Exhibit 10.2

                         CHAPTER 11 FINANCING AGREEMENT


          This Chapter 11 Financing  Agreement  ("Agreement") is entered into as
of the 16th day of May, 2001, by and between Video Update,  Inc.  ("Debtor"),  a
Delaware  corporation,  as debtor and debtor in  possession;  and Movie Gallery,
Inc.  ("Senior  Creditor"),  a  Delaware  Corporation,  with  reference  to  the
following recitals of fact:

                                    RECITALS

          A. On  September  18,  2000  (the  "Petition  Date"),  Debtor  and its
subsidiaries listed on Schedule 1 hereto  ("Sub-Debtors"),  commenced Chapter 11
cases, Nos. 00-3663 through 00-3683 (JHW)  (collectively the "Chapter 11 Case"),
by filing  voluntary  petitions  for relief under  Chapter 11 of Title 11 of the
United States Code (the  "Bankruptcy  Code") with the United  States  Bankruptcy
Court for the  District  of  Delaware  (the  "Court").  Debtor  and  Sub-Debtors
continue  to  operate   their   business   and  manage   their   properties   as
debtors-in-possession pursuant to sections 1107 and 1108 of the Bankruptcy Code.

          B. Prior to the Petition Date,  Debtor was indebted to various lending
entities  (collectively  the "Banks") in the principal  amount of  approximately
$121,000,000,  plus  accrued  and  unpaid  interest,  fees  and  other  charges,
including attorneys' fees and costs (collectively the "Prepetition Loan").

          C. The Prepetition  Loan was incurred by the Debtor in accordance with
the terms of that certain  Credit  Agreement  dated as of March 6, 1998, and any
amendments and modifications thereto (collectively the "Loan Agreement"), and by
various  other  documents  executed in  connection  therewith or in  furtherance
thereof. A copy of the Loan Agreement is attached hereto and incorporated herein
as Exhibit A.

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          D. Pursuant to the Loan  Agreement,  the  Prepetition  Loan was and is
secured,  under a U.S.  Security  Agreement  dated as of March 6, 1998,  and any
amendments and modifications  thereto (the "U.S.  Security  Agreement"),  and by
various  other  documents  executed in  connection  therewith or in  furtherance
thereof,  including a U.S.  Pledge  Agreement dated as of March 6, 1998, and any
amendments and modifications  thereto (the "U.S. Pledge  Agreement").  A copy of
the U.S.  Security  Agreement  is  attached  hereto and  incorporated  herein as
Exhibit  B.  A copy  of  the  U.S.  Pledge  Agreement  is  attached  hereto  and
incorporated  herein  as  Exhibit  C.  Pursuant  to  the  Loan  Agreement,   the
Prepetition  Loan was and is also  secured  under  certain  security  agreements
executed by Canadian subsidiaries of the Debtor, also dated as of March 6, 1998,
and any amendments and modifications  thereto (collectively the "Canada Security
Agreements"), and by various other documents executed in connection therewith or
in furtherance  thereof,  including Pledge  Agreements dated as of March 6, 1998
and any amendments and modifications thereto (the "Canada Pledge Agreements"). A
copy  of  each  of  the  Canada  Security  Agreements  is  attached  hereto  and
incorporated herein as, respectively,  Exhibits D, E, F and G. A copy of each of
the Canada Pledge  Agreements  is attached  hereto and  incorporated  herein as,
respectively, Exhibits H and I.

          E.  The  Sub-Debtors  and  the  Non-Debtor   Subsidiaries  executed  a
Subsidiaries Guaranty,  dated as of March 6, 1998 ("Subsidiaries  Guaranty").  A
copy of the Subsidiaries  Guaranty is attached hereto and incorporated herein as
Exhibit J. (The Loan Agreement,  the U.S.  Security  Agreement,  the U.S. Pledge
Agreement,  the Canada Security  Agreements,  the Canada Pledge Agreements,  the
Subsidiaries  Guaranty and the various  other  documents  executed in connection
therewith or in furtherance thereof are collectively  hereinafter referred to as
the ("Existing Loan Documents").

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          F. All but one of the Banks (the "Assignor Banks") which  collectively
comprise  approximately  92% in interest of all of the Banks, as of May 2, 2001,
irrevocably and completely assigned all of their secured,  partially secured and
unsecured  creditor  claims in the Chapter 11 Case relating to the Existing Loan
Documents,  and  underlying  documents and rights  represented  thereby,  to the
Senior Creditor,  pursuant to an Assignment  Agreement,  dated as of May 2, 2001
("Assignment  Agreement"),   among  BNP  Paribas  and  the  Assignor  Banks,  as
Assignors, and the Senior Creditor and Movie Gallery No. 1, LLC as Assignees.

          G. Pursuant to the Assignment Agreement the Senior Creditor is secured
by a security interest in substantially all of the property owned or held by the
Debtor,  the Sub-Debtors and other subsidiaries  ("Non-Debtor  Subsidiaries") of
the  Debtor,  listed  on  Schedule  1  hereto,  as of  the  Petition  Date  (the
"Prepetition  Collateral") under the respective  security  agreements and pledge
agreements referred to in Recital D hereof.

