Document:

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                                                                    Exhibit 10.3

                                    AGREEMENT

     THIS SEVERANCE AGREEMENT AND MUTUAL RELEASE (the "Agreement") made and
entered into at Cleveland, Ohio, as of the 5th day of May, 2003, by and between
LAWRENCE S. HENDRICKS ("Executive") and RAINBOW RENTALS, INC., an Ohio
corporation (the "Company"), is to evidence the following agreements and
understandings:

                                   WITNESSETH:

     WHEREAS, Executive has been employed by the Company for many years and
currently serves as Chief Operating Officer and a Director on the Company's
Board of Directors;

     WHEREAS, Executive has determined to resign his employment with the Company
and his position as Director, such resignation to be effective in each case as
of May 5, 2003;

     WHEREAS, Executive is not aware of any past actions on his part that may
give rise to any liability on his part to the Company or others; and

     WHEREAS, Executive acknowledges that after May 5, 2003, but for this
Agreement, the Company would be under no continuing obligation (whether
contractual or otherwise) to make any payments to him of any sort or nature
except for: (i) unpaid salary accrued prior to May 5, 2003; (ii) unreimbursed
expenses of the type reimbursed by the Company in accordance with its prevailing
policies; and (iii) Executive's right to receive funds held pursuant to the
Company's 401K plan for Executive's benefit.

     NOW, THEREFORE, Executive and Company (together, "Parties") hereto agree as
follows:

     1. Termination of Employment. The Parties agree that the Executive's
employment with the Company terminated as of May 5, 2003. Executive further
resigns as a director and officer of the Company as of May 5, 2003. Executive
agrees to execute and deliver to the Secretary of the Company a letter
evidencing and affirming such resignations as of May 5, 2003.

     2. Salary Continuation.

          A. In consideration of the terms set forth in this Agreement, the
Company agrees to pay Two Hundred and Eighty Thousand, Five Hundred Dollars
($280,500), representing Executive's annual salary and fixed bonus, over the
period of twelve months, from June 1, 2003 through May 1, 2004, paid according
to Company's normal payroll practices, less normal withholding and deductions
required by law.

          B. If, by June 1, 2004, Executive has not found gainful, full-time
employment, and has not commenced a substantial business venture which results
in full-time employment, and there has been no Change in Control (as defined
below), the Company further agrees to pay Two Hundred and Eighty Thousand, Five
Hundred Dollars ($280,500), representing Executive's annual salary and fixed
bonus, over the period of twelve months, from June 1, 2004 through May 30, 2005
("Extended Severance Period"), paid according to

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Company's normal payroll practices, less normal withholding and deductions
required by law. Provided, however, that if at any time prior to or during the
Extended Severance Period, (a) Executive gains or is engaged in full-time
employment, (b) Executive commences a substantial business venture, or (c) there
is a Change in Control of the Company (as defined below), the Company's payment
obligations under Paragraph 2(A & B) shall immediately cease. "Change in
Control" means the consummation of the sale of all or substantially all of the
assets, or the sale or exchange of securities of Company whereby the
stockholders of the Company immediately prior to said sale do not own at least
50% of the voting power of the acquiring entity, whether in a single transaction
or in a series of transactions intended to be a single transaction.

     3. Expense Reimbursement. Company will reimburse to Executive all expenses
incurred by Executive on behalf of Company which have not been reimbursed as of
the date of this Agreement.

     4. Insurance. For the period from June 1, 2003 through May 1, 2004, Company
will continue to provide all medical, disability and life insurance benefits
previously provided to Executive, at the Company's cost.

     5. Estate planning. For the period from June 1, 2003 through May 1, 2004,
Company will continue to make estate planning services available to Executive at
the Company's sole cost, in a gross value not to exceed $5,000.

     6. Country club allowance. For the period of June 1, 2003 through May 1,
2004, Company will continue to pay $600.00 per month for Executive's country
club allowance at Tippecanoe Country Club, Canfield, Ohio, on a monthly basis.
Payment will be made directly to the Executive and Executive will no longer
submit monthly invoices for payment.

