SECOND AMENDMENT AND WAIVER

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:

 

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:

 

 

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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:

 

 

(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

 

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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

 

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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.

 

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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.

 

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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.

 

 

16

SIGNATURE PAGE FOR

SECOND AMENDMENT

TO BLOCKBUSTER INC.

CREDIT AGREEMENT

 

 

*

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

 

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EXHIBIT A

 

Form of Mortgage

 

EXECUTION VERSION

 

 

 

 

[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

 

 

 

EXECUTION VERSION

 

THIS MORTGAGE, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND FINANCING STATEMENT ¹ 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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Based on 3/30/99 form of Credit Agreement for non-investment grade borrowers.

[ 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 ”);

 

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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

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

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

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.

 

 

 

2

See Section 5.06 of the Credit Agreement.

 

7

(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

 

8

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,

9

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 Mortga