Exhibit 10. 2

EXECUTION VERSION

 

SECOND AMENDMENT AND WAIVER dated as of August 8, 2005 (this “Amendment”) to the
Credit Agreement dated as of August 20, 2004, as amended by the First Amendment
dated May 4, 2005 (as further amended, supplemented or otherwise modified from
time to time, the “Credit Agreement”), among BLOCKBUSTER INC. (the “Borrower”),
the Lenders from time to time parties thereto and JPMORGAN CHASE BANK, N.A., as
Administrative Agent and Collateral Agent for such Lenders (in such capacity,
the “Administrative Agent”).

 

WHEREAS the Borrower and the Lenders have agreed, on the terms and subject to
the conditions set forth herein, to amend the Credit Agreement and waive
compliance with certain provisions of the Credit Agreement for a limited period
of time, all as set forth herein.

 

NOW, THEREFORE, in consideration of the above premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:

 

SECTION 1. Defined Terms. Capitalized terms used and not defined herein have the
meanings given to them in the Credit Agreement as amended hereby.

 

SECTION 2. Amendment to the Credit Agreement. Effective as of the Second
Amendment Effective Date (as defined in Section 6), the Credit Agreement is
hereby amended as follows:

 

(a) the definitions in Section 1.01 of the Credit Agreement of the terms set
forth below are amended to read in their entirety as follows:

 

“‘Applicable Margin’ means, for any day with respect to any ABR Loan or
Eurodollar Loan that is a Revolving Loan, a Tranche A Term Loan or a Tranche B
Term Loan, the applicable rate per annum set forth below under the caption
“Tranche A and Revolving Eurodollar Spread”, “Tranche A and Revolving ABR
Spread”, “Tranche B Eurodollar Spread” or “Tranche B ABR Spread”, as the case
may be, based upon the rating by S&P and Moody’s, respectively, applicable on
such date to the Index Debt:

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Index Debt Ratings  

Tranche A &

Revolving

ABR Spread

 

Tranche A &

Revolving

Eurodollar

Spread

 

Tranche B ABR

Spread

 

Tranche B

Eurodollar

Spread

         

Category 1

 

B+ or B1 or higher

  1.75%   2.75%   2.00%   3.00%          

Category 2

 

B or B2

  2.00%   3.00%   2.25%   3.25%          

Category 3

 

lower than B or B2

  2.25%   3.25%   2.50%   3.50%

 

Notwithstanding the foregoing, until the Waiver Period End Date, the Applicable
Margin will be deemed to be in Category 2 above on any date on which it would
otherwise be in Category 1 above.

 

For purposes of the foregoing, (i) if either Moody’s or S&P shall not have in
effect a rating for the Index Debt (other than by reason of the circumstances
referred to in the last sentence of this paragraph), then such rating agency
shall be deemed to have established a rating in Category 3; (ii) if the ratings
established or deemed to have been established by Moody’s and S&P for the Index
Debt shall fall within different Categories, the Applicable Margin shall be
based on the lower of the two ratings; and (iii) if the ratings established or
deemed to have been established by Moody’s and S&P for the Index Debt shall be
changed, such change shall be effective as of the date on which it is first
announced by the applicable rating agency. Each change in the Applicable Margin
shall apply during the period commencing on the effective date of such change
and ending on the date immediately preceding the effective date of the next such
change. If the rating system of Moody’s or S&P shall change, or if either such
rating agency shall cease to be in the business of rating corporate debt
obligations, the Borrower and the Lenders shall negotiate in good faith to amend
this definition to reflect such changed rating system or the unavailability of
ratings from such rating agency and, pending the effectiveness of any such
amendment, the Applicable Margin shall be determined by reference to the rating
most recently in effect prior to such change or cessation.

 

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“‘Collateral’ means any “Collateral” as such term is defined in any Security
Document and any assets in respect of which a Lien is created in favor of the
Collateral Agent pursuant to any Security Document.”;

 

“‘Collateral and Guarantee Requirement’ means the requirement that:

 

(a) the Administrative Agent shall have received from each Loan Party (i) either
(A) a counterpart of the Collateral Agreement duly executed and delivered on
behalf of such Loan Party or (B) in the case of any Person that becomes a Loan
Party after the Effective Date, a supplement to the Collateral Agreement, in the
form specified therein, duly executed and delivered on behalf of such Loan Party
and (ii) either (A) a counterpart of the Security Agreement duly executed and
delivered on behalf of such Loan Party or (B) in the case of any Person that
becomes a Loan Party after the Second Amendment Effective Date, a supplement to
the Security Agreement, in the form specified therein, duly executed and
delivered on behalf of such Loan Party;

 

(b) all outstanding Equity Interests of each Domestic Subsidiary and of each
Significant Foreign Subsidiary (other than Blockbuster Australia Pty. Ltd.)
owned by or on behalf of any Loan Party shall have been pledged pursuant to the
Collateral Agreement or a Foreign Pledge Agreement (except that the Loan Parties
shall not be required to pledge more than 65% of the outstanding voting Equity
Interests of any Significant Foreign Subsidiary) and the Collateral Agent shall
have received certificates or other instruments, if any, representing all such
Equity Interests, together with stock powers or other instruments of transfer
with respect thereto endorsed in blank;

 

(c) all outstanding non-voting Equity Interests and 65% of the outstanding
voting Equity Interests of Blockbuster Australia Pty. Ltd. shall be subject to a
Memorandum of Deposit-Australian Shares in a form and substance acceptable to
the Collateral Agent, and the Collateral Agent shall have received certificates
or other instruments, if any, representing all such Equity Interests, together
with stock powers or other instruments of transfer with respect thereto endorsed
in blank;

 

(d) the Administrative Agent shall have received counterparts of the Aircraft
Security Agreement required to be entered into after the Second Amendment
Effective Date pursuant to Section 5.12 with respect to the Aircraft duly
executed and delivered by the record owner of the Aircraft;

 

(e) the Administrative Agent shall have received (i) counterparts of any
Mortgage required to be entered into after the Second Amendment Effective Date
pursuant to Section 5.12 with respect to each Mortgaged Property duly executed
and delivered by the record owner of such Mortgaged Property, (ii) a policy or
policies of title insurance issued by a nationally recognized title insurance
company insuring the Lien of each such Mortgage as a valid first Lien on the
Mortgaged Property described therein, free of any other Liens (other than

 

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Permitted Encumbrances), together with such endorsements (other than survey
endorsements) as the Administrative Agent may reasonably request, and (iii) such
legal opinions and other documents as the Administrative Agent may reasonably
request with respect to any such Mortgage or Mortgaged Property; and

 

(f) all documents and instruments required by law or reasonably requested by the
Collateral Agent to be filed, registered or recorded to create the Liens
intended to be created by the Security Documents and perfect such Liens to the
extent required by, and with the priority required by, the Security Documents,
shall have been filed, registered or recorded or delivered to the Collateral
Agent for filing, registration or recording.”;

 

“‘Information Memorandum’ means the Confidential Information Memorandum dated
July 2004 relating to the Borrower and the Transactions together with (a) the
written presentation materials and projections dated April 21, 2005, and the
related written projections dated April 20, 2005, in each case delivered in
connection with a conference call on April 21, 2005 among the Borrower and the
Lenders and (b) the written presentation materials and projections dated
August 2, 2005, delivered in connection with a conference call on August 2, 2005
among the Borrower and the Lenders.”; and

 

“‘Security Documents’ means the Collateral Agreement, the Security Agreement,
the Aircraft Security Agreement, each Foreign Pledge Agreement, the Mortgages
and each other security agreement or other instrument or document executed and
delivered pursuant to Section 5.12 of this Agreement.”.

 

(b) Section 1.01 of the Credit Agreement is amended to add definitions of the
following terms in appropriate alphabetical order:

 

“‘Aircraft’ means the Canadair Challenger Model CL600-2B16 aircraft, bearing
Serial Number 5082 and Federal Aviation Administration registration number N
6BB.”;

 

“‘Aircraft Security Agreement’ means an Aircraft Security Agreement between the
Borrower and the Collateral Agent reasonably acceptable to the Collateral Agent
and the Borrower.”;

 

“‘Index Debt’ means senior, secured, long term indebtedness for borrowed money
of the Borrower that is not Guaranteed by any other Person (other than any
Subsidiary) or subject to any other credit enhancement; provided that if the
Indebtedness under this Agreement is rated by S&P or Moody’s separately from
other Indebtedness that would fall within the foregoing definition, the Index
Debt for purposes of ratings established by such rating agency shall be the
Indebtedness of the Borrower under this Agreement.”;

 

“‘Mortgage’ means any mortgage, deed of trust, assignment of leases and rents,
leasehold mortgage or other security document granting a Lien on any real
property and improvements thereto to secure the Obligations that is delivered

 

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after the Second Amendment Effective Date pursuant to Section 5.12. Each
Mortgage shall be substantially in the form of Exhibit A to the Second Amendment
with such changes as may be appropriate to accommodate local legal
requirements.”;

 

“‘Mortgaged Property’ means each parcel of real property and improvements
thereto located in the United States and owned by a Loan Party with respect to
which a Mortgage is granted pursuant to Section 5.12.”;

 

“‘Second Amendment’ means the Second Amendment and Waiver dated as of August 8,
2005 to this Agreement.”;

 

“‘Second Amendment Effective Date’ means the date on which the conditions to
effectiveness of the Second Amendment were satisfied in accordance with the
terms thereof.”;

 

“‘Security Agreement’ means the Security Agreement among the Borrower, the
Subsidiary Loan Parties and the Collateral Agent, substantially in the form of
Exhibit B to the Second Amendment.”; and

 

“‘Waiver Period End Date’ means the date on which the Borrower delivers to the
Administrative Agent the Borrower’s audited consolidated financial statements as
of and for the fiscal year ending on December 31, 2005 pursuant to, and in
conformity with the requirements of, Section 5.01(a) of this Agreement.”.

 

(c) clause (d) of the definition of “Permitted Encumbrances” in Section 1.01 of
the Credit Agreement is amended by inserting the following text immediately
after the words “Article VII” and immediately before the text “; and”:

 

“provided that no such judgment lien shall have equal or greater priority than
the Liens created under the Loan Documents”.

 

(d) clause (ii) of the definition of “Prepayment Event” in Section 1.01 of the
Credit Agreement is amended by replacing the amount “$100,000,000” with
“$50,000,000”.

 

(e) paragraph (c) of Section 2.12 of the Credit Agreement is amended by
replacing the percentage “50%” with “75%” in each instance such percentage
appears within such paragraph.

 

(f) paragraph (a) of Section 3.18 of the Credit Agreement is amended to read in
its entirety as follows:

 

“SECTION 3.18. Security Interests. (a) When executed and delivered, the Security
Documents will be effective to create in favor of the Collateral Agent for the
ratable benefit of the Secured Parties (as defined in the Collateral

 

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Agreement) a valid and enforceable security interest in the Collateral and
(i) when the Collateral constituting certificated securities (as defined in the
Uniform Commercial Code) is delivered to the Collateral Agent thereunder
together with instruments of transfer duly endorsed in blank, the security
interest of the Collateral Agent therein will constitute a fully perfected Lien
on, and security interest in, all right, title and interest of the pledgors in
such Collateral, prior and superior in right to any other Person (it being
understood that no representation is made under this clause (i) as to (A) any
such Collateral that is subject to a Foreign Pledge Agreement or (B) the
perfection or priority of any Lien to the extent that such perfection or
priority is determined under the law of a jurisdiction outside the United
States, which are covered by paragraph (b) below), and (ii) (A) when financing
statements in appropriate form are filed in the offices specified in the
Perfection Certificate delivered on the Effective Date, the security interest of
the Collateral Agent will constitute a fully perfected Lien on and security
interest in all right, title and interest of the Grantors (as defined in the
Collateral Agreement) in the remaining Collateral (other than (x) the Mortgaged
Properties, (y) the Collateral (as defined in the Security Agreement) created
under the Security Agreement and (z) the Collateral (as defined in the Aircraft
Security Agreement) created under the Aircraft Security Agreement) to the extent
perfection can be obtained by filing Uniform Commercial Code financing
statements, prior and superior to the rights of any other Person and (B) when
financing statements in appropriate form are filed in the offices specified in
the Perfection Certificate delivered on the Second Amendment Effective Date, the
security interest of the Collateral Agent will constitute a fully perfected Lien
on and security interest in all right, title and interest of the Grantors (as
defined in the Security Agreement) in the Collateral (as defined in the Security
Agreement) created under the Security Agreement to the extent perfection can be
obtained by filing Uniform Commercial Code financing statements, prior and
superior to the rights of any other Person subject only to the Liens permitted
by Section 6.02.”.

 

(g) Section 3.18 of the Credit Agreement is amended by inserting the following
provisions at the end of such Section:

 

“(c) When the Security Agreement or an adequate summary thereof is properly
filed in the United States Patent and Trademark Office and the United States
Copyright Office, and, with respect to Collateral in which a security interest
cannot be perfected by such filings, upon the proper filing of the financing
statements referred to in paragraph (a) above, the Security Agreement and such
financing statements shall constitute a fully perfected Lien on, and security
interest in, all right, title and interest of the grantors thereunder in the
Intellectual Property (as defined in the Security Agreement), in each case prior
and superior in right to any other Person subject only to Permitted Encumbrances
(it being understood that subsequent recordings in the United States Patent and
Trademark Office and the United States Copyright Office may be necessary to
perfect a lien on registered trademarks and patents, trademark and patent
applications and registered copyrights acquired by the grantors after the date
hereof).

 

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(d) The Aircraft Security Agreement entered into after the Second Amendment
Effective Date pursuant to Section 5.12, when executed and properly filed with
the Federal Aviation Administration, shall be effective to constitute, in favor
of the Collateral Agent, for the ratable benefit of the Secured Parties (as
defined in the Aircraft Security Agreement), a fully perfected Lien on, and
security interest in, all right, title and interest of the grantors thereunder
in the Aircraft and the proceeds thereof, prior and superior in right to any
other Person subject only to Permitted Encumbrances.

 

(e) The Mortgages, if any, entered into after the Second Amendment Effective
Date pursuant to Section 5.12 shall be effective to create in favor of the
Collateral Agent, for the ratable benefit of the Secured Parties, a legal, valid
and enforceable Lien on all of the applicable Loan Parties’ right, title and
interest in and to the Mortgaged Property thereunder and the proceeds thereof,
and when such Mortgages are filed in the proper real estate filing offices, such
Mortgages shall constitute a fully perfected Lien on, and security interest in,
all right, title and interest of the applicable Loan Parties in such Mortgaged
Property and the proceeds thereof, in each case prior and superior in right to
any other Person subject only to Permitted Encumbrances.”.

 

(h) clause (i) of paragraph (b) of Section 5.03 of the Credit Agreement is
amended by inserting the words “Second Amendment” immediately after the word
“the” and immediately before the words “Effective Date”.

 

(i) Section 5.12 of the Credit Agreement is amended to read in its entirety as
follows:

 

“(a) The Borrower will, and will cause each Subsidiary Loan Party to, execute
any and all further documents, financing statements, agreements and instruments,
and take all such further actions (including the filing and recording of
financing statements, fixture filings, Mortgages and other documents), that may
be required under any applicable law, or that the Administrative Agent may
reasonably request, to cause the Collateral and Guarantee Requirement to be and
remain satisfied, all at the expense of the Loan Parties; provided that the
Collateral and Guarantee Requirement need not be satisfied with respect to
(i) real properties owned by the Borrower or any Subsidiary Loan Party with an
individual fair market value (including fixtures and improvements) that is
$500,000 or less, (ii) any real property held by the Borrower or any Subsidiary
Loan Party as a lessee under a lease, (iii) the Airplane, until 45 days after
the Second Amendment Effective Date and (iv) any real property owned by the
Borrower or any Subsidiary Loan Party on the Second Amendment Effective Date,
until 75 days after the Second Amendment Effective Date. The Borrower also
agrees to provide to the Administrative Agent, from time to time upon request,
evidence reasonably satisfactory to the Administrative Agent as to the
perfection and priority of the Liens created or intended to be created under the
Security Documents.

 

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(b) If any asset (including any real property or improvements thereto or any
interest therein) that has an individual fair market value of more than $500,000
is owned or acquired by the Borrower or any Subsidiary Loan Party after the
Second Amendment Effective Date or owned by an entity at the time it becomes a
Subsidiary Loan Party (in each case other than assets constituting Collateral
under any Security Document that become subject to the Lien of such Security
Document upon acquisition thereof), the Borrower will, to the extent not already
done so, notify the Administrative Agent and the Lenders thereof, and, if
requested by the Administrative Agent or the Required Lenders, the Borrower will
cause such asset to be subjected to a Lien securing the Obligations and will
take, and cause the Subsidiary Loan Parties to take, such actions as shall be
necessary or reasonably requested by the Administrative Agent to grant and
perfect such Liens, including actions described in paragraph (a) of this
Section, all at the expense of the Loan Parties; provided that the Collateral
and Guarantee Requirement need not be satisfied with respect to (i) any real
property held by the Borrower or any Subsidiary as a lessee under a lease and
(ii) any other assets with respect to which the Administrative Agent determines
that the cost or impracticability of including such assets as Collateral would
be excessive in relation to the benefits to the Lenders, (iii) the Airplane,
until 45 days after the Second Amendment Effective Date and (iv) any real
property owned by the Borrower or any Subsidiary Loan Party on the Second
Amendment Effective Date, until 75 days after the Second Amendment Effective
Date.”

 

(j) clause (vii) of paragraph (a) of Section 6.01 is amended by replacing the
amount “$100,000,000” with “$50,000,000”.

 

(k) clause (xiii) of paragraph (a) of Section 6.01 is amended by replacing the
amount “$40,000,000” with “$15,000,000”.

 

(l) the proviso in paragraph (c) of Section 6.04 is amended by replacing the
reference to “$90,000,000 at any time outstanding” with “$30,000,000 outstanding
at any time prior to the Waiver Period End Date and $60,000,000 outstanding at
any time after the Waiver Period End Date”.

 

(m) clause (j) of Section 6.04 is amended by replacing the reference to
“$50,000,000” with “$10,000,000 at any time prior to the Waiver Period End Date
and $25,000,000 at any time after the Waiver Period End Date”.

 

(n) clause (v) of paragraph (a) of Section 6.08 of the Credit Agreement is
amended by (i) replacing the amount “$300,000,000” in subclause (x) thereunder
with “$100,000,000” and (ii) deleting the words “minus the cumulative aggregate
amount of Repurchase Expenditures made in respect of Subordinated Debt or
Permitted Subordinated Indebtedness pursuant to clause (v) of Section 6.08(b)”
from subclause (y) thereunder.

 

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(o) paragraph (b) of Section 6.08 of the Credit Agreement is amended by
(i) inserting the word “and” at the end of clause (iv) thereunder, (ii) deleting
clause (v) thereunder and (iii) redesignating clause (vi) thereunder as clause
(v).

 

SECTION 3. Waiver of Certain Provisions; Interim Covenants. (a) Effective as of
the Second Amendment Effective Date (as defined in Section 6) and subject to the
provisions of paragraph (b) of this Section 3, the Lenders waive compliance by
the Borrower with:

 

(i) Section 6.12 of the Credit Agreement for the period of four consecutive
fiscal quarters ending on September 30, 2005; and

 

(ii) Section 6.13 of the Credit Agreement for the period from and including
June 30, 2005 through and including December 30, 2005.

 

(b) The waivers set forth in paragraph (a) of this Section 3 will automatically
expire and be of no force or effect, with the same effect as if such waivers had
never been granted, and without the necessity of any action by the
Administrative Agent or any Lender, if at any time prior to the Waiver Period
End Date (i) the Borrower fails to comply or fails to cause each of the
Subsidiaries to comply with any agreement or condition set forth in
paragraph (c) of this Section or (ii) any Default or Event of Default otherwise
occurs under the Credit Agreement.

 

(c) During the period from and including the Second Amendment Effective Date
through the Waiver Period End Date:

 

(i) The Borrower will not request any Swingline Loan or any Revolving Borrowing
unless, and it shall be a condition to the Lenders’ obligations under the Credit
Agreement to make any Swingline Loans or Revolving Loans that, (x) the Available
Cash (as defined below) on the date of such Borrowing, after giving effect to
the receipt of the proceeds of such Borrowing and to any other funds anticipated
to be received and any cash expenditures anticipated to be made, in each case on
or after the date of the relevant borrowing request and prior to the close of
business on the date of such Borrowing, will not exceed $50,000,000 and (y) the
Administrative Agent shall have received at the time of the relevant borrowing
request a certificate of a Financial Officer of the Borrower, in detail
reasonably satisfactory to the Administrative Agent, confirming compliance with
the condition set forth in clause (x) of this sentence. For purposes of
paragraph (c) of this Section, the term “Available Cash” means, on any date,
(i) the fair market value on such date of cash equivalents held in securities
accounts of the Borrower and its domestic Subsidiaries and (ii) the amount of
available funds held on such date in bank deposit accounts of the Borrower and
its domestic Subsidiaries, including the Borrower’s concentration accounts
maintained with Bank of America, N.A., and any other bank account of the
Borrower or its domestic Subsidiaries to which cash is transferred, directly or
indirectly, by local depositary banks into which Stores deposit cash, credit
card receipts and similar items; provided, however, that funds in bank deposit
accounts of domestic

 

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Subsidiaries will be included in calculating Available Cash on any date to the
extent, but only to the extent, the aggregate amount of such funds exceeds
$5,000,000. The Borrower will not cause or permit such local depositary banks to
transfer funds into accounts other than the Borrower’s existing concentration
accounts (or such other account maintained with a Lender as may be approved by
the Administrative Agent) or to make available or transfer funds on less
favorable terms or schedules than those currently in effect.