     7. Vehicle lease. Executive has just ordered, but has not yet received, a
new vehicle under a two-year lease. For the duration of that lease, Company will
pay the full monthly lease amount directly to the lessor. Executive agrees, upon
the termination of the lease, to return the vehicle and to be responsible for
any additional charges incurred in connection with the lease, including but not
limited to over-mileage fees and damages to the vehicle. Executive further
agrees that Executive is solely responsible for the use and operation of the
vehicle during the lease, agrees to maintain adequate insurance for same, and
finally agrees to indemnify and hold harmless Company, including attorneys'
fees, for any alleged liability arising from the use of the vehicle by any party
whatsoever during the duration of the lease. The Parties expressly agree that by
providing the lease payments, the Company assumes no other liability or
responsibility for the vehicle.

     8. Personal items. Company will give to Executive the personal items
acquired by the Company for Executive, including but not limited to his computer
and cellular phone.

     9. Press release. Company will issue the press release attached hereto as
Exhibit A, which has been reviewed and approved by Executive.

     10. SEC reporting. Executive acknowledges and agrees that from and after
May 5, 2003 he shall be responsible for timely filing all reports required under
Sections 13, 14, or 16 of

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the Securities Exchange Act of 1934, as amended, and the regulations promulgated
thereunder, with respect to his actions, and Executive further agrees to provide
copies to the Company of all such reports. Executive acknowledges that the
Company shall have the full right to rely on the accuracy of such reports.

     11. Release of Claims and Covenant Not to Sue.

          A. In further consideration for the amounts to be paid by the Company
to Executive hereunder, Executive does hereby release and forever discharge the
Company and its respective directors, officers, executives, shareholders, agents
(including, but not limited to, accountants and attorneys) (such individuals and
the Company are hereunder collectively referred to as "Released Parties") from
all claims, causes of action and liabilities of every kind and description
whatsoever, known and unknown, foreseen and unforeseen, suspected and
unsuspected, asserted or unasserted, which Executive has or may have against
them or any of them by reason of any fact, matter or thing from the beginning of
the world to the date of this Agreement, with the sole exception of: (i) claims
arising out of the breach of any of Company's obligations under this Agreement;
and (ii) payments due Executive under the Company's 401k plan (collectively, the
"Retained Claims"). Without limiting the generality of the preceding sentence,
Executive does hereby release the Released Parties from all claims, causes of
action and liabilities arising from or relating to: (i) his employment or other
association with the Company; (ii) any right which Executive has, had or may
have had to receive any sum of money of the Company; (iii) any rights or claims
which Executive may have against the Company for any cause whatsoever; (iv) any
claims for salary, bonuses, vacation pay, fringe benefits, director's fees,
business expenses and allowances or severance pay; (v) claims based on oral or
written contracts; (vi) claims arising under any federal or state statutes,
including but not limited to, claims asserting discrimination on account of age,
race, color, sex, religion, national origin or veteran or handicap status and
claims under the Age Discrimination in Employment Act of 1967 ("ADEA"), as
amended, ERISA, Title VII of the 1964 Civil Rights Act and the Older Worker
Benefit Protection Act; (vii) claims for damages for breach of contract or
implied contract; (viii) claims based on personal injury, including without
limitation, infliction of emotional distress; (ix) wrongful termination or
breach of covenant of good faith and fair dealing; (x) claims asserting
defamation, interference with contract or business relationships or promissory
estoppel; and (xi) claims relating to Executive's ownership, acquisition and/or
sale of Company stock. Provided, however, that in order not to lose the benefit
of any applicable D&O or other insurance, Executive does not waive any claims
that could be made in or through subrogation by Executive (and/or any applicable
insurer) against Company in the event that a third party brings suit against the
Company and/or Executive.

