================================================================= MUSICLAND BANKRUPTCY NEWS Issue Number 1 ----------------------------------------------------------------- Copyright 2006 (ISSN XXXX-XXXX) January 17, 2006 ----------------------------------------------------------------- Bankruptcy Creditors' Service, Inc. 215-945-7000 FAX 215-945-7001 ----------------------------------------------------------------- MUSICLAND BANKRUPTCY NEWS is published by Bankruptcy Creditors' Service, Inc., 572 Fernwood Lane, Fairless Hills, Pennsylvania 19030, on an ad hoc basis (generally every 10 to 20 days) as significant activity occurs in the Debtors' cases. New issues are prepared by Christine Flor N. Laplap, Christopher G. Patalinghug, Frauline S. Abangan and Peter A. Chapman, Editors. Subscription rate is US$45 per issue. Any re-mailing of MUSICLAND BANKRUPTCY NEWS is prohibited. ================================================================= IN THIS ISSUE ------------- [00000] HOW TO SUBSCRIBE TO MUSICLAND BANKRUPTCY NEWS [00001] BACKGROUND & DESCRIPTION OF MUSICLAND & AFFILIATES [00002] MUSICLAND'S SUMMARY OF ASSETS & DEBTS AS OF DEC. 31, 2005 [00003] COMPANY'S PRESS RELEASE ANNOUNCING CHAPTER 11 FILING [00004] MUSICLAND'S CHAPTER 11 DATABASE [00005] LIST OF MUSICLAND'S 30 LARGEST UNSECURED CREDITORS [00006] INFORMAL COMMITTEE OF SECURED TRADE VENDOR MEMBERS [00007] LIST OF MUSICLAND'S SENIOR SECURED LENDERS [00008] DEBTORS' MOTION FOR JOINT ADMINISTRATION OF CASES [00009] U.S. TRUSTEE SETS ORGANIZATIONAL MEETING FOR JANUARY 20 [00010] MUSICLAND RECEIVES COURT APPROVAL OF FIRST DAY MOTIONS [00011] NAVARRE ASSESSES EXPOSURE TO MUSICLAND BANKRUPTCY FILING [00012] MADACY ENTERTAINMENT HOLDS $1.3 MILLION TRADE RECEIVABLES KEY DATE CALENDAR ----------------- 01/12/06 Voluntary Petition Date 01/20/06 Organizational Meeting to Form Creditors' Committees 01/27/06 Deadline to File Schedules of Assets & Liabilities 01/27/06 Deadline to File Statements of Financial Affairs 01/27/06 Deadline to File Lists of Leases and Contracts 02/11/06 Deadline to Provide Utilities With Adequate Assurance 04/12/06 Deadline to remove actions under FRBP 9027 05/12/06 Deadline to make decisions about lease depositions 05/12/06 Expiration of Exclusive Plan Proposal Period 07/11/06 Expiration of Exclusive Solicitation Period 01/12/08 Deadline to Commence Avoidance Actions First Meeting of Creditors under 11 USC Sec. 341 Bar Date for filing Proofs of Claim ----------------------------------------------------------------- [00000] HOW TO SUBSCRIBE TO MUSICLAND BANKRUPTCY NEWS ----------------------------------------------------------------- MUSICLAND BANKRUPTCY NEWS is distributed to paying subscribers by electronic mail. New issues are published on an ad hoc basis as significant activity occurs (generally every 10 to 20 days) in the Debtors' chapter 11 proceedings. The subscription rate is US$45 per issue. Newsletters are delivered via e-mail; invoices, transmitted following publication of each newsletter issue, arrive by fax. Re-mailing of MUSICLAND BANKRUPTCY NEWS is prohibited. Distribution to multiple individuals at the same firm is provided at no additional charge; folks outside of your firm should set-up and pay for their own subscriptions. Subscriptions may be canceled at any time without further obligation. 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Name: ---------------------------------------------- Firm: ---------------------------------------------- Address: ---------------------------------------------- ---------------------------------------------- Phone: ---------------------------------------------- Fax: ---------------------------------------------- E-Mail: ---------------------------------------------- (Distribution to multiple professionals at the same firm is provided at no additional cost.) MUSICLAND BANKRUPTCY NEWS is distributed to paying subscribers by electronic mail. New issues are published on an ad hoc basis as significant activity occurs (generally every 10 