Exhibit 10.3

MANAGEMENT EMPLOYMENT AGREEMENT

This Management Employment Agreement (the “Agreement”), dated as of November 30,
2006, by and among FirstCity Business Lending Corporation, a Texas corporation
(“FirstCity BLC”), American Business Lending, Inc., a Texas corporation (the
“Company”), and Joseph N. Smith (“Executive”).

WHEREAS, the Company desires to secure the services of Executive as its
President, and Executive desires to become employed by the Company as its
President, and, in connection therewith, the Company and Executive desire to
enter into this Agreement to, among other things, set forth the terms of such
employment;

NOW, THEREFORE, in consideration of the premises and mutual covenants contained
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and Executive hereby
agree as follows:

1.             Agreement to Employ.  Upon the terms and subject to the
conditions of this Agreement, the Company hereby employs Executive and Executive
hereby accepts employment by the Company.

2.             Term; Position and Responsibilities.

(a)           Term of Employment.  This Agreement shall be binding upon and
enforceable against the Company and Executive immediately upon its execution by
both parties.  The stated term of this Agreement and the employment relationship
created hereunder shall be deemed to have begun June 19, 2006, and shall remain
in effect until June 19, 2011, unless sooner terminated in accordance with
Section 6 hereof (the “Initial Employment Term”).  This Agreement shall be
automatically renewed for successive one (1) year terms after the Initial
Employment Term (each a “Renewal Term”), unless terminated by either party upon
written notice (“Non-Renewal Notice”) given at least sixty (60) days prior to
the end of the Initial Employment Period or any Renewal Term.  The date
Executive commences employment hereunder will be referred to as the
“Commencement Date” and the period during which Executive is employed pursuant
to this Agreement (including any Renewal Term) will be referred to as the
“Employment Period.”

(b)           Position and Responsibilities.  During the Employment Period,
Executive will serve as President of the Company with such duties and
responsibilities as are customarily assigned to individuals serving in such
position and such other duties and responsibilities consistent with his position
and his duties and responsibilities as President as may be specified by the
Board of Directors of the Company (the “Board”) from time to time.  Executive
will report directly to the Chief Executive Officer of the Company.  During the
Employment Period, Executive will  devote his undivided loyalty to the Company
and devote all of his skill, knowledge and working time (except for (i)

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

 

reasonable vacation time and absence for sickness or similar disability, and
(ii) to the extent that it does not interfere with the performance of
Executive’s duties hereunder, (A) such reasonable time as may be devoted to
service on boards of directors and the fulfillment of civic responsibilities,
and (B) such reasonable time as may be necessary from time to time for personal
financial matters) to the conscientious performance of his duties and
responsibilities hereunder.  Executive represents that he is entering into this
Agreement voluntarily and that his employment hereunder and compliance by him
with the terms and conditions hereof will not conflict with or result in the
breach of any agreement to which he is a party or by which he may be bound.

3.             Compensation.  As compensation for the services to be performed
by Executive hereunder, during the Employment Period, the Company will pay
Executive, and Executive shall accept as full compensation hereunder, the
following:

(a)           Base Salary.  An annual base salary of $ 175,000 during the first
year of the Initial Employment Period, and $200,000 during the second year of
the Initial Employment Period, which annual base salary shall hereinafter be
referred to as the “Base Salary”); provided, however, that during the
pre-operational period of the Company, which commenced on June 19, 2006 and will
continue until the Closing under the Asset Purchase Agreement, dated as of June
30, 2006 (the “Asset Purchase Agreement”), among NCS I, LLC, and AMRESCO SBA
Holdings, Inc., as “Sellers,” and the Company, as “Purchaser” (the “Pre-Op
Period”), Executive shall receive 50% of his Base Salary until the end of the
Pre-Op Period.  If the Closing (as defined in the Asset Purchase Agreement)
occurs, then Executive shall receive payment of the full amount (100%) of the
Base Salary retroactive to August 19, 2006, payable within thirty (30) days
after the Closing under the Asset Purchase Agreement.  Executive’s salary shall
be subject to all appropriate federal and state withholding taxes and shall be
payable in accordance with the normal payroll procedures of the Company.  The
Company shall not reduce Executive’s salary without Executive’s written consent.

(b)           Discretionary Bonus Pool. The Board will establish an incentive
bonus pool for all Company employees based on the Bonus Pool Methodology set
forth in Exhibit “A” attached hereto (the “Bonus Pool”).  Executive shall be
permitted to participate in Bonus Pool, which may provide an Incentive Bonus
(hereinafter defined) of up to 100% of Base Salary each year during the
employment Period.  The evaluation of the performance of Executive as measured
by the applicable targets and the awarding of applicable bonuses, if any, shall
be at the sole discretion of the Board of Directors of the Company.  The annual
discretionary incentive bonus (the “Incentive Bonus”) may be awarded in whole or
in part, based on the level of incentive bonus pool performance criteria
achieved by Executive, in the sole judgment of the Board of Directors of the
Company.  If Executive terminates this Agreement without Good Reason, as defined
in Section 6(d), or if the Company terminates this Agreement at any time for
Cause, as defined in Section 6(b), Executive will not be paid any Incentive
Bonus, in whole or in part for the year in which such termination occurred.

