PLEASE TAKE NOTICE that a hearing on the annexed motion, dated

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1 Hearing Date and Time: January 11, 2011 at 10:00 a.m. (Eastern Time) Objection Date and Time: January 3, 2011 at 4:00 p.m. (Eastern Time) Stephen Karotkin Martin A. Sosland (admitted pro hac vice) WEIL, GOTSHAL & MANGES LLP 767 Fifth Avenue New York, New York Telephone: (212) Facsimile: (212) Attorneys for Debtors and Debtors in Possession UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK x : In re : Chapter 11 : BLOCKBUSTER INC., et al., 1 : Case No (BRL) : : (Jointly Administered) Debtors. : x NOTICE OF HEARING REGARDING MOTION PURSUANT TO 11 U.S.C. 105(a) AND 363 AND FED. R. BANKR. P REQUESTING AN ORDER AUTHORIZING THE DEBTORS TO CONTINUE TO CONDUCT STORE CLOSING SALES AND BULK INVENTORY SALES, APPROVING PROCEDURES WITH RESPECT TO ORDINARY COURSE STORE CLOSING SALES, AND GRANTING ANCILLARY AND RELATED RELIEF PLEASE TAKE NOTICE that a hearing on the annexed motion, dated December 17, 2010 (the Motion ), of Blockbuster Inc. and its debtor affiliates, as debtors and debtors in possession (collectively, Blockbuster or the Debtors ), for entry of an order, pursuant to sections 105(a) and 363 of title 11 of the United States Code (the Bankruptcy Code ) and Rule 6004 of the Federal Rules of Bankruptcy Procedure (the Bankruptcy Rules ), 1 The Debtors, together with the last four digits of each Debtor s federal tax identification number, are Blockbuster Inc. (5102); Blockbuster Canada Inc. (1269); Blockbuster Digital Technologies Inc. (9222); Blockbuster Distribution, Inc. (0610); Blockbuster Gift Card, Inc. (1855); Blockbuster Global Services Inc. (3019); Blockbuster International Spain Inc. (7615); Blockbuster Investments LLC (6313); Blockbuster Procurement LP (2546); Blockbuster Video Italy, Inc (5068); Movielink, LLC (5575); Trading Zone Inc. (8588); and B 2 LLC (5219). US_ACTIVE:\ \01\

2 authorizing the Debtors to continue to conduct Store Closing Sales 2 and Bulk Inventory Sales, approving Store Closing Procedures, and granting ancillary and related relief overriding or invalidating any contractual provisions or state or local laws that may restrict such sales, all as more fully set forth in the Motion, will be held before the Honorable Burton R. Lifland, United States Bankruptcy Judge, in Room 623 of the United States Bankruptcy Court for the Southern District of New York (the Bankruptcy Court ), One Bowling Green, New York, New York 10004, on January 11, 2010 at 10:00 a.m. (Eastern Time), or as soon thereafter as counsel may be heard. PLEASE TAKE FURTHER NOTICE that any responses or objections to the Motion must be in writing, shall conform to the Bankruptcy Rules and the Local Rules, and shall be filed with the Bankruptcy Court (a) electronically in accordance with General Order M-242 (which can be found at by registered users of the Bankruptcy Court s filing system and (b) by all other parties in interest, on a 3.5 inch disk, preferably in Portable Document Format (PDF), WordPerfect, or any other Windows-based word processing format (with two hard copies delivered directly to Chambers of the Honorable Burton R. Lifland) and served upon: (i) the Office of the United States Trustee for the Southern District of New York, 33 Whitehall Street, 21st Floor, New York, New York 10044, (Attn: Brian Masumoto, Esq. and Elisabetta Gasparini, Esq.); (ii) Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York, New York (Attn: Stephen Karotkin, Esq. and Martin A. Sosland, Esq.), attorneys for the Debtors; (iii) Cooley LLP, 1114 Avenue of the Americas, New York, New York (Attn: Jay R. Indyke, Esq., Richard Kanowitz, Esq., and Jeffrey L. Cohen, Esq.), attorneys for the unsecured creditors committee appointed in these cases; (iv) Sheppard, Mullin, Richter & 2 Capitalized terms not defined herein shall have the meaning ascribed to them in the Motion. US_ACTIVE:\ \01\

3 Hampton LLP, 333 South Hope Street, Floor 43, Los Angeles, California (Attn: Kyle J. Mathews, Esq.), attorneys for U.S. Bank National Association, as trustee under that certain indenture agreement, dated as of October 1, 2009, with respect to the 11.75% Senior Secured Notes due 2014 issued by Blockbuster Inc.; (v) Emmet, Marvin & Martin, LLP, 120 Broadway, 32nd Floor, New York, New York (Attn: Edward P. Zujkowski, Esq.), attorneys for The Bank of New York Trust Company, N.A., as trustee under that certain indenture agreement, dated as of August 20, 2004, with respect to the 9% Senior Subordinated Notes due 2012 issued by Blockbuster Inc.; (vi) Sidley Austin LLP, 787 Seventh Avenue, New York, New York (Attn: James Seery, Esq.), attorneys for the lenders under the Debtor in Possession Revolving Credit Agreement (the "DIP Facility"); and (vii) Skadden, Arps, Slate, Meagher & Flom LLP, 4 Times Square, New York, New York (Attn: Peter J. Neckles, Esq.), the attorneys for Wilmington Trust FSB, as agent under the DIP Facility, in each case so as to be received no later than 4:00 p.m. on January 3, 2010 (Eastern Time) (the Objection Deadline ). US_ACTIVE:\ \01\