          Executive covenants and agrees that he will never assert a claim or
institute any cause of action or file a charge based on claims, causes of action
and liabilities of every kind and description whatsoever, known and unknown,
foreseen and unforeseen, suspected and unsuspected, asserted or unasserted,
which Executive has or may have against the Company or any other Released Party
by reason of any fact, matter or thing from the beginning of the world to the
date of this Agreement (except for Retained Claims) with any court of law or
administrative tribunal, and further agrees that should he violate the foregoing
covenant not to sue by asserting a claim, instituting an action or filling a
charge against the Company or any

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other Released Party which is prohibited under this Agreement, Executive will
pay all of the Company's or other Released Party's costs and expenses
(including, without limitation, attorneys' fees) of defending against the suit
incurred by the Company or any other Released party. Executive acknowledges and
agrees that the monetary benefits provided in this Agreement constitute
sufficient consideration for the Release and Covenant Not to Sue contained
herein, that there are substantial benefits to Executive, and Executive further
acknowledges that he has voluntarily and knowingly entered into this Agreement
with an understanding of its terms and meanings.

          Executive acknowledges that the Company has notified him that, under
federal law: (i) Executive has twenty-one (21) days from the date of receipt by
Executive of this Agreement to consider and release and covenant not to sue
solely with respect to claims arising under the ADEA; and (ii) the release of
claims and covenant not to sue under the ADEA are not enforceable for a period
of seven (7) days following the execution by Executive of this Agreement ("ADEA
Waiting Period") and may be revoked by Executive during such time. Revocation of
the release of claims under ADEA may be effected by Executive solely by
notifying the Company in writing of his revoke and delivering such notice to the
Company within the aforesaid ADEA Waiting Period. If Executive delivers such a
revocation, all of the obligations of the Parties hereunder are null and void,
and of no effect.

          B. In consideration for Executive's agreements, obligations and
covenants contained in this Agreement, the Company does hereby release and
forever discharge Executive and his heirs, executors administrators, personal
representatives, successors and permitted assigns, from all claims, causes of
action and liabilities of every kind and description whatsoever, known and
unknown, foreseen and unforeseen, suspected or unsuspected, asserted or
unasserted, which the Company has or may have against Executive by reason of any
fact, matter or thing from the beginning of the world to the date of this
Agreement, except for claims arising out of the breach by Executive of any of
his obligations, representations, warranties and covenants under this Agreement.
Without limiting the generality of the preceding sentence, the Company does
hereby release Executive from all claims, causes of action and liabilities
arising from or relating to Executive's previous employment (including his
services as a director) with the Company and/or the circumstances giving rise to
the execution and delivery of this Agreement. The Company covenants and agrees
that it will never assert or institute any cause of action or file a charge
arising from or relating to Executive's previous employment with the Company
and/or the circumstances giving rise to the execution and delivery of this
Agreement, and further agrees that should the Company violate the foregoing
covenant not to sue by instituting an action or filing a charge against
Executive which is prohibited under this Agreement, Company will pay all costs
and expenses (including, without limitation, attorneys' fees) of defending
against the suit incurred by Executive. Provided, however, that in order not to
lose the benefit of any applicable D&O or other insurance, Company does not
waive any claims that could be made in or through subrogation by Company (and/or
any applicable insurer) against Executive in the event that a third party brings
suit against the Company and/or Executive.

          C. Except as is expressly stated in Paragraphs 11(A) and 11(B),
nothing contained in those paragraphs shall inure to the benefit of any third
party to this agreement.

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     12. Non-solicitation and non-competition; Termination of Existing
Employment Agreement. Executive covenants and agrees that during the two-year
period of May 5, 2003 through April 30, 2005, Executive will not, directly or
indirectly solicit or entice for employment or hire any current Company
employee. Executive further covenants and agrees that during the two year period
of May 5, 2003 through April 30, 2005, Executive will not, directly or
indirectly, aid, advise, consult with, or in any way become associated with any
business entity in the rental purchase industry (whether as an employee,
representative, agent, independent contractor, director, or in any other
capacity) any of the following entities or their respective successors (whether
by way of acquisition, merger, consolidation, combination, reorganization,
bankruptcy or other proceedings), including but not limited to Aaron's,
Rent-a-Center, Rentway and/or Rent*Rite.