2

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

 

(c)           Annual Review of Base Salary After Two Years.  The Company will
review Executive’s Base Salary annually, commencing with the first such annual
review no later than thirty (30) days prior to the end of the second year of the
Initial Employment Term, and continuing for any Renewal Term, if any, and, in
the sole discretion of the Board, may increase the Base Salary.

4.             Equity Ownership of the Company; Options.

(a)           Grant of Options and Opportunity to Purchase Restricted Stock. 
During the Employment Period, within ten (10) business days after December 31,
2007 and continuing thereafter within ten (10) business days after December 31,
2008, 2009, and 2010 (the  period between December 31 2007 and December 31 2010
being hereinafter referred to as the “Combined Purchase Period”), FirstCity BLC
will grant to Executive options (“Options”)to purchase restricted shares
(“Restricted Shares”) of common stock, $0.001 par value per share (“Common
Stock”) of the Company, which combined with the Restricted Shares which may be
acquired upon exercise of the Options will grant to Executive the right, upon
purchase of such Restricted Stock and the exercise of the Options, at the time
of exercise and/or purchase (the “Exercise Date”), to acquire shares of Common
Stock in the form of Restricted Shares equal to Executive’s Equity Ownership. 
Executive at any time during the Employment Period, in his sole discretion, upon
ten (10) business days notice to the Company and FirstCity BLC, may purchase
Restricted Shares equal to Executive’s Equity Ownership less the amount of
shares held by Executive subject to Options, provided that Executive exercises
all of the Options simultaneously with the purchase of the Restricted Shares. 
The Executive’s rights to the grant of Options and the issuance and purchase of
Restricted Shares will terminate upon the termination of his employment under
this Agreement for any reason.  The Company shall not be obligated to grant
Executive any Options or issue and sell any Restricted Shares to Executive
unless Executive is employed by the Company under this Agreement at the date of
determination.

(b)           Certain Definitions.  For purposes of this Agreement, the term
“Executive’s Equity Ownership” shall mean shares of Common Stock equal in the
aggregate of eight per cent (8%) of the outstanding shares of Common Stock of
the Company at the date of Closing under the Asset Purchase Agreement.  The
exercise price of the Options and the purchase price of the Restricted Shares
shall be equal to the greater of $1.00 or Book Value per share of the Common
Stock (the “Stock Purchase Price”).  For purposes of this Agreement, the term
“Book Value per Share of Common Stock” shall mean the book value per share of
Common Stock determined as of December 31 of the year preceding the Exercise
Date, and will be determined in accordance with generally accepted accounting
principles.

(c)           Yearly Option Grants.  During the Employment Period, within ten
(10) business days after December 31 of the years 2007, 2008, 2009, and 2010,
the Company will grant to Executive an Option to purchase shares of Common Stock
at the Stock Purchase Price, in a number of shares equal to the lesser of (i)
2.0% of the outstanding Common Stock of the Company (i.e., 25% of the total
amount of shares of Common

3

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

 

Stock which may be acquired by the Executive under this Agreement), or (b) the
number of shares equal to Executive’s Equity Ownership, less the total number of
shares of Restricted Shares and Options owned by Executive at the date of
determination.  The Options may be exercised by Executive, in his sole
discretion, in whole but not in part, at any time on or prior to 5:00 p.m.,
Central Time, on December 31, 2014.

(d)           Certain Restrictions on Sale.  In no event will the Company be
required to offer to sell or to sell Restricted Shares or issue or grant Options
to Executive (a) which in the aggregate at any time would cause the number of
shares of Common Stock to be acquired by Executive under this Agreement to
exceed the Executive’s Equity Ownership, or (b) at any time at which making such
an offer or selling any such Restricted Shares or Options would violate any
applicable securities law.

(e)           Management Shareholders’ Agreement.  The terms and conditions of
Executive’s purchase of any Restricted Shares, including certain restrictions on
resale of the Restricted Shares, the right of the Company to repurchase all or a
portion of such Restricted Shares from Executive under certain circumstances,
including without limitation upon termination of Executive’s employment, and the
applicable repurchase price for repurchase of the Restricted Shares, will be set
forth in a Shareholders’ Agreement, between the Company, the Executive, and one
or more other shareholders of the Company (as the same has been or may hereafter
be amended, the “Management Shareholders’ Agreement”).  Among other things, the
Shareholders’ Agreement will grant a right of first refusal under certain
circumstances, first to Charles P. Bell, Jr., and second, to the Company, to
purchase Executive’s Restricted Shares at a purchase price equal to the Book
Value per Share of Common Stock as of the last day of the month preceding the
date of purchase

5.             Benefits and Perquisites: Expenses.

(a)           Benefits and Perquisites. Executive shall be entitled to
participate in the benefit plans provided by the Company for all employees
generally, and for executive employees of The Company.  The Company shall be
entitled to change or terminate such plans in its sole discretion.  The parties
acknowledge that at the initial date of this Agreement the fringe benefits
provided to Executive include a corporate 401(k) plan, health, dental, life, and
long-term disability insurance, and reimbursement of certain expenses in
accordance with the policies and procedures of the Company.