4 PLEASE TAKE FURTHER NOTICE that if no objections are timely filed and served with respect to the Motion, the Debtors may, on or after the Objection Deadline, submit to the Bankruptcy Court an order substantially in the form of the proposed order annexed to the Motion which order may be entered with no further notice or opportunity to be heard. Dated: December 17, 2010 New York, New York /s/ Stephen Karotkin Stephen Karotkin WEIL, GOTSHAL & MANGES LLP 767 Fifth Avenue New York, New York Telephone: (212) Facsimile: (212) and Martin A. Sosland (admitted pro hac vice) WEIL, GOTSHAL & MANGES LLP 200 Crescent Court, Suite 300 Dallas, Texas Telephone: (214) Facsimile: (214) Attorneys for Debtors and Debtors in Possession US_ACTIVE:\ \01\

5 Hearing Date and Time: January 11, 2011 at 10:00 a.m. (Eastern Time) Objection Date and Time: January 3, 2011 at 4:00 p.m. (Eastern Time) Stephen Karotkin Martin A. Sosland (admitted pro hac vice) WEIL, GOTSHAL & MANGES LLP 767 Fifth Avenue New York, New York Telephone: (212) Facsimile: (212) Attorneys for Debtors and Debtors in Possession UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK x : In re : Chapter 11 : BLOCKBUSTER INC., et al., 1 : Case No (BRL) : : (Jointly Administered) Debtors. : x MOTION PURSUANT TO 11 U.S.C. 105(a) AND 363 AND FED. R. BANKR. P REQUESTING AN ORDER AUTHORIZING THE DEBTORS TO CONTINUE TO CONDUCT STORE CLOSING SALES AND BULK INVENTORY SALES, APPROVING PROCEDURES WITH RESPECT TO ORDINARY COURSE STORE CLOSING SALES, AND GRANTING ANCILLARY AND RELATED RELIEF 1 The Debtors, together with the last four digits of each Debtor s federal tax identification number, are: Blockbuster Inc. (5102); Blockbuster Canada Inc. (1269); Blockbuster Digital Technologies Inc. (9222); Blockbuster Distribution, Inc. (0610); Blockbuster Gift Card, Inc. (1855); Blockbuster Global Services Inc. (3019); Blockbuster International Spain Inc. (7615); Blockbuster Investments LLC (6313); Blockbuster Procurement LP (2546); Blockbuster Video Italy, Inc (5068); Movielink, LLC (5575); Trading Zone Inc. (8588); and B 2 LLC (5219). Information regarding Blockbuster s business, capital structure, and the circumstances leading to these chapter 11 cases is contained in the Affidavit of Jeffery J. Stegenga Pursuant to Local Bankruptcy Rule in Support of First Day Motions [Docket No. 3], filed on September 23, 2010 (the Commencement Date ), the date the Debtors each commenced a voluntary case under chapter 11 of title 11 of the United States Code (the Bankruptcy Code ) in the United States Bankruptcy Court for the Southern District of New York (the Bankruptcy Court ). The Debtors are authorized to continue to operate their business and manage their properties as debtors and debtors in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. The Debtors cases are being jointly administered pursuant to Rule 1015(b) of the Federal Rules of Bankruptcy Procedure (the Bankruptcy Rules ). Further, on October 1, 2010, the United States Trustee for Region 2 (the U.S. Trustee ) appointed a statutory committee of unsecured creditors (the Creditors Committee ). US_ACTIVE:\ \11\

6 TO THE HONORABLE BURTON R. LIFLAND, UNITED STATES BANKRUPTCY JUDGE: Blockbuster Inc. and its debtor affiliates, as debtors and debtors in possession (collectively, Blockbuster or the Debtors ), submit this motion (the Motion ) and respectfully represent as follows: I. PRELIMINARY STATEMENT 1. Prior to the Commencement Date, Blockbuster operated approximately 3,000 retail store locations across the United States. Generally, Blockbuster does not own the real property on which it operates a retail store. Instead, Blockbuster leases the real property from numerous lessors and other counterparties. 2. Historically, Blockbuster has undertaken efforts to maximize its retail imprint while maintaining overhead costs. To that end, in the ordinary course of its business, Blockbuster has continually reviewed its store portfolio so as to close underperforming or otherwise unprofitable stores. In addition, Blockbuster renegotiates leases where, with certain concessions from the landlord, the reduction in cost is sufficient to result in an otherwise unprofitable store becoming profitable. If Blockbuster cannot renegotiate more favorable terms on a lease, or if the lease expires on its own terms and the landlord desires to retake the premises, Blockbuster has, in the past, regularly closed such store locations in the ordinary course of its business. In connection with the closing of its retail stores, Blockbuster routinely transfers inventory (both new and previously-viewed, including movies, games, entertainment related consumer electronics and accessories, game consoles, confection, and movie-related merchandise) (collectively, Inventory ), fixtures, furniture, and equipment to remaining store locations or distribution centers, and conducts store closing sales (the Store Closing Sales ) to US_ACTIVE:\ \11\

7 effectuate the efficient self-liquidation 2 of excess Inventory, fixtures, furniture, and equipment, consistent with its ownership rights. 3 Assets not sold during the Store Closing Sales are transferred to surrounding locations or abandoned. 3. In addition, Blockbuster may, from time to time in the ordinary course of its business, self-liquidate certain defective or otherwise non-saleable/rental ready Inventory in its distribution centers (the Bulk Inventory Sales ) in the ordinary course of its business. In connection with the Bulk Inventory Sales, Blockbuster solicits bids from interested parties, which are allowed to inspect the Inventory for sale, and prepares a bill of sale for the highest and best offer. Typically, the Inventory is sold as is and the purchaser pays for any shipping costs. 4. The chapter 11 process has not affected Blockbuster s overall strategy with respect to its leases. These chapter 11 cases have merely highlighted Blockbuster s business need to expeditiously review its leases and determine which stores should be closed and which should remain open, subject in certain instances to Blockbuster s ability to renegotiate the terms of the store leases. Since the Commencement Date, Blockbuster has rejected approximately 220 burdensome leases. Most of the stores associated with these rejected leases were closed prior to the Commencement Date. 4 Before the end of the year, Blockbuster will close 72 additional stores and will seek to reject the leases associated with those leased premises, effective as of December 31, Further, Blockbuster currently anticipates it will close in the first quarter of 2011 approximately 110 stores that are underperforming and/or are in locations Over the past year, Blockbuster has not engaged a third party liquidator to conduct Store Closing Sales. Rather, store employees oversee Blockbuster s self-liquidation efforts. Blockbuster expects to continue utilizing its store employees to effectuate Store Closing Sales. In addition, Blockbuster may, from time to time, supplement its Store Closing Sales with excess Inventory from its distribution centers. Since the Commencement Date, Blockbuster has closed 58 stores. US_ACTIVE:\ \11\