 

(ii) If, on any date, the Borrower’s Available Cash (other than any amounts that
will be applied to the repayment of Term Loans within the next 10 Business Days
pursuant to Section 2.12(c)) exceeds $75,000,000, the Borrower will provide
notice to the Administrative Agent on such date and within one Business Day of
such date repay Revolving Loans and Swingline Loans in an amount equal to such
excess (or if less, in the amount of all outstanding Revolving Loans and
Swingline Loans).

 

(iii) The Borrower will, and will cause each of its Subsidiaries to, continue to
administer and conduct their existing cash management system in the ordinary
course and consistently with past practice, including without limitation in
connection with the making, processing and crediting of credit card and other
deposits and the collection and transmission of funds in connection therewith;
provided that the foregoing will not preclude the Borrower from implementing
improvements in such cash management systems to achieve faster collection and
transmission of funds so long as such improvements are described in reasonable
detail in a notice furnished by the Borrower to the Administrative Agent
reasonably in advance of any such implementation. Without limiting the
foregoing, the Borrower will, and will cause each of its domestic Subsidiaries
to, continue to deposit cash and credit card receipts into local depositary
banks substantially in accordance with their existing practice and schedules, to
obtain availability of funds from such depositary banks substantially in
accordance with existing schedules and on existing terms and cause available
funds to be transferred by such depositary banks to the Borrower’s concentration
accounts (but not other accounts) on such daily or other basis as currently in
effect, or, in each case, on such faster schedules as the Borrower may achieve
pursuant to implementing improvements referred to in the immediately preceding
sentence.

 

(iv) The Borrower will not permit the amount of Consolidated EBITDA for any
period set forth below to be less than the amount set forth opposite such
period:

 

Period

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   Minimum Amount

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For the fiscal quarter ending on September 30, 2005

   $ 45,000,000

For the two fiscal quarters ending on December 31, 2005

   $ 250,000,000

 

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(v) (x) Not later than the Wednesday of each calendar week, the Borrower will
deliver to the Administrative Agent a cash flow forecast for the Borrower for
the ensuing 13-week period, broken down by week and by domestic operations and
otherwise in form and detail reasonably acceptable to the Administrative Agent.

 

(y) Not later than November 15, 2005, the Borrower will deliver to the
Administrative Agent a comprehensive business plan for the Borrower and the
Subsidiaries, separately covering the month of December 2005, each fiscal
quarter thereafter through the quarter ending December 31, 2007, and each fiscal
year thereafter through the fiscal year ending December 31, 2011, which business
plan will be in form and detail reasonably satisfactory to the Administrative
Agent after consultation with the Borrower.

 

(z) Not later than the 20th Business Day after the last day of any period
referred to in subparagraph (c)(iv) above, the Borrower will deliver to the
Administrative Agent a certificate of a Financial Officer of the Borrower
setting forth a calculation, in detail reasonably acceptable to the
Administrative Agent, of Consolidated EBITDA for such period, which
certification may be subject to any end-of-period or audit adjustments not then
completed.

 

(vi) Not later than the 20th Business Day after the last day of each calendar
month from and including July 2005 through November 2005, the Borrower will
deliver to the Administrative Agent unaudited financial statements for such
month and for the elapsed portion of the fiscal quarter including such month, in
substantially the same format and detail as the quarterly financial statements
delivered pursuant to Section 5.01(b) of the Credit Agreement, and setting forth
the amount of the cash Capital Expenditures of the Borrower and its Subsidiaries
for such calendar month.

 

(vii) The Borrower will not permit cash Capital Expenditures of the Borrower and
the Subsidiaries during any period set forth below to exceed the amount set
forth below opposite such period:

 

Period

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   Maximum Amount

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For the fiscal quarter ending on September 30, 2005

   $ 40,000,000

For the two fiscal quarters ending on December 31, 2005

   $ 75,000,000

 

(viii) The Borrower will not, and will not permit any Subsidiary to, effect any
Permitted Acquisition or any other acquisition of (or of any Equity Interests
in) any other Person (other than existing Subsidiaries) or any assets
constituting a going concern, operating business or division or unit thereof.

 

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(ix) The Borrower will not declare or make any Restricted Payments pursuant to
Section 6.08(a)(v) or (vi) of the Credit Agreement except for the declaration
and payment, otherwise in compliance with clause (a)(v) of Section 6.08 of the
Credit Agreement, of cash dividends on the Borrower’s common stock (A) during
the fiscal quarter ending on September 30, 2005 not in excess of two cents per
share (but in no event in excess of $4,100,000 in the aggregate); provided that
any such dividend is declared and paid during such fiscal quarter and (B) during
the fiscal quarter ending on December 31, 2005 not in excess of two cents per
share (but in no event in excess of $4,100,000 in the aggregate); provided that
any such dividend may not be declared prior to the delivery to the
Administrative Agent of the certificate of a Financial Officer contemplated by
Section 3(c)(v)(z) of this Amendment and the certificate of a Financial Officer
contemplated by Section 5.01(c) of the Credit Agreement, in each case with
respect to the fiscal quarter ending on September 30, 2005; and provided
further, that any such dividend is declared and paid during such fiscal quarter.

 

(d) Each of the agreements, covenants and conditions set forth in paragraph (c)
above or Section 4 hereof will be deemed to be an agreement, covenant or
condition of or applicable to the Borrower under the Credit Agreement, and any
failure by the Borrower to observe or perform any such agreement, covenant or
condition will give rise to an Event of Default under paragraph (d) of
Article VII of the Credit Agreement; provided, however, that any failure to
comply with paragraph (c)(v)(z) above will not result in an Event of Default
until it has continued unremedied for a period of two Business Days.

 

SECTION 4. Other Covenants. As promptly as practicable, but in any event within
75 days after the Second Amendment Effective Date, in the case of clause
(i) below, and 45 days after the Second Amendment Effective Date, in the case of
the clause (ii) below, the Borrower will, and will cause the Subsidiaries to,
(i) cause a first priority Mortgage (subject only to Permitted Encumbrances) to
be granted and perfected on each Mortgaged Property owned by the Borrower or any
Subsidiary Loan Party with an individual fair market value (including fixtures
and improvements) that is more than $500,000 and (ii) cause a first priority
Lien to be granted and perfected on the Aircraft pursuant to the Aircraft
Security Agreement, in each case in favor of the Collateral Agent as security
for the Obligations.

 

SECTION 5. Representations and Warranties. The Borrower hereby represents and
warrants to the Administrative Agent and the Lenders that as of the date hereof
and after giving effect hereto:

 

(a) this Amendment has been duly authorized, executed and delivered by it, and
each of this Amendment and the Credit Agreement as amended hereby constitutes
its legal, valid and binding obligation, enforceable against it in accordance
with its terms;

 

(b) no Default or Event of Default has occurred and is continuing; and

 

12

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(c) all representations and warranties of the Borrower contained in the Credit
Agreement are true and correct in all material respects as of the date hereof
(except with respect to representations and warranties expressly made only as of
an earlier date, which representations were true and correct in all material
respects as of such earlier date).

 

SECTION 6. Effectiveness. This Amendment shall become effective as of the first
date on or before August 8, 2005 (the “Second Amendment Effective Date”) on
which:

 

(a) the Administrative Agent shall have received counterparts hereof duly
executed and delivered by the Borrower and the Required Lenders;

 

(b) the Administrative Agent shall have received such favorable written opinions
(addressed to the Administrative Agent and the Lenders and dated the Second
Amendment Effective Date) of Vinson & Elkins L.L.P., counsel for the Borrower,
and of Edward B. Stead, General Counsel of the Borrower, as it shall reasonably
request relating to this Amendment, the Security Agreement, the Loan Parties and
the transactions contemplated hereby, all in form and substance reasonably
satisfactory to the Administrative Agent. The Borrower hereby requests such
counsel to deliver such opinions.

 

(c) the Administrative Agent shall have received such documents and certificates
as the Administrative Agent or its counsel may reasonably request relating to
the organization, existence and good standing of each Loan Party, the
authorization of this Amendment, the Security Agreement and the transactions
contemplated hereby and any other legal matters relating to the Loan Parties,
the Loan Documents or the transactions contemplated hereby, all in form and
substance reasonably satisfactory to the Administrative Agent;

 

(d) (i) the Collateral and Guarantee Requirement (as such term is amended
hereby) shall have been satisfied (other than the delivery of items set forth in
clauses (d) or (e) of the definition of the Collateral and Guarantee
Requirement), (ii) the Administrative Agent shall have received a completed
Perfection Certificate dated the Second Amendment Effective Date and signed by
an executive officer or Financial Officer of the Borrower, together with all
attachments contemplated thereby, and (iii) the Collateral Agent, for the
ratable benefit of the Lenders, shall have a fully perfected first priority Lien
on, and security interest in, the Collateral (other than the Mortgaged Property
and the Aircraft) subject only to Permitted Encumbrances;

 

(e) the Administrative Agent shall have received payment of all reasonable fees
and out-of-pocket expenses, to the extent invoiced, to be paid or reimbursed to
it by the Borrower pursuant to the Credit Agreement, including those referred to
in Section 9 hereof; and

 

13

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(f) the Borrower shall have paid to the Administrative Agent in immediately
available funds, for the account of each of the Lenders entitled thereto, the
Amendment Fee referred to in Section 7 hereof.

 

SECTION 7. Amendment Fee. The Borrower agrees to pay to the Administrative
Agent, for the account of each Lender that delivers (including by fax) an
executed counterpart of this Amendment prior to 12:00 noon, New York City time,
on August 8, 2005, an amendment fee (the “Amendment Fee”) in an amount equal to
0.125% of the sum of such Lender’s outstanding Term Loans and Revolving
Commitments.

 

SECTION 8. No Other Amendments; Confirmation. Except as expressly set forth
herein, this Amendment shall not by implication or otherwise limit, impair,
constitute a waiver of, or otherwise affect the rights and remedies of the
Lenders or the Administrative Agent under the Credit Agreement or any other Loan
Document, and shall not alter, modify, amend or in any way affect any of the
terms, conditions, obligations, covenants or agreements contained in the Credit
Agreement or any other Loan Document, all of which are ratified and affirmed in
all respects and shall continue in full force and effect. Nothing herein shall
be deemed to entitle any Loan Party to a consent to, or a waiver, amendment,
modification or other change of, any of the terms, conditions, obligations,
covenants or agreements contained in the Credit Agreement or any other Loan
Document in similar or different circumstances. This Amendment shall apply and
be effective only with respect to the provisions of the Credit Agreement
specifically referred to herein. The definition of the term “Applicable Margin”
in Section 1.01 of the Credit Agreement (as amended hereby) shall apply and be
effective for the period beginning on and including the Second Amendment
Effective Date, and the definition of the term “Applicable Margin” in
Section 1.01 of the Credit Agreement (exclusive of any amendment hereby) shall
apply and be effective for the period ending on (but not including) the Second
Amendment Effective Date. On and after the Second Amendment Effective Date, any
reference to the Credit Agreement contained in the Loan Documents shall mean the
Credit Agreement as modified hereby.

 

SECTION 9. Expenses. The Borrower agrees to reimburse the Administrative Agent
for its reasonable out-of-pocket expenses in connection with this Amendment,
including the reasonable fees, charges and disbursements of counsel for the
Administrative Agent.

 

SECTION 10. Governing Law; Counterparts. (a) This Amendment and the rights and
obligations of the parties hereto shall be governed by, and construed and
interpreted in accordance with, the laws of the State of New York.

 

(b) This Amendment may be executed by one or more of the parties to this
Amendment on any number of separate counterparts, and all of such counterparts
taken together shall be deemed to constitute one and the same instrument. This
Amendment may be delivered by facsimile transmission of the relevant signature
pages hereof.

 

14

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SECTION 11. Headings. The headings of this Amendment are for purposes of
reference only and shall not limit or otherwise affect the meaning hereof.

 

15

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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed and delivered by their duly authorized officers as of the day and year
first above written.

 

BLOCKBUSTER INC., by   /s/    Mary Bell     Name: Mary Bell    

Title: Senior Vice President, Investor

Relations and Corporate Treasurer

 

JPMORGAN CHASE BANK, N.A.

individually and as Administrative Agent,

Collateral Agent, Swingline Lender,

Issuing Bank,

by   /s/    Barry Bergman     Name: Barry Bergman     Title: Managing Director

 

16

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SIGNATURE PAGE FOR

SECOND AMENDMENT

TO BLOCKBUSTER INC.

CREDIT AGREEMENT

 

To approve this Amendment:

Institution:

 

*

By  

       

Name:

   

Title:

     

*   The Amendment was approved by the Required Lenders for the Credit Agreement.

 

17

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EXHIBIT A

 

Form of Mortgage

 

EXECUTION VERSION

 

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[FORM OF]

 

MORTGAGE, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT

AND FINANCING STATEMENT

 

From

 

[NAME OF MORTGAGOR]

 

 

To

 

JPMORGAN CHASE BANK, N.A.

 

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

 

Dated:                     , 2005

Premises: [City], [State]

                     County

 

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EXECUTION VERSION

 

THIS MORTGAGE, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND FINANCING
STATEMENT1 dated as of                     , 2005 (this “Mortgage”), by
[Blockbuster Inc./Blockbuster Distribution, Inc.], a Delaware corporation,
having an office at 1201 Elm Street, Dallas, Texas 75270 (the “Mortgagor”), to
JPMORGAN CHASE BANK, N.A., a national banking association, having an office at
270 Park Avenue, New York, New York 10017 (the “Mortgagee”) as Collateral Agent
for the Secured Parties (as such terms are defined below).

 

 

WITNESSETH THAT:

 

Reference is made to (i) the Credit Agreement dated as of August 20, 2004 (as
amended, supplemented or otherwise modified from time to time, the “Credit
Agreement”), among Blockbuster Inc., a Delaware Corporation (the “Borrower”),
the lenders from time to time party thereto (the “Lenders”), including, inter
alia, JPMorgan Chase Bank, N.A., as administrative agent (the “Administrative
Agent”) for the Lenders, collateral agent (the “Collateral Agent”) for the
Secured Parties (as defined below), swingline lender (the “Swingline Lender”)
and issuing bank (the “Issuing Bank”) with respect to any letters of credit (the
“Letters of Credit”) issued pursuant to the terms of the Credit Agreement and
(ii) the Security Agreement dated as of even date hereof (as amended,
supplemented or otherwise modified from time to time, the “Security Agreement”)
among the Borrower, the subsidiaries of the Borrower identified therein and
Collateral Agent. Capitalized terms used but not defined herein have the
meanings given to them in the Credit Agreement.

 

In the Credit Agreement, (i) the Lenders have agreed to make (a) term loans (the
“Term Loans”) and revolving loans (the “Revolving Loans”) to the Borrower,
(ii) the Swingline Lender has agreed to make swingline loans (the “Swingline
Loans”, together with Term Loans and Revolving Loans, the “Loans”) to the
Borrower and (iii) the Issuing Bank has issued or agreed to issue from time to
time Letters of Credit for the account of the Borrower, in each case pursuant
to, upon the terms, and subject to the conditions specified in, the Credit
Agreement. [The Credit Agreement provides that the sum of the principal amount
of the Loans and the Letters of Credit from time to time outstanding and secured
hereby shall not exceed $[            ]].

 

The Borrower desires to enter into that certain Second Amendment and Waiver
dated as of August 8, 2005 (“Second Amendment”) with the Lenders, the
Administrative Agent, the Collateral Agent, the Swingline Lender and the Issuing
Bank, pursuant to which, among other things, the Lenders will amend certain
provisions and waive certain covenants of the Credit Agreement and the Lenders
have required as a condition subsequent to the effectiveness of the Second
Amendment, that Mortgagor enter into this Mortgage in the form hereof to secure
the Obligations.

 

 

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  1   Based on 3/30/99 form of Credit Agreement for non-investment grade
borrowers.

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[Mortgagor is the Borrower / Mortgagor is a wholly owned Subsidiary of the
Borrower] and Mortgagor has determined that valuable benefits have been and will
be derived by it as a result of the Second Amendment and that the benefits
accruing to it from the Second Amendment exceed Mortgagor’s anticipated
liability under this Mortgage.

 

As used in this Mortgage, the term “Secured Parties” shall mean (a) the Lenders,
(b) the Administrative Agent, (c) the Collateral Agent, (d) the Issuing Bank,
(e) each counterparty to a Hedging Agreement entered into with Borrower if such
counterparty was a Lender at the time the Hedging Agreement was entered into,
(f) the beneficiaries of each indemnification obligation undertaken by the
Borrower or Subsidiary Loan Party under any Loan Document and (g) the successors
and assigns of each of the foregoing.

 

Pursuant to the requirements of the Credit Agreement, the Mortgagor is granting
this Mortgage to create a lien on and a security interest in the Mortgaged
Property (as hereinafter defined) to secure the performance and payment by the
Mortgagor of the Obligations. [The Credit Agreement also requires the granting
by other Loan Parties of mortgages, deeds of trust and/or deeds to secure debt
(the “Other Mortgages”) that create liens on and security interests in certain
real and personal property other than the Mortgaged Property to secure the
performance of the Obligations.]