(b)           Business Expenses.  The Company will reimburse Executive for
reasonable travel, lodging and meal expenses incurred by him in connection with
his performance of services hereunder upon submission of information required to
be provided under the Company’s policy for reimbursement of business expenses.

(c)           Key Man Life Insurance.  The Company reserves the right to
purchase key man life insurance on the life of Executive at the Company’s
expense, and in such amounts and on such terms as the Company, in its sole
discretion, may determine.

4

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

 

6.             Termination of Employment.  The employment relationship between
Executive and the Company created hereunder shall terminate before the
expiration of the stated term of this Agreement upon the occurrence of any one
of the following events:

(a)           Death or Permanent Disability.  The employment relationship shall
be terminated effective upon the death or permanent disability of Executive.
However, Executive shall be entitled to leaves of absence from the Company in
accordance with the policy of the Company generally applicable to executives for
illness or temporary disabilities for a period or periods not exceeding three
(3) months on a cumulative basis in any calendar year, and his status as an
Executive shall continue during such periods.   If Executive is incapacitated
due to physical or mental illness and such incapacity prevents Executive from
satisfactorily performing his duties for the Company on a full time basis for
six (6) months or more, Executive shall be deemed to have experienced a
permanent disability and the Company may terminate this Agreement upon thirty
(30) days written notice.  Upon the death or permanent disability of Executive,
Executive or his estate (as the case may be) shall be entitled to compensation
as provided in Section 7(a) and (b) below.

(b)           Termination for Cause.  The Company shall have the option to
terminate the Executive’s employment during the Employment Period, effective
upon written notice of such termination to the Executive, for Cause as
determined by the Board of Directors.  For purposes of this Agreement,
termination for “Cause” shall mean termination of Executive’s employment by the
Board of Directors upon the occurrence of any of the following events:

i.                                  Any act of fraud, misappropriation or
embezzlement by Executive with respect to any aspect of the Company’s business;

ii.                               The breach by Executive of any provision of
Sections 1, 2 or 8 of this Agreement (including but not limited to a refusal to
follow lawful directives of the Board or its designees which are not
inconsistent with the duties of Executive’s position and the provisions of this
Agreement);

iii.                            The conviction of Executive by a court of
competent jurisdiction of a felony or a crime involving moral turpitude;

iv.                           The intentional failure by Executive to perform in
all material respects his duties and responsibilities (other than as a result of
death or disability) and the failure of Executive to cure the same in all
material respects within fifteen (15) days after written notice thereof from the
Board or its designee;

5

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

 

v.                              The illegal use of drugs by Executive during the
term of this Agreement that, in the determination of the Board, substantially
interferes with Executive’s performance of his duties hereunder;

vi.                           Acceptance of employment with any employer other
than the Company, except (A) upon written permission of the Board, or (B) after
termination of the Employment Period for another reason; or

vii.                        The breach by Executive of his fiduciary duties to
the Company.

(c)           The Company shall provide Executive with a written notice of
termination, which can be provided on the date of termination.  In the event
Executive’s employment is terminated for Cause hereunder, Executive shall be
entitled to the compensation provided in Section 7(a) below.

(d)           Termination by the Company with Notice.  The Company may terminate
this Agreement without Cause at any time upon sixty (60) days written notice to
Executive, during which period Executive shall not be required to perform any
services for the Company other than to assist the Company in training his
successor and generally preparing for an orderly transition, and the Company may
elect not to renew the Employment Term, in accordance with a Non-Renewal Notice
given under Section 2(a); provided, however, that upon such termination or
non-renewal, Executive shall be entitled to compensation as provided in Section
7(a) and (b) below.

(e)           Termination by Executive for Good Reason.  Executive shall be
entitled to terminate this Agreement at any time for Good Reason.  For purposes
of this Agreement, “Good Reason” shall mean the occurrence of any of the
following events:

i.                                          Without his express written consent,
the assignment of Executive to a position functionally and materially inferior
to his position with the Company on the date of this Agreement;

ii.                                       The change of the location where
Executive is based to a location which is more than fifty (50) miles from his
present location without Executive’s written consent; or

iii.                                    A reduction by the Company in
Executive’s base salary as in effect on the date hereof, unless such reduction
is a proportionate reduction of the compensation of Executive and all other
senior officers of the Company as a part of a company-wide effort to enhance the
financial condition of the Company.

 

6

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

 

 

iv.                                   Any other material breach by the Company
of its obligations under this Agreement, which is not remedied or cured by the
Company within fourteen (14) days after written notice to the Company from the
Executive describing the breach.

(f)            Executive shall give the Company thirty (30) business days notice
of an intent to terminate this Agreement for “Good Reason” as defined in this
Section 6(d), and provide the Company with thirty (30) business days after
receipt of such notice from Executive to remedy the alleged violation of
Subsections 6(d)(i), (ii) or (iii).  In the event Executive terminates his
employment for Good Reason hereunder, Executive shall be entitled to the
compensation provided in Section 7(a) and (c) below.