8 with leases that will expire by their own terms, with no prospect for a reasonable extension of the lease termination date, although Blockbuster s process for closing stores is dynamic and such estimates are subject to change. 5. In connection with its store closures, Blockbuster has implemented certain Court-approved procedures for the rejection of unexpired nonresidential real property leases 5 and the abandonment of certain equipment, fixtures, furniture or other personal property located in the premises associated with the rejected leases to the extent that the Debtors determine that any interest of the Debtors in such property has little or no value or that the preservation thereof will be burdensome to their estates compared with the expense of removing and storing such property. 6 Blockbuster has also retained two experienced real estate consultants to negotiate more favorable terms and other beneficial concessions with landlords under leases that it is contemplating retaining. 7 From the Debtors perspective, rent reductions are a significant factor in assessing the profitability of stores in connection with the Debtors business plan for its retail store channel upon exit from these chapter 11 cases. 6. Throughout this postpetition continuation of its prepetition practices, Blockbuster has maintained a continued dialogue with both the lenders (the DIP Lenders ) under its debtor in possession financing facility (the DIP Facility ) and the Creditors Including any guaranties, amendments, subleases, and ancillary documents related thereto. See Order Establishing and Authorizing Procedures for the Rejection of Unexpired Leases of Nonresidential Real Property, entered on October 21, 2010 [Doc. No. 362] (the Rejection Procedures Order ). The Rejection Procedures Order also authorized landlords to dispose of property deemed abandoned, free and clear of any interests of any other party, without liability to any party. See Order Pursuant to 11 U.S.C. 327(a) and 328(a) and Fed. R. Bankr. P for Authorization to Employ and Retain DJM Realty Services, LLC as Real Estate Consultant to the Debtors [Doc. No. 570]; Order Pursuant to 11 U.S.C. 327(a) and 328(a) and Fed. R. Bankr. P for Authorization to Employ and Retain Retail Regroup Inc. d/b/a Retail Resource Group as Real Estate Consultant to the Debtors [Doc. No. 566]. US_ACTIVE:\ \11\

9 Committee. To date, Blockbuster has successfully conducted the Store Closing Sales for stores that have closed after the Commencement Date, without objection from either constituency. 8 However, certain landlords have expressed concerns regarding Blockbuster s continued ability to carry out such ordinary course transactions absent further order of this Court given the applicability of either Restrictive Documents or Liquidation Sale Laws (each as defined herein). 7. In light of these concerns and their potential impact on Blockbuster s ability to continue to efficiently self-liquidate in the ordinary course, the Debtors seek, out of an abundance of caution, authority to continue conducting the Store Closing Sales at store locations the Debtors determine should be closed during these chapter 11 cases (the Closing Stores ), in accordance with certain procedures (the Store Closing Sales Procedures ), as set forth on Exhibit 1 to the proposed order attached hereto as Exhibit A, as well as Bulk Inventory Sales. In addition, the Debtors seek certain ancillary and related relief to override or invalidate any restrictions in any Restrictive Documents (as defined below) that may impair the Debtors ability to conduct the Bulk Inventory Sales or Store Closing Sales or otherwise dispose of assets in Closing Stores, 9 and will exempt the Bulk Inventory Sales and Store Closing Sales from certain federal, state, and local laws, statutes, rules, and ordinances related to store closing and liquidation sales. 8 9 The DIP Lenders continue to consult with the Debtors in connection with the Store Closing Sales and Bulk Inventory Sales, and support the current sales. However the DIP Lenders have advised the Debtors that they reserve their rights as to whether the Store Closing Sales and Bulk Inventory Sales as described herein constitute sales in the ordinary course of business. The Debtors will not sell or transfer their customer lists in connection with the Store Closing Sales. Therefore, the appointment of a consumer privacy ombudsman is unnecessary at this time. See 11 U.S.C. 363(b)(1)(A) (stating a debtor may sell or lease its consumer customer list so long as it complies with the debtor s privacy policy); id. 332(b)(1) (providing that, if a sale is inconsistent with the debtor s privacy policy, section 332 of the Bankruptcy Code governs the appointment of a consumer privacy ombudsman). Should the Debtors propose to sell or otherwise transfer their customer lists, they will apply for further authority from this Court prior to any such transaction. US_ACTIVE:\ \11\