to 20 days) in the Debtors' chapter 11 proceedings. The subscription rate is US$45 per issue. Newsletters are delivered via e-mail; invoices, transmitted following publication of each newsletter issue, arrive by fax. Re-mailing of MUSICLAND BANKRUPTCY NEWS is prohibited. Distribution to multiple individuals at the same firm is provided at no additional charge; folks outside of your firm should set-up and pay for their own subscriptions. Subscriptions may be canceled at any time without further obligation. ----------------------------------------------------------------- [00001] BACKGROUND & DESCRIPTION OF MUSICLAND & AFFILIATES ----------------------------------------------------------------- The Musicland Group, Inc. 10400 Yellow Circle Dr. Minnetonka, MN 55343-9012 Tel (952) 931-8000 Fax (952) 931-8300 http://www.musicland.com/ Musicland Group Inc. is a leading national specialty retailer of music, movies and entertainment-related products that appeal to trend-conscious, entertainment-focused customers. With 12,600 employees, the Musicland Business operates approximately 869 retail stores in 48 states, Puerto Rico and the Virgin Islands: Nameplate Stores Internet Presence --------- ------ ----------------- Sam Goody 456 SamGoody.com Suncoast Motion Picture Company 352 Suncoast.com Media Play 61 MediaPlay.com A 26-page list of Musicland's leases is available for free at: http://bankrupt.com/misc/musicland_leases.pdf All of the Musicland Stores are leased. Musicland also operates Web sites at these URLs: http://www.samgoody.com/ http://www.mediaplay.com/ http://www.suncoast.com/ Craig Wassenaar, chief financial officer of Musicland Holding Corp., relates that the Musicland Business began in 1956 with the opening of the first Musicland store in Minneapolis, Minnesota. The Musicland Business merged with JL Marsh in 1964 and with Pickwick International in 1968. American Can Company acquired the Musicland Business in 1977 and acquired Sam Goody in 1978. In 1984, American Can Company acquired 26 Harmony Hut Stores, all of which were converted to Sam Goody stores. In 1987, 16 senior executives from within the company purchased the Musicland Business from American Can Company. In 2001, the Musicland Business was acquired by Best Buy Co., Inc. for approximately $700,000,000. In June 2003, Musicland was acquired by an affiliate of Sun Capital Partners, Inc. Sun Music acquired the Musicland Business pursuant to a Stock Purchase Agreement, dated June 16, 2003, by and among Musicland Stores Corporation, The Musicland Group, and Musicland Holding. MSC was a wholly owned subsidiary of Best Buy, and the holding company through which Best Buy owned the Musicland Business. The purchase price for Sun Music's acquisition of the Musicland Business was $1 plus the assumption of substantially all of the liabilities of the Musicland Business, including lease and trade debt liability. The sale by Best Buy closed on August 11, 2003. Today, Sun Music LLC, a Delaware limited liability company, owns approximately 94.3% of the Common Stock of Musicland Holding on a fully diluted basis, and 99.96% of the Series A Preferred Stock. The remaining Common Stock of Musicland Holding is owned by various current and former employees of the Debtors and a single non-employee investor in Musicland Holding. The remaining Series A Preferred Stock is owned by the same single non-employee investor in Musicland Holding. Sun Music owns Voting Common Stock of Musicland Holding, and the remaining stockholders of Musicland Holding own Non-Voting Common Stock. Sun Music is owned by Sun Capital Partners III, LP, and Sun Capital Partners III QP, LP. Road to Bankruptcy Mr. Wassenaar relates that at the end of 2004, Musicland faced liquidity issues. In December 2005, Musicland defaulted under a $300,000,000 credit agreement. According to Mr. Wassenaar, Musicland continues to face severe challenges, attributable to material adverse changes in the industry, including: a) a continuing shift away from specialty retailers, including