          H.  On  May  1,  2001,  the  Court  issued  its  Sixth  Interim  Order
Authorizing  the Use of Cash  Collateral  and Providing for Adequate  Protection
("Sixth Cash  Collateral  Order"),  which extended five previous Cash Collateral
Orders through May 27, 2001, up to a maximum sum of $8,050,100.

          I. The Debtor has requested that the Senior Creditor make available to
the Debtor,  in the Senior  Creditor's sole discretion,  a postpetition  line of
credit in accordance  with the general terms of the Loan  Agreement.  The Senior
Creditor  is  willing  to extend  such a  revolving-credit  loan  ("Postpetition
Loan"),  in accordance  with and on the terms and  conditions  set forth in this
Agreement.

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          NOW  THEREFORE,  the Debtor and the Senior  Creditor  hereby  agree as
follows:

                                    AGREEMENT
                                    ---------

     1.  The  Budget.  Attached  hereto  as  Schedule  2  are  projections (the
Analysis,"   setting   forth  the  Debtor's   best  estimate  of  the  Debtor's,
Sub-Debtors' and Non-Debtor  Subsidiaries'  cash needs during the period covered
thereby.  From time to time,  the Debtor may prepare  additional or  replacement
projections and additional or replacement  budgets.  Upon approval by the Senior
Creditor,  any such  additional  or  replacement  projections  and budgets shall
constitute the  "Projections"  and the "Budget" for purposes of this  Agreement.
Notices  of  any  additional  or   replacement   projections  or  additional  or
replacement  budgets  shall  promptly  be  sent  to the  Official  Committee  of
Creditors Holding Unsecured Claims ("Creditors Committee").

     2.  Postpetition  Loan. Upon  satisfaction  of the Conditions  Precedent in
Section 5 hereof,  the Senior  Creditor will make available to the Debtor a line
of credit  (together with all funds provided to the Debtor by Banks prior to the
date of Court  approval  hereof  being  referred to herein as the  "Postpetition
Loan"), commencing immediately upon entry of the Authorizing Order (as such term
is defined in section 5.1 hereof),  in accordance  with the terms and conditions
set forth herein.  The amount of the Postpetition Loan during the Interim Period
(as defined in section 2.1 below) shall be limited to  $1,000,000  (the "Maximum
Permitted  Interim  Amount") and upon entry of a final  Authorizing  Order,  the
Postpetition  Loan  shall be in an amount  up to  $5,000,000,  inclusive  of all
amounts advanced during the Interim Period, and shall be evidenced by a


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revolving note  ("Revolving  Note"),  the form of which shall be similar to that
which  is  attached  to the Loan  Agreement;  provided,  however,  that the term
"Revolving  Loan Maturity  Date" shall mean the earlier to occur of: (a) 10 days
after the date upon which the Court enters an Order confirming a Chapter 11 plan
of  reorganization  for one or more of the Debtors;  or (b) April 30, 2002.  All
advances made by the Senior  Creditor to the Debtor under this  Agreement  shall
constitute one loan. The payments of the principal  portion of the  Postpetition
Loan shall be due and  payable  at such times and to the extent  that the Debtor
receives Cash Collateral for application  against the Postpetition Loan pursuant
to section 4 hereof;  and provided further,  that the Postpetition Loan shall be
immediately due and payable upon the  "Termination  Date" (as defined in section
2.13 hereof).

          2.1  Defined  Terms.  Terms used in this  Agreement  without  specific
definition  shall  have  the  meaning  ascribed  to  them in the  Existing  Loan
Documents. With respect to those definitions, the term "Borrower" shall mean and
refer to Debtor,  "Bank" or "Banks"  individually or collectively shall include,
without limitation, the Senior Creditor, "Event of Default" shall mean and refer
to an Event of Default as defined in subsection  2.11 hereof,  and  "Collateral"
shall mean and refer to both the  Prepetition  Collateral  and the  Postpetition
Collateral,  including,  but without  limitation,  the Collateral under the U.S.
Security  Agreement and Pledge  Agreement,  the Canada  Security  Agreements and
Pledge  Agreements and  Subsidiaries  Guaranty.  The term "Interim Period" shall
mean and refer to the period of time from the first Order of the Court approving
this  Agreement  on an interim  basis until a later Order of the Court is issued
granting final approval of this Agreement and the Postpetition Loan.