     13. Confidentiality. Executive agrees to keep the substance of the
negotiations and the terms and conditions of this Agreement strictly
confidential. Executive further agrees not to disclose the substance of the
negotiations or the terms and conditions of this Agreement, except to his tax,
financial and/or legal advisors or members of his immediate family, each of whom
will also have an obligation of confidentiality. Should the Company determine,
within its reasonable discretion, that it is necessary to disclose this
Agreement to the SEC or to the Company's shareholders in order to comply with
state or federal law, such disclosure shall render the provisions of this
paragraph null and void.

     14. Non-Disparagement. The Company agrees not to disparage Executive's
professional or personal reputation. Executive agrees not to disparage the
Company or the professional or personal reputation of any Company officer,
director or employee.

     15. Voting. Executive agrees that, during the period from May 5, 2003
through April 30, 2005, Executive will not acquire, offer or propose to acquire,
or agree to acquire, either individually or with a "group" within the meaning of
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, any shares
of Common Stock of the Company ("Rainbow Shares") and, further, in the event any
matter is presented to the shareholders of the Company for a vote, Executive
agrees not to vote his existing Rainbow Shares in a manner adverse to the
recommendation made by the Board of Directors of the Company. The foregoing
limitation shall not apply to any Rainbow Shares currently owned by Executive
that are sold on the open market or in a privately-negotiated sale.

     16. Right of First Refusal.

          A. If Executive receives a bona fide written offer (the "Third Party
Offer") from any person or entity who is not a party to this Agreement (the
"Third Party") to purchase all or a portion of his existing Rainbow Shares (the
"Offered Interest"), and Executive desires to accept the Third Party Offer, then
the Executive shall notify the Company in writing of the identity of the Third
Party and shall attach a photocopy of the Third Party Offer.

          B. The Company shall have the right, but not the obligation, to
purchase the Offered Interest at the same purchase price and upon substantially
the same terms and conditions as are contained in the Third Party Offer. The
Company's option to purchase shall be

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exercisable by giving written notice to the Executive within thirty (30) days
after the Executive gives notice of the Third Party Offer. If the Company fails
to exercise its option in this manner, then Executive may sell all of the
Offered Interest to the Third Party on the same terms and conditions as are
contained in the Third Party Offer.

     17. Miscellaneous.

          A. Notices. All notices, request, demands or other communications
hereunder must be in writing executed by an authorized representative of the
party responsible therefor, and must be given either by hand delivery or
telecopy or other telecommunications device capable of creating a written record
(confirmed by registered or certified mail or by overnight courier):

          If to Company:   Rainbow Rentals, Inc.
                           3711 Starr Centre Drive
                           Canfield, Ohio 44406
                           ATTN: Wayland Russell

          With a copy to:  Kahn Kleinman, L.P.A.
                           2600 Tower at Erieview
                           1301 East Ninth Street
                           Cleveland, Ohio 44114-1824
                           Attention: Marc H. Morgenstern, Esq.
                           Telecopier Number: (216) 623-4912

          If to Executive: Lawrence S. Hendricks
                           1135 Fox Den Trail
                           Canfield, Ohio 44406

          B. Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.

          C. Entire Agreement. This Agreement sets forth the entire agreement
and understanding between the Parties with respect to the subject matter hereof
and supersedes and cancels any and all prior discussions, correspondence,
agreements or understandings (whether oral or written) between the parties
hereto with respect to such matters.