the Musicland Business, to mass merchants, non-traditional music retailers and "big box" retailers, b) legal and illegal downloads of digital media, and c) a continuing decline in the purchase of compact discs, DVDs and entertainment-related products. In 2005, sales of music albums in the United States fell 7%, Mr. Wassenaar notes. Thus, in four of the last five years, the music industry has posted declines. Other music retailers who have filed for bankruptcy include Tower Records and Wherehouse Entertainment, Inc. Musicland Holding engaged Duff & Phelps in the Fall of 2005 to help it raise an additional $50,000,000 of cash to be invested in Musicland Holding in the form of Preferred Stock and to work an out-of-court restructuring to convert approximately $125,000,000 of accounts payable owed to the Secured Trade Creditors, to Preferred Stock. Neither of these initiatives was consummated. In consultation with their Lenders and Secured Trade Creditors, Musicland and its affiliates determined that chapter 11 would afford them the opportunity to close their unprofitable stores, reduce their overhead expenses, and realign their capital structure. The Company projects continuing negative cash flows for the next few weeks: Schedule of Estimated Cash Receipts and Disbursements As of January 9, 2006 January February 11 - 31 1 - 28 ------- -------- Regular Store Receipts & MP GOB $31,047,000 $33,453,000 Sales Comp (Go forward stores) -17.1% -13.3% "B" & "C" Liquidation Net Proceeds - 61,484,000 MP GOB Proceeds 9,506,000 - ----------- ----------- Total Receipts 40,553,000 94,937,000 ----------- ----------- Product Vendor Payments 23,102,000 19,743,000 Critical Vendor Payments 4,000,000 - Sales Tax 16,278,000 3,587,000 Payroll 7,479,000 7,057,000 Rent - 11,356,000 Professional Fees - 975,000 Other 8,650,000 6,785,000 ----------- ----------- Total Disbursements 60,218,000 49,502,000 ----------- ----------- Net Cash Flow (19,665,000) [45,435,000] ----------- ----------- Beginning Revolver Balance (28,782,000) (48,447,000) ----------- ----------- Ending Revolver Balance ($48,447,000) ($3,012,000) =========== =========== ----------------------------------------------------------------- [00002] MUSICLAND'S SUMMARY OF ASSETS & DEBTS AS OF DEC. 31, 2005 ----------------------------------------------------------------- Summary of Debtors' Assets & Liabilities As of December 31, 2005 Debtor Assets Debts Equity ------ ------ ----- ------ Musicland Holding Corp. & Subsidiaries $371,462,000 $485,575,000 ($114,113,000) Summary of Debtors Assets & Liabilities As of February 28, 2005 Debtor Assets Debts Equity ------ ------ ----- ------ Musicland Holding Corp. - ($4,714,000) $4,714,000 MLG Internet, Inc. $104,000 3,861,000 (3,757,000) Request Media, Inc. - 3,382,000 (3,382,000) Musicland Purchasing Corp. 347,536,000 350,772,000 (3,237,000) Media Play, Inc. 12,534,000 (23,156,000) 35,690,000 Sam Goody Holding Corp. - - - TMG Virgin Islands, Inc. 138,000 908,000 (769,000) The Musicland Group, Inc. 6,844,000 (9,376,000) 16,220,000 Musicland Retail, Inc. 14,258,000 9,132,000 5,125,000 MG Financial Services, Inc. - - - Suncoast Holding Corp. - - - Suncoast Motion Picture Co., Inc - 467,000 (467,000) Suncoast Group, Inc. 7,462,000 (68,768,000) 76,230,000 Suncoast Retail, Inc. 260,000 (13,537,000) 13,797,000 TMG Caribbean, Inc. 128,000 (3,037,000) 3,165,000 ----------------------------------------------------------------- [00003] COMPANY'S PRESS RELEASE ANNOUNCING CHAPTER 11 FILING ----------------------------------------------------------------- Musicland Holding Corp. Files Chapter 11 to Complete Restructuring Initiatives Company Receives Commitment for $75 Million in Financing MINNEAPOLIS, Minnesota -- January 12, 2006 -- Musicland Holding Corp., an entertainment specialty retailer operating more than 800 retail stores and online under the names Sam Goody (SamGoody.com), Suncoast Motion Picture Company (Suncoast.com), and MediaPlay.com, announced today that the company and its