 

Granting Clauses

 

NOW, THEREFORE, IN CONSIDERATION OF the foregoing and in order to secure the due
and punctual payment and performance of the Obligations for the benefit of the
Secured Parties, Mortgagor hereby grants, mortgages, assigns and pledges to the
Mortgagee, a mortgage lien on and a security interest in, all of Mortgagor’s
right, title and interest in and to the following described property (the
“Mortgaged Property”) whether now owned or hereafter acquired by Mortgagor:

 

(1) the land more particularly described on Exhibit A hereto (the “Land”),
together with all rights appurtenant thereto, including the easements over
certain other adjoining land granted by any easement agreements, covenant or
restrictive agreements and all air rights, mineral rights, water rights, oil and
gas rights and development rights, if any, relating thereto, and also together
with all of the other easements, rights, privileges, interests, hereditaments
and appurtenances thereunto belonging or in any way appertaining and all of the
estate, right, title, interest, claim or demand whatsoever of Mortgagor therein
and in the streets and ways adjacent thereto, either in law or in equity, in
possession or expectancy, now or hereafter acquired (the “Premises”);

 

(2) all buildings, improvements, structures, paving, parking areas, walkways and
landscaping now or hereafter erected or located upon the Land, and all fixtures
of every kind and type affixed to the Premises or attached to or forming part of
any structures, buildings or improvements and replacements thereof now or
hereafter erected or located upon the Land (the “Improvements”);

 

3

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(3) all apparatus, movable appliances, building materials, equipment, fittings,
furnishings, furniture, machinery and other articles of tangible personal
property of every kind and nature, and replacements thereof, now or at any time
hereafter placed upon or used in any way in connection with the use, enjoyment,
occupancy or operation of the Improvements or the Premises, including all of
Mortgagor’s books and records relating thereto and including all pumps, tanks,
goods, machinery, tools, equipment, lifts (including fire sprinklers and alarm
systems, fire prevention or control systems, cleaning rigs, air conditioning,
heating, boilers, refrigerating, electronic monitoring, water, loading,
unloading, lighting, power, sanitation, waste removal, entertainment,
communications, computers, recreational, window or structural, maintenance,
truck or car repair and all other equipment of every kind), restaurant, bar and
all other indoor or outdoor furniture (including tables, chairs, booths, serving
stands, planters, desks, sofas, racks, shelves, lockers and cabinets), bar
equipment, glasses, cutlery, uniforms, linens, memorabilia and other decorative
items, furnishings, appliances, supplies, inventory, rugs, carpets and other
floor coverings, draperies, drapery rods and brackets, awnings, venetian blinds,
partitions, chandeliers and other lighting fixtures, freezers, refrigerators,
walk-in coolers, signs (indoor and outdoor), computer systems, cash registers
and inventory control systems, and all other apparatus, equipment, furniture,
furnishings, and articles used in connection with the use or operation of the
Improvements or the Premises, it being understood that the enumeration of any
specific articles of property shall in no way result in or be held to exclude
any items of property not specifically mentioned, it being further understood
that the property referred to in this subparagraph (3) only includes the
property now owned or hereafter acquired by Mortgagor and not property of others
located on or in the Premises (the property referred to in this
subparagraph (3), the “Personal Property”);

 

(4) all general intangibles owned by Mortgagor and relating to design,
development, operation, management and use of the Premises or the Improvements,
all certificates of occupancy, zoning variances, building, use or other permits,
approvals, authorizations and consents obtained from and all materials prepared
for filing or filed with any governmental agency in connection with the
development, use, operation or management of the Premises and Improvements, all
construction, service, engineering, consulting, leasing, architectural and other
similar contracts concerning the design, construction, management, operation,
occupancy and/or use of the Premises and Improvements, all architectural
drawings, plans, specifications, soil tests, feasibility studies, appraisals,
environmental studies, engineering reports and similar materials relating to any
portion of or all of the Premises and Improvements, and all payment and
performance bonds or warranties or guarantees relating to the Premises or the
Improvements, all to the extent assignable (the “Permits, Plans and
Warranties”);

 

(5) all now or hereafter existing leases or licenses (under which Mortgagor is
landlord or licensor) and subleases (under which Mortgagor is sublandlord),
concession, management, mineral or other agreements of a similar kind that
permit the use or occupancy of the Premises or the Improvements for any purpose
in return for any payment, or the extraction or taking of any gas, oil, water or
other minerals

 

4

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from the Premises in return for payment of any fee, rent or royalty
(collectively, “Leases”), and all agreements or contracts for the sale or other
disposition of all or any part of the Premises or the Improvements, now or
hereafter entered into by Mortgagor, together with all charges, fees, income,
issues, profits, receipts, rents, revenues or royalties payable thereunder
(“Rents”);

 

(6) all real estate tax refunds and all proceeds of the conversion, voluntary or
involuntary, of any of the Mortgaged Property into cash or liquidated claims
(“Proceeds”), including Proceeds of insurance maintained by the Mortgagor and
condemnation awards, any awards that may become due by reason of the taking by
eminent domain or any transfer in lieu thereof of the whole or any part of the
Premises or Improvements or any rights appurtenant thereto, and any awards for
change of grade of streets, together with any and all moneys now or hereafter on
deposit for the payment of real estate taxes, assessments or common area charges
levied against the Mortgaged Property, unearned premiums on policies of fire and
other insurance maintained by the Mortgagor covering any interest in the
Mortgaged Property or required by the Credit Agreement; and

 

(7) all extensions, improvements, betterments, renewals, substitutes and
replacements of and all additions and appurtenances to, the Land, the Premises,
the Improvements, the Personal Property, the Permits, Plans and Warranties and
the Leases, hereinafter acquired by or released to the Mortgagor or constructed,
assembled or placed by the Mortgagor on the Land, the Premises or the
Improvements, and all conversions of the security constituted thereby,
immediately upon such acquisition, release, construction, assembling, placement
or conversion, as the case may be, and in each such case, without any further
mortgage, deed of trust, conveyance, assignment or other act by the Mortgagor,
all of which shall become subject to the lien of this Mortgage as fully and
completely, and with the same effect, as though now owned by the Mortgagor and
specifically described herein.

 

TO HAVE AND TO HOLD the Mortgaged Property unto the Mortgagee, its successors
and assigns, for the ratable benefit of the Secured Parties, forever, subject
only to Permitted Encumbrances (as defined in the Credit Agreement) and to
satisfaction and release as provided in Section 3.04.

 

ARTICLE I

 

Representations, Warranties and Covenants of Mortgagor

 

Mortgagor agrees, covenants, represents and/or warrants as follows:

 

SECTION 1.01. Title, Mortgage Lien. (a) Mortgagor has good and marketable fee
simple title to the Mortgaged Property, subject only to Permitted Encumbrances.

 

(b) The execution and delivery of this Mortgage is within Mortgagor’s corporate
powers and has been duly authorized by all necessary corporate and, if required,
stockholder

 

5

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action. This Mortgage has been duly executed and delivered by Mortgagor and
constitutes a legal, valid and binding obligation of Mortgagor, enforceable in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors’ rights generally
and subject to general principles of equity, regardless of whether considered in
a proceeding in equity or at law.

 

(c) The execution, delivery and recordation of this Mortgage (i) do not require
any consent or approval of, registration or filing with, or any other action by,
any Governmental Authority, except such as have been obtained or made and are in
full force and effect and except filings necessary to perfect the lien of this
Mortgage, (ii) will not violate any applicable law or regulation or any order of
any Governmental Authority (except where such violation has not resulted, and
would not reasonably be expected to result in, a Material Adverse Effect) or the
charter, by-laws or other organizational documents of Mortgagor, (iii) will not
violate or result in a default under any indenture or any other material
agreement or other instrument binding upon Mortgagor or its assets, or give rise
to a right thereunder to require any payment to be made by Mortgagor, and
(iv) will not result in the creation or imposition of any Lien on any asset of
Mortgagor, except the lien of this Mortgage or otherwise permitted under
Section 6.02 of the Credit Agreement.

 

(d) This Mortgage, when duly recorded in the public records identified in
Exhibit A hereto and                  [Local Counsel Review], and the Uniform
Commercial Code Financing Statements described in Section 1.09 of this Mortgage,
when duly recorded in the public records identified in the Perfection
Certificate delivered in connection with the Second Amendment, will create a
valid, perfected and enforceable lien upon and security interest in all of the
Mortgaged Property.

 

SECTION 1.02. Credit Agreement. This Mortgage is given pursuant to the Credit
Agreement. Mortgagor expressly covenants and agrees to pay when due, and to
timely perform, and to cause the other Loan Parties to pay when due, and to
timely perform, the Obligations in accordance with the terms of the Loan
Documents.

 

SECTION 1.03. Payment of Taxes, and Other Obligations. (a) Except where (1) the
validity or amount thereof is being contested in good faith by appropriate
proceedings, and the Borrower or the Mortgagor has set aside on its books
adequate reserves with respect thereto in accordance with GAAP and (2) the
failure to make payment would not reasonably be expected to result in a Material
Adverse Effect, Mortgagor will pay and discharge from time to time prior to the
time when the same shall become delinquent, and before any interest or penalty
accrues thereon or attaches thereto, all Taxes and other material obligations
with respect to the Mortgaged Property or any part thereof or upon the Rents
from the Mortgaged Property or arising in respect of the occupancy, use or
possession thereof in accordance with, and to the extent required by, the Credit
Agreement.

 

(b) In the event of the passage of any state, Federal, municipal or other
governmental law, order, rule or regulation subsequent to the date hereof
(i) deducting from the value of real property for the purpose of taxation any
lien or encumbrance thereon or in any manner changing or modifying the laws now
in force governing the taxation of this Mortgage or debts secured by mortgages
or deeds of trust (other than laws governing income, franchise

 

6

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and similar taxes generally) or the manner of collecting taxes thereon and
(ii) imposing a tax to be paid by Mortgagee, either directly or indirectly, on
this Mortgage or any of the Loan Documents, or requiring an amount of taxes to
be withheld or deducted therefrom, Mortgagor will promptly (i) notify Mortgagee
of such event, (ii) enter into such further instruments as Mortgagee may
determine are reasonably necessary or desirable to obligate Mortgagor to make
any additional payments necessary to put the Lenders and Secured Parties in the
same financial position they would have been if such law, order, rule or
regulation had not been passed and (iii) make such additional payments to
Mortgagee for the benefit of the Lenders and Secured Parties.

 

SECTION 1.04. Maintenance of Mortgaged Property. Mortgagor will maintain the
Improvements and the Personal Property in the manner required by Section 5.06 of
the Credit Agreement.2

 

SECTION 1.05. Insurance. Mortgagor will keep or cause to be kept the
Improvements and Personal Property insured against such risks, and in the
manner, described in Schedule IV of the Security Agreement and shall purchase
such additional insurance as may be required from time to time pursuant to
Section 5.07 of the Credit Agreement. Federal Emergency Management Agency
Standard Flood Hazard Determination Forms will be purchased by Mortgagor for
each Mortgaged Property on which Improvements are located. If any portion of
Improvements constituting part of the Mortgaged Property is located in an area
identified as a special flood hazard area by Federal Emergency Management Agency
or other applicable agency, Mortgagor will purchase flood insurance in an amount
satisfactory to Mortgagee, but in no event less than the maximum limit of
coverage available under the National Flood Insurance Act of 1968, as amended.

 

SECTION 1.06. Casualty Condemnation/Eminent Domain. Mortgagor shall give
Mortgagee prompt written notice of any material casualty or other material
damage to the Mortgaged Property or any proceeding for the taking of the
Mortgaged Property or any portion thereof or interest therein under power of
eminent domain or by condemnation or any similar proceeding in accordance with,
and to the extent required by, Section 5.08 of the Credit Agreement. Any Net
Proceeds received by or on behalf of the Mortgagor in respect of any such
casualty, damage or taking shall constitute trust funds held by the Mortgagor
for the benefit of the Secured Parties to be applied to repair, restore or
replace the Mortgaged Property or, if a Prepayment Event shall occur with
respect to any such Net Proceeds, to be applied in accordance with Section 2.12
of the Credit Agreement.

 

SECTION 1.07. Assignment of Leases and Rents. (a) Mortgagor hereby irrevocably
and absolutely grants, transfers and assigns all of its right title and interest
in all Leases, together with any and all extensions and renewals thereof for
purposes of securing and discharging the performance by Mortgagor of the
Obligations. Mortgagor has not assigned or executed any assignment of, and will
not assign or execute any assignment of, any Leases or the Rents payable
thereunder to anyone other than Mortgagee.

 

 

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  2   See Section 5.06 of the Credit Agreement.

 

7

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(b) All Leases shall be subordinate to the lien of this Mortgage. Mortgagor will
not enter into, modify or amend any Lease if such Lease, as entered into,
modified or amended, will not be subordinate to the lien of this Mortgage.

 

(c) Subject to Section 1.07(d), Mortgagor has assigned and transferred to
Mortgagee all of Mortgagor’s right, title and interest in and to the Rents now
or hereafter arising from each Lease heretofore or hereafter made or agreed to
by Mortgagor, it being intended that this assignment establish, subject to
Section 1.07(d), an absolute transfer and assignment of all Rents and all Leases
to Mortgagee and not merely to grant a security interest therein. Subject to
Section 1.07(d), Mortgagee may in Mortgagor’s name and stead (with or without
first taking possession of any of the Mortgaged Property personally or by
receiver as provided herein) operate the Mortgaged Property and rent, lease or
let all or any portion of any of the Mortgaged Property to any party or parties
at such rental and upon such terms as Mortgagee shall, in its sole discretion,
determine, and may collect and have the benefit of all of said Rents arising
from or accruing at any time thereafter or that may thereafter become due under
any Lease.

 

(d) So long as an Event of Default shall not have occurred and be continuing,
Mortgagee will not exercise any of its rights under Section 1.07(c), and
Mortgagor shall receive and collect the Rents accruing under any Lease; but
after the happening and during the continuance of any Event of Default,
Mortgagee may, at its option, receive and collect all Rents and enter upon the
Premises and Improvements through its officers, agents, employees or attorneys
for such purpose and for the operation and maintenance thereof. Mortgagor hereby
irrevocably authorizes and directs each tenant, if any, and each successor, if
any, to the interest of any tenant under any Lease, respectively, to rely upon
any notice of a claimed Event of Default sent by Mortgagee to any such tenant or
any of such tenant’s successors in interest, and thereafter to pay Rents to
Mortgagee without any obligation or right to inquire as to whether an Event of
Default actually exists and even if some notice to the contrary is received from
the Mortgagor, who shall have no right or claim against any such tenant or
successor in interest for any such Rents so paid to Mortgagee. Each tenant or
any of such tenant’s successors in interest from whom Mortgagee or any officer,
agent, attorney or employee of Mortgagee shall have collected any Rents, shall
be authorized to pay Rents to Mortgagor only after such tenant or any of their
successors in interest shall have received written notice from Mortgagee that
the Event of Default is no longer continuing, unless and until a further notice
of an Event of Default is given by Mortgagee to such tenant or any of its
successors in interest.

 

(e) Mortgagee will not become a mortgagee in possession so long as it does not
enter or take actual possession of the Mortgaged Property. In addition,
Mortgagee shall not be responsible or liable for performing any of the
obligations of the landlord under any Lease, for any waste by any tenant, or
others, for any dangerous or defective conditions of any of the Mortgaged
Property, for negligence in the management, upkeep, repair or control of any of
the Mortgaged Property or any other act or omission by any other person.

 

(f) Mortgagor shall furnish to Mortgagee, within 30 days after a request by
Mortgagee to do so, a written statement containing the names of all tenants,
subtenants and

 

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concessionaires of the Premises or Improvements, the terms of any Lease, the
space occupied and the rentals and/or other amounts payable thereunder.

 

SECTION 1.08. Restrictions on Transfers and Encumbrances. Mortgagor shall not
directly or indirectly sell, convey, alienate, assign, lease, sublease, license,
mortgage, pledge, encumber or otherwise transfer, create, consent to or suffer
the creation of any lien, charge or other form of encumbrance upon any interest
in or any part of the Mortgaged Property, or be divested of its title to the
Mortgaged Property or any interest therein in any manner or way, whether
voluntarily or involuntarily (other than resulting from a condemnation), or
engage in any common, cooperative, joint, time-sharing or other congregate
ownership of all or part thereof, except in each case in accordance with and to
the extent permitted by the Credit Agreement; provided, that Mortgagor may, in
the ordinary course of business and in accordance with reasonable commercial
standards, enter into easement, covenant, lease and sublease agreements that
relate to and/or benefit the operation of the Mortgaged Property and that would
not reasonably be expected to materially and adversely affect the value, use or
operation of the Mortgaged Property in a negative manner. If any of the
foregoing transfers or encumbrances results in a Prepayment Event, half of the
Net Proceeds received by or on behalf of the Mortgagor in respect thereof shall
constitute trust funds to be held by the Mortgagor for the benefit of the
Secured Parties and applied in accordance with Section 2.12 of the Credit
Agreement.

 

SECTION 1.09. Security Agreement. This Mortgage is both a mortgage of real
property and a grant of a security interest in personal property, and shall
constitute and serve as a “Security Agreement” within the meaning of the uniform
commercial code as adopted in the state wherein the Premises are located
(“UCC”). Mortgagor has hereby granted unto Mortgagee a security interest in and
to all the Mortgaged Property described in this Mortgage that is not real
property, and simultaneously with the recording of this Mortgage, Mortgagor has
filed or will file UCC financing statements, and will file continuation
statements prior to the lapse thereof, at the appropriate office in the
jurisdiction of formation of the Mortgagor to perfect the security interest
granted by this Mortgage in all the Mortgaged Property that is not real
property. Mortgagor hereby authorizes Mortgagee to file the same in the
appropriate office, and to perform each and every act and thing reasonably
requisite and necessary to be done to perfect the security interest contemplated
by the preceding sentence. Mortgagee shall have all rights with respect to the
part of the Mortgaged Property that is the subject of a security interest
afforded by the UCC in addition to, but not in limitation of, the other rights
afforded Mortgagee hereunder and under the Security Agreement.

 

SECTION 1.10. Filing and Recording. Mortgagor will cause this Mortgage, the UCC
financing statements referred to in Section 1.09, any other security instrument
creating a security interest in or evidencing the lien hereof upon the Mortgaged
Property and each UCC continuation statement and instrument of further assurance
to be filed, registered or recorded and, if necessary, refiled, rerecorded and
reregistered, in such manner and in such places as may be required by any
present or future law in order to publish notice of and fully to perfect the
lien hereof upon, and the security interest of Mortgagee in, the Mortgaged
Property until this Mortgage is terminated and released in full in accordance
with Section 3.04 hereof. Mortgagor will pay all filing, registration and
recording fees, all Federal, state, county and municipal recording, documentary
or intangible taxes and other taxes, duties,

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imposts, assessments and charges, and all reasonable expenses incidental to or
arising out of or in connection with the execution, delivery and recording of
this Mortgage, UCC continuation statements any mortgage supplemental hereto, any
security instrument with respect to the Personal Property, Permits, Plans and
Warranties and Proceeds or any instrument of further assurance.

 

SECTION 1.11. Further Assurances. Upon demand by Mortgagee, Mortgagor will, at
the cost of Mortgagor and without expense to Mortgagee, do, execute, acknowledge
and deliver all such further acts, deeds, conveyances, mortgages, assignments,
notices of assignment, transfers and assurances as Mortgagee shall from time to
time reasonably require for the better assuring, conveying, assigning,
transferring and confirming unto Mortgagee the property and rights hereby
granted or pledged or intended now or hereafter so to be, or which Mortgagor may
be or may hereafter become bound to grant or pledge to Mortgagee, or for
carrying out the intention or facilitating the performance of the terms of this
Mortgage, or for filing, registering or recording this Mortgage, and on demand,
Mortgagor will also execute and deliver and hereby appoints Mortgagee as its
true and lawful attorney-in-fact and agent, for Mortgagor and in its name, place
and stead, in any and all capacities, to execute and file to the extent it may
lawfully do so, one or more financing statements, chattel mortgages or
comparable security instruments reasonably requested by Mortgagee to evidence
more effectively the lien hereof upon the Personal Property and to perform each
and every act and thing requisite and necessary to be done to accomplish the
same. Anything in this Section 1.11 to the contrary notwithstanding, Mortgagee
agrees that it will not exercise any rights under the power of attorney provided
for in this Section 1.11 unless an Event of Default shall have occurred and be
continuing.

 

SECTION 1.12. Additions to Mortgaged Property. All right, title and interest of
Mortgagor in and to all extensions, improvements, betterments, renewals,
substitutes and replacements of, and all additions and appurtenances to, the
Mortgaged Property hereafter acquired by or released to Mortgagor or
constructed, assembled or placed by Mortgagor upon the Premises or the
Improvements, and all conversions of the security constituted thereby,
immediately upon such acquisition, release, construction, assembling, placement
or conversion, as the case may be, and in each such case without any further
mortgage, conveyance, assignment or other act by Mortgagor, shall become subject
to the lien and security interest of this Mortgage as fully and completely and
with the same effect as though now owned by Mortgagor and specifically described
in the grant of the Mortgaged Property above, but at any and all times Mortgagor
will execute and deliver to Mortgagee any and all such further assurances,
mortgages, conveyances or assignments thereof as Mortgagee may reasonably
require for the purpose of expressly and specifically subjecting the same to the
lien and security interest of this Mortgage.

 

SECTION 1.13. No Claims Against Mortgagee. Nothing contained in this Mortgage
shall constitute any consent or request by Mortgagee, express or implied, for
the performance of any labor or services or the furnishing of any materials or
other property in respect of the Mortgaged Property or any part thereof, nor as
giving Mortgagor any right, power or authority to contract for or permit the
performance of any labor or services or the furnishing of any materials or other
property in such fashion as would permit the making of any claim against
Mortgagee in respect thereof.

 

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SECTION 1.14. Fixture Filing. (a) Certain portions of the Mortgaged Property are
or will become “fixtures” (as that term is defined in the UCC) on the Land, and
this Mortgage, upon being filed for record in the real estate records of the
county wherein such fixtures are situated, shall operate also as a financing
statement filed as a fixture filing in accordance with the applicable provisions
of said UCC upon such portions of the Mortgaged Property that are or become
fixtures.

 

(b) The real property to which the fixtures relate is described in Exhibit A
attached hereto. The record owner of the real property described in Exhibit A
attached hereto is Mortgagor. The name, type of organization and jurisdiction of
organization of the debtor for purposes of this financing statement are the
name, type of organization and jurisdiction of organization of the Mortgagor set
forth in the first paragraph of this Mortgage, and the name of the secured party
for purposes of this financing statement is the name of the Mortgagee set forth
in the first paragraph of this Mortgage. The mailing address of the
Mortgagor/debtor is the address of the Mortgagor set forth in the first
paragraph of this Mortgage. The mailing address of the Mortgagee/secured party
from which information concerning the security interest hereunder may be
obtained is the address of the Mortgagee set forth in the first paragraph of
this Mortgage. Mortgagor’s organizational identification number is [2210588 –
Blockbuster Inc.] [2211540 – Blockbuster Distribution, Inc.].

 

ARTICLE II

 

Defaults and Remedies

 

SECTION 2.01. Events of Default. Any Event of Default under the Credit Agreement
(as such term is defined therein) shall constitute an Event of Default under
this Mortgage.

 

SECTION 2.02. Demand for Payment. If an Event of Default shall occur and be
continuing, then, upon written demand of Mortgagee, Mortgagor will pay to
Mortgagee all amounts due hereunder and under the Credit Agreement and the
Security Agreement and such further amount as shall be sufficient to cover the
costs and expenses of collection, including attorneys’ fees, disbursements and
expenses incurred by Mortgagee, and Mortgagee shall be entitled and empowered to
institute an action or proceedings at law or in equity for the collection of the
sums so due and unpaid, to prosecute any such action or proceedings to judgment
or final decree, to enforce any such judgment or final decree against Mortgagor
and to collect, in any manner provided by law, all moneys adjudged or decreed to
be payable.