          2.2  Compliance  With  Budget.  The Debtor,  the  Sub-Debtors  and the
Non-Debtor  Subsidiaries  shall not incur expenses  during the Interim Period in
the Chapter 11 Case, other than those types of expenses  described in the Budget


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and in the amounts specified therein.  Nor shall the Debtor, the Sub-Debtors and
the Non-Debtor Subsidiaries incur any expenses during any particular week in any
particular  category referred to in the Budget in an amount that is greater than
110% of the budgeted  amount,  unless such expenditure is approved in writing by
the Senior Creditor. The Debtor, the Sub-Debtors and the Non-Debtor Subsidiaries
shall use the proceeds of the  Postpetition  Loan only for those  categories  of
expenses  and only in the  amounts set forth in the Budget;  provided  that,  in
addition:

               A. Sales Tax and  Payroll  Taxes.  Sales taxes may be paid in the
amounts legally  required even though the amounts of sales taxes paid exceed the
budgeted amounts therefor;  expenses for payroll and sale taxes shall be paid by
Debtor, the Sub-Debtor and the Non-Debtor Subsidiaries when due;

               B.  Miscellaneous.  "Miscellaneous"  expenses may be paid without
prior approval of the Senior  Creditor,  so long as the amount of any particular
expense  does not exceed  $5,000;  miscellaneous  expenses  may  include  office
supplies, maintenance or repairs, advertising and the like;

               C.  Payroll.  Without  the prior  written  approval of the Senior
Creditor,  no person may receive an increase in salary,  a bonus,  an advance on
salary,  or a  loan,  except  as set  forth  in the  Budget  and  other  than as
previously ordered by the Court;

               D.  Transactions  with Management.  Without the prior approval of
the  Senior  Creditor,  no  property  of  the  Debtor,  the  Sub-Debtors  or the
Non-Debtor  Subsidiaries,   shall  be  bought  from  or  sold  to  any  officer,
shareholder or director,  or any company or business  entity owned or controlled
directly or indirectly by any officer, shareholder, or director;

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<PAGE>

               E. Outside  Services.  Except in the ordinary course of business,
budgeted  amounts for outside  services  may be expended  only for  consultants,
attorneys and other professionals who have been approved by the Court;

               F. Inventory. During the Interim Period, expenses for "Inventory"
may only be incurred for purchases of movies and games in the ordinary course of
business.

          2.3  Letter  of  Credit  Accommodations.  Debtor  shall  pay to Senior
Creditor  fees for  Letter of Credit  Accommodations  in the amount set forth in
section 3 of the Loan  Agreement;  provided,  however,  that the  factor (x) set
forth in Section 3(c) of the Loan Agreement shall be 2.5%, rather than 3.5%. Any
such Letter of Credit Accommodations shall only be made in the Senior Creditor's
sole discretion.

          2.4 Interest  Rate;  Payment of Interest;  Loan Fee. The  Postpetition
Loan shall bear interest  calculated daily on the basis of a three hundred sixty
day year,  and shall be a  Base-Rate  Loan (as  defined in the Loan  Agreement);
provided,  however,  that the  definition  of the term  "Base  Rate" in the Loan
Agreement shall be modified to mean 1/2 of 1% plus the higher of (i) the Federal
funds Rate and (ii) the Prime Lending Rate. As additional  compensation  for the
Senior Creditor's  entering into this Agreement,  Debtor shall pay to the Senior
Creditor a fee of $150,000,  payable to the extent of the first available funds,
and payable in full in any event no later than August 31, 2001.

          2.5  Reimbursement of Expenses.  The Debtor shall reimburse the Senior
Creditor on demand for all costs and expenses,  including reasonable  attorneys'
fees,  incurred by the Senior  Creditor in  connection  with the  protection  or
exercise of the Senior  Creditor's rights under the Loan Agreement or under this
Agreement,  including  costs and  expenses  relating  to the  documentation  and
implementation  of this Agreement,  the  administration of the Postpetition Loan
and the  taking of any  action in the  Chapter  11 Case.  The amount of all such
costs  and  expenses  shall be  secured  by all  Collateral  and may,  at Senior
Creditor's discretion, be added to the Postpetition Loan.

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<PAGE>

          2.6 Grant of Security Interest and Lien on Prepetition  Collateral and
Postpetition Collateral.  As security for the prompt payment of the Postpetition
Loan and for performance of any obligations  arising under this Agreement or any
other agreement entered into between Debtor and the Banks or the Senior Creditor
on or after the  Petition  Date,  Debtor  hereby  grants to  Senior  Creditor  a
security interest in and a lien upon (A) all Prepetition Collateral, and (B) any
and all  property  and  interests  in  property  owned  or held by  Debtor,  the
Sub-Debtors or the Non-Debtor  Subsidiaries on the Petition Date, or acquired by
Debtor,  the  Sub-Debtors or the Non-Debtor  Subsidiaries  at any time after the
Petition  Date,  including,  but  without  limitation,  any  and  all  Accounts,
Inventory, Equipment, General Intangibles, Documents, Instruments Chattel Paper,
Tangible  Chattel Paper,  Electronic  Chattel  Paper,  Cash,  Deposit  Accounts,
Contracts,  Contract  Rights,  Cash  Collateral,  Moneys,  Securities,  Patents,
Copyrights,  Marks,  Trade Secret  Rights,  Intellectual  Property,  Proprietary
Information,  Computer Programs,  Lessee Interests in Real Property,  Lessor and
Lessee  Interests in Personal  Property,  Accessions,  Substitutions,  Renewals,
Replacements,  Improvements,  Additions,  Accountings,  Commercial  Tort Claims,
Commodity Accounts,  Commodity  Contracts,  Consignments,  Investment  Property,
Software,  and any and all other types of property  referred to as Collateral in
the respective U.S. Security Agreement and Pledge Agreement, the Canada Security
Agreements and Pledge Agreements,  and the Subsidiaries Guaranty, and all rents,
issues,  proceeds and profits therefrom which are now or in the future shall be,
property  of  the  Debtor,  the  Sub-Debtors  or  the  Non-Debtor   Subsidiaries
(collectively,  the  "Postpetition  Collateral";  provided,  however,  that  all
avoidance  claims under Chapter 5 of the Bankruptcy  Code shall be excluded from
the Collateral. The security interest in the Collateral is granted in accordance
with  sections  364(c)(1),  (2) and (3) of the  Bankruptcy  Code and shall be of
first priority, except for valid,  enforceable,  and perfected liens or security
interests  of record on the  Petition  Date,  but only if and to the extent that
such liens or security  interests were senior and prior to the security interest
in or lien on the Collateral under the Existing Loan Documents immediately prior
to the Petition Date; and, in addition,  a security interest is granted pursuant
to Section 364(d)(1) of the Bankruptcy Code, providing valid and perfected first
priority senior priming liens and security  interests with respect to the Senior
Creditor's interests in the Prepetition Collateral.