subsidiaries filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code. The company believes the move is necessary to complete its restructuring initiatives and refine its business model. The company has received commitments for up to $75 million in debtor- in-possession (DIP) financing from its existing bank group, led by Wachovia as agent, which will enable it to continue to operate during the restructuring period. "We have been exploring various options for cutting costs, such as the impending closure of the Media Play chain," Musicland President and CEO Michael J. Madden said. "We believe that the decisive action we are taking provides the Company with the most effective means to restructure our operations, strengthen our balance sheet and position us to compete more effectively in the current music and movies industry environment." The company attributes their financial difficulties to a diminishing music and movies marketplace, growing competition from big box retailers and the increase of music downloading. "Musicland has a solid management team, enthusiastic employees and loyal customers. We have funding in place to continue our normal business operations during the restructuring. We will continue our plans to launch innovative new business initiatives in 2006 and continue to build our highly valued vendor relationships," Madden concluded. During the restructuring process vendors will be paid for post-petition purchases of goods and services in the ordinary course of business. The company has asked for court permission to continue to honor its current customer policies regarding merchandise returns and to honor outstanding gift cards and loyalty programs, so that there will be limited impact on customers. Courts typically grant such requests and Musicland expects that the court will do so here. The Company and its subsidiaries filed their voluntary Chapter 11 petitions in the U.S. Bankruptcy Court for the Southern District of New York. The case has been assigned case number 06-10064. Additional information about Musicland's reorganization is available at http://www.musicland.com/ or via the company's restructuring information line (877) 568-3857. About Musicland Musicland Holding Corp. is a leading national specialty retailer of music, movies and entertainment-related products. Musicland operates more than 800 retail stores and online under the names Sam Goody (SamGoody.com), Suncoast Motion Picture Company (Suncoast.com) and MediaPlay.com. In June 2003, Musicland was acquired by an affiliate of Sun Capital Partners, Inc. ----------------------------------------------------------------- [00004] MUSICLAND'S CHAPTER 11 DATABASE ----------------------------------------------------------------- Lead Debtor: Musicland Holding Corp. c/o James H.M. Sprayregen Kirkland & Ellis LLP 153 East 53rd Street New York, New York 10022 Bankruptcy Case No.: 06-10064 Debtor affiliates filing separate chapter 11 petitions: Entity Case No. ------ -------- Musicland Purchasing Corp. 06-10060 Media Play, Inc. 06-10061 MG Financial Services, Inc. 06-10062 MLG Internet, Inc. 06-10063 Musicland Retail, Inc. 06-10065 Request Media, Inc. 06-10066 Sam Goody Holding Corp. 06-10067 Suncoast Group, Inc. 06-10068 Suncoast Holding Corp. 06-10069 Suncoast Motion Picture Company, Inc. 06-10070 Suncoast Retail, Inc. 06-10071 The Musicland Group, Inc. 06-10072 TMG Caribbean, Inc. 06-10073 TMG - Virgin Islands, Inc. 06-10074 Chapter 11 Petition Date: January 12, 2006 Court: Southern District of New York (Manhattan) Judge: Stuart M. Bernstein Debtors' Counsel: James H.M. Sprayregen, Esq. Kirkland & Ellis 200 East Randolph Drive Chicago, Illinois 60601 Tel: (312) 861-2481 Fax: (312) 861-2200 Debtors' Conflicts Counsel: Steven J. Reisman, Esq. Curtis, Mallet-Prevost, Colt & Mosle LLP 101 Park Avenue New York, New York 10178-0061 Tel: (212) 696-6000 Fax: (212) 697-1559 Debtors' Claims & Noticing Agent: BMC Group, Inc. 720 Third Avenue, 23rd Floor Seattle, Washington 98104 Tel: (206) 516-3300 ----------------------------------------------------------------- [00005] LIST OF MUSICLAND'S 30 LARGEST UNSECURED CREDITORS ----------------------------------------------------------------- Entity Nature of Claim Claim Amount ------ --------------- ------------ Deluxe Media Services Trade $7,984,233 568 Atrium Drive Vernon Hills, IL 60061 Attn: Tom Vale Tel: (847) 990-4100 Fax: (847) 549-8354 NBC Universal/Universal Trade $6,882,962 Studios Home Entertainment 100 Universal City Plaza Universal City, CA 91608 Attn: John Roussey Tel: (818) 777-7601 Fax: (818) 866-2401 Navarre Corporation Trade $6,690,554 7400 49th Avenue North New Hope, MN 55428 Attn: Eric Paulson Tel: (763) 535-8333 Fax: (763) 533-2156 Ventura Distribution, Inc. Trade $5,845,002 2590 Conejo Spectrum Street Thousand Oaks, CA 91320 Attn: Larry Hayes Tel: (805) 498-7800 Fax: (805) 498-6945 AEC One Stop Group Inc. Trade $3,792,143 4250 Coral Ridge Drive Coral Springs, FL 33065-7616 Attn: Alan Tuchman Tel: (954) 255-4000 Fax: (954) 255-4078 Funimation Products Ltd. Trade $3,086,590 6851 NE Loop 820, Suite 247 Fort Worth, TX 76180 Attn: Gen Fukumaga Tel: (817) 788-0627 Fax: (817) 788-0628 Electronic Arts Trade $2,800,374 209 Redwood Shores Parkway Redwood City, CA 94065 Attn: Norna Cash Tel: (650) 628-1500 Fax: (650) 628-1415 Fender Musical Instrument Trade $2,469,669 8860 E. Chaparral Road, Suite 100 Scottsdale, AZ 85250 Attn: Matthew Janopaul Tel: (480) 596-9690 Fax: (480) 596-1384 Zimmerman Partners Advertising Trade $2,435,706 2200 W. Commercial Blvd., 3rd Fl. Fort Lauderdale, FL 33909 Attn: Jordan Zimmerman Tel: (954) 731-2900 Fax: (954) 731-2977 A D Vision Inc. Trade $2,344,716 5750 Bintliff Drive Houston, TX 77036-2123 Attn: John Ledford Tel: (713) 977-9181 Fax: (713) 341-7195 Virgin Mobile USA Trade $2,279,786 10 Independence Boulevard Warren, NJ 07059 Attn: Dan Schulman Tel: (908) 607-4000 Fax: (908) 607-4124 Image Entertainment Inc. Trade $2,255,070 20525 Nordoff Street, Suite 200 Chatsworth, CA 91311 Attn: Martin Greenwald Tel: (818) 407-9100 Fax: (818) 407-9151 Activision Trade $2,046,080 3100 Ocean Park Boulevard Santa Monica, CA 90405 Attn: Lewis Shiro Tel: (310) 255-2000 Fax: (310) 479-4005 Media Blasters Inc. Trade $1,794,965 519 8th Avenue, 15th Floor New York, NY 10018 Attn: Andrew Vidal Tel: (212) 944-9224 Fax: (212) 944-9288 Trianna Trade $1,748,124 9860 Raspberry Hill Chaska, MN 55318 Attn: John Makela Tel: (952) 934-4759 Fax: (952) 934-0148 Geneson Entertainment USA Inc. Trade $1,572,437 2265 East 220th Street Long Beach, CA 90810-1639 Attn: Yosuke "James" Kobayashi Tel: (310) 952-2000 Fax: (910) 952-2791 Koch International Corporation Trade $1,463,512 22 Harbor Park Drive Port Washington, NY 11050 Attn: Michael Rosenberg Tel: (516) 484-1000 Fax: (516) 484-4746 BCI Eclipse Trade $1,378,825 810 Lawrence Drive, Suite 100 Newbury Park, CA 91320 Attn: Eric Paulson Tel: (805) 375-9998 Fax: (805) 375-9908 US Music Corporation Trade $1,330,505 444 East Courtland Mundelein, IL 60060 Attn: Garry Gryczan Tel: (847) 949-0444 Fax: (847) 949-8444 Diversified Distribution Systems Trade $1,284,779 2828 10th Avenue South Minneapolis, MN 55407-5514 Attn: Peter Courtney Tel: (612) 813-5200 Fax: (612) 813-5205 Baker & Taylor Entertainment Trade $1,261,572 2550 West Tyvola Road, Suite 300 Charlotte, NC 28217 Attn: Robert E. Agres Tel: (704) 998-3100 Fax: (704) 998-3316 Graphic Communications Trade $1,197,347 P.O. Box 933233 Atlanta, GA 31193-3233 Attn: Matt Dawley UBI Soft Inc. Trade $1,186,282 625 Third Street San Francisco, CA 94107 Attn: Marshall Calkins Marjack Trade $999,966 1900 Clarkson Way Landover, MD 20785 Davitt and Hanser Music Trade $990,345 4940 Delhi Pike Cincinnati, OH 45238 TMP International Trade $972,645 1711 West Greentree Drive Tempe, AZ 85284 UAV Corporation Trade $930,035 2200 Carolina Place Fort Mill, SC 29716 IPD Trade $903,374 Accounts Receivable Department 27500 Riverview Center Boulevard Suite 300 Bonita Springs, FL 34134 BMI Beaux Merzon Inc. Trade $839,257 1050 Valley Brook Avenue