          D. Binding Effect/Assignability. This Agreement shall inure to the
benefit of and shall bind the Company and its successors and assigns (whether by
way of sale of assets, merger, consolidation, combination, reorganization,
bankruptcy or other proceedings), and Executive, his heirs, representatives,
successors and permitted assigns. With respect to Company, in connection with
any sale of all or substantially all of its assets, any merger in which Company
is not the surviving corporation, or any consolidation involving Company,
Company may assign this Agreement to the purchasing entity, surviving entity, or
consolidated entity.

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          E. Severability. All provisions of this Agreement are intended to be
severable. In the event any provision or restriction contained herein is held to
be invalid or unenforceable in any respect, in whole or in part, such finding
shall in no way affect the Agreement. The Parties hereto further agree that any
such invalid or unenforceable provision shall be deemed modified so that it
shall be enforced to the greatest extent permissible under law, and to the
extent that any court of competent jurisdiction determines any restriction
herein to be overly broad or unenforceable, such court is hereby empowered and
authorized to limit such restriction so that it is enforceable for the longest
duration of time and greatest scope possible.

          F. Governing Law/Jurisdiction and Venue. This Agreement shall be
governed by and construed in accordance with the laws of the State of Ohio. Any
claim or action arising hereunder shall be settled before a single arbitrator in
Cleveland, Ohio under the commercial rules of the American Arbitration
Association then in effect, and judgment upon such award rendered by the
arbitrator may be entered in any court of competent jurisdiction. The
arbitrators' fee shall be split equally among the parties. Notwithstanding the
foregoing, the Parties shall have the same rights of discovery under the Ohio
Rules of Civil Procedure as if the dispute had been filed as an original action
in an Ohio court of original jurisdiction.

          G. Injunctive Relief. Notwithstanding the foregoing paragraph 17(F),
in the event Executive violates any of his obligations under paragraphs 12 and
13 hereof, in addition to any other remedies available in law or equity, Company
may apply to any court of competent jurisdiction for an injunction to prohibit
further violations. Executive acknowledges that in the event that he breaches
any of his obligations in those paragraphs, that Company will be irreparably
damaged for which it will have no adequate remedy at law.

     IN WITNESS WHEREOF, the parties hereto have set their hands as of the date
written above.

                                        RAINBOW RENTALS, INC.

/s/ LAWRENCE S. HENDRICKS               By: /s/ WAYLAND J. RUSSELL
---------------------------                 ------------------------------------
LAWRENCE S.  HENDRICKS,                     Wayland J. Russell
Individually                                Chief Executive Officer

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                                                                    Exhibit 10.4

                              EMPLOYMENT AGREEMENT

     This Employment Agreement (the "Agreement"), executed and delivered as of
May 6, 2003 by and between Rainbow Rentals, Inc. ("Company") and S. Robert
Harris ("Executive") is to evidence the following agreements and understandings:

                                   WITNESSETH:

     WHEREAS, Company is engaged in the business of offering brand name,
full-featured appliances, electronics, computers and furniture at 119
rental-to-own stores in 13 states;

     WHEREAS, Executive has substantial experience related to and beneficial to
the operation of such business;

     WHEREAS, Executive and Company both desire that the Company employ
Executive as its Chief Operations Officer ("COO");

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

                     SECTION 1 - EXECUTIVE'S QUALIFICATIONS

     Executive represents and warrants to the Company that Executive is: (i)
free to enter into this Agreement and that Executive is not subject to any
agreement, instrument, order, judgment, or decree of any kind (including,
without limitation, covenants restricting Executive's ability to compete or to
use any confidential information), to any other person, corporation,
partnership, limited liability company, association, entity or business
organization that would in any way prevent Executive from entering into this
Agreement, or hinder or interfere with the Executive's acceptance of, or the
full performance of, Executive's obligations hereunder or the exercise of
Executive's best efforts hereunder; and (ii) to Executive's best knowledge, is
and will be in compliance with all regulatory and statutory provisions that
apply to the Company, as a public company. Executive further covenants and
agrees to indemnify and hold harmless the Company, its officers, directors,
stockholders, and employees (and their respective heirs, representatives,
successors and assigns) from, against and in respect of any loss, cost, damage
or expense (including attorneys' fees) arising out of or resulting from the
breach of the foregoing representations or warranties. Executive acknowledges
and agrees that the representations and warranties contained in this Section 1
are a material inducement for Company's execution of this Agreement, and, but
for the representations and warranties set forth in this Section 1, Company
would not enter into this Agreement.