10 II. JURISDICTION 8. This Court has subject matter jurisdiction to consider and determine this matter pursuant to 28 U.S.C This is a core proceeding pursuant to 28 U.S.C. 157(b). Venue is proper pursuant to 28 U.S.C and III. RELIEF REQUESTED 9. By this Motion, the Debtors seek entry of an order, pursuant to sections 105(a) and 363 of the Bankruptcy Code and Bankruptcy Rule 6004: (a) authorizing the Debtors to continue conducting Store Closing Sales and Bulk Inventory Sales; (b) approving the Store Closing Sales Procedures; and (c) granting ancillary and related relief overriding or invalidating any contractual provisions or state and local laws that may restrict such sales. A proposed order is annexed hereto as Exhibit A. IV. BASIS FOR RELIEF REQUESTED A. The Store Closing Sales and Bulk Inventory Sales Are Authorized Under Section 363 of the Bankruptcy Code and Are an Exercise of Sound Business Judgment 10. Sound business reasons exist for the continuation of the Store Closing Sales and Bulk Inventory Sales. Section 363(c)(1) of the Bankruptcy Code provides that, unless a Court orders otherwise, a debtor authorized to operate under section 1108 of the Bankruptcy Code may enter into transactions, including the sale or lease of property of the estate, in the ordinary course of business, without notice or a hearing, and may use property of the estate in the ordinary course of business without notice or a hearing. 11 U.S.C. 363(c)(1). As described above, given the size of the Debtors retail portfolio and in light of its practice over the course of US_ACTIVE:\ \11\

11 the past two years to review that portfolio so as to maximize profitability by closing underperforming stores, the continued closing of such stores in the ordinary course does not necessarily require an order of this Court. Landlords are well aware that the Debtors conducted Store Closing Sales in many of their stores prior to the Commencement Date, as well as in the first few months of these chapter 11 cases. The Debtors believe that the sale of excess Inventory and other assets at Closing Stores and Bulk Inventory Sales are among the day-to-day activities relating to the management of their retail business, and, therefore, the Debtors are authorized to continue to engage in Store Closing Sales and Bulk Inventory Sales in the ordinary course of their business pursuant to section 363(c)(1) of the Bankruptcy Code. 11. However, to minimize potential conflicts with landlords and other interested parties, and to ensure that the Debtors are able to effectuate the Store Closing Sales and Bulk Inventory Sales in the most efficient manner, the Debtors, out of an abundance of caution, seek authority, pursuant to sections 105(a) and 363(b) of the Bankruptcy Code, to conduct the Store Closing Sales and Bulk Inventory Sales. Section 363(b) of the Bankruptcy Code, which authorizes a debtor to use or sell assets of the estate other than in the ordinary course of business, free and clear of liens, claims and encumbrances, provides, in relevant part, as follows: (b)(1) The trustee, after notice and a hearing, may use, sell, or lease, other than in the ordinary course of business, property of the estate... See 11 U.S.C. 363(b)(1); see also Fed. R. Bankr. P. 6004(f)(1) ( All sales not in the ordinary course of business may be by private sale or by public auction. ). Moreover, section 105(a) of the Bankruptcy Code provides that [t]he Court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title. 11 U.S.C. 105(a). US_ACTIVE:\ \11\

12 12. The decision to sell assets outside the ordinary course of business is based upon the sound business judgment of the debtor. See, e.g., In re Chateaugay Corp., 973 F.2d 141, 145 (2d Cir. 1992); Comm. of Equity Sec. Holders v. Lionel Corp. (In re Lionel Corp.), 722 F.2d 1063, 1071 (2d Cir. 1983) ( The rule we adopt requires that a judge determining a 363(b) application expressly find from the evidence presented before him at the hearing a good business reason to grant such an application. ); see also Official Comm. of Subordinated Bondholders v. Integrated Res., Inc. (In re Integrated Res., Inc.), 147 B.R. 650, 656 (S.D.N.Y. 1992) (stating the business judgment rule is a presumption that in making a business decision the directors of a corporation acted on an informed basis, in good faith and in the honest belief that the action was in the best interests of the company, and has continued applicability in bankruptcy (quoting Smith v. Van Gorkom, 488 A.2d 858, 872 (Del. 1985))), appeal dismissed, 3 F.3d 49 (2d Cir. 1993). 13. Ample business justification exists to continue conducting the Store Closing Sales and Bulk Inventory Sales. The Store Closing Sales allow the Debtors to dispose of Inventory and other assets in Closing Stores in the most economical and efficient manner and minimize the costs of shipping and storing excess Inventory. Additionally, the Bulk Inventory Sales allow the Debtors to recoup value from otherwise non-saleable/rental ready merchandise. The realization of fair value for these assets as promptly as possible will inure to the benefit of all parties in interest. Moreover, if the Debtors determine to close a significant number of stores, the self-liquidation of Inventory, fixtures, and equipment through Store Closing Sales or Bulk Inventory Sales likely will generate the maximum amount of proceeds and is more efficient than attempting to absorb the excess Inventory, fixtures, and equipment in surrounding store locations. US_ACTIVE:\ \11\

13 14. Any interruption or delay in the Debtors ability to efficiently close stores during these chapter 11 cases would have serious negative consequences for the Debtors estates. Specifically, interruptions or delays in the Store Closing Sales process could delay the date by which the Debtors are able to vacate the Closing Stores and reject the Leases associated with the Closing Stores, thus causing the Debtors to unnecessarily incur administrative obligations to landlords, utility providers, and other postpetition creditors. 15. Store closing or liquidation sales are a routine occurrence in chapter 11 cases involving retail debtors. See In re Ames Dept. Stores, Inc., 136 B.R. 357, 359 (Bankr. S.D.N.Y. 1992) (holding that going-out-of-business sales are an important part of overriding federal policy requiring [a] Debtor to maximize estate assets ). Bankruptcy Courts have approved similar requests by debtors to conduct store closing sales, finding the debtors requested relief consistent with applicable provisions of the Bankruptcy Code. See, e.g., In re Movie Gallery, Inc., Ch. 11 Case No (DOT) (Bankr. E.D. Va. Feb. 4, 2010); In re Finlay Enters., Inc., Ch. 11 Case No. (Bankr. S.D.N.Y. Sept. 25, 2009); In re Circuit City Stores, Inc., Ch. 11 Case No (KRH) (Bankr. E.D. Va. Nov. 10, 2008); In re Sharper Image Corp., Ch. 11 Case No (KG) (Bankr. D. Del. Mar. 14, 2008). B. To the Extent Applicable, Assets Should be Sold Free and Clear of Liens, Claims, and Encumbrances 16. Given the ordinary course nature of the Store Closing Sales and Bulk Inventory Sales, the Debtors submit that customers who purchase excess, defective, or otherwise non-saleable/rental ready Inventory take such property free and clear of any security interest in those goods. See UCC To the extent, however, that the Store Closing Sales or Bulk Inventory Sales may be non-ordinary course, the Debtors seek authority, as set forth in the proposed order annexed as Exhibit A, to sell property pursuant to Store Closing Sales and US_ACTIVE:\ \11\

