According to a press release dated November 10, 2005, the complaint alleges that Viacom was Blockbuster's controlling shareholder and that, prior to the Exchange Offer, Viacom caused Blockbuster to pay a $5 per share special dividend of which Viacom was the primary beneficiary. In order to pay the dividend, Blockbuster was forced to take on debt in the amount of approximately $1.1 billion.

Subsequently, in the Prospectus issued in connection with Viacom's divestiture of its Blockbuster shares, (the "Prospectus"), defendants stated that Blockbuster planned to transform itself "from a place where you go to rent a movie to a brand where you go to rent, buy or trade a movie or game, new or used, pay-by-the-day, pay-by-the-month, in-store or online." The transformation was to be achieved through a series of initiatives: Blockbuster Online (Internet sales); Movie Pass (in-store movie subscription); Game Pass (in-store game subscription); and "No More Late Fees." Defendants warned investors that the transformation would require heavy investment but assured them that Blockbuster's debt obligations would not stand in the way and that, "the steady operating cash flow from our core rental business has provided us with the ability to invest in new initiatives."

As set forth in the complaint, defendants failed to disclose in the Prospectus and throughout the Class Period that Blockbuster was wholly unprepared to build the technological infrastructure required to integrate its in-store and online sales operations and otherwise execute the Company's transformation. Moreover, the Company's core in-store rental operations were not generating sufficient cash flow to fund Blockbuster's investment in "new initiatives." The truth began to emerge on August 9, 2005, when, before the market opened, the Company reported: (a) a second-quarter net loss of $57.2 million, or $0.31 per share --- well below Company-guided analyst estimates; (b) negative free cash flow of $118 million compared to positive free cash flow of $23 million in the second quarter of 2004; and (c) that it was abandoning its 2005 guidance. The Company also announced that, on August 8, 2005, it had been forced to amend its credit facility to provide for a waiver of its leverage ratio covenants. After this announcement, the Company's stock opened that morning at $7.05, down 11.9%, or $0.96 from the previous day's closing price of $8.01. The stock continued to decline as the market absorbed the full impact of the announcement, falling to a six-year low of $6.30 on August 10, 2005.

The complaint further alleges that after the Class Period, on or around November 8, 2005, defendants stated in an SEC filings that Blockbuster "may not have sufficient cash flows from operating activities, cash on hand and available borrowings under our credit facilities to service our indebtedness" and that the Company could be forced into bankruptcy if it was unable to raise additional funds through a private offering.

The complaint has been filed on behalf of all persons who acquired the publicly traded securities of Blockbuster, Inc. (NYSE:BBI) pursuant to the Company's exchange offer of Viacom, Inc. ("Viacom") stock for 144 million common shares of Blockbuster (the "Exchange Offer"), and on behalf of those who purchased Blockbuster shares in the open market between September 8, 2004 and August 9, 2005, inclusive (the "Class Period").

If you bought Blockbuster, Inc. securities between September 8, 2004 and August 9, 2005, inclusive, and would like to obtain information about the Blockbuster, Inc. lawsuit, then you are invited to call (866) 467-1400 to speak with an attorney.