 

SECTION 2.03. Rights To Take Possession, Operate and Apply Revenues. (a) If an
Event of Default shall occur and be continuing, Mortgagor shall, upon demand of
Mortgagee, forthwith surrender to Mortgagee actual possession of the Mortgaged
Property and, if and to the extent not prohibited by applicable law, Mortgagee
itself, or by such officers or agents as it may appoint, may then enter and take
possession of all the Mortgaged Property without the appointment of a receiver
or an application therefor, exclude Mortgagor and its agents and

 

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employees wholly therefrom, and have access to the books, papers and accounts of
Mortgagor.

 

(b) If Mortgagor shall for any reason fail to surrender or deliver the Mortgaged
Property or any part thereof after such demand by Mortgagee, Mortgagee may to
the extent not prohibited by applicable law, obtain a judgment or decree
conferring upon Mortgagee the right to immediate possession or requiring
Mortgagor to deliver immediate possession of the Mortgaged Property to
Mortgagee, to the entry of which judgment or decree Mortgagor hereby
specifically consents. Mortgagor will pay to Mortgagee, upon demand, all
reasonable expenses of obtaining such judgment or decree, including reasonable
compensation to Mortgagee’s attorneys and agents with interest thereon at the
rate per annum applicable to overdue amounts under the Credit Agreement as
provided in Section 2.14(d) of the Credit Agreement (the “Interest Rate”); and
all such expenses and compensation shall, until paid, be secured by this
Mortgage.

 

(c) Upon every such entry or taking of possession, Mortgagee may, to the extent
not prohibited by applicable law, hold, store, use, operate, manage and control
the Mortgaged Property, conduct the business thereof and, from time to time,
(i) make all necessary and proper maintenance, repairs, renewals, replacements,
additions, betterments and improvements thereto and thereon, (ii) insure or keep
the Mortgaged Property insured, (iii) manage and operate the Mortgaged Property
and exercise all the rights and powers of Mortgagor to the same extent as
Mortgagor could in its own name or otherwise with respect to the same, or
(iv) enter into any and all agreements with respect to the exercise by others of
any of the powers herein granted Mortgagee, all as may from time to time be
directed or determined by Mortgagee to be in its best interest and Mortgagor
hereby appoints Mortgagee as its true and lawful attorney-in-fact and agent, for
Mortgagor and in its name, place and stead, in any and all capacities, to
perform any of the foregoing acts. Mortgagee may collect and receive all the
Rents, issues, profits and revenues from the Mortgaged Property, including those
past due as well as those accruing thereafter, and, after deducting (i) all
reasonable expenses of taking, holding, managing and operating the Mortgaged
Property (including compensation for the services of all persons employed for
such purposes), (ii) the costs of all such maintenance, repairs, renewals and
replacements, (iii) the costs of insurance, (iv) such taxes, assessments and
other similar charges as Mortgagee may at its option pay, (v) other proper
charges upon the Mortgaged Property or any part thereof and (vi) the
compensation, expenses and disbursements of the attorneys and agents of
Mortgagee, Mortgagee shall apply the remainder of the moneys and proceeds so
received first to the payment of the Mortgagee for the satisfaction of the
Obligations, and second, if there is any surplus, to Mortgagor, subject to the
entitlement of others thereto under applicable law.

 

(d) Whenever, before any sale of the Mortgaged Property under Section 2.06, all
Obligations that are then due shall have been paid and all Events of Default
fully cured, Mortgagee will surrender possession of the Mortgaged Property back
to Mortgagor, its successors or assigns. The same right of taking possession
shall, however, arise again if any subsequent Event of Default shall occur and
be continuing.

 

SECTION 2.04. Right To Cure Mortgagor’s Failure to Perform. Should Mortgagor
fail in the payment, performance or observance of any term, covenant or
condition required

 

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by this Mortgage or the Credit Agreement (with respect to the Mortgaged
Property) when due (after giving effect to any applicable cure or grace period),
Mortgagee may pay, perform or observe the same, and all payments made or costs
or expenses incurred by Mortgagee in connection therewith shall be secured
hereby and shall be, without demand, immediately repaid by Mortgagor to
Mortgagee with interest thereon at the Interest Rate to accrue on any unpaid
amount after demand for repayment is made. Mortgagee, using commercially
reasonable discretion, shall be the judge of the necessity for any such actions
and of the amounts to be paid. Mortgagee is hereby empowered to enter and to
authorize others to enter upon the Premises or the Improvements or any part
thereof for the purpose of performing or observing any such defaulted term,
covenant or condition without having any obligation to so perform or observe and
without thereby becoming liable to Mortgagor, to any person in possession
holding under Mortgagor or to any other person.

 

SECTION 2.05. Right to a Receiver. If an Event of Default shall occur and be
continuing, Mortgagee, upon application to a court of competent jurisdiction,
shall be entitled as a matter of right to the appointment of a receiver to take
possession of and to operate the Mortgaged Property and to collect and apply the
Rents. The receiver shall have all of the rights and powers permitted under the
laws of the state wherein the Mortgaged Property is located. Mortgagor shall pay
to Mortgagee upon demand all reasonable expenses, including receiver’s fees,
reasonable attorney’s fees and disbursements, costs and agent’s compensation
incurred pursuant to the provisions of this Section 2.05; and all such expenses
shall be secured by this Mortgage and shall be, without demand, immediately
repaid by Mortgagor to Mortgagee with interest thereon at the Interest Rate.

 

SECTION 2.06. Foreclosure and Sale. (a) If an Event of Default shall occur and
be continuing, Mortgagee may elect to sell the Mortgaged Property or any part of
the Mortgaged Property by exercise of the power of foreclosure or of sale
granted to Mortgagee by applicable law or this Mortgage. In such case, Mortgagee
may commence a civil action to foreclose this Mortgage, or it may proceed and
sell the Mortgaged Property to satisfy any Obligation. Mortgagee or an officer
appointed by a judgment of foreclosure to sell the Mortgaged Property, may sell
all or such parts of the Mortgaged Property as may be chosen by Mortgagee at the
time and place of sale fixed by it in a notice of sale, either as a whole or in
separate lots, parcels or items as Mortgagee shall deem expedient, and in such
order as it may determine, at public auction to the highest bidder. Mortgagee or
an officer appointed by a judgment of foreclosure to sell the Mortgaged Property
may postpone any foreclosure or other sale of all or any portion of the
Mortgaged Property by public announcement at such time and place of sale, and
from time to time thereafter may postpone such sale by public announcement or
subsequently noticed sale. Without further notice, Mortgagee or an officer
appointed to sell the Mortgaged Property may make such sale at the time fixed by
the last postponement, or may, in its discretion, give a new notice of sale. Any
person, including Mortgagor or Mortgagee or any designee or affiliate thereof,
may purchase at such sale.

 

(b) The Mortgaged Property may be sold subject to unpaid taxes and Permitted
Encumbrances, and, after deducting all costs, fees and expenses of Mortgagee
(including costs of evidence of title in connection with the sale), Mortgagee or
an officer that makes any sale shall apply the proceeds of sale in the manner
set forth in Section 2.08.

 

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(c) Any foreclosure or other sale of less than the whole of the Mortgaged
Property or any defective or irregular sale made hereunder shall not exhaust the
power of foreclosure or of sale provided for herein; and subsequent sales may be
made hereunder until the Obligations have been satisfied, or the entirety of the
Mortgaged Property has been sold.

 

(d) If an Event of Default shall occur and be continuing, Mortgagee may instead
of, or in addition to, exercising the rights described in Section 2.06(a) above
and either with or without entry or taking possession as herein permitted,
proceed by a suit or suits in law or in equity or by any other appropriate
proceeding or remedy (i) to specifically enforce payment of some or all of the
Obligations, or the performance of any term, covenant, condition or agreement of
this Mortgage or any other Loan Document or any other right, or (ii) to pursue
any other remedy available to Mortgagee, all as Mortgagee shall determine most
effectual for such purposes.

 

SECTION 2.07. Other Remedies. (a) In case an Event of Default shall occur and be
continuing, Mortgagee may also exercise, to the extent not prohibited by law,
any or all of the remedies available to a secured party under the UCC.

 

(b) In connection with a sale of the Mortgaged Property or any Personal Property
and the application of the proceeds of sale as provided in Section 2.08,
Mortgagee shall be entitled to enforce payment of and to receive up to the
principal amount of the Obligations, plus all other charges, payments and costs
due under this Mortgage, and to recover a deficiency judgment for any portion of
the aggregate principal amount of the Obligations remaining unpaid, with
interest.

 

SECTION 2.08. Application of Sale Proceeds and Rents. After any foreclosure sale
of all or any of the Mortgaged Property, Mortgagee shall receive and apply the
proceeds of the sale together with any Rents that may have been collected and
any other sums that then may be held by Mortgagee under this Mortgage as
follows:

 

FIRST, to the payment of the costs and expenses of such sale, including
compensation to Mortgagee’s attorneys and agents, and of any judicial
proceedings wherein the same may be made, and of all expenses, liabilities and
advances made or incurred by Mortgagee under this Mortgage, together with
interest at the Interest Rate on all advances made by Mortgagee, including all
taxes or assessments (except any taxes, assessments or other charges subject to
which the Mortgaged Property shall have been sold) and the cost of removing any
Permitted Encumbrance (except any Permitted Encumbrance subject to which the
Mortgaged Property was sold);

 

SECOND, to the Mortgagee for the distribution to the Secured Parties for the
satisfaction of the Obligations owed to the Secured Parties; and

 

THIRD, to the Mortgagor, its successors or assigns, or as a court of competent
jurisdiction may otherwise direct.

 

The Mortgagee shall have absolute discretion as to the time of application of
any such proceeds, moneys or balances in accordance with this Mortgage. Upon any
sale of the Mortgaged Property by the Mortgagee (including pursuant to a power
of sale granted by

 

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statute or under a judicial proceeding), the receipt of the Mortgagee or of the
officer making the sale shall be a sufficient discharge to the purchaser or
purchasers of the Mortgaged Property so sold and such purchaser or purchasers
shall not be obligated to see to the application of any part of the purchase
money paid over to the Mortgagee or such officer or be answerable in any way for
the misapplication thereof.

 

SECTION 2.09. Mortgagor as Tenant Holding Over. If Mortgagor remains in
possession of any of the Mortgaged Property after any foreclosure sale by
Mortgagee, at Mortgagee’s election Mortgagor shall be deemed a tenant holding
over and shall forthwith surrender possession to the purchaser or purchasers at
such sale or be summarily dispossessed or evicted according to provisions of law
applicable to tenants holding over.

 

SECTION 2.10. Waiver of Appraisement, Valuation, Stay, Extension and Redemption
Laws. Mortgagor waives, to the extent not prohibited by law, (i) the benefit of
all laws now existing or that hereafter may be enacted in any way extending the
time for the enforcement or the collection of amounts due under any of the
Obligations or creating or extending a period of redemption from any sale made
in collecting said debt or any other amounts due Mortgagee, (ii) any right to at
any time insist upon, plead, claim or take the benefit or advantage of any law
now or hereafter in force providing for any homestead exemption, stay, statute
of limitations, extension or redemption, or sale of the Mortgaged Property as
separate tracts, units or estates or as a single parcel in the event of
foreclosure or notice of deficiency, and (iii) all rights of redemption, stay of
execution, notice of election to mature or declare due the whole of or each of
the Obligations and marshaling in the event of foreclosure of this Mortgage.

 

SECTION 2.11. Discontinuance of Proceedings. In case Mortgagee shall proceed to
enforce any right, power or remedy under this Mortgage by foreclosure, entry or
otherwise, and such proceedings shall be discontinued or abandoned for any
reason, or shall be determined adversely to Mortgagee, then and in every such
case Mortgagor and Mortgagee shall be restored to their former positions and
rights hereunder, and all rights, powers and remedies of Mortgagee shall
continue as if no such proceeding had been taken.

 

SECTION 2.12. Suits To Protect the Mortgaged Property. Mortgagee shall have
power (a) to institute and maintain suits and proceedings to prevent any
impairment of the Mortgaged Property by any acts that may be unlawful or in
violation of this Mortgage, (b) to preserve or protect its interest in the
Mortgaged Property and in the Rents arising therefrom and (c) to restrain the
enforcement of or compliance with any legislation or other governmental
enactment, rule or order that may be unconstitutional or otherwise invalid if
the enforcement of or compliance with such enactment, rule or order would impair
the security or be prejudicial to the interest of Mortgagee hereunder.

 

SECTION 2.13. Filing Proofs of Claim. In case of any receivership, insolvency,
bankruptcy, reorganization, arrangement, adjustment, composition or other
proceedings affecting Mortgagor, Mortgagee shall, to the extent permitted by
law, be entitled to file such proofs of claim and other documents as may be
necessary or advisable in order to have the claims of Mortgagee allowed in such
proceedings for the Obligations secured by this Mortgage at the date of the
institution of such proceedings and for any interest accrued, late

 

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charges and additional interest or other amounts due or that may become due and
payable hereunder after such date.

 

SECTION 2.14. Possession by Mortgagee. Notwithstanding the appointment of any
receiver, liquidator or trustee of Mortgagor, any of its property or the
Mortgaged Property, Mortgagee shall be entitled, to the extent not prohibited by
law, to remain in possession and control of all parts of the Mortgaged Property
now or hereafter granted under this Mortgage to Mortgagee in accordance with the
terms hereof and applicable law.

 

SECTION 2.15. Waiver. (a) No delay or failure by Mortgagee to exercise any
right, power or remedy accruing upon any breach or Event of Default shall
exhaust or impair any such right, power or remedy or be construed to be a waiver
of any such breach or Event of Default or acquiescence therein; and every right,
power and remedy given by this Mortgage to Mortgagee may be exercised from time
to time and as often as may be deemed expedient by Mortgagee. No consent or
waiver by Mortgagee to or of any breach or Event of Default by Mortgagor in the
performance of the Obligations shall be deemed or construed to be a consent or
waiver to or of any other breach or Event of Default in the performance of the
same or of any other Obligations by Mortgagor hereunder. No failure on the part
of Mortgagee to complain of any act or failure to act or to declare an Event of
Default, irrespective of how long such failure continues, shall constitute a
waiver by Mortgagee of its rights hereunder or impair any rights, powers or
remedies consequent on any future Event of Default by Mortgagor.

 

(b) Even if Mortgagee (i) grants some forbearance or an extension of time for
the payment of any sums secured hereby, (ii) takes other or additional security
for the payment of any sums secured hereby, (iii) waives or does not exercise
some right granted herein or under the Loan Documents, (iv) releases a part of
the Mortgaged Property from this Mortgage, (v) agrees to change some of the
terms, covenants, conditions or agreements of any of the Loan Documents,
(vi) consents to the filing of a map, plat or replat affecting the Premises,
(vii) consents to the granting of an easement or other right affecting the
Premises or (viii) makes or consents to an agreement subordinating Mortgagee’s
lien on the Mortgaged Property hereunder; no such act or omission shall preclude
Mortgagee from exercising any other right, power or privilege herein granted or
intended to be granted in the event of any breach or Event of Default then made
or of any subsequent default; nor, except as otherwise expressly provided in an
instrument executed by Mortgagee, shall this Mortgage be altered thereby. In the
event of the sale or transfer by operation of law or otherwise of all or part of
the Mortgaged Property, Mortgagee is hereby authorized and empowered to deal
with any vendee or transferee with reference to the Mortgaged Property secured
hereby, or with reference to any of the terms, covenants, conditions or
agreements hereof, as fully and to the same extent as it might deal with the
original parties hereto and without in any way releasing or discharging any
liabilities, obligations or undertakings.

 

SECTION 2.16. Waiver of Trial by Jury. To the fullest extent permitted by
applicable law, Mortgagor and Mortgagee each hereby irrevocably and
unconditionally waive trial by jury in any action, claim, suit or proceeding
relating to this Mortgage and for any counterclaim brought therein. To the
fullest extent permitted by applicable law, Mortgagor hereby waives all rights
to interpose any counterclaim in any suit brought by

 

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Mortgagee hereunder and all rights to have any such suit consolidated with any
separate suit, action or proceeding.

 

SECTION 2.17. Remedies Cumulative. No right, power or remedy conferred upon or
reserved to Mortgagee by this Mortgage is intended to be exclusive of any other
right, power or remedy, and each and every such right, power and remedy shall be
cumulative and concurrent and in addition to any other right, power and remedy
given hereunder or now or hereafter existing at law or in equity or by statute.

 

ARTICLE III

 

Miscellaneous

 

SECTION 3.01. Partial Invalidity. In the event any one or more of the provisions
contained in this Mortgage shall for any reason be held to be invalid, illegal
or unenforceable in any respect, such validity, illegality or unenforceability
shall, at the option of Mortgagee, not affect any other provision of this
Mortgage, and this Mortgage shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein or therein.

 

SECTION 3.02. Notices. All notices and communications hereunder shall be in
writing and given to Mortgagor in accordance with the terms of the Credit
Agreement at the address set forth on the first page of this Mortgage and to the
Mortgagee as provided in the Credit Agreement.

 

SECTION 3.03. Successors and Assigns. All of the grants, covenants, terms,
provisions and conditions herein shall run with the Premises and the
Improvements and shall apply to, bind and inure to, the benefit of the permitted
successors and assigns of Mortgagor and the successors and assigns of Mortgagee.

 

SECTION 3.04. Satisfaction and Cancelation. (a) [The security interest granted
to Mortgagee of the Mortgaged Property as security created and consummated by
this Mortgage shall be null and void when all the Obligations have been
indefeasibly paid in full in accordance with the terms of the Loan Documents and
the Lenders have no further commitment to make Loans under the Credit Agreement,
no Letters of Credit are outstanding and the Issuing Bank has no further
obligation to issue Letters of Credit under the Credit Agreement.

 

(b) Upon a sale or financing by Mortgagor of all or any portion of the Mortgaged
Property that is permitted by the Credit Agreement and the application of the
Net Proceeds of such sale or financing in accordance with the terms of the
Credit Agreement, the lien of this Mortgage shall be released from the
applicable portion of the Mortgaged Property. Mortgagor shall give the Mortgagee
reasonable written notice of any sale or financing of the Mortgaged Property
prior to the closing of such sale or financing.

 

(c) In connection with any termination or release pursuant to paragraph (a), the
Mortgage shall be marked “satisfied” by the Mortgagee, and this Mortgage shall
be canceled

 

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of record at the request and at the expense of the Mortgagor. Mortgagee shall
execute any documents reasonably requested by Mortgagor to accomplish the
foregoing or to accomplish any release contemplated by this Section 3.04 and
Mortgagor will pay all costs and expenses, including reasonable attorneys’ fees,
disbursements and other charges, incurred by Mortgagee in connection with the
preparation and execution of such documents.]

 

SECTION 3.05. Definitions. As used in this Mortgage, the singular shall include
the plural as the context requires and the following words and phrases shall
have the following meanings: (a) ”including” shall mean “including but not
limited to”; (b) ”provisions” shall mean “provisions, terms, covenants and/or
conditions”; (c) ”lien” shall mean “lien, charge, encumbrance, security
interest, mortgage or deed of trust”; (d) ”obligation” shall mean “obligation,
duty, covenant and/or condition”; and (e) ”any of the Mortgaged Property” shall
mean “the Mortgaged Property or any part thereof or interest therein”. Any act
that Mortgagee is permitted to perform hereunder may be performed at any time
and from time to time by Mortgagee or any person or entity designated by
Mortgagee. Any act that is prohibited to Mortgagor hereunder is also prohibited
to all lessees of any of the Mortgaged Property. Each appointment of Mortgagee
as attorney-in-fact for Mortgagor under the Mortgage is irrevocable, with power
of substitution and coupled with an interest. Subject to the applicable
provisions hereof, Mortgagee has the right to refuse to grant its consent,
approval or acceptance or to indicate its satisfaction, in its sole discretion,
whenever such consent, approval, acceptance or satisfaction is required
hereunder.