14 Bulk Inventory Sales free and clear of any and all liens, claims, and encumbrances in accordance with section 363(f) of the Bankruptcy Code, with any such liens, claims and encumbrances attaching to the proceeds of the sale. Pursuant to section 363(f) of the Bankruptcy Code, a debtor in possession may sell property of the estate free and clear of any interest in such property of an entity other than the estate if any one of the following conditions is satisfied: applicable nonbankruptcy law permits sale of such property free and clear of such interest; such entity consents; such interest is a lien and the price at which such property is to be sold is greater than the aggregate value of all liens on such property; such interest is in bona fide dispute; or such entity could be compelled, in a legal or equitable proceeding, to accept a money satisfaction of such interest. 11 U.S.C. 363(f)(1) (5). 17. With respect to any party asserting a lien, claim, or encumbrance against the assets, the Debtors believe that they satisfy one or more of the conditions set forth in section 363(f) of the Bankruptcy Code. The DIP Lenders have consented to the sale of their collateral pursuant to the Store Closing Sales, and the Debtors continuation of Store Closing Sales are factored into the approved budget under the DIP Facility. Moreover, the Debtors will obtain the consent of the DIP Lenders before consummating any Bulk Inventory Sales and provide the DIP Lenders with notice of any additional Store Closing Sales. Other than the liens granted to the DIP Lenders and prepetition liens of the senior secured noteholders, the Debtors are not aware of any liens relating to the Inventory and other property that will be liquidated in the Closing Stores or pursuant to Bulk Inventory Sales. Further, parties in interest will have received notice of this motion, and will be given sufficient opportunity to object to the relief requested. Any such entity US_ACTIVE:\ \11\

15 that does not object to the sale should be deemed to have consented. See Futuresource LLC v. Reuters Ltd., 312 F.3d 281, (7th Cir. 2002) ( It is true that the Bankruptcy Code limits the conditions under which an interest can be extinguished by a bankruptcy sale, but one of those conditions is the consent of the interest holder, and lack of objection (provided of course there is notice) counts as consent. It could not be otherwise; transaction costs would be prohibitive if everyone who might have an interest in the bankrupt s assets had to execute a formal consent before they could be sold. (internal citations omitted)); Hargrave v. Township of Pemberton (In re Tabone, Inc.), 175 B.R. 855, 858 (Bankr. D.N.J. 1994) (finding failure to object to sale free and clear of liens, claims and encumbrances satisfies section 363(f)(2)); Citicorp Homeowners Serv., Inc. v. Elliot (In re Elliot), 94 B.R. 343, 345 (E.D. Pa. 1988) (same); see also In re Enron Corp., Case No (AJG), 2003 WL , at *2 (Bankr. S.D.N.Y. July 28, 2003) (order deeming all parties who did not object to proposed sale to have consented under section 363(f)(2)). As such, to the extent that no party holding a lien objects to the relief requested by this Motion, the sale of the purchased assets free and clear of all liens, claims and encumbrances satisfies section 363(f)(2) of the Bankruptcy Code. 18. Accordingly, the Debtors submit that, to the extent applicable, the Court should authorize Blockbuster to sell the Inventory and other assets free and clear of the liens under the DIP Facility and any other liens, claims, encumbrances, and interests in the assets that may exist, with any of the same to be transferred and attached to the net proceeds of the sale, with the same validity and priority that such liens, claims, encumbrances, or interests had against the assets. US_ACTIVE:\ \11\

16 C. Cause Exists to Grant the Ancillary and Related Relief 1. The Court Should Invalidate Any Restrictions in Restrictive Documents That May Impair the Debtors Ability to Conduct the Store Closing Sales 19. The Debtors further request an order overriding or invalidating any restrictions in any Restrictive Documents (as defined herein) that may impair the Debtors ability to close stores and conduct the Store Closing Sales. Specifically, as stated, the stores subject to the Store Closing Sales will be located on properties that are leased by the Debtors. In certain cases, the contemplated Store Closing Sales may be inconsistent with certain provisions of such leases, subleases, or other documents with respect to any such leased premises, including (without limitation) reciprocal easement agreements, agreements containing covenants, conditions and restrictions (including, without limitation, go-dark provisions and landlord recapture rights), or other similar documents or provisions (collectively, the Restrictive Documents ). 20. Store closing or liquidation sales are a routine part of chapter 11 cases involving retail debtors. Such sales are consistently approved by Courts, despite provisions of recorded documents or agreements purporting to forbid such sales. Indeed, other such restrictive provisions in leases have been deemed unenforceable in other chapter 11 cases as impermissible restraints on a debtor s ability to maximize the value of its assets under section 363 of the Bankruptcy Code. See In re Bradlees Stores, Inc., Case No (BRL) (Bankr. S.D.N.Y. Jan. 4, 2001) (authorizing Debtors to conduct GOB sales notwithstanding state rules or statutes governing closing, liquidation, or going-out-of-business sales and notwithstanding provision in leases restricting Debtor's ability to conduct such sales); In re R.H. Macy & Co., 170 B.R. 69, 77 (Bankr. S.D.N.Y. 1994) (holding restrictive lease provision unenforceable against debtor that sought to conduct going-out-of-business sale because it conflicts with the Debtor s fiduciary US_ACTIVE:\ \11\