Lyndhurst, NJ 07071 Cingular Wireless LLC Trade $834,664 5565 Glenridge Connector Glenridge Highlands Two Atlanta, GA 30342 ----------------------------------------------------------------- [00006] INFORMAL COMMITTEE OF SECURED TRADE VENDOR MEMBERS ----------------------------------------------------------------- Trade Vendor Claim Amount ------------ ------------ Twentieth Century Fox Home Entertainment LLC 2121 Avenue of the Stars, Suite 2308 Los Angeles, CA 90067 $30,213.30 Warner Home Video Inc. 4000 Warner Boulevard Building 160, 10th Floor Burbank, CA 91522 $26,697.40 Sony BMG Music Distribution 210 Clay Avenue Lyndhurst, NJ 07071 $23,569.40 Warner/Elektra/Atlantic Corp. 3400 West Olive Avenue, 6th Floor Burbank, CA 91505 $23,449.10 Universal Music and Video Distribution 10 Universal City Plaza, Suite 400 Universal City, CA 91608 $21,620.50 Sony Pictures Home Entertainment, Inc. $13,581.20 Paramount Pictures, Home Video Division $13,436.40 Ingram Book Group Inc. $10,520.80 Buena Vista Home Entertainment, Inc. $9,171.10 EMI Recorded Music, North America $7,788.60 V.P.D. IV, Inc. $6,222.60 ----------------------------------------------------------------- [00007] LIST OF MUSICLAND'S SENIOR SECURED LENDERS ----------------------------------------------------------------- Lender Claim Amount ------ ------------ Wachovia Bank, National Association 110 East Broward Boulevard Fort Lauderdale, FL 33301 $7,766,487 Fleet Retail Finance, Inc. 7,766,487 The CIT Group / Business Credit, Inc. 6,040,773 National City Business Credit, Inc. 6,040,773 Westernbank Business Credit, a division of Westernbank Puerto Rico 4,314,542 GMAC Commercial Finance LLC 4,314,542 LaSalle Retail Finance, a division of LaSalle Business Credit, Inc. 3,451,944 Wells Fargo Retail Finance, LLC 3,020,128 Textron Financial Corporation 3,020,128 Burdale Financial Limited 2,588,829 Grayson & Co. 2,071,063 Senior Debt Portfolio 1,208,465 Eaton Vance Senior Income Trust 172,416 ------------- TOTAL $51,776,578 ============= ----------------------------------------------------------------- [00008] DEBTORS' MOTION FOR JOINT ADMINISTRATION OF CASES ----------------------------------------------------------------- Musicland Holding Corp., Media Play, Inc., MG Financial Services, Inc., MLG Internet, Inc., Musicland Purchasing Corp., Musicland Retail, Inc., Request Media, Inc., Sam Goody Holding Corp., Suncoast Group, Inc., Suncoast Holding Corp., Suncoast Motion Picture Company, Inc., Suncoast Retail, Inc., TMG Caribbean, Inc., TMG-Virgin Islands, Inc., and The Musicland Group, Inc., are "affiliates" as that term is defined under Section 101(2) of the Bankruptcy Code. Rule 1015(b) of the Federal Rules of Bankruptcy Procedure provides that if two or more petitions are pending in the same court by or against a debtor and an affiliate, the court may order a joint administration of the estates. Craig Wassenaar, chief financial officer of Musicland Holding, relates that many of the motions, hearings and orders that will arise in the Chapter 11 Cases will jointly affect each and every Debtor. According to Mr. Wassenaar, it's cheaper to jointly administer the Debtors' Chapter 11 cases than to keep them separate. There's no need for the Debtors to file 15 copies of each pleading or send creditors 15 copies of each notice required under the Bankruptcy Code and Rules. The Debtors make it clear that their request for joint administration is for procedural purposes only. The Debtors are not asking the Court to substantively consolidate or otherwise co-mingle their assets at this juncture. The Debtors will continue to operate as separate and distinct legal entities, and propose to continue to maintain their books and records, consistent with their prepetition practices, Mr. Wassenaar says. Judge Bernstein directs that all pleadings and papers filed in Musicland's cases be captioned: UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK _________________________________ ) In re ) Chapter 11 ) MUSICLAND HOLDING CORP., et