 

SECTION 3.06. Multisite Real Estate Transaction. Mortgagor acknowledges that
this Mortgage is one of a number of Other Mortgages and Security Documents that
secure the Obligations. Mortgagor agrees that the lien of this Mortgage shall be
absolute and unconditional and shall not in any manner be affected or impaired
by any acts or omissions whatsoever of Mortgagee, and without limiting the
generality of the foregoing, the lien hereof shall not be impaired by any
acceptance by the Mortgagee of any security for or guarantees of any of the
Obligations hereby secured, or by any failure, neglect or omission on the part
of Mortgagee to realize upon or protect any Obligation or indebtedness hereby
secured or any collateral security therefor including the Other Mortgages and
other Security Documents. The lien hereof shall not in any manner be impaired or
affected by any release (except as to the property released), sale, pledge,
surrender, compromise, settlement, renewal, extension, indulgence, alteration,
changing, modification or disposition of any of the Obligations secured or of
any of the collateral security therefor, including the Other Mortgages and other
Security Documents or of any guarantee thereof, and Mortgagee may at its
discretion foreclose, exercise any power of sale, or exercise any other remedy
available to it under any or all of the Other Mortgages and other Security
Documents without first exercising or enforcing any of its rights and remedies
hereunder. Such exercise of Mortgagee’s rights and remedies under any or all of
the Other Mortgages and other Security Documents shall not in any manner impair
the indebtedness hereby secured or the lien of this Mortgage and any exercise of
the rights or remedies of Mortgagee hereunder shall not impair the lien of any
of the Other Mortgages and other Security Documents or any of Mortgagee’s rights
and remedies thereunder. Mortgagor specifically consents and agrees that
Mortgagee may exercise its rights and remedies hereunder and under the Other
Mortgages and other Security Documents separately or concurrently and in any
order that it may deem appropriate and waives any rights of subrogation.

 

18

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

SECTION 3.07. No Oral Modification. This Mortgage may not be changed or
terminated orally. Any agreement made by Mortgagor and Mortgagee after the date
of this Mortgage relating to this Mortgage shall be superior to the rights of
the holder of any intervening or subordinate Mortgage, lien or encumbrance.

 

ARTICLE IV

 

Particular Provisions

 

This Mortgage is subject to the following provisions relating to the particular
laws of the state wherein the Premises are located:

 

SECTION 4.01. Applicable Law; Certain Particular Provisions. This Mortgage shall
be governed by and construed in accordance with the internal law of the state
where the Mortgaged Property is located, except that Mortgagor expressly
acknowledges that by their terms, the Credit Agreement and other Loan Documents
(aside from those Other Mortgages to be recorded outside New York) shall be
governed by the internal law of the State of New York, without regard to
principles of conflict of law. Mortgagor and Mortgagee agree to submit to
jurisdiction and the laying of venue for any suit on this Mortgage in the state
where the Mortgaged Property is located. The terms and provisions set forth in
Appendix A attached hereto are hereby incorporated by reference as though fully
set forth herein. In the event of any conflict between the terms and provisions
contained in the body of this Mortgage and the terms and provisions set forth in
Appendix A, the terms and provisions set forth in Appendix A shall govern and
control.

 

19

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IN WITNESS WHEREOF, this Mortgage has been duly executed and delivered to
Mortgagee by Mortgagor on the date of the acknowledgment attached hereto.

 

[BLOCKBUSTER INC.]

[BLOCKBUSTER DISTRIBUTION, INC.],

a Delaware corporation,

   

by:

 

 

 

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

       

Name:

Title:

 

Attest:

by:

 

 

 

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

   

Name:

Title:

 

[Corporate Seal]

 

20

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

[ADD LOCAL FORM OF ACKNOWLEDGMENT]

 

21

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

Exhibit A

To Mortgage

 

Description of the Land

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

Appendix A

To Mortgage

 

Local Law Provisions

 

1. Notwithstanding anything else contained in this Mortgage, (i) the maximum
principal debt or obligation which is, or under any contingency may be secured
at the date of execution hereof or any time thereafter by this Mortgage is
[$ {insert approximate fair market value of Mortgaged Property}] (the “Secured
Amount”), (ii) this Mortgage shall also secure amounts other than the principal
debt or obligation to the extent permitted by the Tax Law without payment of
additional recording tax and (iii) so long as the aggregate amount of the
Obligations exceeds the Secured Amount, any payments and repayments of the
Obligations shall not be deemed to be applied against, or to reduce, the Secured
Amount.3

 

 

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

 

3 Applicable only in mortgage tax states. This is the New York language—local
counsel to advise whether it needs to be modified in other mortgage tax states.

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

EXHIBIT B

 

Form of Security Agreement

 

EXECUTION VERSION

 

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

 

 

SECURITY AGREEMENT

 

dated as of

 

August 8, 2005,

 

among

 

BLOCKBUSTER INC.,

 

THE SUBSIDIARIES OF BLOCKBUSTER INC.

IDENTIFIED HEREIN

 

and

 

JPMORGAN CHASE BANK, N.A.,

 

as Collateral Agent

 

 

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

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

TABLE OF CONTENTS

 

ARTICLE I      Definitions     

SECTION 1.01. Credit Agreement

   1

SECTION 1.02. Other Defined Terms

   1 ARTICLE II      Pledge of Debt Securities     

SECTION 2.01. Pledge

   5

SECTION 2.02. Delivery of the Pledged Collateral

   5

SECTION 2.03. Representations, Warranties and Covenants

   6

SECTION 2.04. Registration in Nominee Name; Denominations

   7

SECTION 2.05. Voting Rights; Interest

   7 ARTICLE III      Security Interests in Personal Property     

SECTION 3.01. Security Interest

   9

SECTION 3.02. Representations and Warranties

   11

SECTION 3.03. Covenants

   13

SECTION 3.04. Other Actions

   16

SECTION 3.05. Covenants Regarding Patent, Trademark and Copyright Collateral

   18 ARTICLE IV      Remedies     

SECTION 4.01. Remedies Upon Default

   20

SECTION 4.02. Application of Proceeds

   22

SECTION 4.03. Grant of License to Use Intellectual Property

   22

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

SECTION 4.04. Securities Act

   23 ARTICLE V      Indemnity, Subrogation and Subordination     

SECTION 5.01. Indemnity and Subrogation

   23

SECTION 5.02. Contribution and Subrogation

   23

SECTION 5.03. Subordination

   24 ARTICLE VI      Miscellaneous     

SECTION 6.01. Notices

   24

SECTION 6.02. Waivers; Amendment

   24

SECTION 6.03. Collateral Agent’s Fees and Expenses; Indemnification

   25

SECTION 6.04. Successors and Assigns

   26

SECTION 6.05. Survival of Agreement

   26

SECTION 6.06. Counterparts; Effectiveness; Several Agreement

   26

SECTION 6.07. Severability

   26

SECTION 6.08. Right of Set-Off

   27

SECTION 6.09. Governing Law; Jurisdiction; Consent to Service of Process

   27

SECTION 6.10. WAIVER OF JURY TRIAL

   28

SECTION 6.11. Headings

   28

SECTION 6.12. Security Interest Absolute

   28

SECTION 6.13. Termination or Release

   28

SECTION 6.14. Additional Subsidiaries

   29

SECTION 6.15. Collateral Agent Appointed Attorney-in-Fact

   29

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

Schedules

   

Schedule I

 

Subsidiary Parties

Schedule II

 

Pledged Debt Securities

Schedule III

 

Patents, Trademarks and Copyrights

Schedule IV

 

Commercial Tort Claims

Schedule V

 

Insurance Requirements

Exhibits

   

Exhibit I

 

Form of Supplement

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

SECURITY AGREEMENT dated as of August 8, 2005 (this “Agreement”), among
BLOCKBUSTER INC. (the “Borrower”), the Subsidiaries of the Borrower identified
herein and JPMORGAN CHASE BANK, N.A., as Collateral Agent (the “Collateral
Agent”).

 

Reference is made to the Credit Agreement dated as of August 20, 2004, as
amended by the First Amendment dated as of May 4, 2005 and the Second Amendment
and Waiver dated as of August 8, 2005 (as further amended, supplemented or
otherwise modified from time to time, the “Credit Agreement”), among the
Borrower, the Lenders party thereto and JPMorgan Chase Bank, N.A., as
Administrative Agent and Collateral Agent for such Lenders. The Lenders have
extended, and have agreed to further extend, credit to the Borrower subject to
the terms and conditions set forth in the Credit Agreement. The obligations of
the Lenders to extend such credit are conditioned upon, among other things, the
execution and delivery of this Agreement. The Subsidiary Parties are affiliates
of the Borrower, will derive substantial benefits from the continued extension
of credit to the Borrower pursuant to the Credit Agreement and are willing to
execute and deliver this Agreement in order to induce the Lenders to further
extend such credit. Accordingly, the parties hereto agree as follows:

 

ARTICLE I

 

Definitions

 

SECTION 1.01. Credit Agreement. (a) Capitalized terms used in this Agreement and
not otherwise defined herein have the meanings specified in the Credit
Agreement. All terms defined in the New York UCC and not defined in this
Agreement have the meanings specified therein; the term “instrument” shall have
the meaning specified in Article 9 of the New York UCC.

 

(b) The rules of construction specified in Sections 1.03 and 1.04 of the Credit
Agreement also apply to this Agreement.

 

SECTION 1.02. Other Defined Terms. As used in this Agreement, the following
terms have the meanings specified below:

 

“Account Debtor” means any Person who is or who may become obligated to any
Grantor under, with respect to, or on account of, an Account.

 

“Agreement” has the meaning assigned to term in the preliminary statement of
this Agreement.

 

“Article 9 Collateral” has the meaning assigned to such term in Section 3.01.

 

“Claiming Party” has the meaning assigned to such term in Section 5.02.

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

“Collateral” means Article 9 Collateral and Pledged Collateral.

 

“Contributing Party” has the meaning assigned to such term in Section 5.02.

 

“Copyright License” means any written agreement, now or hereafter in effect,
granting any right to any third party under any Copyright now or hereafter owned
by any Grantor or that such Grantor otherwise has the right to license, or
granting any right to any Grantor under any Copyright now or hereafter owned by
any third party, and all rights of such Grantor under any such agreement.

 

“Copyright” means all of the following now owned or hereafter acquired by any
Grantor: (a) all copyright rights in any work subject to the copyright laws of
the United States, whether as author, assignee, transferee or otherwise, and
(b) all registrations and applications for registration of any such copyright in
the United States, including registrations, recordings, supplemental
registrations and pending applications for registration in the United States
Copyright Office, including those listed on Schedule III, but not including any
of the four copyrights listed on Schedule III as being owned of record by
Blockbuster Entertainment Corporation until such time as a Grantor becomes a
record owner of such copyrights as contemplated by Section 3.03(n).

 

“Credit Agreement” has the meaning assigned to such term in the preliminary
statement of this Agreement.

 

“Federal Securities Laws” has the meaning assigned to such term in Section 4.04.

 

“General Intangibles” means all choses in action and causes of action and all
other intangible personal property of every kind and nature (other than
Accounts) now owned or hereafter acquired by any Grantor, including corporate or
other business records, indemnification claims, contract rights (including
rights under leases, whether entered into as lessor or lessee, Hedging
Agreements and other agreements), Intellectual Property, goodwill,
registrations, franchises, tax refund claims and any letter of credit,
guarantee, claim, security interest or other security held by or granted to any
Grantor to secure payment by an Account Debtor of any of the Accounts.

 

“Grantors” means the Borrower and the Subsidiary Parties.

 

“Intellectual Property” means all intellectual and similar property of every
kind and nature now owned or hereafter acquired by any Grantor, including
inventions, designs, Patents, Copyrights, Licenses, Trademarks, trade secrets,
confidential or proprietary technical and business information, know-how,
show-how or other data or information, software and databases and all
embodiments or fixations thereof and related documentation, registrations and
franchises, and all additions, improvements and accessions to, and books and
records describing or used in connection with, any of the foregoing.

 

2

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

“License” means any Patent License, Trademark License, Copyright License or
other license or sublicense agreement to which any Grantor is a party.

 

“Loan Document Obligations” means (a) the due and punctual payment by the
Borrower of (i) the principal of and interest (including interest accruing
during the pendency of any bankruptcy, insolvency, receivership or other similar
proceeding, regardless of whether allowed or allowable in such proceeding) on
the Loans, when and as due, whether at maturity, by acceleration, upon one or
more dates set for prepayment or otherwise, (ii) each payment required to be
made by the Borrower under the Credit Agreement in respect of any Letter of
Credit, when and as due, including payments in respect of reimbursement of
disbursements, interest thereon and obligations to provide cash collateral, and
(iii) all other monetary obligations of the Borrower to any of the Secured
Parties under the Credit Agreement and each of the other Loan Documents,
including obligations to pay fees, expense reimbursement obligations and
indemnification obligations, whether primary, secondary, direct, contingent,
fixed or otherwise (including monetary obligations incurred during the pendency
of any bankruptcy, insolvency, receivership or other similar proceeding,
regardless of whether allowed or allowable in such proceeding), (b) the due and
punctual performance of all other obligations of the Borrower under or pursuant
to the Credit Agreement and each of the other Loan Documents, and (c) the due
and punctual payment and performance of all the obligations of each other Loan
Party under or pursuant to this Agreement and each of the other Loan Documents.

 

“New York UCC” means the Uniform Commercial Code as from time to time in effect
in the State of New York.

 

“Obligations” means (a) Loan Document Obligations and (b) the due and punctual
payment and performance of all obligations of each Loan Party under each Hedging
Agreement that (i) is in effect on the Second Amendment Effective Date with a
counterparty that was a Lender or an Affiliate of a Lender at the time each
Hedging Agreement was entered into or (ii) is entered into after the Second
Amendment Effective Date with any counterparty that is a Lender or an Affiliate
of a Lender at the time such Hedging Agreement is entered into.

 

“Patent License” means any written agreement, now or hereafter in effect,
granting to any third party any right to make, use or sell any invention on
which a Patent, now or hereafter owned by any Grantor or that any Grantor
otherwise has the right to license, is in existence, or granting to any Grantor
any right to make, use or sell any invention on which a Patent, now or hereafter
owned by any third party, is in existence, and all rights of any Grantor under
any such agreement.

 

“Patents” means all of the following now owned or hereafter acquired by any
Grantor: (a) all letters patent of the United States, all registrations and
recordings thereof, and all applications for letters patent of the United
States, including registrations, recordings and pending applications in the
United States Patent and Trademark Office, including those listed on
Schedule III, and (b) all reissues, continuations, divisions,
continuations-in-part, renewals or extensions thereof, and the inventions
disclosed or

 

3

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

claimed therein, including the right to make, use and/or sell the inventions
disclosed or claimed therein.

 

“Pledged Collateral” has the meaning assigned to such term in Section 2.01.

 

“Pledged Securities” means any promissory notes or other debt securities now or
hereafter included in the Pledged Collateral, including all certificates,
instruments or other documents representing or evidencing any Pledged
Collateral.

 

“Proceeds” has the meaning specified in Section 9-102 of the New York UCC.

 

“Secured Parties” means (a) the Lenders, (b) the Collateral Agent, (c) the
Issuing Bank, (d) each counterparty that is a Lender or an Affiliate of a Lender
to any Hedging Agreement with a Loan Party the obligations under which
constitute Obligations, (e) the beneficiaries of each indemnification obligation
undertaken by any Loan Party under any Loan Document and (f) the successors and
assigns of each of the foregoing.

 

“Security Interest” has the meaning assigned to such term in Section 4.01.

 

“Subsidiary Parties” means (a) the Subsidiary Loan Parties identified on
Schedule I and (b) each other Subsidiary Loan Party that becomes a party to this
Agreement as a Subsidiary Party after the Second Amendment Effective Date.

 

“Trademark License” means any written agreement, now or hereafter in effect,
granting to any third party any right to use any Trademark now or hereafter
owned by any Grantor or that any Grantor otherwise has the right to license, or
granting to any Grantor any right to use any Trademark now or hereafter owned by
any third party, and all rights of any Grantor under any such agreement.

 

“Trademarks” means all of the following now owned or hereafter acquired by any
Grantor: (a) all United States trademarks, service marks, trade names, corporate
names, company names, business names, fictitious business names, trade styles,
trade dress, logos, other source or business identifiers, designs and general
intangibles of like nature, now existing or hereafter adopted or acquired, all
registrations and recordings thereof, and all registration and recording
applications filed in the United States in connection therewith, including
registrations and registration applications in the United States Patent and
Trademark Office or any similar offices in any State of the United States, and
all extensions or renewals thereof, including those listed on Schedule III,
(b) all goodwill associated therewith or symbolized thereby and (c) all other
assets, rights and interests that uniquely reflect or embody such goodwill.

 

4

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

ARTICLE II

 

Pledge of Debt Securities

 

SECTION 2.01. Pledge. As security for the payment or performance, as the case
may be, in full of the Obligations, each Grantor hereby assigns and pledges to
the Collateral Agent, its successors and assigns, for the ratable benefit of the
Secured Parties, and hereby grants to the Collateral Agent, its successors and
assigns, for the ratable benefit of the Secured Parties, a security interest in,
all of such Grantor’s right, title and interest in, to and under (a)(i) the debt
securities listed opposite the name of such Grantor on Schedule II, (ii) any
debt securities in the future issued to such Grantor and (iii) the promissory
notes and any other instruments evidencing such debt securities, (b) all other
property that may be delivered to and held by the Collateral Agent pursuant to
the terms of this Section 2.01 or Section 2.02, (c) subject to Section 2.05, all
payments of principal or interest, cash, instruments and other property from
time to time received, receivable or otherwise distributed in respect of, in
exchange for or upon the conversion of, and all other Proceeds received in
respect of, the securities referred to in clause (a) above, (d) subject to
Section 2.05, all rights and privileges of such Grantor with respect to the
securities and other property referred to in clauses (a), (b) and (c) above, and
(e) all Proceeds of any of the foregoing (the items referred to in clauses
(a) through (e) above being collectively referred to as the “Pledged
Collateral”).

 

TO HAVE AND TO HOLD the Pledged Collateral, together with all right, title,
interest, powers, privileges and preferences pertaining or incidental thereto,
unto the Collateral Agent, its successors and assigns, for the ratable benefit
of the Secured Parties, forever; subject, however, to the terms, covenants and
conditions hereinafter set forth.

 

SECTION 2.02. Delivery of the Pledged Collateral. (a) Subject to Sections
3.03(e) and 3.04(a), each Grantor agrees promptly to deliver or cause to be
delivered to the Collateral Agent any and all Pledged Securities.

 

(b) Each Grantor will cause any Indebtedness for borrowed money in excess of
$500,000 owed to such Grantor by any Person to be evidenced by a duly executed
promissory note that is pledged and delivered to the Collateral Agent pursuant
to the terms hereof.

 

(c) Upon delivery to the Collateral Agent, (i) any Pledged Securities shall be
accompanied by instruments of transfer satisfactory to the Collateral Agent and
by such other instruments and documents as the Collateral Agent may reasonably
request and (ii) all other property comprising part of the Pledged Collateral
shall be accompanied by proper instruments of assignment duly executed by the
applicable Grantor and such other instruments or documents as the Collateral
Agent may reasonably request. Each delivery of Pledged Securities shall be
accompanied by a schedule describing the securities, which schedule shall be
attached hereto as Schedule II and made a part hereof; provided that failure to
attach any such schedule hereto shall not affect the validity of such pledge of
such Pledged

 

5

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

Securities. Each schedule so delivered shall supplement any prior schedules so
delivered.

 

SECTION 2.03. Representations, Warranties and Covenants. The Grantors jointly
and severally represent, warrant and covenant to and with the Collateral Agent,
for the benefit of the Secured Parties, that:

 

(a) Schedule II correctly sets forth all debt securities and promissory notes
required to be pledged as of the Second Amendment Effective Date;

 

(b) any Pledged Security entered into after the Second Amendment Effective Date
in excess of $500,000 has been duly and validly authorized and issued by the
issuer thereof and is a legal, valid and binding obligation of the issuer
thereof;

 

(c) except for the security interests granted hereunder, each of the Grantors
(i) is and, subject to any transfers made in compliance with the Credit
Agreement, will continue to be the direct owner, beneficially and of record, of
the Pledged Securities indicated on Schedule II as owned by such Grantor,
(ii) holds such Pledged Securities free and clear of all Liens, other than Liens
created by this Agreement, Permitted Encumbrances and transfers made in
compliance with the Credit Agreement, (iii) will make no assignment, pledge,
hypothecation or transfer of, or create or permit to exist any security interest
in or other Lien on, the Pledged Collateral, other than Liens created by this
Agreement, other Liens permitted under Section 6.02 of the Credit Agreement,
including Permitted Encumbrances, and transfers made in compliance with the
Credit Agreement, and (iv) will defend its title or interest thereto or therein
against any and all Liens (other than the Lien created by this Agreement and
other Liens permitted under Section 6.02 of the Credit Agreement, including
Permitted Encumbrances), however, arising, of all Persons whomsoever;

 

(d) except for restrictions and limitations imposed by the Loan Documents or
securities laws generally, the Pledged Collateral is and will continue to be
freely transferable and assignable, and none of the Pledged Collateral is or
will be subject to any contractual restriction of any nature that might
prohibit, impair, delay or otherwise affect the pledge of such Pledged
Collateral hereunder, the sale or disposition thereof pursuant hereto or the
exercise by the Collateral Agent of rights and remedies hereunder;

 

(e) each of the Grantors has the power and authority to pledge the Pledged
Collateral pledged by it hereunder in the manner hereby done or contemplated;

 

(f) no consent or approval of any Governmental Authority, any securities
exchange or any other Person was or is necessary to the validity of the pledge
effected hereby (other than such as have been obtained and are in full force and
effect);

 

6

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

(g) by virtue of the execution and delivery by the Grantors of this Agreement,
when any Pledged Securities are delivered to the Collateral Agent in accordance
with this Agreement, the Collateral Agent will obtain a legal, valid and
perfected first priority lien upon and security interest in such Pledged
Securities as security for the payment and performance of the Obligations; and

 

(h) the pledge effected hereby is effective to vest in the Collateral Agent, for
the benefit of the Secured Parties, the rights of the Collateral Agent granted
hereunder in the Pledged Collateral as set forth herein.

