digital versatile discs (DVDs), videocassettes and video games. The Company operates three distinct store brands, Movie Gallery, Hollywood Video and Game Crazy. Movie Gallery represents 2,675 video stores serving mainly rural markets in the United States, Canada and Mexico. Hollywood Video represents 2,054 video stores serving predominantly urban Markets. Game Crazy represents 648 located within Hollywood Video stores and 20 free- standing stores serving the game market in urban locations. In April 2005, Movie Gallery acquired Hollywood Entertainment Corporation (Hollywood). The Company's eastern focused rural and secondary market dominance and Hollywood's western focused prime urban and suburban superstore locations combine to form a nationwide geographical store footprint. Movie Gallery and Hollywood Video Stores The Movie Gallery and Hollywood Video stores offer a selection of movies and video games for rent and sale. Depending upon location, the Movie Gallery stores typically carry from 2,700 to 16,000 movies and video games, while the Hollywood Video stores typically carry more than 25,000 movies and video games. These video stores contain a combination of new releases and older catalog movies and games. Excluding new releases, movie titles are often classified into categories, such as Action, Comedy, Drama and Children, and are displayed alphabetically within those categories. The stores rent video games primarily for Sony Playstation 1 & 2, Microsoft XBOX 360 and XBOX and Nintendo Game Cube. The Company's video stores contributed 89% of total revenue during fiscal 2005. Revenue from rental products, including rental and sale of previously viewed movies and video games, represented approximately 82% of total revenue in fiscal 2005. Rental revenue is dominated by DVD rentals and the sale of previously viewed DVDs. The remaining approximately 7% of total revenue from video stores was from the sale of new DVDs and videocassettes and concessions such as popcorn, sodas, candy and magazines. The Movie Gallery segment offers a point-based loyalty program, Reel Players, to its customers. The program provides customers the opportunity to earn free rentals or discounts on previously viewed inventory purchases. The Reel Players coupon is issued to a customer upon accumulation of a predefined number of points that are earned for previous rental or sale transactions. Rental revenue is recognized when the coupon is redeemed by the customer for the current rental price of the movie or game or the current sale price of the previously viewed movie or game. A corresponding promotional credit is recorded against rental revenue to offset the value of the transaction in accordance with the terms of the coupon. The Hollywood Video segment offers several rental subscription programs to its customers. The Company offers nationally the Movie Value Pass (MVP), an in-store movie rental subscription service. Subscription fees are paid up-front and recognized as rental product revenue on a straight-line basis over the applicable term of the subscription, typically one month. The Movie Gallery branded stores are located in primarily small towns and suburban areas of cities with populations generally between 3,000 and 20,000, where the primary competitors are typically independently owned stores and small regional chains. The average size of a Movie Gallery store is approximately 4,200 square feet and carries a broad selection of between 2,700 and 16,000 movies and video games for rental as well as new and used movies and games for sale at competitive prices. The Hollywood Video branded stores are typically located in high-traffic, high visibility, urban and suburban locations with convenient access and parking. Hollywood focuses on

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