17 duty to maximize estate assets ); In re Ames Dep t Stores, Inc., 136 B.R. at 359 (finding that to enforce the anti-gob sale clause of the [l]ease would contravene overriding federal policy requiring Debtors to maximize estate assets by imposing additional constraints never envisioned by Congress ); see also In re Tobago Bay Trading Co., 112 B.R. 463, 467 (Bankr. N.D. Ga. 1990) (finding anti-going-out-of-business sales clause in lease unenforceable); In re Lisbon Shops, Inc., 24 B.R. 693, 695 (Bankr. E.D. Mo. 1982) (finding that lease could not restrict debtor from conducting going-out-of-business sales). 21. Thus, the Court should ensure that no clause in any of the Restrictive Documents is an impediment to the Store Closing Sales, closures of Closing Stores, or the activities in connection therewith, as interested parties are adequately protected by the terms of the proposed order annexed as Exhibit A. To the extent such provisions exist in any Restrictive Documents, they should not be permitted to interfere with, or otherwise restrict the Debtors from conducting the Store Closing Sales or the closing of any Closing Stores. 2. The Store Closing Sales and Bulk Inventory Sales Should be Exempt from Certain Federal, State, And Local Laws, Statutes, Rules, and Ordinances Related to Store Closing and Liquidation Sales 22. Certain states in which the Closing Stores and distribution centers are located have or may have licensing and other requirements governing the conduct of store closing, liquidation, or other inventory clearance sales, including (but not limited to) federal, state, and local laws, statutes, rules, regulations, and ordinances related to store closing and liquidation sales, establishing licensing, permitting, or bonding requirements, waiting periods, time limits, bulk sale restrictions, augmentation limitations that would otherwise apply to the Store Closing Sales and Bulk Inventory Sales, or consumer fraud laws, with the exception of deceptive advertising laws (the Liquidation Sale Laws ). Typical statutes and regulations provide that if a liquidation or bankruptcy sale is court authorized, however, then a company US_ACTIVE:\ \11\

18 need not comply with these Liquidation Sale Laws. Moreover, pursuant to section 105 of the Bankruptcy Code, the Court has the authority to permit the Store Closing Sales and Bulk Inventory Sales to proceed notwithstanding contrary Liquidation Sale Laws. See 11 U.S.C. 105(a). 23. The Debtors, therefore, request that, pursuant to Bankruptcy Code section 105(a), this Court authorize the Debtors to conduct the Store Closing Sales and Bulk Inventory Sales without the necessity of, and the delay associated with, complying with the Liquidation Sale Laws. 24. Because the Debtors and their assets are subject to this Court s jurisdiction, see 28 U.S.C. 1334, this Court will be able to supervise the Store Closing Sales and Bulk Inventory Sales. The Store Closing Sales and Bulk Inventory Sales are legitimate methods by which the Debtors can maximize the return from the sale of the merchandise for the benefit of their estates and creditors. Moreover, creditors and the public interest are adequately protected by the notice of this Motion and the jurisdiction and supervision of this Court. 25. Even if a state or local law does not expressly except bankruptcy sales from its ambit, the Debtors submit that, to the extent that such state or local law conflicts with federal bankruptcy laws, it is preempted by the Supremacy Clause of the United States Constitution. To hold otherwise would severely impair the relief otherwise available under section 363 of the Bankruptcy Code. In concert with this premise, Bankruptcy Courts have consistently recognized that federal bankruptcy law preempts state and local laws that contravene the underlying policies of the Bankruptcy Code. See, e.g., Aloe v. Shenango Inc. (In re Shenango Group, Inc.), 186 B.R. 623, 628 (Bankr. W.D. Pa. 1995) ( Trustees and debtors-inpossession have unique fiduciary and legal obligations pursuant to the bankruptcy code.... [A] US_ACTIVE:\ \11\

19 state statute [ ] cannot place burdens on them where the result would contradict the priorities established by the federal bankruptcy code. ). While preemption of state law is not always appropriate, as when the protection of public health and safety is involved, see Baker & Drake, Inc. v. Pub. Serv. Comm n of Nev. (In re Baker & Drake, Inc.), 35 F. 3d 1348, (9th Cir. 1994) (finding no preemption when state law prohibiting taxicab leasing was promulgated in part as a public safety measure), it is appropriate when, as here, the only state laws involved concern economic regulation. Id. at 1353 (finding that federal bankruptcy preemption is more likely... where a state statute is concerned with economic regulation rather than with protecting the public health and safety ). 26. Here, section 363 of the Bankruptcy Code, which requires the Debtors to operate their businesses in a way that maximizes recoveries for creditors, will be undermined if the Court does not provide for the waiver of the Liquidation Sale Laws because the Liquidation Sale Laws constrain the Debtors ability to marshal and maximize assets for the benefit of creditors. Similar relief has been granted in this and other bankruptcy cases in other jurisdictions. See, e.g., In re Finlay Enters., Inc., Ch. 11 Case No. (Bankr. S.D.N.Y. Sept. 25, 2009); In re Value City Holdings, Inc., (JMP) (Bankr. S.D.N.Y. Nov. 20, 2008); In re Steve and Barry s Manhattan LLC, (AG) (Bankr. S.D.N.Y. Aug. 22, 2008); In re Goody s Family Clothing, Inc., Case No (Bankr. D. Del. June 13, 2008). 27. Importantly, given the supervision of this Court, the requested waiver will not unduly undermine state and local requirements that would otherwise apply to the Store Closing Sales and Bulk Inventory Sales. The Debtors only request that this Court authorize the Debtors to conduct the Store Closing Sales and Bulk Inventory Sales without the necessity of, and the delay associated with, obtaining various state licenses or permits, observing state and US_ACTIVE:\ \11\