 

SECTION 2.04. Registration in Nominee Name; Denominations. The Collateral Agent,
on behalf of the Secured Parties, shall have the right (in its sole and absolute
discretion) to hold the Pledged Securities in its own name as pledgee, the name
of its nominee (as pledgee or as sub-agent) or the name of the applicable
Grantor, endorsed or assigned in blank or in favor of the Collateral Agent. Each
Grantor will promptly give to the Collateral Agent copies of any notices or
other communications received by it with respect to Pledged Securities
registered in the name of such Grantor.

 

SECTION 2.05. Voting Rights; Interest. (a) Unless and until an Event of Default
shall have occurred and be continuing and the Collateral Agent shall have
notified the Grantors that their rights under this Section 2.05 are being
suspended:

 

(i) Each Grantor shall be entitled to exercise any and all voting and/or other
consensual rights and powers inuring to an owner of Pledged Securities or any
part thereof for any purpose consistent with the terms of this Agreement, the
Credit Agreement and the other Loan Documents; provided that after the
occurrence of an Event of Default and during its continuance such rights and
powers shall not be exercised in any manner that could reasonably be expected to
materially and adversely affect the rights inuring to a holder of any Pledged
Securities or the rights and remedies of any of the Collateral Agent or the
other Secured Parties under this Agreement or the Credit Agreement or any other
Loan Document or the ability of the Secured Parties to exercise the same.

 

(ii) The Collateral Agent shall execute and deliver to each Grantor, or cause to
be executed and delivered to such Grantor, all such proxies, powers of attorney
and other instruments as such Grantor may reasonably request for the purpose of
enabling such Grantor to exercise the voting and/or consensual rights and powers
it is entitled to exercise pursuant to subparagraph (i) above.

 

(iii) Each Grantor shall be entitled to receive and retain any and all interest,
principal and other distributions paid on or distributed in respect of the
Pledged Securities to the extent and only to the extent that such interest,
principal and other distributions are paid or distributed in accordance with,
the terms and conditions of the Credit Agreement, the other Loan Documents and
applicable laws; provided that any noncash interest, principal or other noncash
distributions that would constitute Pledged Securities, whether received in
exchange for Pledged Securities, any part thereof, or in redemption thereof, or
as a result of any

 

7

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

merger, consolidation, acquisition or other exchange of assets to which such
issuer may be a party or otherwise, shall be and become part of the Pledged
Collateral, and, if received by any Grantor, shall not be commingled by such
Grantor with any of its other funds or property but shall be held separate and
apart therefrom, shall be held in trust for the benefit of the Collateral Agent
and shall be forthwith delivered to the Collateral Agent in the same form as so
received (with any necessary endorsement).

 

(b) Upon the occurrence and during the continuance of an Event of Default, after
the Collateral Agent shall have notified the Grantors of the suspension of their
rights under paragraph (a)(iii) of this Section 2.05, then all rights of any
Grantor to interest, principal or other distributions that such Grantor is
authorized to receive pursuant to paragraph (a)(iii) of this Section 2.05 shall
cease, and all such rights shall thereupon become vested in the Collateral
Agent, which shall have the sole and exclusive right and authority to receive
and retain such interest, principal or other distributions. All interest,
principal or other distributions received by any Grantor contrary to the
provisions of this Section 2.05 shall be held in trust for the benefit of the
Collateral Agent, shall be segregated from other property or funds of such
Grantor and shall be forthwith delivered to the Collateral Agent upon demand in
the same form as so received (with any necessary endorsement). Any and all money
and other property paid over to or received by the Collateral Agent pursuant to
the provisions of this paragraph (b) shall be retained by the Collateral Agent
in an account to be established by the Collateral Agent upon receipt of such
money or other property and shall be applied in accordance with the provisions
of Section 4.02. After all Events of Default have been cured or waived and the
Borrower has delivered to the Collateral Agent a certificate to that effect, the
Collateral Agent shall, promptly repay to each Grantor (without interest) all
interest, principal or other distributions that such Grantor would otherwise be
permitted to retain pursuant to the terms of paragraph (a)(iii) of this
Section 2.05 and that remain in such account.

 

(c) Upon the occurrence and during the continuance of an Event of Default, after
the Collateral Agent shall have notified the Grantors of the suspension of their
rights under paragraph (a)(i) of this Section 2.05, then all rights of any
Grantor to exercise the voting and consensual rights and powers it is entitled
to exercise pursuant to paragraph (a)(i) of this Section 2.05, and the
obligations of the Collateral Agent under paragraph (a)(ii) of this
Section 2.05, shall cease, and all such rights shall thereupon become vested in
the Collateral Agent, which shall have the sole and exclusive right and
authority to exercise such voting and consensual rights and powers; provided
that, unless otherwise directed by the Required Lenders, the Collateral Agent
shall have the right from time to time following and during the continuance of
an Event of Default to permit the Grantors to exercise such rights.

 

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(d) Any notice given by the Collateral Agent to the Grantors suspending their
rights under paragraph (a) of this Section 2.05 (i) may be given by facsimile if
promptly confirmed in writing pursuant to the Credit Agreement, (ii) may be
given to one or more of the Grantors at the same or different times and
(iii) may suspend the rights of the Grantors under paragraph (a)(i) or
paragraph (a)(iii) in part without suspending all such rights (as specified by
the Collateral Agent in its sole and absolute discretion) and without waiving or
otherwise affecting the Collateral Agent’s rights to give additional notices
from time to time suspending other rights so long as an Event of Default has
occurred and is continuing.

 

ARTICLE III

 

Security Interests in Personal Property

 

SECTION 3.01. Security Interest. (a) As security for the payment or performance,
as the case may be, in full of the Obligations, each Grantor hereby assigns and
pledges to the Collateral Agent, its successors and assigns, for the benefit of
the Secured Parties, and hereby grants to the Collateral Agent, its successors
and assigns, for the benefit of the Secured Parties, a security interest (the
“Security Interest”) in, all right, title or interest in or to any and all of
the following assets and properties now owned or at any time hereafter acquired
by such Grantor or in which such Grantor now has or at any time in the future
may acquire any right, title or interest (collectively, the “Article 9
Collateral”):

 

(i) all Accounts;

 

(ii) all Chattel Paper;

 

(iii) all Deposit Accounts;

 

(iv) all Documents;

 

(v) all Equipment;

 

(vi) all General Intangibles;

 

(vii) all Instruments;

 

(viii) all Inventory;

 

(ix) all Investment Property;

 

(x) Letter-of-Credit rights;

 

(xi) Commercial Tort Claims as described in Schedule IV;

 

(xii) all books and records pertaining to the Article 9 Collateral; and

 

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(xiii) to the extent not otherwise included, all Proceeds and products of any
and all of the foregoing and all collateral security and guarantees given by any
Person with respect to any of the foregoing.

 

(b) Each Grantor hereby irrevocably authorizes the Collateral Agent at any time
and from time to time to file in any relevant jurisdiction any initial financing
statements (including fixture filings) with respect to the Article 9 Collateral
or any part thereof and amendments thereto that (i) indicate the Collateral as
“all assets” of such Grantor or words of similar effect as being of an equal or
lesser scope or with greater detail, and (ii) contain the information required
by Article 9 of the Uniform Commercial Code of each applicable jurisdiction for
the filing of any financing statement or amendment, including (a) whether such
Grantor is an organization, the type of organization and any organizational
identification number issued to such Grantor and (b) in the case of a financing
statement filed as a fixture filing or covering Article 9 Collateral
constituting minerals or the like to be extracted or timber to be cut, a
sufficient description of the real property to which such Article 9 Collateral
relates. Each Grantor agrees to provide such information to the Collateral Agent
promptly upon request.

 

(c) Notwithstanding anything herein to the contrary, in no event shall the
security interest granted hereunder attach to any contract or agreement to which
a Grantor is a party or any of its rights or interests thereunder if and for so
long as the grant of such security interest shall constitute or result in
(i) the unenforceability of any right of the Grantor therein or (ii) in a breach
or termination pursuant to the terms of, or a default under, any such contract
or agreement (other than to the extent that any such term would be rendered
ineffective pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the New York
UCC or any other applicable law or principles of equity), provided, however,
that such security interest shall attach immediately at such time as the
condition causing such unenforceability shall be remedied and, to the extent
severable, shall attach immediately to any portion of such contract or agreement
that does not result in any of the consequences specified in (i) or
(ii) including, without limitation, any proceeds of such contract or agreement.

 

(d) Notwithstanding the foregoing, the Article 9 Collateral shall not include
(a) any Pledged Collateral or (b) any Collateral (as defined in the Collateral
Agreement).

 

Each Grantor also ratifies its authorization for the Collateral Agent to file in
any relevant jurisdiction any initial financing statements or amendments thereto
if filed prior to the date hereof.

 

The Collateral Agent is further authorized to file with the United States Patent
and Trademark Office or United States Copyright Office (or any successor office)
such documents as may be necessary or advisable for the purpose of perfecting,

 

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confirming, continuing, enforcing or protecting the Security Interest granted by
each Grantor, without the signature of any Grantor, and naming any Grantor or
the Grantors as debtors and the Collateral Agent as secured party.

 

(e) The Security Interest is granted as security only and shall not subject the
Collateral Agent or any other Secured Party to, or in any way alter or modify,
any obligation or liability of any Grantor with respect to or arising out of the
Article 9 Collateral.

 

SECTION 3.02. Representations and Warranties. The Grantors jointly and severally
represent and warrant to the Collateral Agent and the Secured Parties that:

 

(a) Each Grantor has good and valid rights in and title to the Article 9
Collateral with respect to which it has purported to grant a Security Interest
hereunder and has full power and authority to grant to the Collateral Agent the
Security Interest in such Article 9 Collateral pursuant hereto and to execute,
deliver and perform its obligations in accordance with the terms of this
Agreement, without the consent or approval of any other Person other than any
consent or approval that has been obtained.

 

(b) The Perfection Certificate delivered in connection with the Second Amendment
has been duly prepared, completed and executed and the information set forth
therein, including the exact legal name of each Grantor, is correct and complete
as of the Second Amendment Effective Date. The Uniform Commercial Code financing
statements (including fixture filings, as applicable) or other appropriate
filings, recordings or registrations prepared by the Collateral Agent based upon
the information provided to the Collateral Agent in such Perfection Certificate
for filing in each governmental, municipal or other office specified in part
2(c) of Schedule 1 to such Perfection Certificate (or specified by notice from
the Borrower to the Collateral Agent after the Second Amendment Effective Date
in the case of filings, recordings or registrations required by Section 5.03(a)
or 5.12 of the Credit Agreement), are all the filings, recordings and
registrations (other than filings required to be made in the United States
Patent and Trademark Office and the United States Copyright Office in order to
perfect the Security Interest in Article 9 Collateral consisting of United
States Patents, Trademarks and Copyrights) that are necessary to publish notice
of and protect the validity of and to establish a legal, valid and first
priority perfected security interest in favor of the Collateral Agent (for the
benefit of the Secured Parties) in respect of all Article 9 Collateral in which
the Security Interest may be perfected by filing, recording or registration in
the United States (or any political subdivision thereof) and its territories and
possessions, and no further or subsequent filing, refiling, recording,
rerecording, registration or reregistration is necessary in any such
jurisdiction, except as provided under applicable law with respect to the filing
of continuation statements. Each Grantor represents and warrants that a fully
executed agreement in the form hereof and

 

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containing a description of all Article 9 Collateral consisting of Patents,
Trademarks and Copyrights has been received and recorded with respect to United
States Patents and United States registered Trademarks (and Trademarks for which
United States registration applications are pending) and United States
registered Copyrights by the United States Patent and Trademark Office and the
United States Copyright Office pursuant to 35 U.S.C. § 261, 15 U.S.C. § 1060 or
17 U.S.C. § 205 and the regulations thereunder, as applicable, to protect the
validity of and to establish a legal, valid and perfected security interest in
favor of the Collateral Agent (for the benefit of the Secured Parties) in
respect of all Article 9 Collateral consisting of Patents, Trademarks and
Copyrights in which a security interest may be perfected by filing, recording or
registration in the United States (or any political subdivision thereof) and its
territories and possessions, and no further or subsequent filing, refiling,
recording, rerecording, registration or reregistration is necessary (other than
such actions as are necessary to perfect the Security Interest with respect to
any Article 9 Collateral consisting of Patents, Trademarks and Copyrights (or
registration or application for registration thereof) acquired or developed
after the date hereof).

 

(c) The Security Interest constitutes (i) a legal and valid security interest in
all the Article 9 Collateral securing the payment and performance of the
Obligations, (ii) subject to the filings described in Section 3.02(b), a
perfected security interest in all Article 9 Collateral in which a security
interest may be perfected by filing, recording or registering a financing
statement or analogous document in the United States (or any political
subdivision thereof) and its territories and possessions pursuant to the Uniform
Commercial Code and (iii) a security interest that shall be perfected in all
Article 9 Collateral in which a security interest may be perfected upon the
receipt and recording of this Agreement with the United States Patent and
Trademark Office and the United States Copyright Office, as applicable, within
the three-month period (commencing as of the date hereof) pursuant to 35 U.S.C.
§ 261 or 15 U.S.C. § 1060 or the one month period (commencing as of the date
hereof) pursuant to 17 U.S.C. § 205. The Security Interest is and shall be prior
to any other Lien on any of the Article 9 Collateral, other than Permitted
Encumbrances that have priority as a matter of law and Liens expressly permitted
to be prior to the Security Interest pursuant to clause (iii), (iv) or (v) of
Section 6.02 of the Credit Agreement.

 

(d) The Article 9 Collateral is owned by the Grantors free and clear of any
Lien, except for Permitted Encumbrances and Liens expressly permitted pursuant
to clause (iii), (iv) or (v) of Section 6.02 of the Credit Agreement. None of
the Grantors has filed or consented to the filing of (i) any financing statement
or analogous document under the Uniform Commercial Code or any other applicable
laws covering any Article 9 Collateral, (ii) any assignment in which any Grantor
assigns any Collateral or any security agreement or similar instrument covering
any Article 9

 

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Collateral with the United States Patent and Trademark Office or the United
States Copyright Office or (iii) any assignment in which any Grantor assigns any
Article 9 Collateral or any security agreement or similar instrument covering
any Article 9 Collateral with any foreign governmental, municipal or other
office, which financing statement or analogous document, assignment, security
agreement or similar instrument is still in effect, except, in each case, for
Permitted Encumbrances and Liens expressly permitted pursuant to clause (iii),
(iv) or (v) of Section 6.02 of the Credit Agreement.

 

SECTION 3.03. Covenants. (a) Each Grantor agrees promptly to notify the
Collateral Agent in writing of any change (i) in its corporate name, (ii) in the
location of its chief executive office, its principal place of business and
national distribution centers, (iii) in its identity or type of organization or
corporate structure, (iv) in its Federal Taxpayer Identification Number or
organizational identification number or (v) in its jurisdiction of organization.
Each Grantor agrees to promptly provide the Collateral Agent with certified
organizational documents reflecting any of the changes described in the first
sentence of this paragraph. Each Grantor agrees not to effect or permit any
change referred to in the preceding sentence unless all filings have been made
under the Uniform Commercial Code or otherwise that are required in order for
the Collateral Agent to continue at all times following such change to have a
valid, legal and perfected first priority security interest in all the Article 9
Collateral. Each Grantor agrees promptly to notify the Collateral Agent if any
material portion of the Article 9 Collateral owned or held by such Grantor is
damaged or destroyed.

 

(b) Each Grantor agrees to maintain, at its own cost and expense, such complete
and accurate records with respect to the Article 9 Collateral owned by it as is
consistent with its current practices and in accordance with such prudent and
standard practices used in industries that are the same as or similar to those
in which such Grantor is engaged, but in any event to include complete
accounting records indicating all payments and proceeds received with respect to
any part of the Article 9 Collateral, and, at such time or times as the
Collateral Agent may reasonably request, promptly to prepare and deliver to the
Collateral Agent a duly certified schedule or schedules in form and detail
satisfactory to the Collateral Agent showing the type and amount of any and all
Article 9 Collateral.

 

(c) Each year, at the time of delivery of annual financial statements with
respect to the preceding fiscal year pursuant to Section 5.01(a) of the Credit
Agreement, the Borrower shall deliver to the Collateral Agent a certificate
executed by a Financial Officer and the secretary or assistant secretary of the
Borrower (i) setting forth the information required pursuant to the Perfection
Certificate or confirming that there has been no change in such information
since the date of such certificate or the date of the most recent certificate
delivered pursuant to this Section 3.03(c) and (ii) certifying that all Uniform
Commercial Code financing statements (including fixture filings, as applicable)
or other appropriate filings, recordings or registrations, including all
refilings, recordings and registrations, containing a description of the
Collateral have been filed of record in each governmental, municipal or other
appropriate office in each jurisdiction identified pursuant to clause (a) of
this Section 3.03 to the extent necessary to protect and perfect

 

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the Security Interest for a period of not less than 18 months after the date of
such certificate (except as noted therein with respect to any continuation
statements to be filed within such period). Each certificate delivered pursuant
to this Section 3.03(c) shall identify in the format of Schedule III all
Patents, Trademarks and Copyrights of any Grantor in existence on the date
thereof and not then listed on such Schedules or previously so identified to the
Collateral Agent.

 

(d) Each Grantor shall, at its own expense, take any and all actions necessary
to defend title to the Article 9 Collateral against all Persons and to defend
the Security Interest of the Collateral Agent in the Article 9 Collateral and
the priority thereof against any Lien not expressly permitted pursuant to
Section 6.02 of the Credit Agreement.

 

(e) Each Grantor agrees, at its own expense, to execute, acknowledge, deliver
and cause to be duly filed all such further instruments and documents and take
all such actions as the Collateral Agent may from time to time reasonably
request to assure, preserve, protect and perfect the Security Interest and the
rights and remedies created hereby, including the payment of any fees and taxes
required in connection with the execution and delivery of this Agreement, the
granting of the Security Interest and the filing of any financing statements
(including fixture filings) or other documents in connection herewith or
therewith. If any amount payable under or in connection with any of the
Article 9 Collateral shall be or become evidenced by any promissory note or
other instrument (other than any promissory note or other instrument made by any
payor with an outstanding balance equal to or less than $100,000 until such time
as the aggregate outstanding balance of all promissory notes and instruments
made by such payor or any of its Affiliates that are owed to the Borrower or any
Subsidiary exceeds $500,000), such note or instrument shall be immediately
pledged and delivered to the Collateral Agent, duly endorsed in a manner
satisfactory to the Collateral Agent.

 

Without limiting the generality of the foregoing, each Grantor hereby authorizes
the Collateral Agent, with prompt notice thereof to the Grantors, to supplement
this Agreement by supplementing Schedule III or adding additional schedules
hereto to specifically identify any asset or item that may constitute
Copyrights, Licenses, Patents or Trademarks; provided that any Grantor shall
have the right, exercisable within 10 Business Days after it has been notified
by the Collateral Agent of the specific identification of such Collateral, to
advise the Collateral Agent in writing of any inaccuracy of the representations
and warranties made by such Grantor hereunder with respect to such Collateral.
Each Grantor agrees that it will use its commercially reasonable efforts to take
such action as shall be necessary in order that all representations and
warranties hereunder shall be true and correct with respect to such Collateral
within 30 days after the date it has been notified by the Collateral Agent of
the specific identification of such Collateral.

 

(f) The Collateral Agent and such Persons as the Collateral Agent may reasonably
designate shall have the right, at the Grantors’ own cost and expense, to
inspect, after reasonable prior notice and during normal business hours, the
Article 9 Collateral, all records related thereto (and to make extracts and
copies from such records)

 

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and the premises upon which any of the Article 9 Collateral is located, to
discuss the Grantors’ affairs with the officers of the Grantors and their
independent accountants and to verify under reasonable procedures, in accordance
with Sections 5.03 and 5.08 of the Credit Agreement, the validity, amount,
quality, quantity, value, condition and status of, or any other matter relating
to, the Article 9 Collateral, including, in the case of Accounts or Article 9
Collateral in the possession of any third person, by contacting Account Debtors
or the third person possessing such Article 9 Collateral for the purpose of
making such a verification. The Collateral Agent shall have the absolute right
to share any information it gains from such inspection or verification with any
Secured Party.