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<PAGE>

          2.7  Adequate  Protection.  The Debtor  grants to the Senior  Creditor
adequate protection for any diminution of the value, as of the Petition Date, of
the Senior  Creditor's Cash Collateral and for any use of the Senior  Creditor's
Cash  Collateral  with  respect  to the  secured  indebtedness  owing  under the
Existing Loan Documents, including:

               A. Replacement liens and security  interests pursuant to sections
361(2) and 363 of the  Bankruptcy  Code, in and to any and all the  Postpetition
Collateral senior to any and all other liens and claims existing on the Petition
Date,  subject and  subordinate  only to the Carve-Out  (defined  below) and the
liens, claims and security interests granted to the Senior Creditor with respect
to  Postpetition  balances  owing to the Senior  Creditor,  to the same  extent,
validity  and  priority  of the Senior  Creditor's  liens,  claims and  security
interests in the Prepetition Collateral; and

               B. A priority claim, pursuant to section 507(b) of the Bankruptcy
Code, to the same extent,  validity and priority as the Senior Creditor's liens,
claims and security interests in the Prepetition  Collateral,  senior to any and
all other claims having  administrative  expense  priority and any and all other
administrative  expenses of the kind  specified in sections  105, 326, 327, 328,
330,  331,  365(d)(3),  or 503(b)  solely  with  respect  to the  Debtor and the
Sub-Debtors as to sections 507(a),  507(b), 726, or 1114 of the Bankruptcy Code,
including,  without  limitation,  administration  expenses arising in connection
with any superseding  case or proceeding under or in Chapter 7 of the Bankruptcy
Code,  subject and  subordinate  only to the Carve-Out  (defined  below) and the
liens, claims and security interests granted to the Senior Creditor with respect
to the Postpetition balance owed by the Debtor to the Senior Creditor.

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<PAGE>

          2.8 Priority of Postpetition  Loan;  Carve-Out.  Without  limiting the
provisions  of  Sections  2.6  and  2.7  hereof,  the  Postpetition  Loan  shall
constitute, in accordance with section 364(c)(1) of the Bankruptcy Code, a claim
against  Debtor's  estate  with  priority  as an  administrative  expense  under
sections  503(b),  507(a)(1) and 507(b) of the  Bankruptcy  Code.  Said priority
shall be senior to any other  administrative  expense in the  Chapter 11 Case of
the kind specified in Bankruptcy Code sections 503 and 507.  Notwithstanding any
other  provision  in this  Agreement,  the Senior  Creditor's  claims,  security
interests and liens upon the Collateral  shall all be subject and subordinate to
(a) the items,  and in the  respective  amounts,  defined as the  "Carve-Out" in
Paragraph 6 of the Sixth Interim Order  Authorizing  the Use of Cash  Collateral
and Providing for Adequate Protection ("Sixth Cash Collateral  Order");  and (b)
any other carve out which may be agreed to by the Senior Creditor.

          2.9 Representations  and Warranties with Regard to Collateral.  Debtor
agrees and acknowledges  that each request for an advance under the Postpetition
Loan  or for a  Letter  of  Credit  Accommodation  under  this  Agreement  shall
constitute  (A) an  automatic  representation  and  warranty  from Debtor to the
Senior  Creditor  that there does not then exist an Event of Default,  and (B) a
reaffirmation,  as of the date of said request,  that all of the representations
and warranties contained herein are true and correct as of said date.

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<PAGE>

          2.10 Covenants. Debtor hereby agrees, covenants, and promises:


               A. to  deliver  notice  to the  Senior  Creditor  of any event or
occurrence  that  constitutes an "Event of Default"  pursuant to subsection 2.11
hereof;

               B. to comply with all of the  affirmative  covenants set forth in
the Loan Agreement;

               C. to comply with all of the negative  covenants set forth in the
Loan Agreement;

               D. to deliver to the Senior Creditor such information and reports
as the Senior  Creditor shall  reasonably  request,  including a daily report of
disbursements.