al., ) Case No. 06-10064 (SMB) ) Jointly Administered Debtors. ) _________________________________) ----------------------------------------------------------------- [00009] U.S. TRUSTEE SETS ORGANIZATIONAL MEETING FOR JANUARY 20 ----------------------------------------------------------------- Deirdre A. Martini, the United States Trustee for Region 2, will convene an organizational meeting in Musicland Holding Corporation and its debtor-affiliates' chapter 11 cases at 11:00 a.m. on Friday, January 20, 2006. The meeting will be held at: Grand Hyatt New York Park Avenue at Grand Central Terminal New York, New York 10017 (212) 883-1234 The sole purpose of the meeting will be to form a committee or committees of unsecured creditors in the Debtors' bankruptcy cases. This is not the meeting of creditors pursuant to Section 341 of the Bankruptcy Code. However, a Debtor's representative will attend and provide background information regarding the cases. ----------------------------------------------------------------- [00010] MUSICLAND RECEIVES COURT APPROVAL OF FIRST DAY MOTIONS ----------------------------------------------------------------- MINNEAPOLIS, Minnesota -- January 13, 2006 -- Musicland Holding Corp., an entertainment specialty retailer operating more than 800 retail stores and online under the names Sam Goody (SamGoody.com), Suncoast Motion Picture Company (Suncoast.com), and MediaPlay.com, reported today that it has received Bankruptcy Court approval of a number of first day motions, including interim approval to use $60 million of a $75 million debtor-in- possession (DIP) financing facility. The first day motions granted by the Court today are intended to support the company's employees, customers and vendors, as well as provide other forms of operational and financial stability as Musicland proceeds with its financial restructuring. The DIP financing is being provided by a group of banks led by Wachovia as agent and will provide the company with sufficient liquidity to continue operations, purchase goods and services and pay employees while it restructures its debt. The DIP order is expected to appear on the docket, following the Monday holiday, with minor modifications requested by the Judge. A hearing for final approval of the entire DIP facility is scheduled for February 7, 2006. The Bankruptcy Court authorized the payment of pre-petition and post-petition employee wages, salaries, vacation pay, life insurance, medical, dental, vision, 401(k) and other benefits. Interim approval was also given for the company to continue to honor its current customer policies regarding merchandise returns and to honor outstanding gift cards and loyalty programs. "We are pleased with the prompt action by the Bankruptcy Court in approving our first day motions," said Musicland President & CEO Michael J. Madden. "This approval will allow our Sam Goody, Suncoast and online stores to continue to operate so that we can remain focused on serving our customers." On January 12, 2006, Musicland filed voluntary petitions to restructure under Chapter 11 of the U.S Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of New York. The case has been assigned to the Honorable Judge Stuart M. Bernstein under case number 06-10064. More information about Musicland's reorganization case is available at www.musicland.com or via the company's restructuring information line at: (888) 819-7914. Information on the case can also be obtained on the Bankruptcy Court's website with Pacer registration: www.nysb.uscourts.gov. About Musicland Musicland Holding Corp. is a leading national specialty retailer of music, movies and entertainment-related products. Musicland operates more than 800 retail stores and online under the names Sam Goody (SamGoody.com), Suncoast Motion Picture Company (Suncoast.com) and MediaPlay.com. In June 2003, Musicland was acquired by an affiliate of Sun Capital Partners, Inc. ----------------------------------------------------------------- [00011] NAVARRE ASSESSES EXPOSURE