7.             Compensation upon Termination.  Upon the termination of
Executive’s employment under this Agreement before the expiration of the stated
term hereof, Executive shall be entitled to the following:

(a)           Compensation upon Termination for Any Reason.  Upon termination of
Executive’s employment during the Employment Period before the expiration of the
stated term hereof for any reason, Executive shall be entitled to:

i.                                          Salary.  The Base Salary earned by
him before the effective date of termination as provided in Section 3(a) hereof
(including salary payable during any applicable notice period), prorated on the
basis of the number of full days of service rendered by Executive during the
salary payment period to the effective date of termination;

ii.                                       Vacation Benefits.  Any accrued, but
unpaid, vacation benefits; and

iii.                                    Unreimbursed Business Expenses.  Any
previously authorized but unreimbursed business expenses.

Notwithstanding the foregoing, with respect to any stock options or other plans
or programs in which Executive is participating at the time of termination of
his employment, Executive’s rights and benefits under each such plan shall be
determined in accordance with the terms, conditions, and limitations of the plan
and any separate agreement executed by Executive which may then be in effect.

(b)           Additional Compensation and Benefits upon Termination by the
Company without Cause or With Notice or by Executive for Good Reason.  If
Executive’s employment hereunder terminates without “Cause” (as defined in
Section 6(b) above), with notice pursuant to Section 6(c) above, or for “Good
Reason” (as

7

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

 

defined in Section 6(e) above), or if the Company terminates this Agreement
pursuant to a Non-Renewal Notice given under Section 2(a), the Company shall,
upon Executive’s execution of a general release of claims in favor of the
Company, provide to Executive in addition to the amounts set forth in Subsection
7(a) above:

i.                                          a cash payment equal to 50 % of his
Base Salary and Incentive Bonus for the current year;

ii.                                       Continued medical insurance benefits,
at the Company’s expense, for a period of six (6) months.

The Company shall pay the severance amounts referenced in Section 7(c)(i) in
equal semi-monthly installments for a period of six (6) months (“Severance
Period”) in accordance with the Company’s regular payroll practices.  Executive
shall have no obligation to mitigate any severance obligation of the Company
under this Agreement by seeking new employment.  The Company shall not be
entitled to set off or reduce any severance payments owed to Executive under
this Agreement by the amount of earnings or benefits received by Executive in
future employment.  The provisions of Sections 6, 7 and 8 hereof shall survive
the termination of the employment relationship hereunder and this Agreement.

Notwithstanding the foregoing, with respect to any stock options or other plans
or programs in which Executive is participating at the time of termination of
his employment, Executive’s rights and benefits under each such plan shall be
determined in accordance with the terms, conditions, and limitations of the plan
and any separate agreement executed by Executive which may then be in effect.

(c)           Penalty for Breach of Covenants.  If, during the Severance Period,
Executive is in material breach of his post-employment covenants contained in
Section 8 of this Agreement, the Company shall not be obligated to pay any
severance payments referenced herein, the Company’s severance obligations shall
terminate and expire, and the Company shall have no further obligations to
Executive hereunder from and after the date of such breach and shall have all
other rights and remedies available under this Agreement or any other agreement
and at law or in equity.

8.             Protective Covenants.  Executive recognizes that his employment
by the Company is one of the highest trust and confidence because (i) Executive
has become and/or in the future will become familiar with critical aspects of
the Company’s business during the period of his employment with the Company,
(ii) the Company will provide to Executive certain information during his
employment by the Company which is proprietary, confidential and/or trade secret
information and is of special and peculiar value to the Company, and (iii) if
any such proprietary, confidential and/or trade secret information, save and
except such information in the public domain or information commonly known in
the industry, were imparted to or became known by any person, including
Executive, engaging in a business in competition with that of the Company,
hardship, loss and irreparable injury and damage could result to the Company,
the

8

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

 

measurement of which would be difficult if not impossible to ascertain. 
Executive further acknowledges that the Company has developed and will continue
to develop unique concepts, lending practices, sales presentations, marketing
programs, marketing strategies, business practices, methods of operation,
pricing information, cost information, trademarks, licenses, technical
information, proprietary information, computer software programs, tapes and
disks concerning its operations systems, customer lists, customer leads,
documents identifying past, present and future customers, customer profile and
preference data, hiring and training methods, investment policies, financial and
other confidential, proprietary and/or trade secret information concerning its
operations and expansion plans (“Confidential Information”).  Therefore,
Executive agrees that it is necessary for the Company to protect its business
and that of its affiliates from such damage, and Executive further agrees that
the following covenants constitute a reasonable and appropriate means,
consistent with the best interest of both Executive and the Company, to protect
the Company or its affiliates against damage due to loss or disclosure of
Confidential Information and shall apply to and be binding upon Executive as
provided herein:

(d)           Confidential Information.  The Company agrees to provide Executive
with some or all of its Confidential Information (as defined above) during the
term of this Agreement.  Executive recognizes that his position with the Company
is one of the highest trust and confidence by reason of Executive’s access to
and contact with certain Confidential Information of the Company. Executive
agrees and covenants that, except as may be required by the Company in
connection with this Agreement, or with the prior written consent of the
Company, Executive shall not, either during the term of this Agreement or at any
time thereafter, directly or indirectly, use for Executive’s own benefit or for
the benefit of another, or disclose, disseminate, or distribute to another,
except as directed by the Company or as required for the performance of
Executive’s duties on behalf of the Company, any Confidential Information
(whether or not acquired, learned, obtained, or developed by Executive alone or
in conjunction with others) of the Company or of others with whom the Company
has a business relationship, provided, however that this restriction shall not
apply to truthful testimony given under oath in a legal proceeding by Executive
pursuant to a properly issued subpoena if Executive provides timely notice of
such subpoena to the Company.  All Confidential Information, and all memoranda,
notes, records, drawings, documents, or other writings whatsoever made,
compiled, acquired, or received by Executive at any time during his employment
with the Company, including during the term of this Agreement, arising out of,
in connection with, or related to any activity or business of the Company,
including, but not limited to, the customers, suppliers, or others with whom the
Company has a business relationship, the arrangements of the Company with such
parties, and the pricing and expansion policies and strategy of the Company,
are, and shall continue to be, the sole and exclusive property of the Company.

Executive represents and warrants that he is not bound by any agreement with any
prior employer or other party that will be breached by execution and performance
of this Agreement, or which would otherwise prevent him from performing his
duties with the Company as set forth in this Agreement.  Executive represents
and warrants that he has

9

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

 

not retained any copies of proprietary or confidential information of any prior
the Company, and he will not use or rely on any confidential and proprietary
information of any prior the Company in carrying out his duties for the Company.

(e)           Covenant Not to Compete.  In consideration of the numerous mutual
promises and agreements contained in this Agreement between the Company and
Executive, including, without limitation, those involving Confidential
Information, and in order to protect the Company’s Confidential Information and
to reduce the likelihood of irreparable damage which would occur in the event
such information is provided to or used by a competitor of the Company,
Executive agrees that he will not, during his employment and for an additional
period of twenty-four (24) months immediately following the termination of his
employment  for any reason other than termination without Cause or for Good
Reason (the “Noncompetition Term”), directly or indirectly, either through any
form of ownership or as an individual, director, officer, principal, agent,
employee, the Company, adviser, consultant, shareholder, partner, member, or in
any individual or representative capacity whatsoever, without the prior written
consent of the Company (which consent may be withheld in the Company’s sole
discretion), (i) compete for or solicit business for or on behalf of any person
or business entity operating a premium finance company providing similar
services to those provided by the Company with a place of business in any state
in the United States; (ii) own, operate, participate in, undertake any
employment with or have any interest in any entity with a place of business in
any state in the United States related to the operation of a premium finance
company providing similar services to those provided by the Company, except that
Executive may own publicly traded stock for investment purposes only in any
company in which Executive owns less than 5% of the voting equity, (iii) compete
for or solicit business related to the operation of a premium finance company
providing similar services to those provided by the Company from any customer of
the Company (or its successors by merger); or (iv) use in any competition,
solicitation, or marketing effort any Confidential Information, any proprietary
list, or any information concerning customers of the Company.   The restrictions
of this Section 8 (e) shall not apply to Executive if his employment by the
Company is terminated by the Company without cause or for Good Reason.

Executive hereby acknowledges that the geographic boundaries, scope of
prohibited activities and the duration of the provisions of this Section 8 are
reasonable and are no broader than are necessary to protect the legitimate
business interests of the Company. This noncompetition provision shall survive
the termination of Executive’s employment and can only be revoked or modified by
a writing signed by the parties that specifically states an intent to revoke or
modify this provision.  Executive acknowledges that the Company would not employ
him or provide him with access to its Confidential Information but for his
covenants or promises contained in this Section.

The Company and Executive agree and stipulate that the agreements and covenants
not to compete contained in this Section 8 are fair and reasonable in light of
all of the facts and circumstances of the relationship between Executive and the
Company; however, Executive and the Company are aware that in certain
circumstances courts have

10

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

 

refused to enforce certain terms of agreements not to compete.  Therefore, in
furtherance of, and not in derogation of the provisions of this Section 8, the
Company and Executive agree that in the event a court should decline to enforce
any term of terms of any of the provisions of this Section 8, this Section 8
shall be deemed to be modified or reformed to restrict Executive’s competition
with the Company or its affiliates to the maximum extent, as to time, geography
and business scope, which the court shall find enforceable; provided, however,
that in no event shall the provisions of this Section 8 be deemed to be more
restrictive to Executive than those contained herein.

Executive agrees that during the Noncompetition Term, he shall immediately
notify the Company in writing of any employment, work or business he undertakes
with or on behalf of any person (including himself) or entity.

(f)            Non-Solicitation.  Executive agrees that during his employment,
and for a period of twenty-four (24) months following the termination of his
employment by the Company with or without Cause, that neither he nor any
individual, partner(s), limited partnership, corporation or other entity or
business with which he is in any way affiliated, including, without limitation,
any partner, limited partner, member, director, officer, shareholder, employee,
or agent of any such entity or business, will (i) request, induce or attempt to
influence, directly or indirectly, any employee of the Company to terminate
their employment with the Company or (ii) employ any person who as of the date
of this Agreement was, or after such date is, an employee of the Company. 
Executive further agrees that during the period beginning with the commencement
of Executive’s employment with the Company and ending twenty-four (24) months
after the termination of Executive’s employment with the Company, for whatever
reason, he shall not, directly or indirectly, as an individual, employee, agent,
consultant, stockholder, director, partner or in any other individual or
representative capacity of the Company or of any other person, entity or
business, solicit or encourage any present supplier, contractor, partner or
investor of the Company to terminate, limit or otherwise alter his, her or its
relationship with the Company.