          2.11  Events  of  Default.  The  occurrence  of any one or more of the
following events shall constitute an "Event of Default" under this Agreement:

               A. the entry of an order by the Court appointing a trustee in the
Chapter 11 Case;

               B. the entry of an order by the Court  dismissing  the Chapter 11
Case or converting the Chapter 11 Case to a case under Chapter 7;



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<PAGE>

               C. the  failure of the  Debtor  and the Sub  Debtors to propose a
plan of  reorganization  which is acceptable to the Senior Creditor on or before
June 30, 2001;

               D. the  breach  by Debtor of any of its  obligations  under  this
Agreement including, but without limitation, the Debtor's failure to make timely
payments of interest,  principal or other  amounts owed in  connection  with the
Postpetition  Loan,  the failure of the Debtor or of any of the  Sub-Debtors  to
comply in all respects with the Sixth Cash  Collateral  Order and any subsequent
order  of the  Court  authorizing  the  use of  cash  collateral;  the  Debtor's
violation  of  any  other  Order  of  the  Court;  the  Debtor's  breach  of any
representation,  warranty, or covenant; or the Debtor's failure to maintain with
due care all of its books and records;

               E. The amendment,  supplementation  or other  modification of the
Authorizing Order (as defined in section 5.1 hereof) in a manner which shall, in
the sole  determination of the Senior  Creditor,  adversely affect the rights of
the Senior Creditor  hereunder or shall adversely  affect the priority of any or
all of the Senior Creditor's liens, security interests, or claims as of the date
of the Authorizing Order (the "Authorizing Date");

               F. The filing of a motion by Debtor,  any of the  Sub-Debtors  or
any Non-Debtor  Subsidiary,  for an order authorizing the use of Cash Collateral
without the prior consent of the Senior  Creditor;  or the filing of a motion by
Debtor for an order  authorizing  the  obtaining  of credit or the  incurring of
indebtedness secured by a lien on or security interest in the Collateral,  other
than by or from the Senior Creditor ;

               G. the granting or obtaining of a lien on or a security  interest
in any of Debtor's,  Sub-Debtors' or Non-Debtor  Subsidiary's assets without the
prior written consent of the Senior Creditor;

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<PAGE>

               H. Debtor's,  any  Sub-Debtor's  or any  Non-Debtor  Subsidiary's
filing,  or joining in or supporting  the filing by a party in interest,  of any
motion,  objection,  or adversary  proceeding  to  invalidate  any of the Senior
Creditor's  liens upon and  security  interests in any  Collateral,  or any part
thereof,  or which seeks to set off,  counterclaim  against,  or subordinate the
Prepetition Loan or the Postpetition Loan or any part thereof, or which seeks to
recover any legal or equitable remedy against the Senior Creditor;

               I. The entry of an order in any lawsuit or  adversary  proceeding
in the Chapter 11 Case which  invalidates the Debtor's,  any Sub-Debtor's or any
Non-Debtor  subsidiary's  obligations  to the  Senior  Creditor,  any of  Senior
Creditor's  liens upon and  security  interests  in the  Collateral  or any part
thereof, or which permits the set off, counterclaim against, or subordination of
any of the Debtor's, any Sub-Debtor's or any Non-Debtor Subsidiary's obligations
to the Senior  Creditor  or any of Senior  Creditor's  liens  upon and  security
interests  in the  Collateral,  or which  grants any legal or  equitable  remedy
against the Senior Creditor; and

               J. The  expiration of the  Projections  or the Budget without the
Senior  Creditor's  having  approved a  replacement  Projection or a replacement
Budget.

          2.12 Consequence of an Event of Default.  Upon or after the occurrence
of an Event of Default,  which  Default is not cured within five  calendar  days
following  the  Debtor's  receipt of  written  notice  from the senior  Creditor
specifying the nature of such event of Default,  the Senior  Creditor shall have
the option to cease making all advances under the Postpetition  Loan, to declare
the  Postpetition  Loan to be immediately  due and payable and to terminate this
Agreement.  The Senior  Creditor shall notify Debtor,  the  Sub-Debtors  and the
Non-Debtor Subsidiaries of its election to do so by delivering written notice to
the Debtor specifying that an Event of Default has occurred and stating that the
Senior Creditor shall not make additional advances.

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<PAGE>

          2.13 Termination Date; Effect of Termination. "Termination Date" shall
mean the fifth  calendar  day  following  the  Debtor's  receipt  of a notice of
Default from the Senior Creditor;  provided,  however, that the Termination Date
shall  not  occur  if  the  Debtor  has  cured  such  Default  within  the  five
calendar-day  period provided for herein.  If the Termination  Date shall occur,
(A) The Senior Creditor shall be relieved of its obligation, if any, to make any
advances with respect to the Postpetition  Loan; (B) the Postpetition Loan shall
be immediately  due and payable;  (C) the Senior  Creditor shall have all rights
and remedies  referred to in the Existing  Loan  Documents  (but the exercise of
such rights and remedies  shall be subject to the  automatic  stay of Bankruptcy
Code section  362(a));  and (D) the Debtor,  the  Sub-Debtors and the Non-Debtor
Subsidiaries  shall  continue  to comply with the terms of section 4 hereof with
respect to Cash  Collateral  until and  unless the Court  enters an order to the
contrary.  Occurrence of the  Termination  Date shall not affect or diminish any
rights of the Senior  Creditor  hereunder  or  granted  to the  Senior  Creditor
pursuant to the Authorizing Order.