20 local waiting periods or time limits, and/or satisfying any additional requirements with respect to advertising, conducting the Store Closing Sales as store closings or similar type sales, or transferring merchandise to or between the Closing Stores and/or distribution centers. The Debtors fully intend to be bound by and comply with remaining statutes and regulations, such as health and safety laws. 28. The Debtors also request that no other person or entity, including (but not limited to) any lessor or federal, state, or local agency, department, or governmental authority, be allowed to take any action to prevent, interfere with, or otherwise hinder consummation of the Store Closing Sales and Bulk Inventory Sales, or the advertising and promotion (including through the posting of signs) of Store Closing Sales, in the manner set forth in the proposed Order. D. The Court Should Waive or Reduce the Periods Required By Rules 6004(h) and 6006(d) of the Federal Rules of Bankruptcy Procedure 29. Pursuant to Rule 6004(h), unless the Court orders otherwise, all orders authorizing the sale of property pursuant to section 363 of the Bankruptcy Code are automatically stayed for 14 days after entry of the order. Fed. R. Bankr. P. 6004(h). The purpose of Bankruptcy Rule 6004(h) is to provide sufficient time for an objecting party to appeal before the order is implemented. See Fed. R. Bankr. P. 6004(h) advisory committee note. 30. In order to maximize value from the Store Closing Sales and Bulk Inventory Sales, the Debtors request that any order approving the Motion be effective immediately by providing that the 14-day stay under Bankruptcy Rules 6004(h) is waived. E. The Court Should Waive the Debtors Compliance With The Requirements of Local Rule , to the Extent Applicable 31. Consistent with their prepetition practice, the Debtors propose to continue conducting the Store Closing Sales and Bulk Inventory Sales without employing an appraiser or US_ACTIVE:\ \11\

21 auctioneer. With respect to the Bulk Inventory Sales, after the Debtors actively solicit the highest and best offers for the defective or otherwise non-saleable/rental ready Inventory, the Debtors will continue to provide notice of the proposed Bulk Inventory Sales to the DIP Lenders and their professionals, as well as to the Creditors Committee. The Debtors submit that, given the description of the Store Closing Sales and Bulk Inventory Sales provided herein, the requirements of Rule of the Local Bankruptcy Rules for the Southern District of New York (the Local Bankruptcy Rules ) have been satisfied. Alternatively, to the extent the Court finds that the Debtors have not met any applicable provisions of Local Bankruptcy Rule , the Debtors respectfully request that the Court waive such requirements with respect to this Motion. V. NOTICE 32. No trustee or examiner has been appointed in these chapter 11 cases. The Debtors have served notice of this Motion on: (i) the U.S. Trustee; (ii) the attorneys for the Creditors Committee; (iii) the attorneys for U.S. Bank National Association, as trustee under that certain indenture agreement, dated as of October 1, 2009, with respect to the 11.75% Senior Secured Notes due 2014 issued by Blockbuster Inc.; (iv) the attorneys for The Bank of New York Trust Company, N.A., as trustee under that certain indenture agreement, dated as of August 20, 2004, with respect to the 9% Senior Subordinated Notes due 2012 issued by Blockbuster Inc.; (v) the attorneys for the DIP Lenders; (vi) the attorneys for Wilmington Trust FSB, as agent under the DIP Facility; (vii) each of the Debtors landlords; (viii) for each State in which the Debtors stores are located, (a) the Attorney General s Office, and (b) the applicable taxing authorities; and (ix) those parties who have requested notice pursuant to Bankruptcy Rule 2002 US_ACTIVE:\ \11\

22 (collectively, the Notice Parties ). The Debtors submit that no other or further notice need be provided. 33. No previous request for the relief sought herein has been made by the Debtors to this or any other Court. WHEREFORE, the Debtors respectfully request that the Court grant the relief requested herein and such other and further relief as it deems just and proper. Dated: December 17, 2010 New York, New York /s/ Stephen Karotkin Stephen Karotkin WEIL, GOTSHAL & MANGES LLP 767 Fifth Avenue New York, New York Telephone: (212) Facsimile: (212) and Martin A. Sosland (admitted pro hac vice) WEIL, GOTSHAL & MANGES LLP 200 Crescent Court, Suite 300 Dallas, Texas Telephone: (214) Facsimile: (214) US_ACTIVE:\ \11\

23 Exhibit A Proposed Order US_ACTIVE:\ \11\

24 UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK x : In re : Chapter 11 : BLOCKBUSTER INC., et al., 1 : Case No (BRL) : : (Jointly Administered) Debtors. : x ORDER PURSUANT TO 11 U.S.C. 105(a) AND 363 AND FED R. BANKR. P AUTHORIZING THE DEBTORS TO CONTINUE TO CONDUCT STORE CLOSING SALES AND BULK INVENTORY SALES, APPROVING PROCEDURES WITH RESPECT TO ORDINARY COURSE STORE CLOSING SALES, AND GRANTING ANCILLARY AND RELATED RELIEF Upon the Motion, 2 dated [December 17, 2010] of Blockbuster Inc. and its debtor affiliates, as debtors and debtors in possession (collectively, Blockbuster or the Debtors ) in the above-captioned chapter 11 cases, pursuant to sections 105(a) and 363 of the Bankruptcy Code and Bankruptcy Rule 6004, authorizing the Debtors to continue to conduct Store Closing Sales and Bulk Inventory Sales, approving Store Closing Procedures, and granting ancillary and related relief overriding or invalidating any contractual provisions or state or local laws that may restrict such sales, all as more fully set forth in the Motion; and this Court having jurisdiction to consider the Motion and grant the requested relief in accordance with 28 U.S.C. 157 and 1334 and the Standing Order M-61 Referring to Bankruptcy Judges for the Southern District of New York Any and All Proceedings Under Title 11, dated July 10, 1984 (Ward, Acting C.J.); and 1 2 The Debtors, together with the last four digits of each Debtor s federal tax identification number, are Blockbuster Inc. (5102); Blockbuster Canada Inc. (1269); Blockbuster Digital Technologies Inc. (9222); Blockbuster Distribution, Inc. (0610); Blockbuster Gift Card, Inc. (1855); Blockbuster Global Services Inc. (3019); Blockbuster International Spain Inc. (7615); Blockbuster Investments LLC (6313); Blockbuster Procurement LP (2546); Blockbuster Video Italy, Inc (5068); Movielink, LLC (5575); Trading Zone Inc. (8588); and B 2 LLC (5219). Capitalized terms not defined herein shall have the meaning ascribed to them in the Motion. US_ACTIVE:\ \11\