(g)           Work Product.  For purposes of this Section 8, “Work Product”
shall mean all intellectual property rights, including all trade secrets, U.S.
and international copyrights, patentable inventions, discoveries and other
intellectual property rights in any programming, design, documentation,
technology, or other work product that is created in connection with Executive’s
work.  In addition, all rights in any preexisting programming, design,
documentation, technology, or other Work Product provided to the Company during
Executive’s employment shall automatically become part of the Work Product
hereunder, whether or not it arises specifically out of Executive’s “Work.”  For
purposes of this Agreement, “Work” shall mean (i) any direct assignments and
required performance by or for the Company, and (ii) any other productive output
that relates to the business of the Company and is produced during the course of
Executive’s employment or engagement by the Company.  For this purpose, Work may
be considered present even after normal working hours, away from the Company’s
premises, on an unsupervised basis, alone or with others.  Unless otherwise

11

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

 

approved in writing by the Board, this Agreement shall apply to all Work Product
created in connection with all Work conducted before or after the date of this
Agreement.

The Company shall own all rights in the Work Product.  To this end, all Work
Product shall be considered work made for hire for the Company.  If any of the
Work Product may not, by operation of law or agreement, be considered Work made
by Executive for hire for the Company (or if ownership of all rights therein do
not otherwise vest exclusively in the Company immediately), Executive agrees to
assign, and upon creation thereof does hereby automatically assign, without
further consideration, the ownership thereof to the Company.  Executive hereby
irrevocably relinquishes for the benefit of the Company and its assigns any
moral rights in the Work Product recognized by applicable law.  The Company
shall have the right to obtain and hold, in whatever name or capacity it
selects, copyrights, registrations, and any other protection available in the
Work Product.

Executive agrees to perform upon the request of the Company, during or after
Executive’s Work or employment, such further acts as may be necessary or
desirable to transfer, perfect, and defend the Company’s ownership of the Work
Product, including by (i) executing, acknowledging, and delivering any requested
affidavits and documents of assignment and conveyance, (ii) obtaining and/or
aiding in the enforcement of copyrights, trade secrets, and (if applicable)
patents with respect to the Work Product in any countries, and (iii) providing
testimony in connection with any proceeding affecting the rights of the Company
in any Work Product.  In the event that Executive is required to perform the
services described in this paragraph after his employment with the Company has
terminated, Executive will be reasonably compensated for actual time spent
providing such services.

Executive warrants that his Work for the Company does not and will not in any
way conflict with any obligations Executive may have with any prior the Company
or contractor.  Executive also agrees, to the best of his ability, to develop
all Work Product in a manner that avoids even the appearance of infringement of
any third party’s intellectual property rights.

(h)           Non-Solicitation of Clients.  During the period of Executive’s
employment and, as a condition to receiving severance pay thereafter during the
Non-Competition Term, Executive shall not, directly or indirectly, solicit or
otherwise attempt to establish for himself or any other person, firm or entity
any business relationship with any person, firm or entity which, at any time
during the twenty-four month period preceding the date of Executive’s
termination of employment, was a customer, client or distributor of the Company
or any of its subsidiaries except during Executive’s employment with the
Company.

(i)            Return of Documents.  In the event of the termination of
Executive’s employment for any reason, Executive will deliver to the Company all
non-personal documents and data of any nature and in whatever medium pertaining
to Executive’s employment with the Company, or any of its subsidiaries or
affiliates and he

12

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

 

will not take with him any such property, documents or data of any description
or any reproduction thereof, including summaries or notes regarding same, or any
documents containing or pertaining to any Proprietary Information.

(j)            Survival of Covenants.  Each covenant of Executive set forth in
this Section 8 shall survive the termination of this Agreement and Executive’s
employment for any reason and shall be construed as an agreement independent of
any other provision of this Agreement, and the existence of any claim or cause
of action of Executive against the Company whether predicated on this Agreement
or otherwise shall not constitute a defense to the enforcement by the Company of
said covenant.  No modification or waiver of any covenant contained in this
Section 8 shall be valid unless such waiver or modification is approved in
writing by the Board.

Executive hereby acknowledges that Executive’s agreement to be bound by the
protective covenants set forth in this Section 8 was a material inducement for
the Company entering into this Agreement, agreeing to pay Executive the
compensation and benefits set forth herein, and providing Executive with the
Company’s Confidential Information and other proprietary information.