 

(g) At its option, the Collateral Agent may discharge past due taxes,
assessments, charges, fees, Liens, security interests or other encumbrances at
any time levied or placed on the Article 9 Collateral and not permitted pursuant
to Section 6.02 of the Credit Agreement, and may pay for the maintenance and
preservation of the Article 9 Collateral to the extent any Grantor fails to do
so as required by the Credit Agreement or this Agreement, and each Grantor
jointly and severally agrees to reimburse the Collateral Agent on demand for any
payment made or any expense incurred by the Collateral Agent pursuant to the
foregoing authorization; provided that nothing in this paragraph shall be
interpreted as excusing any Grantor from the performance of, or imposing any
obligation on the Collateral Agent or any Secured Party to cure or perform, any
covenants or other promises of any Grantor with respect to taxes, assessments,
charges, fees, Liens, security interests or other encumbrances and maintenance
as set forth herein or in the other Loan Documents.

 

(h) If at any time any Grantor shall take a security interest in any property of
an Account Debtor or any other Person to secure payment and performance of an
Account, such Grantor shall promptly assign such security interest to the
Collateral Agent. Such assignment need not be filed of public record unless
necessary to continue the perfected status of the security interest against
creditors of and transferees from the Account Debtor or other Person granting
the security interest.

 

(i) Each Grantor shall remain liable to observe and perform all the conditions
and obligations to be observed and performed by it under each contract,
agreement or instrument relating to the Article 9 Collateral, all in accordance
with the terms and conditions thereof, and each Grantor jointly and severally
agrees to indemnify and hold harmless the Collateral Agent and the Secured
Parties from and against any and all liability for such performance.

 

(j) None of the Grantors shall make or permit to be made an assignment, pledge
or hypothecation of the Article 9 Collateral or shall grant any other Lien in
respect of the Article 9 Collateral, except as permitted by the Credit
Agreement. None of the Grantors shall make or permit to be made any transfer of
the Article 9 Collateral and each Grantor shall remain at all times in
possession of the Article 9 Collateral owned by it (other than Inventory held by
customers or in transit or otherwise not in its possession, in each case in its
ordinary course of business consistent with past practice), except that unless
and until the Collateral Agent shall notify the Grantors (i) that an Event of
Default shall have occurred and be continuing and (ii) that during the
continuance thereof the

 

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Grantors shall not sell, convey, lease, assign, transfer or otherwise dispose of
any Article 9 Collateral (which notice may be given by telephone if promptly
confirmed in writing), the Grantors may use and dispose of the Article 9
Collateral in any lawful manner not inconsistent with the provisions of this
Agreement, the Credit Agreement or any other Loan Document.

 

(k) None of the Grantors will, without the Collateral Agent’s prior written
consent, grant any extension of the time of payment of any Accounts included in
the Article 9 Collateral, compromise, compound or settle the same for less than
the full amount thereof, release, wholly or partly, any Person liable for the
payment thereof or allow any credit or discount whatsoever thereon, other than
extensions, compromises, settlements, releases, credits or discounts granted or
made in the ordinary course of business and consistent with its current
practices and in accordance with such prudent and standard practice used in
industries that are the same as or similar to those in which such Grantor is
engaged.

 

(l) The Grantors, at their own expense, shall maintain or cause to be maintained
insurance covering physical loss or damage to the Inventory and Equipment in
accordance with the requirements set forth in Schedule V hereto and Section 5.07
of the Credit Agreement. Each Grantor irrevocably makes, constitutes and
appoints the Collateral Agent (and all officers, employees or agents designated
by the Collateral Agent) as such Grantor’s true and lawful agent (and
attorney-in-fact) for the purpose, during the continuance of an Event of
Default, of making, settling and adjusting claims in respect of Article 9
Collateral under policies of insurance, endorsing the name of such Grantor on
any check, draft, instrument or other item of payment for the proceeds of such
policies of insurance and for making all determinations and decisions with
respect thereto. In the event that any Grantor at any time or times shall fail
to obtain or maintain any of the policies of insurance required hereby or to pay
any premium in whole or part relating thereto, the Collateral Agent may, without
waiving or releasing any obligation or liability of the Grantors hereunder or
any Event of Default, in its sole discretion, after 3 days notice to such
Grantor, obtain and maintain such policies of insurance and pay such premium and
take any other actions with respect thereto as the Collateral Agent deems
advisable. All sums disbursed by the Collateral Agent in connection with this
paragraph, including reasonable attorneys’ fees, court costs, expenses and other
charges relating thereto, shall be payable, upon demand, by the Grantors to the
Collateral Agent and shall be additional Obligations secured hereby.

 

(m) Each Grantor shall maintain, in form and manner reasonably satisfactory to
the Collateral Agent, records of its Chattel Paper and its books, records and
documents evidencing or pertaining thereto.

 

(n) The Borrower shall use commercially reasonable efforts to cause the four
copyrights listed on Schedule III as owned of record by Blockbuster
Entertainment Corporation to promptly become owned of record by one of the
Grantors.

 

SECTION 3.04. Other Actions. In order to further insure the attachment,
perfection and priority of, and the ability of the Collateral Agent to enforce,
the Security

 

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Interest, each Grantor agrees, in each case at such Grantor’s own expense, to
take the following actions with respect to the following Article 9 Collateral:

 

(a) Instruments. If any Grantor shall at any time hold or acquire any
Instruments (other than any Instrument made by any payor with an outstanding
balance equal to or less than $100,000 until such time as the aggregate
outstanding balance of all Instruments made by such payor or any of its
Affiliates that are owed to the Borrower or any Subsidiary exceeds $500,000),
such Grantor shall forthwith endorse, assign and deliver the same to the
Collateral Agent, accompanied by such instruments of transfer or assignment duly
executed in blank as the Collateral Agent may from time to time reasonably
request.

 

(b) Investment Property. Except to the extent otherwise provided in Article III,
if any Grantor shall at any time hold or acquire any certificated securities,
such Grantor shall forthwith endorse, assign and deliver the same to the
Collateral Agent, accompanied by such instruments of transfer or assignment duly
executed in blank as the Collateral Agent may from time to time specify. If any
securities now or hereafter acquired by any Grantor are uncertificated and are
issued to such Grantor or its nominee directly by the issuer thereof, such
Grantor shall immediately notify the Collateral Agent thereof and, at the
Collateral Agent’s request and option, pursuant to an agreement in form and
substance reasonably satisfactory to the Collateral Agent, either (i) cause the
issuer to agree to comply with instructions from the Collateral Agent as to such
securities, without further consent of any Grantor or such nominee or
(ii) arrange for the Collateral Agent to become the registered owner of the
securities. If any securities, whether certificated or uncertificated, or other
investment property now or hereafter acquired by any Grantor are held by such
Grantor or its nominee through a securities intermediary or commodity
intermediary, such Grantor shall immediately notify the Collateral Agent thereof
and, at the Collateral Agent’s request and option, pursuant to an agreement in
form and substance reasonably satisfactory to the Collateral Agent, either
(i) cause such securities intermediary or (as the case may be) commodity
intermediary to agree to comply with entitlement orders or other instructions
from the Collateral Agent to such securities intermediary as to such security
entitlements, or (as the case may be) to apply any value distributed on account
of any commodity contract as directed by the Collateral Agent to such commodity
intermediary, in each case without further consent of any Grantor or such
nominee or (ii) in the case of Financial Assets or other Investment Property
held through a securities intermediary, arrange for the Collateral Agent to
become the entitlement holder with respect to such investment property, with the
Grantor being permitted, only with the consent of the Collateral Agent, to
exercise rights to withdraw or otherwise deal with such investment property. The
Collateral Agent agrees with each of the Grantors that the Collateral Agent
shall not give any such entitlement orders or instructions or directions to any
such issuer, securities intermediary or commodity intermediary, and shall not
withhold its consent to the exercise of any withdrawal or dealing rights by any
Grantor, unless an Event of Default has occurred and is continuing, or, after
giving effect to any such investment and withdrawal rights would occur.

 

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The provisions of this paragraph shall not apply to any Financial Assets
credited to a securities account for which the Collateral Agent is the
securities intermediary.

 

(c) Letter-of-Credit Rights. If any Grantor is at any time a beneficiary under a
letter of credit with a face value of $100,000 or more now or hereafter issued
in favor of such Grantor, such Grantor shall promptly notify the Collateral
Agent thereof and, at the request and option of the Collateral Agent, such
Grantor shall, pursuant to an agreement in form and substance reasonably
satisfactory to the Collateral Agent, either (i) arrange for the issuer and any
confirmer of such letter of credit to consent to an assignment to the Collateral
Agent of the proceeds of any drawing under the letter of credit or (ii) arrange
for the Collateral Agent to become the transferee beneficiary of the letter of
credit, with the Collateral Agent agreeing, in each case, that the proceeds of
any drawing under the letter of credit are to be paid to the applicable Grantor
unless an Event of Default has occurred or is continuing.

 

(d) Commercial Tort Claims. If any Grantor shall at any time hold or acquire a
commercial tort claim in an amount reasonably estimated to exceed $1,000,000,
the Grantor shall promptly notify the Collateral Agent thereof in a writing
signed by such Grantor including a summary description of such claim and grant
to the Collateral Agent in such writing a security interest therein and in the
proceeds thereof, all upon the terms of this Agreement, with such writing to be
in form and substance reasonably satisfactory to the Collateral Agent.

 

SECTION 3.05. Covenants Regarding Patent, Trademark and Copyright Collateral.
(a) Each Grantor agrees that it will not, do any act or omit do to any act (and
will exercise commercially reasonable efforts to prevent its licensees from
doing any act or omitting to do any act) whereby any Patent that is material to
the conduct of such Grantor’s business may become invalidated or dedicated to
the public, and agrees that it shall continue to mark any products covered by a
Patent with the relevant patent number as necessary and sufficient to establish
and preserve its maximum rights under applicable patent laws.

 

(b) Each Grantor (either itself or through its licensees or its sublicensees)
will, for each Trademark material to the conduct of such Grantor’s business,
(i) maintain such Trademark in full force free from any claim of abandonment or
invalidity for non-use, (ii) maintain the quality of products and services
offered under such Trademark, (iii) display such Trademark with notice of
Federal or foreign registration to the extent necessary and sufficient to
establish and preserve its maximum rights under applicable law and (iv) not
knowingly use or knowingly permit the use of such Trademark in violation of any
third party rights.

 

(c) Each Grantor (either itself or through its licensees or sublicensees) will,
for each work covered by a material Copyright, continue to publish, reproduce,
display, adopt and distribute the work with appropriate

 

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copyright notice as necessary and sufficient to establish and preserve its
maximum rights under applicable copyright laws.

 

(d) Each Grantor shall notify the Collateral Agent promptly if it knows or has
reason to know that any Patent, Trademark or Copyright material to the conduct
of its business may become abandoned, lost or dedicated to the public, or of any
materially adverse determination or development (including the institution of,
or any such determination or development in, any proceeding in the United States
Patent and Trademark Office, United States Copyright Office) regarding such
Grantor’s ownership of any Patent, Trademark or Copyright material to the
conduct of its business, its right to register the same, or its right to keep
and maintain the same.

 

(e) If any Grantor, either itself or through any agent, employee, licensee or
designee, files an application for any Patent, Trademark or Copyright (or for
the registration of any Trademark or Copyright) with the United States Patent
and Trademark Office, United States Copyright Office or any office or agency in
any political subdivision of the United States, it shall promptly inform the
Collateral Agent, and, upon request of the Collateral Agent, execute and deliver
any and all agreements, instruments, documents and papers as the Collateral
Agent may reasonably request to evidence the Collateral Agent’s security
interest in such Patent, Trademark or Copyright, and each Grantor hereby
appoints the Collateral Agent as its attorney-in-fact to execute and file such
writings for the foregoing purposes, all acts of such attorney being hereby
ratified and confirmed; such power, being coupled with an interest, is
irrevocable.

 

(f) Each Grantor will take all necessary steps that are consistent with the
practice in any proceeding before the United States Patent and Trademark Office,
United States Copyright Office or any office or agency in any political
subdivision of the United States, to maintain and pursue each material
application relating to the Patents, Trademarks and/or Copyrights (and to obtain
the relevant grant or registration) and to maintain each issued Patent and each
registration of the Trademarks and Copyrights that is material to the conduct of
any Grantor’s business, including timely filings of applications for renewal,
affidavits of use, affidavits of incontestability and payment of maintenance
fees, and, if consistent with good business judgment, to initiate opposition,
interference and cancellation proceedings against third parties.

 

(g) In the event that any Grantor initiates, or engages counsel in connection
with, litigation or arbitration regarding any Article 9 Collateral consisting of
a Patent, Trademark or Copyright material to the conduct of any Grantor’s
business, such Grantor shall promptly notify the Collateral Agent. Each Grantor
shall, if consistent with good business judgment, promptly sue for infringement,
misappropriation or dilution and to recover

 

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any and all damages for such infringement, misappropriation or dilution, and
take such other actions as are appropriate under the circumstances to protect
such Article 9 Collateral.

 

(h) Upon and during the continuance of an Event of Default, each Grantor shall
use its commercially reasonable efforts to obtain all requisite consents or
approvals by the licensor of each Copyright License, Patent License or Trademark
License to effect the assignment of all such Grantor’s right, title and interest
thereunder to the Collateral Agent or its designee.

 

ARTICLE IV

 

Remedies

 

SECTION 4.01. Remedies Upon Default. Upon the occurrence and during the
continuance of an Event of Default, each Grantor agrees to deliver each item of
Collateral to the Collateral Agent on demand, and it is agreed that the
Collateral Agent shall have the right to take any of or all the following
actions at the same or different times: (a) with respect to any Article 9
Collateral consisting of Intellectual Property, on demand, to cause the Security
Interest to become an assignment, transfer and conveyance of any of or all such
Article 9 Collateral by the applicable Grantors to the Collateral Agent, or to
license or sublicense, whether general, special or otherwise, and whether on an
exclusive or nonexclusive basis, any such Article 9 Collateral throughout the
world on such terms and conditions and in such manner as the Collateral Agent
shall determine (other than in violation of any then-existing licensing
arrangements to the extent that waivers cannot be obtained), and (b) with or
without legal process and with or without prior notice or demand for
performance, to take possession of the Article 9 Collateral and without
liability for trespass to enter any premises where the Article 9 Collateral may
be located for the purpose of taking possession of or removing the Article 9
Collateral and, generally, to exercise any and all rights afforded to a secured
party under the Uniform Commercial Code or other applicable law. Without
limiting the generality of the foregoing, each Grantor agrees that the
Collateral Agent shall have the right, subject to the mandatory requirements of
applicable law, to sell or otherwise dispose of all or any part of the
Collateral at a public or private sale or at any broker’s board or on any
securities exchange, for cash, upon credit or for future delivery as the
Collateral Agent shall deem appropriate. The Collateral Agent shall be
authorized at any such sale of securities (if it deems it advisable to do so) to
restrict the prospective bidders or purchasers to Persons who will represent and
agree that they are purchasing the Collateral for their own account for
investment and not with a view to the distribution or sale thereof, and upon
consummation of any such sale the Collateral Agent shall have the right to
assign, transfer and deliver to the purchaser or purchasers thereof the
Collateral so sold. Each such purchaser at any sale of Collateral shall hold the
property sold absolutely, free from any claim or right on the part of any
Grantor, and each Grantor hereby waives (to the extent permitted by law) all
rights of redemption and stay which such Grantor now has or may at any time in
the future have under any rule of law or statute now existing or hereafter
enacted.

 

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The Collateral Agent shall give the applicable Grantors 10 days’ written notice
(which each Grantor agrees is reasonable notice within the meaning of
Section 9-611 of the New York UCC or its equivalent in other jurisdictions) of
the Collateral Agent’s intention to make any sale of Collateral. Such notice, in
the case of a public sale, shall state the time and place for such sale and, in
the case of a sale at a broker’s board or on a securities exchange, shall state
the board or exchange at which such sale is to be made and the day on which the
Collateral, or portion thereof, will first be offered for sale at such board or
exchange. Any such public sale shall be held at such time or times within
ordinary business hours and at such place or places as the Collateral Agent may
fix and state in the notice (if any) of such sale. At any such sale, the
Collateral, or portion thereof, to be sold may be sold in one lot as an entirety
or in separate parcels, as the Collateral Agent may (in its sole and absolute
discretion) determine. The Collateral Agent shall not be obligated to make any
sale of any Collateral if it shall determine not to do so, regardless of the
fact that notice of sale of such Collateral shall have been given. The
Collateral Agent may, without notice or publication, adjourn any public or
private sale or cause the same to be adjourned from time to time by announcement
at the time and place fixed for sale, and such sale may, without further notice,
be made at the time and place to which the same was so adjourned. In case any
sale of all or any part of the Collateral is made on credit or for future
delivery, the Collateral so sold may be retained by the Collateral Agent until
the sale price is paid by the purchaser or purchasers thereof, but the
Collateral Agent shall not incur any liability in case any such purchaser or
purchasers shall fail to take up and pay for the Collateral so sold and, in case
of any such failure, such Collateral may be sold again upon like notice. At any
public (or, to the extent permitted by law, private) sale made pursuant to this
Agreement, any Secured Party may bid for or purchase, free (to the extent
permitted by law) from any right of redemption, stay, valuation or appraisal on
the part of any Grantor (all such rights being also hereby waived and released
to the extent permitted by law), the Collateral or any part thereof offered for
sale and may make payment on account thereof by using any claim then due and
payable to such Secured Party from any Grantor as a credit against the purchase
price, and such Secured Party may, upon compliance with the terms of sale, hold,
retain and dispose of such property without further accountability to any
Grantor therefor. For purposes hereof, a binding written agreement to purchase
the Collateral or any portion thereof shall be treated as a sale thereof; the
Collateral Agent shall be free to carry out such sale pursuant to such agreement
and no Grantor shall be entitled to the return of the Collateral or any portion
thereof subject thereto, notwithstanding the fact that after the Collateral
Agent shall have entered into such an agreement all Events of Default shall have
been remedied and the Obligations paid in full. As an alternative to exercising
the power of sale herein conferred upon it, the Collateral Agent may proceed by
a suit or suits at law or in equity to foreclose this Agreement and to sell the
Collateral or any portion thereof pursuant to a judgment or decree of a court or
courts having competent jurisdiction or pursuant to a proceeding by a
court-appointed receiver. Any sale pursuant to the provisions of this
Section 4.01 shall be deemed to conform to the commercially reasonable standards
as provided in Section 9-610(b) of the New York UCC or its equivalent in other
jurisdictions.

 

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SECTION 4.02. Application of Proceeds. The Collateral Agent shall apply the
proceeds of any collection or sale of Collateral, including any Collateral
consisting of cash, as follows:

 

First, to the payment of all costs and expenses incurred by the Collateral Agent
in connection with such collection or sale or otherwise in connection with this
Agreement, any other Loan Document or any of the Obligations, including all
court costs and the fees and expenses of its agents and legal counsel, the
repayment of all advances made by the Collateral Agent hereunder or under any
other Loan Document on behalf of any Grantor and any other costs or expenses
incurred in connection with the exercise of any right or remedy hereunder or
under any other Loan Document;

 

Second, to the payment in full of the Obligations (the amounts so applied to be
distributed among the Secured Parties pro rata in accordance with the amounts of
the Obligations owed to them on the date of any such distribution); and

 

Third, to the Grantors, their successors or assigns, or as a court of competent
jurisdiction may otherwise direct.

 

The Collateral Agent shall have absolute discretion as to the time of
application of any such proceeds, moneys or balances in accordance with this
Agreement. Upon any sale of Collateral by the Collateral Agent (including
pursuant to a power of sale granted by statute or under a judicial proceeding),
the receipt of the Collateral Agent or of the officer making the sale shall be a
sufficient discharge to the purchaser or purchasers of the Collateral so sold
and such purchaser or purchasers shall not be obligated to see to the
application of any part of the purchase money paid over to the Collateral Agent
or such officer or be answerable in any way for the misapplication thereof.

 

SECTION 4.03. Grant of License to Use Intellectual Property. For the sole
purpose of enabling the Collateral Agent to exercise rights and remedies under
this Agreement at such time as the Collateral Agent shall be lawfully entitled
to exercise such rights and remedies, each Grantor hereby grants to the
Collateral Agent an irrevocable, nonexclusive license (exercisable without
payment of royalty or other compensation to the Grantors) to use, license or
sublicense (subject to, in all cases, the rights of all existing and future
licensees and sublicensees under any Licenses) any of the Article 9 Collateral
consisting of Intellectual Property now owned or hereafter acquired by such
Grantor, and wherever the same may be located, and including in such license
reasonable access to all media in which any of the licensed items may be
recorded or stored and to all computer software and programs used for the
compilation or printout thereof. The use of such license by the Collateral Agent
may be exercised, at the option of the Collateral Agent, upon the occurrence and
during the continuation of an Event of Default; provided that any license,
sublicense or other transaction entered into by the Collateral Agent in
accordance herewith shall be binding upon the Grantors notwithstanding any
subsequent cure of an Event of Default.