     3. The  Prepetition  Loan.  The interest and the  principal  balance of the
Prepetition  Loan  shall  remain  due and owing in all  respects  to the  Senior
Creditor.

     4.  Payment of Cash  Collateral  to the  Senior  Creditor;  Application  of
Payments  by the  Senior  Creditor.  All  present  and  future  proceeds  of the
Prepetition Collateral and the Postpetition Collateral,  to the extent collected
by Debtor or the Senior  Creditor,  constitute  "cash  collateral" of the Senior
Creditor as such term is defined in section 363(a) of the  Bankruptcy  Code (the
"Cash Collateral"). Any excess amount of Cash Collateral that is not used by the


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<PAGE>

Debtor  pursuant to the Sixth Cash  Collateral  Order (or any  subsequent  order
authorizing  the use of cash  collateral),  during  the  period  from the  first
through and including the last day of each month, shall be applied in payment of
the  Postpetition  Loan in accordance  with Section 2.4 hereof.  Applications of
interest and principal  shall be  determined by the Senior  Creditor in its sole
discretion.

     5. Conditions Precedent.  This Agreement shall be of no force or effect and
shall not be binding on the parties hereto until and unless all of the following
conditions precedent shall have been fulfilled:

          5.1 Court Approval;  Authorizing Order. The Court shall enter an order
(the "Authorizing Order") approving Debtor's entry into this Agreement,  and the
Sub-Debtors' and Non-Debtor  Subsidiaries' executing the Consent,  Reaffirmation
and  Acknowledgment  hereto,  which shall contain such  provisions as the Senior
Creditor  shall  consider  necessary or desirable  for  protection of the Senior
Creditor's interests. Notwithstanding that this Agreement shall have been signed
and submitted to the Court,  the Senior Creditor shall be under no obligation to
proceed with this Agreement  unless the  Authorizing  Order is acceptable to the
Senior Creditor in all respects.

          5.2 Change of Governance and Management. The Approving Order shall, in
addition  to any and all other  provisions  contained  therein,  approve (A) the
appointment of new and different members of the Board of Directors of the Debtor
("Board"),  (B) the resignation of all of the members of the Board who have been
such  members  prior to the  date  hereof,  (C) the  appointment  by the  Board,
following  the  resignations  of the  members  of the Board  referred  to in the
immediately  preceding  subparagraph,  of interim  officers and (D) the Debtor's
entering  into a  consulting  agreement  with the written  consent of the Senior
Creditor.

                                       15
<PAGE>

          5.3 Consent,  Reaffirmation  and  Acknowledgment  by Guarantors of all
Obligations under Guaranties; Guaranty and Security Agreement of Guarantors. All
of the  Debtor's  Subsidiaries  shall  execute the  Consent,  Reaffirmation  and
Acknowledgment  by Guarantors that  accompanies  this Agreement,  acknowledging,
among other things, that their guaranties of the Prepetition Loan are and remain
in all respects fully and completely  valid,  binding and  enforceable  and that
those guaranties  extend fully and completely to the  Postpetition  Loan and all
other obligations incurred by Debtor to the Banks and the Senior Creditor, on or
after  the  Petition  Date;  and that all of the  Collateral,  and the  security
interests and liens therein,  are, shall be and remain fully valid,  binding and
enforceable against the Guarantors, and each of them.

     6. Allowance of the Senior Creditors  Claims for the Prepetition  Loan. All
of the Debtor, the Sub-Debtors and the Non-Debtor  Subsidiaries  acknowledge and
agree that the Existing Loan Documents,  and all Proofs of Claims filed by or on
behalf of the Banks,  including all exhibits attached thereto,  conclusively and
irrevocably  shall establish that: (A) the amount of the Prepetition  Loan as of
the  Petition  Date was in the  amounts  set forth in the  respective  Proofs of
Claims  filed  by or on  behalf  of the  Banks;  (B)  neither  the  Debtor,  the
Sub-Debtors,  nor any of the Non-Debtor Subsidiaries has any claims of setoff or
other  defenses  to  payment  of the  Prepetition  Loan;  and (C) the  liens and
security interests of the Senior Creditor in the Prepetition Collateral were and
are valid, perfected, and enforceable as of the Petition Date.

                                       16
<PAGE>

     7. Hearing Upon Limited  Notice.  If either  Debtor or the Senior  Creditor
believes that the other party is in breach of the terms of this Agreement or the
Authorizing  Order,  then such party may request a hearing  from the Court on 48
hours notice to the other party. If this Agreement shall terminate,  then Debtor
may obtain a hearing on a motion to use Cash  Collateral  on 48 hours' notice to
the Senior  Creditor,  and the Senior  Creditor may obtain a hearing on a motion
for relief from stay on 48 hours' notice to Debtor.