9.             Enforcement of Covenants.

(a)           Injunctive Relief.  Executive acknowledges and agrees that the
covenants, obligations and agreements of Executive contained in Section 8 relate
to special, unique and extraordinary matters and that a violation of any of the
terms of such covenants, obligations or agreements will cause the Company
irreparable injury for which adequate remedies are not available at law. 
Therefore, Executive agrees that the Company will be entitled to an injunction,
restraining order or such other equitable relief (without the requirement to
post bond) as a court of competent jurisdiction may deem necessary or
appropriate to restrain Executive from committing any violation of the
covenants, obligations or agreements referred to in this Section 9.  These
injunctive remedies are cumulative and in addition to any other rights and
remedies the Company may have.  The Company and Executive hereby irrevocably
submit to the exclusive jurisdiction of the courts of the State of the city of
the Company’s headquarters and the Federal courts of the United States of
America, in each case located in (or located nearest to) the city of the
Company’s headquarters, solely in respect of the injunctive remedies set forth
in this Section  and the interpretation and enforcement of Section 8 solely
insofar as such interpretation and enforcement relate to an application for
injunctive relief in accordance with the provisions of this Section , and the
parties hereto hereby irrevocably agree that (i) the sole and exclusive
appropriate venue for any suit or proceeding relating solely to such injunctive
relief shall be in such a court, (ii) all claims with respect to any application
solely for such injunctive relief shall be heard and determined exclusively in
such a court, (iii) any such court shall have exclusive jurisdiction over the
person of such parties and over the subject matter of any dispute relating to an
application solely for such injunctive relief, and (iv) each hereby waives any
and all objections and defenses based on forum, venue or personal or subject
matter jurisdiction as they may relate to an

13

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

 

application solely for such injunctive relief in a suit or proceeding brought
before such a court in accordance with the provisions of this Section 9.

(k)           Forfeiture of Severance Payments.  Executive agrees that receipt
of severance pay under Section 7 is conditioned upon Executive’s observance of
the covenants contained in Section 8.  Executive further agrees that in the
event of his failure to observe the provisions of Section 8, (i) Executive shall
forfeit the right to receive any portion of any bonus, and (ii) the Company
shall be entitled to discontinue further severance payments under Section 8.

10.           Entire Agreement.  Except as otherwise expressly provided herein,
this Agreement constitutes the entire agreement among the parties hereto with
respect to the subject matter hereof, and all promises, representations,
understandings, arrangements and prior agreements relating to such subject
matter (including those made to or with Executive by any other person or entity)
are merged herein and superseded in their entirety hereby.

11.           Indemnification.  The Company agrees that it shall indemnify and
hold harmless Executive to the fullest extent permitted by Texas law from and
against any and all liabilities, costs, claims and expenses including without
limitation all costs and expenses incurred in defense of litigation, including
attorneys’ fees, arising out of the employment of Executive hereunder, except to
the extent arising out of or based upon the gross negligence or willful
misconduct of Executive.  Costs and expenses incurred by Executive in defense of
any such litigation, including attorneys’ fees, shall be paid by the Company in
advance of the final disposition of such litigation promptly upon receipt by the
Company of (i) a written request for payment, (ii) appropriate documentation
evidencing the incurrence, amount and nature of the costs and expenses for which
payment is being sought, and (iii) an undertaking adequate under Texas law made
by or on behalf of Executive to repay the amounts so paid if it shall ultimately
be determined that Executive is not entitled to be indemnified by the Company
under this Agreement.

12.           Miscellaneous.

(a)           Binding Effect.  This Agreement shall be binding on and inure to
the benefit of the Company and its successors and permitted assigns.  This
Agreement shall also be binding on and inure to the benefit of Executive and his
heirs, executors, administrators and legal representatives.

(b)           Taxes.  The Company may withhold from any payments made under the
Agreement all federal, state, city or other applicable taxes as shall be
required pursuant to any law, governmental regulation or ruling.

13.           Non-Disparagement.  Executive agrees not to make any statements
that disparage the reputation of the Company, its products, services or
employees.  Executive further acknowledges and agrees that any breach or
violation of this non-disparagement

14

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

 

provision shall entitle the Company to seek injunctive relief to prevent any
future breaches of this provision and/or to sue Executive under the provisions
of this Agreement for the immediate recovery of any damages caused by such
breach.

14.           Assignment.  This Agreement is personal to Executive and may not
be assigned in any way by Executive without the prior written consent of the
Company.  This Agreement shall not be assignable or delegable by the Company,
other than to an affiliate of the Company; provided, however, that in the event
of the acquisition, merger or consolidation of the Company, the obligations of
the Company hereunder shall be binding upon the surviving or resulting entity of
such acquisition, merger or consolidation.  The rights and obligations under
this Agreement shall inure to the benefit of and shall be binding upon the
heirs, legatees, administrators and personal representatives of Executive and
upon the successors, representatives and assigns of the Company.

15.           Severability and Reformation. The parties hereto intend all
provisions of this Agreement to be enforced to the fullest extent permitted by
law.  If, however, any provision of this Agreement is held to be illegal,
invalid, or unenforceable under present or future law, such provision shall be
fully severable, and this Agreement shall be construed and enforced as if such
illegal, invalid, or unenforceable provision were never a part hereof, and the
remaining provisions shall remain in full force and effect and shall not be
affected by the illegal, invalid, or unenforceable provision or by its
severance.  In lieu of such illegal, invalid or unenforceable provision, there
shall be added automatically as a part of this Agreement a legal, valid and
enforceable provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible, and the Company and Executive hereby
request the court to whom disputes relating to this Agreement are submitted to
reform the otherwise unenforceable covenant in accordance with this Section 15.