25 consideration of the Motion and the relief requested therein being a core proceeding pursuant to 28 U.S.C. 157(b); and venue being proper before this Court pursuant to 28 U.S.C and 1409; and the Debtors having provided notice of the Motion to the Notice Parties, and it appearing that no further notice need be given; and it appearing that the relief sought in the Motion is in the best interests of the Debtors, their estates, creditors, and all parties in interest, and that the legal and factual bases set forth in the Motion establish just and sufficient cause to grant the requested relief herein; IT IS HEREBY ORDERED THAT: 1. The Motion is granted as provided herein. 2. All objections to the Motion that have not been withdrawn, waived, settled, or specifically addressed in this Order, and all reservations of rights included in such objections, are overruled in all respects on the merits and denied. 3. The Debtors are immediately authorized, pursuant to sections 363 and 105(a) of the Bankruptcy Code, to continue to conduct Store Closing Sales at Closing Store locations and Bulk Inventory Sales, in their sole discretion. 4. Pursuant to section 363(f) of the Bankruptcy Code, the assets being sold pursuant to the Store Closing Sales and Bulk Inventory Sales shall be sold free and clear of any and all mortgages, security interests, conditional sales or title retention agreements, pledges, hypothecations, liens, judgments, encumbrances or claims of any kind or nature (including, without limitation, any and all claims as defined in section 101(5) of the Bankruptcy Code), including, without limitation, the liens and security interests of the DIP Lenders (collectively, the Liens ), with such Liens, if any, attaching to the proceeds. US_ACTIVE:\ \11\

26 5. The Store Closing Sales Procedures attached here to as Exhibit 1 are approved, provided that the Debtors and landlords are authorized to enter into agreements modifying the Store Closing Sales Procedures without further order of the Court; provided that such agreements do not have a material adverse effect on the Debtors or their estates. 6. All utilities, landlords, creditors and all persons acting for or on their behalf (but not Governmental Units, as defined in Bankruptcy Code section 101(27)) shall not interfere with or otherwise impede the conduct of the Store Closing Sales and Bulk Inventory Sales, or institute any action against the Debtors or landlords in any court (other than in this Bankruptcy Court) or before any administrative body which in any way directly or indirectly interferes with, obstructs, or otherwise impedes the conduct of the Store Closing Sales and Bulk Inventory Sales. 7. Any restrictions in any Restrictive Documents purporting to limit, condition, or impair the Debtors ability to conduct the Store Closing Sales or the Bulk Inventory Sales shall not be enforceable, nor shall any breach of such provisions constitute a default under a lease or provide a basis to terminate the lease. 8. The Closing Stores may go-dark during the Store Closing Sales and remain dark despite any lease restriction, real estate local act, local law, or ordinance to the contrary, and any continuous operation or similar clause in any of the leases (or any lease provision that purports to increase the rent or impose any penalty for going dark) may not be enforced to hinder or interrupt the Store Closing Sales (and the going dark under such leases shall not be a basis to cancel or terminate the leases). 9. Subject to applicable state and local public health and safety laws (the Safety Laws ), and applicable tax, labor, employment, environmental, and consumer protection US_ACTIVE:\ \11\

27 laws, including consumer laws regulating deceptive practices and false advertising (collectively, the General Laws ), but excluding Liquidation Sale Laws, the Debtors are authorized to take such actions as necessary and appropriate to conduct the Store Closing Sales and Bulk Inventory Sales without the necessity of a further order of this Court, including, but not limited to, advertising the Store Closing Sales. 10. Provided that the Store Closing Sales are conducted in accordance with the terms of this Order and the Store Closing Sales Procedures, and in light of the provisions in the laws of many Governmental Units that exempt court-ordered sales from their provisions, the Debtors shall be presumed to be in compliance with any Liquidation Sale Laws and, subject to paragraphs 14 through 17 herein, are authorized to conduct the Store Closing Sales and Bulk Inventory Sales in accordance with the terms of this Order without the necessity of compliance with any such Liquidation Sale Laws. 11. The Debtors shall be entitled to use sign walkers, hang signs and/or interior or exterior banners advertising the Store Closing Sales in accordance with the Store Closing Sales Procedures (or as otherwise agreed between the Debtors and the respective landlords), including, without limitation, advertising the Store Closing Sales as store closing, sale on everything, or similar themed sales and by means of media advertising, A-frames, banners, and similar signage, without further consent of any person and without compliance with the Liquidation Sale Laws. Provided that the use of banners and sign walkers is done in a safe and responsible manner, such sign walkers and banners, in and of themselves, shall not be deemed to be in violation of Safety Laws and/or General Laws. 12. Each and every federal, state, or local agency, departmental or Governmental Unit with regulatory authority over the Store Closing Sales and Bulk Inventory US_ACTIVE:\ \11\