     8. Rights and  Remedies of the Senior  Creditor.  No failure on the part of
the Banks or the Senior Creditor to exercise,  no course of dealing with respect
to,  and no delay in  exercising  any  right,  power,  or  privilege  under this
Agreement shall operate as or constitute a waiver thereof,  nor shall any single
or partial exercise of any such right, power, or privilege preclude any other or
further  exercise  thereof  or  the  exercise  of any  other  right,  power,  or
privilege.  The remedies  provided herein and in the Existing Loan Documents are
cumulative and not exclusive of any remedies  provided by law. This Agreement is
without prejudice to the rights of the Senior Creditor under the Bankruptcy Code
and the Bankruptcy Rules or under  nonbankruptcy law, including the right of the
Senior Creditor to (i) request additional  adequate  protection of its interests
in  Collateral or relief from the  automatic  stay under  section  362(a) of the
Bankruptcy Code in respect  thereof,  (ii) request  conversion of the Chapter 11
Case to a case under Chapter 7 of the Bankruptcy  Code,  (iii) propose a Chapter
11 plan, (iv) request  dismissal of the Chapter 11 Case for any reasons,  or (v)
seek from the Bankruptcy Court any other relief whatsoever.

     9.  Amendments  Must be in  Writing.  This  Agreement  shall not be amended
except as mutually agreed by the parties hereto, in writing.

                                       17
<PAGE>

     10.  Authorization;  Successors  and  Assigns.  Each  person  signing  this
Agreement on behalf of Debtor or the Senior  Creditor hereby warrants that he or
she is authorized to bind the entity he or she  represents to this Agreement and
that the entity is authorized to bind itself to this  Agreement.  The provisions
of this  Agreement  shall be  binding  upon  and  inure  to the  benefit  of all
signatories and their respective  successors and assigns,  including any trustee
for the Debtor or the  Sub-Debtors  in the Chapter 11 Case or any Chapter 7 case
to which the Chapter 11 Case is converted.

     11. Further Assurances.  The parties shall execute all additional documents
and take all  additional  acts  necessary or desirable to  effectuate  the terms
hereof.  Upon entry of the  Authorizing  Order,  the lien and security  interest
granted  herein to the  Senior  Creditor  shall be deemed  fully and  completely
valid,  binding  and  perfected  without  further  notice,   orders,  filing  or
recording;  provided,  however,  that  the  Senior  Creditor  may,  in its  sole
discretion,  file and record or take any other  action,  or cause Debtor to file
and record any notices of, or deliver all documents and instruments requested by
the Senior  Creditor in  connection  with such liens and  security  interests at
Debtor's expense.



                                       18
<PAGE>

     IN WITNESS WHEREOF,  the parties hereto have entered into this Agreement as
of the day and year first set forth above.


                                       DEBTOR:
                                       ------


                                       Video Update, Inc.,


                                       By:/s/ Daniel A. Potter
                                          ---------------------------
                                       Name: Daniel A. Potter
                                       Title: Chief Executive Officer



                                       SENIOR CREDITOR:
                                       ---------------


                                       Movie Gallery, Inc.


                                       By: /s/ J. T. Malugen
                                          ---------------------------
                                       Name:  J. T. Malugen
                                       Title: Chief Executive Officer



                                       19
<PAGE>


                    CONSENT, REAFFIRMATION AND ACKNOWLEDGMENT

     The foregoing Chapter 11 Financing  Agreement  ("Agreement"),  and each and
every,  all and singular,  of its provisions,  are consented to,  reaffirmed and
acknowledged  by the  undersigned  entities that are defined in the Agreement as
Sub-Debtors and as Non-Debtor  Subsidiaries,  and they and each of them agree in
all respects to be bound by, and comply with,  all  provisions  of the Agreement
that apply to them.

     IN WITNESS WHEREOF, the entities executing this Consent,  Reaffirmation and
Acknowledgment have executed the same as of 17th day of May, 2001.

                              GUARANTORS:
                              ----------


                                       Tinseltown Video, Inc.
                                       an Oklahoma corporation



                                       By:/s/ Daniel A. Potter
                                       ---------------------------
                                       Name: Daniel A. Potter
                                       Title: Chief Executive Officer



                                       Moovies, Inc.,



                                       By:/s/ Daniel A. Potter
                                       ---------------------------
                                       Name: Daniel A. Potter
                                       Title: Chief Executive Officer



                                       20
<PAGE>

                                       Moovies of the Carolinas, Inc.,



                                       By:/s/ Daniel A. Potter
                                       ---------------------------
                                       Name: Daniel A. Potter
                                       Title: Chief Executive Officer



                                       Pic-a-Flick of Greenville, Inc.,



                                       By:/s/ Daniel A. Potter
                                       ---------------------------
                                       Name: Daniel A. Potter
                                       Title: Chief Executive Officer



                                       Moovies of Georgia, Inc.,



                                       By:/s/ Daniel A. Potter
                                       ---------------------------
                                       Name: Daniel A. Potter
                                       Title: Chief Executive Officer



                                       The Movie Store, Inc. #2,



                                       By:/s/ Daniel A. Potter
                                       ---------------------------
                                       Name: Daniel A. Potter
                                       Title: Chief Executive Officer

                                       21
<PAGE>

                                       The Movie Store III, Inc.