TO MUSICLAND BANKRUPTCY FILING ----------------------------------------------------------------- MINNEAPOLIS, Minnesota -- January 13, 2006 -- Navarre Corporation (Nasdaq: NAVR), a publisher and distributor of a broad range of home entertainment and multimedia software products, announced today that it was in the process of determining the financial effect on the Company's fiscal year 2006 third quarter financial results as a result of the recently announced Musicland Holding Corp. Chapter 11 bankruptcy petition. The Company's total exposure with Musicland was $12.8 million as of December 31, 2005. The Company noted that despite Musicland's failure to pay November and December balances due, the Company ended the fiscal year 2006 third quarter with over $10.0 million in cash and an undrawn revolving credit facility of $25.0 million. In fiscal year to date 2006 Musicland accounted for less than 4% of the Company's net sales. Eric Paulson, Chairman and Chief Executive Officer of Navarre commented, "We believe that any market share lost by Musicland through this reorganization will be absorbed by other customers and that the net effect on our business going-forward should not be significant." About Navarre Corporation Navarre Corporation (Nasdaq: NAVR) is a publisher and distributor of a broad range of home entertainment and multimedia products, including PC software, CD audio, DVD and VHS video, video games and accessories. Since its founding in 1983, the company has established distribution relationships with customers across a wide spectrum of retail channels which includes mass merchants, discount, wholesale club, office and music superstores, military and e-tailers nationwide. The company currently provides its products to over 18,000 retail and distribution center locations throughout the United States and Canada. Navarre has recently expanded its business to include the licensing and publishing of home entertainment and multimedia content, primarily through the acquisitions of Encore Software, Inc., BCI Eclipse Company, LLC, FUNimation Productions, Ltd. and The FUNimation Store, Ltd. For more information, please visit the company's Web site at http://www.navarre.com/ ----------------------------------------------------------------- [00012] MADACY ENTERTAINMENT HOLDS $1.3 MILLION TRADE RECEIVABLES ----------------------------------------------------------------- MONTREAL, Canada -- January 13, 2006 -- Madacy Entertainment Income Fund (TSX: MEG.UN) announced that one of its customers, Musicland Group Inc., has filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Musicland has announced that it has received commitments for up to US$75 million in debtor-in-possession financing which will enable it to continue to operate during the restructuring period. Musicland represented less than five percent of Madacy's 2005 net sales. Madacy currently has a trade receivable from Musicland in the amount of approximately US$1.3 million. As a result of the uncertainty surrounding the Musicland restructuring and the ultimate collectability of the balance owing and the timing of eventual receipt of any funds, Madacy will be taking an additional provision for an appropriate portion of the receivable not already covered by existing reserves. "We have been there before with Musicland and they have shown their ability to work out their problems", said Amos Alter, CEO of Madacy. "We will work with them through their difficult times", he added. The one-time charge is not expected to impact the current distribution rate to Class A unitholders (the publicly traded units). As a result of the charge, Madacy will reduce, on a one- time basis, its quarterly distribution on its Class B Exchangeable Subordinated Units (held by the former controlling shareholders of Madacy) with respect to the fourth quarter of 2005 by the amount of the charge. Madacy is a leading developer, producer and marketer of budget and mid-priced recorded music products in North America. *** End of Issue No. 1 ***