 

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SECTION 4.04. Securities Act. In view of the position of the Grantors in
relation to the Pledged Collateral, or because of other current or future
circumstances, a question may arise under the Securities Act of 1933, as now or
hereafter in effect, or any similar statute hereafter enacted analogous in
purpose or effect (such Act and any such similar statute as from time to time in
effect being called the “Federal Securities Laws”) with respect to any
disposition of the Pledged Collateral permitted hereunder. Each Grantor
understands that compliance with the Federal Securities Laws might very strictly
limit the course of conduct of the Collateral Agent if the Collateral Agent were
to attempt to dispose of all or any part of the Pledged Collateral, and might
also limit the extent to which or the manner in which any subsequent transferee
of any Pledged Collateral could dispose of the same. Similarly, there may be
other legal restrictions or limitations affecting the Collateral Agent in any
attempt to dispose of all or part of the Pledged Collateral under applicable
Blue Sky or other state securities laws or similar laws analogous in purpose or
effect. Each Grantor recognizes that in light of such restrictions and
limitations the Collateral Agent may, with respect to any sale of the Pledged
Collateral, limit the purchasers to those who will agree, among other things, to
acquire such Pledged Collateral for their own account, for investment, and not
with a view to the distribution or resale thereof. Each Grantor acknowledges and
agrees that in light of such restrictions and limitations, the Collateral Agent,
in its sole and absolute discretion (a) may proceed to make such a sale whether
or not a registration statement for the purpose of registering such Pledged
Collateral or part thereof shall have been filed under the Federal Securities
Laws and (b) may approach and negotiate with a single potential purchaser to
effect such sale. Each Grantor acknowledges and agrees that any such sale might
result in prices and other terms less favorable to the seller than if such sale
were a public sale without such restrictions. In the event of any such sale, the
Collateral Agent shall incur no responsibility or liability for selling all or
any part of the Pledged Collateral at a price that the Collateral Agent, in its
sole and absolute discretion, may in good faith deem reasonable under the
circumstances, notwithstanding the possibility that a substantially higher price
might have been realized if the sale were deferred until after registration as
aforesaid or if more than a single purchaser were approached. The provisions of
this Section 4.04 will apply notwithstanding the existence of a public or
private market upon which the quotations or sales prices may exceed
substantially the price at which the Collateral Agent sells.

 

ARTICLE V

 

Indemnity, Subrogation and Subordination

 

SECTION 5.01. Indemnity and Subrogation. The Borrower agrees that in the event
any assets of any Grantor shall be sold pursuant to this Agreement or any other
Security Document to satisfy in whole or in part an obligation owed to any
Secured Party, the Borrower shall indemnify such Grantor in an amount equal to
the greater of the book value or the fair market value of the assets so sold.

 

SECTION 5.02. Contribution and Subrogation. Each Grantor (a “Contributing
Party”) agrees (subject to Section 5.03) that, in the event assets of any other
Grantor shall be sold pursuant to any Security Document to satisfy any
Obligation

 

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owed to any Secured Party and such other Grantor (the “Claiming Party”) shall
not have been fully indemnified by the Borrower as provided in Section 5.01, the
Contributing Party shall indemnify the Claiming Party in an amount equal to the
amount of such payment or the greater of the book value or the fair market value
of such assets, as the case may be, in each case multiplied by a fraction of
which the numerator shall be the net worth of the Contributing Party on the date
hereof and the denominator shall be the aggregate net worth of all the Grantors
on the date hereof (or, in the case of any Grantor becoming a party hereto
pursuant to Section 6.14, the date of the supplement hereto executed and
delivered by such Grantor). Any Contributing Party making any payment to a
Claiming Party pursuant to this Section 5.02 shall be subrogated to the rights
of such Claiming Party under Section 5.01 to the extent of such payment.

 

SECTION 5.03. Subordination. (a) Notwithstanding any provision of this Agreement
to the contrary, all rights of the Grantors under Sections 5.01 and 5.02 and all
other rights of indemnity, contribution or subrogation under applicable law or
otherwise shall be fully subordinated to the indefeasible payment in full in
cash of the Obligations. No failure on the part of the Borrower or any Grantor
to make the payments required by Sections 5.01 and 5.02 (or any other payments
required under applicable law or otherwise) shall in any respect limit the
obligations and liabilities of any Grantor with respect to its obligations
hereunder, and each Grantor shall remain liable for the full amount of the
obligations of such Grantor hereunder.

 

(b) Each Grantor hereby agrees that all Indebtedness and other monetary
obligations owed by it to any other Grantor or any other Subsidiary shall be
fully subordinated to the indefeasible payment in full in cash of the
Obligations.

 

ARTICLE VI

 

Miscellaneous

 

SECTION 6.01. Notices. All communications and notices hereunder shall (except as
otherwise expressly permitted herein) be in writing and given as provided in
Section 9.01 of the Credit Agreement. All communications and notices hereunder
to any Subsidiary Party shall be given to it in care of the Borrower as provided
in Section 9.01 of the Credit Agreement.

 

SECTION 6.02. Waivers; Amendment. (a) No failure or delay by the Collateral
Agent, the Issuing Bank or any Lender in exercising any right or power hereunder
or under any other Loan Document shall operate as a waiver thereof, nor shall
any single or partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. The rights
and remedies of the Collateral Agent, the Issuing Bank and the Lenders hereunder
and under the other Loan Documents are cumulative and are not exclusive of any
rights or remedies that they would otherwise have. No waiver of any provision of
this Agreement or consent to any departure by any Loan Party therefrom shall in
any event be effective unless the same

 

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shall be permitted by paragraph (b) of this Section 6.02, and then such waiver
or consent shall be effective only in the specific instance and for the purpose
for which given. Without limiting the generality of the foregoing, the making of
a Loan or issuance of a Letter of Credit shall not be construed as a waiver of
any Default, regardless of whether the Collateral Agent, any Lender or the
Issuing Bank may have had notice or knowledge of such Default at the time. No
notice or demand on any Loan Party in any case shall entitle any Loan Party to
any other or further notice or demand in similar or other circumstances.

 

(b) Neither this Agreement nor any provision hereof may be waived, amended or
modified except pursuant to an agreement or agreements in writing entered into
by the Collateral Agent and the Loan Party or Loan Parties with respect to which
such waiver, amendment or modification is to apply, subject to any consent
required in accordance with Section 9.02 of the Credit Agreement.

 

SECTION 6.03. Collateral Agent’s Fees and Expenses; Indemnification. (a) The
parties hereto agree that the Collateral Agent shall be entitled to
reimbursement of its reasonable expenses incurred hereunder as provided in
Section 9.03 of the Credit Agreement.

 

(b) Without limitation of its indemnification obligations under the other Loan
Documents, each Grantor and each Guarantor jointly and severally agrees to
indemnify the Collateral Agent and the other Indemnitees (as defined in
Section 9.03 of the Credit Agreement) against, and hold each Indemnitee harmless
from, any and all losses, claims, damages, liabilities and related expenses,
including the fees, charges and disbursements of any counsel for any Indemnitee,
incurred by or asserted against any Indemnitee arising out of, in connection
with, or as a result of, the execution, delivery or performance of this
Agreement or any claim, litigation, investigation or proceeding relating to any
of the foregoing agreement or instrument contemplated hereby, or to the
Collateral, whether or not any Indemnitee is a party thereto; provided that such
indemnity shall not, as to any Indemnitee, be available to the extent that such
losses, claims, damages, liabilities or related expenses are determined by a
court of competent jurisdiction by final and nonappealable judgment to have
resulted from the gross negligence, bad faith or willful misconduct of such
Indemnitee.

 

(c) Any such amounts payable as provided hereunder shall be additional
Obligations secured hereby and by the other Security Documents. The provisions
of this Section 6.03 shall remain operative and in full force and effect
regardless of the termination of this Agreement or any other Loan Document, the
consummation of the transactions contemplated hereby, the repayment of any of
the Obligations, the invalidity or unenforceability of any term or provision of
this Agreement or any other Loan Document, or any investigation made by or on
behalf of the Collateral Agent or any other

 

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Secured Party. All amounts due under this Section 6.03 shall be payable on
written demand therefor.

 

SECTION 6.04. Successors and Assigns. Whenever in this Agreement any of the
parties hereto is referred to, such reference shall be deemed to include the
permitted successors and assigns of such party; and all covenants, promises and
agreements by or on behalf of any Guarantor, Grantor or the Collateral Agent
that are contained in this Agreement shall bind and inure to the benefit of
their respective successors and assigns.

 

SECTION 6.05. Survival of Agreement. All covenants, agreements, representations
and warranties made by the Loan Parties in the Loan Documents and in the
certificates or other instruments prepared or delivered in connection with or
pursuant to this Agreement or any other Loan Document shall be considered to
have been relied upon by the Lenders and shall survive the execution and
delivery of the Loan Documents and the making of any Loans and issuance of any
Letters of Credit, regardless of any investigation made by any Lender or on its
behalf and notwithstanding that the Collateral Agent, the Issuing Bank or any
Lender may have had notice or knowledge of any Default or incorrect
representation or warranty at the time any credit is extended under the Credit
Agreement, and shall continue in full force and effect as long as the principal
of or any accrued interest on any Loan or any fee or any other amount payable
under any Loan Document is outstanding and unpaid or any Letter of Credit is
outstanding and so long as the Commitments have not expired or terminated.

 

SECTION 6.06. Counterparts; Effectiveness; Several Agreement. This Agreement may
be executed in counterparts, each of which shall constitute an original but all
of which when taken together shall constitute a single contract. Delivery of an
executed signature page to this Agreement by facsimile transmission shall be as
effective as delivery of a manually signed counterpart of this Agreement. This
Agreement shall become effective as to any Loan Party when a counterpart hereof
executed on behalf of such Loan Party shall have been delivered to the
Collateral Agent and a counterpart hereof shall have been executed on behalf of
the Collateral Agent, and thereafter shall be binding upon such Loan Party and
the Collateral Agent and their respective permitted successors and assigns, and
shall inure to the benefit of such Loan Party, the Collateral Agent and the
other Secured Parties and their respective successors and assigns, except that
no Loan Party shall have the right to assign or transfer its rights or
obligations hereunder or any interest herein or in the Collateral (and any such
assignment or transfer shall be void) except as expressly contemplated by this
Agreement or the Credit Agreement. This Agreement shall be construed as a
separate agreement with respect to each Loan Party and may be amended, modified,
supplemented, waived or released with respect to any Loan Party without the
approval of any other Loan Party and without affecting the obligations of any
other Loan Party hereunder.

 

SECTION 6.07. Severability. Any provision of this Agreement held to be invalid,
illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity, illegality or unenforceability
without affecting the validity, legality and enforceability of the remaining
provisions hereof; and the

 

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invalidity of a particular provision in a particular jurisdiction shall not
invalidate such provision in any other jurisdiction. The parties shall endeavor
in good-faith negotiations to replace the invalid, illegal or unenforceable
provisions with valid provisions the economic effect of which comes as close as
possible to that of the invalid, illegal or unenforceable provisions.

 

SECTION 6.08. Right of Set-Off. If an Event of Default shall have occurred and
be continuing, each Lender and each of its Affiliates is hereby authorized at
any time and from time to time, to the fullest extent permitted by law, to set
off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other obligations at any time owing
by such Lender or Affiliate to or for the credit or the account of any
Subsidiary Party against any of and all the obligations of such Subsidiary Party
now or hereafter existing under this agreement owed to such Lender, irrespective
of whether or not such Lender shall have made any demand under this Agreement
and although such obligations may be unmatured. The rights of each Lender under
this Section 6.08 are in addition to other rights and remedies (including other
rights of set-off) which such Lender may have.

 

SECTION 6.09. Governing Law; Jurisdiction; Consent to Service of Process.
(a) This Agreement shall be construed in accordance with and governed by the law
of the State of New York.

 

(b) Each of the Loan Parties hereby irrevocably and unconditionally submits, for
itself and its property, to the nonexclusive jurisdiction of the Supreme Court
of the State of New York sitting in New York County and of the United States
District Court of the Southern District of New York, and any appellate court
from any thereof, in any action or proceeding arising out of or relating to this
Agreement or any other Loan Document, or for recognition or enforcement of any
judgment, and each of the parties hereto hereby irrevocably and unconditionally
agrees that all claims in respect of any such action or proceeding may be heard
and determined in such New York State or, to the extent permitted by law, in
such Federal court. Each of the parties hereto agrees that a final judgment in
any such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Nothing in this Agreement or any other Loan Document shall affect any right that
the Collateral Agent, the Issuing Bank or any Lender may otherwise have to bring
any action or proceeding relating to this Agreement or any other Loan Document
against any Grantor or Guarantor, or its properties in the courts of any
jurisdiction.

 

(c) Each of the Loan Parties hereby irrevocably and unconditionally waives, to
the fullest extent it may legally and effectively do so, any objection which it
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement or any other Loan
Document in any court referred to in paragraph (b) of this Section 6.09. Each of
the parties hereto hereby irrevocably waives, to the

 

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fullest extent permitted by law, the defense of an inconvenient forum to the
maintenance of such action or proceeding in any such court.

 

(d) Each party to this Agreement irrevocably consents to service of process in
the manner provided for notices in Section 6.01. Nothing in this Agreement or
any other Loan Document will affect the right of any party to this Agreement to
serve process in any other manner permitted by law.

 

SECTION 6.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING
TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO
(A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES
THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS
AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS
SECTION 6.10.

 

SECTION 6.11. Headings. Article and Section headings and the Table of Contents
used herein are for convenience of reference only, are not part of this
Agreement and are not to affect the construction of, or to be taken into
consideration in interpreting, this Agreement.

 

SECTION 6.12. Security Interest Absolute. All rights of the Collateral Agent
hereunder, the Security Interest, the grant of a security interest in the
Pledged Collateral and all obligations of each Grantor hereunder shall be
absolute and unconditional irrespective of (a) any lack of validity or
enforceability of the Credit Agreement, any other Loan Document, any agreement
with respect to any of the Obligations or any other agreement or instrument
relating to any of the foregoing, (b) any change in the time, manner or place of
payment of, or in any other term of, all or any of the Obligations, or any other
amendment or waiver of or any consent to any departure from the Credit
Agreement, any other Loan Document or any other agreement or instrument, (c) any
exchange, release or non-perfection of any Lien on other collateral, or any
release or amendment or waiver of or consent under or departure from any
guarantee, securing or guaranteeing all or any of the Obligations, or (d) any
other circumstance that might otherwise constitute a defense available to, or a
discharge of, any Grantor in respect of the Obligations or this Agreement.

 

SECTION 6.13. Termination or Release. (a) This Agreement, the Security Interest
and all other security interests granted hereby shall terminate when all the
Loan Document Obligations have been indefeasibly paid in full and the Lenders
have

 

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no further commitment to lend under the Credit Agreement, the LC Exposure has
been reduced to zero and the Issuing Bank has no further obligations to issue
Letters of Credit under the Credit Agreement.

 

(b) A Subsidiary Party shall automatically be released from its obligations
hereunder and the Security Interest in the Collateral of such Subsidiary Party
shall be automatically released upon the consummation of any transaction
permitted by the Credit Agreement as a result of which such Subsidiary Party
ceases to be a Subsidiary of the Borrower; provided that the Required Lenders
shall have consented to such transaction (to the extent required by the Credit
Agreement) and the terms of such consent did not provide otherwise.

 

(c) Upon any sale or other transfer by any Grantor of any Collateral that is
permitted under the Credit Agreement, or upon the effectiveness of any written
consent to the release of the security interest granted hereby in any Collateral
pursuant to Section 9.02 of the Credit Agreement, the security interest in such
Collateral shall be automatically released.

 

(d) In connection with any termination or release pursuant to paragraph (a),
(b) or (c), the Collateral Agent shall execute and deliver to any Grantor, at
such Grantor’s expense, all documents that such Grantor shall reasonably request
to evidence such termination or release. Any execution and delivery of documents
pursuant to this Section 6.13 shall be without recourse to or warranty by the
Collateral Agent.

 

SECTION 6.14. Additional Subsidiaries. Pursuant to Section 5.11 of the Credit
Agreement, each Subsidiary Loan Party that was not in existence or not a
Subsidiary Loan Party on the Second Amendment Effective Date is required to
enter in this Agreement as a Subsidiary Party upon becoming a Subsidiary Loan
Party. Upon execution and delivery by the Collateral Agent and a Subsidiary Loan
Party of an instrument in the form of Exhibit I hereto, such Subsidiary Loan
Party shall become a Subsidiary Party hereunder with the same force and effect
as if originally named as a Subsidiary Party herein. The execution and delivery
of any such instrument shall not require the consent of any other Loan Party
hereunder. The rights and obligations of each Loan Party hereunder shall remain
in full force and effect notwithstanding the addition of any new Loan Party as a
party to this Agreement.

 

SECTION 6.15. Collateral Agent Appointed Attorney-in-Fact. Each Grantor hereby
appoints the Collateral Agent the attorney-in-fact of such Grantor for the
purpose of carrying out the provisions of this Agreement and taking any action
and executing any instrument that the Collateral Agent may deem necessary or
advisable to accomplish the purposes hereof, which appointment is irrevocable
and coupled with an interest. Without limiting the generality of the foregoing,
the Collateral Agent shall have the right, solely upon the occurrence and during
the continuance of an Event of Default, with full power of substitution either
in the Collateral Agent’s name or in the name of

 

29

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such Grantor (a) to receive, endorse, assign and/or deliver any and all notes,
acceptances, checks, drafts, money orders or other evidences of payment relating
to the Collateral or any part thereof, (b) to demand, collect, receive payment
of, give receipt for and give discharges and releases of all or any of the
Collateral, (c) to sign the name of any Grantor on any invoice or bill of lading
relating to any of the Collateral, (d) to send verifications of Accounts
Receivable to any Account Debtor, (e) to commence and prosecute any and all
suits, actions or proceedings at law or in equity in any court of competent
jurisdiction to collect or otherwise realize on all or any of the Collateral or
to enforce any rights in respect of any Collateral, (f) to settle, compromise,
compound, adjust or defend any actions, suits or proceedings relating to all or
any of the Collateral, (g) to notify, or to require any Grantor to notify,
Account Debtors to make payment directly to the Collateral Agent and (h) to use,
sell, assign, transfer, pledge, make any agreement with respect to or otherwise
deal with all or any of the Collateral, and to do all other acts and things
necessary to carry out the purposes of this Agreement, as fully and completely
as though the Collateral Agent were the absolute owner of the Collateral for all
purposes; provided that nothing herein contained shall be construed as requiring
or obligating the Collateral Agent to make any commitment or to make any inquiry
as to the nature or sufficiency of any payment received by the Collateral Agent,
or to present or file any claim or notice, or to take any action with respect to
the Collateral or any part thereof or the moneys due or to become due in respect
thereof or any property covered thereby. The Collateral Agent and the other
Secured Parties shall be accountable only for amounts actually received as a
result of the exercise of the powers granted to them herein, and neither they
nor their officers, directors, employees or agents shall be responsible to any
Grantor for any act or failure to act hereunder, except for their own gross
negligence, bad faith or willful misconduct.

 

30

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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first above written.

 

BLOCKBUSTER INC.,

by

 

/s/    Mary Bell

   

Name: Mary Bell

   

Title: Senior Vice President, Investor Relations and Corporate Treasurer

EACH OF THE SUBSIDIARIES LISTED ON SCHEDULE I HERETO,

by

 

/s/    Mary Bell

   

Name: Mary Bell

   

Title: Senior Vice President, Investor Relations and Corporate Treasurer
of each of the foregoing
Subsidiary Parties

JPMORGAN CHASE BANK, N.A., AS COLLATERAL AGENT,

by

 

/s/    Barry Bergman

   

Name: Barry Bergman

   

Title: Managing Director

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Schedule I to

the Security Agreement

 

SUBSIDIARY PARTIES

 

1.     

Blockbuster Canada Inc.

2.     

Blockbuster Distribution, Inc.

3.     

Blockbuster Global Services Inc.

4.     

Blockbuster International Spain Inc.

5.     

Blockbuster Investments LLC

6.     

Blockbuster Limited Partner Holdings LLC

7.     

Blockbuster Procurement LP

8.     

Blockbuster Texas LP

9.     

Blockbuster Video Italy, Inc.

10.     

D.E.J. Productions Inc.

11.     

Game Brands Inc.

12.     

Movie Brands Inc.

13.     

Trading Zone Inc.