                                       By:/s/ Daniel A. Potter
                                       ---------------------------
                                       Name: Daniel A. Potter
                                       Title: Chief Executive Officer



                                       Alpharetta Media Associates, Inc.,



                                       By:/s/ Daniel A. Potter
                                       ---------------------------
                                       Name: Daniel A. Potter
                                       Title: Chief Executive Officer



                                       Rio Media Associates, Inc.,



                                       By:/s/ Daniel A. Potter
                                       ---------------------------
                                       Name: Daniel A. Potter
                                       Title: Chief Executive Officer



                                       Moovies of Iowa, Inc.,



                                       By:/s/ Daniel A. Potter
                                       ---------------------------
                                       Name: Daniel A. Potter
                                       Title: Chief Executive Officer


                                       22

<PAGE>
                                       Moovies of Michigan, Inc.,



                                       By:/s/ Daniel A. Potter
                                       ---------------------------
                                       Name: Daniel A. Potter
                                       Title: Chief Executive Officer



                                       Movie Warehouse Franchise Systems, Inc.,



                                       By:/s/ Daniel A. Potter
                                       ---------------------------
                                       Name: Daniel A. Potter
                                       Title: Chief Executive Officer



                                       E.C.6, Inc.,



                                       By:/s/ Daniel A. Potter
                                       ---------------------------
                                       Name: Daniel A. Potter
                                       Title: Chief Executive Officer




                                       DCO, Inc.,



                                       By:/s/ Daniel A. Potter
                                       ---------------------------
                                       Name: Daniel A. Potter
                                       Title: Chief Executive Officer


                                       23
<PAGE>


                                       SONI, Inc.,



                                       By:/s/ Daniel A. Potter
                                       ---------------------------
                                       Name: Daniel A. Potter
                                       Title: Chief Executive Officer



                                       SNO, Inc.,



                                       By:/s/ Daniel A. Potter
                                       ---------------------------
                                       Name: Daniel A. Potter
                                       Title: Chief Executive Officer



                                       PQ3, Inc.,



                                       By:/s/ Daniel A. Potter
                                       ---------------------------
                                       Name: Daniel A. Potter
                                       Title: Chief Executive Officer



                                       D-Skippy, Inc.,



                                       By:/s/ Daniel A. Potter
                                       ---------------------------
                                       Name: Daniel A. Potter
                                       Title: Chief Executive Officer



                                       24
<PAGE>


                                       GBO, Inc.,



                                       By:/s/ Daniel A. Potter
                                       ---------------------------
                                       Name: Daniel A. Potter
                                       Title: Chief Executive Officer



                                       PTO, Inc.,



                                       By:/s/ Daniel A. Potter
                                       ---------------------------
                                       Name: Daniel A. Potter
                                       Title: Chief Executive Officer



                                       Video Update Canada, Inc.,



                                       By:/s/ Daniel A. Potter
                                       ---------------------------
                                       Name: Daniel A. Potter
                                       Title: Chief Executive Officer



                                       1137239 Ontario, Ltd.,



                                       By:/s/ Daniel A. Potter
                                       ---------------------------
                                       Name: Daniel A. Potter
                                       Title: Chief Executive Officer




                                       25
<PAGE>

                                       24 Hour Entertainment Leasing, Ltd.,



                                       By:/s/ Daniel A. Potter
                                       ---------------------------
                                       Name: Daniel A. Potter
                                       Title: Chief Executive Officer



                                       24 Hour Entertainment Group Ltd.,



                                       By:/s/ Daniel A. Potter
                                       ---------------------------
                                       Name: Daniel A. Potter
                                       Title: Chief Executive Officer




                                       26
<PAGE>

                         LIST OF SCHEDULES AND EXHIBITS

1.   Schedule 1 - List of Debtor and its subsidiaries.

2.   Schedule 2 - Projections and Budget prepared by debtor

3.   Exhibit "A" - Loan Agreement dated March 6, 1998

4.   Exhibit "B" - U.S. Security Agreement dated March 6, 1998

5.   Exhibit "C" - U.S. Pledge Agreement dated March 6, 1998.

6.   Exhibit "D" - Video Canada, Inc. Security Agreement dated March 6, 1998

7.   Exhibit "E" - 1137239 Ontario Ltd. Security Agreement dated March 6, 1998

8.   Exhibit "F" - 24 Hour  Entertainment  Leasing  Ltd.  Security Agreement
                   dated March 6, 1998

9.   Exhibit "G" - 24 Hour Entertainment Group Ltd. Security Agreement dated
                   March 6, 1998

10.  Exhibit "H" - Video Canada, Inc. Pledge Agreement dated March 6, 1998

11.  Exhibit "I" - 24 Hour Entertainment Group Inc. Pledge Agreement dated
                   March 6, 1998

12.  Exhibit "J" - Subsidiaries Guaranty dated March 6, 1998



                                       27