16.           Notices. All notices and other communications required or
permitted to be given hereunder shall be in writing and shall be deemed to have
been duly given if delivered personally, mailed by certified mail (return
receipt requested) or sent by overnight delivery service, cable, telegram,
facsimile transmission or telex to the parties at the following addresses or at
such other addresses as shall be specified by the parties by like notice:

If to the Company:               American Business Lending, Inc.

C/o FirstCity Financial Corporation

Attn: Legal Department

6400 Imperial Drive

Waco, TX 76712

 

Fax: (254) 761-2953

15

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

 

If to Executive:                      Joseph N. Smith

817 Crested Butte Trail

Flower Mound, TX 75028

Notice so given shall, in the case of notice so given by mail, be deemed to be
given and received on the fourth calendar day after posting, in the case of
notice so given by overnight delivery service, on the date of actual delivery
and, in the case of notice so given by cable, telegram, facsimile transmission,
telex or personal delivery, on the date of actual transmission or, as the case
may be, personal delivery.

17.           Further Acts.  Whether or not specifically required under the
terms of this Agreement, each party hereto shall execute and deliver such
documents and take such further actions as shall be necessary in order for such
party to perform all of his or its obligations specified herein or reasonably
implied from the terms hereof.

18.           Publicity and Advertising.  Executive agrees that the Company may
use his name, picture, or likeness for any advertising, publicity or other
business purpose at any time, during the term of this Agreement and may continue
to use materials generated during the term of this Agreement for a period of six
months thereafter.  Such use of Executive’s name, picture, or likeness shall not
be deemed to result in any invasion of Executive’s privacy or in violation of
any property right Executive may have; and Executive shall receive no additional
consideration if his name, picture or likeness is so used.  The Executive
further agrees that any negatives, prints or other material for printing or
reproduction purposes prepared in connection with the use of his name, picture
or likeness by the Company shall be and are the sole property of the Company.

19.           GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT GIVING EFFECT TO THE
CONFLICT OF LAWS (RULES) OR CHOICE OF LAWS (RULES) THEREOF.

20.           `Venue.  The exclusive venue for all suits or proceedings arising
from or related to this Agreement shall be in a court of competent jurisdiction
in Dallas County, Texas.

21.           Amendment.  This Agreement may not be altered, amended, or
rescinded, nor may any of its provisions be waived, except by an instrument in
writing signed by both parties hereto or, in the case of an asserted waiver, by
the party against whom the waiver is sought to be enforced.  Any modification of
this Agreement may only be signed on behalf of the Company by the President of
the Company and approved by the Board.

22.           Counterparts.  This Agreement may be executed in counterparts,
with the same effect as if both parties had signed the same document.  All such
counterparts shall be deemed an original, shall be construed together and shall
constitute one and the same instrument.

 

16

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

 

 

23.           Headings.  The section and other headings contained in this
Agreement are for the convenience of the parties only and are not intended to be
a part hereof or to affect the meaning or interpretation hereof.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first indicated above

AMERICAN BUSINESS LENDING, INC.

 

 

 

 

 

By:

 

 

 

Name:

 

 

 

Title:

 

 

 

 

 

 

 

 

 

 

FIRSTCITY BUSINESS LENDING CORPORATION

 

 

 

 

 

By:

 

 

 

Name:

 

 

 

Title:

 

 

 

 

 

 

 

 

 

 

EXECUTIVE:

 

 

 

 

 

Joseph N. Smith

 

[remainder of page intentionally left blank]

17

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

 

Exhibit A”

Bonus Pool Methodology

Bonuses for management and employees of the Company will be calculated as
follows:

On a fiscal year basis, using corporate accounting records, a Bonus Pool (A)
will be created in an amount equal to 35 percent of the difference between the
Bonus Pool Income (B) and the Threshold Amount (C).  In the event that the Bonus
Pool Income (B) is less than or equal to the Threshold Amount (C) , no Bonus
Pool (A) will be created but performance bonuses will be discretionary at the
sole discretion of the Board of Directors of the Company.

Certain Definitions:

(B) The “Bonus Pool Income” is equal to the annual sum of the balances of:

Net Income Before Tax of the Company

+ Interest Paid on Shareholder Note from the Company to FirstCity BLC (the
“Shareholder Note”)

+ Dividends paid or accrued on the Preferred Equity of the Company

(C) The “Threshold Amount” is equal to the average month-end balances for the 12
months in the preceding fiscal year of:

Total Shareholders Equity of the Company

+ Outstanding Principal Amount of the Shareholder Note

Multiplied by a hurdle rate of 25 percent.

 

Thus, A = 0.35 x (B - C)

The Bonus Pool shall be distributed at the discretion of the President and the
President of the Company.  Irrespective of the size of the bonus pool, in no
event shall any executive or employee receive a bonus amount in excess of 100
percent of his/her Base Salary.

 

18

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