                        SECTION 2 - DUTIES AND AUTHORITY

     (a) Executive's employment by Company under this Agreement will be full
time and exclusive. Executive will report to the Chief Executive Officer
("CEO"), Wayland Russell. Executive agrees:

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          (i)   To serve as Company's COO and to and manage, supervise and
                direct its operations, subject to the direction of Company's CEO
                and its Board of Directors;

          (ii)  To carry out his duties in a competent and professional manner,
                and to perform such other duties commensurate with his position
                as may be reasonably requested of him by the CEO and Board of
                Directors;

          (iii) To comply with all reasonable policies and directives now or
                hereafter issued by the CEO and Company's Board of Directors
                which are in accordance with the provisions of this Agreement;

          (iv)  To devote his full business time, best efforts, skill and
                attention to the advancement of the business of the Company;

          (v)   To perform faithfully to the best of his ability all of the
                duties referred to above in accordance with the rules and
                regulations established and to be established by the Company,
                including but not limited to the Company's policies concerning
                insider trading, its Mission Statement and its Code of Conduct;
                and

          (vi)  To refrain from engaging or participating in any business
                pursuits which interfere with the performance of the Executive's
                duties hereunder (i.e., Executive will not serve on the Board of
                Directors or Board of Advisors of any other company or other
                business entity unless otherwise approved by the Board of
                Directors in its sole and absolute discretion). Notwithstanding
                the foregoing, Executive is permitted to serve on civic or
                charitable boards or committees.

          (vii) To comply with all applicable state and federal laws applicable
                to the performance of Executive's duties, including but not
                limited to laws and regulations applicable to Company as a
                public company, such as the Securities and Exchange Act of 1934,
                as amended, SEC regulations and the Sarbanes-Oxley Act of 2002.

                         SECTION 3 - EMPLOYMENT AND TERM

     Subject to the terms and conditions hereinafter set forth, the Company
agrees to employ Executive as COO for a term commencing on the date hereof and
expiring on May 6, 2004 (the "Initial Term") and thereafter on a month-to-month
"at will" basis (together with the Initial Term, the "Employment Period"),
subject to the terms and conditions provided below.

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                            SECTION 4 - COMPENSATION

     (a) Base Salary. During the Initial Term, Company will pay to the Executive
a Base Salary payable in accordance with the Company's normal payroll practices
(and subject to normal and customary payroll deductions), at the rate of One
Hundred Seventy Five Thousand Dollars ($175,000). The Executive's Base Salary
for any period beyond the Initial Term shall be set by the Company's
Compensation Committee in accordance with the standard practices of the Company.

     (b) Options. Executive will be granted Options pursuant to the terms and
conditions provided in Section 5, below.

     (c) Special Executive Benefits. In addition to the compensation described
in Sections 4(a) and 4(b), Company will pay or provide, as the case may be, to
Executive during the Employment Period, the following:

          (i)    reimbursement or payment on Executive's behalf of Executive's
                 reasonable travel, entertainment or other expenses incurred in
                 carrying out the Company's business and/or the performance of
                 Executive's duties hereunder; provided that the Executive
                 provides the Company with such detail of the expenses as the
                 Company may reasonably require in accordance with the Company's
                 prevailing practices;

          (ii)   Three (3) weeks' paid vacation per year, provided that any
                 vacation days not used will not be accrued, carried forward, or
                 otherwise compensated;

          (iii)  participation in the Company's 401(k) Plan and any other
                 pension, retirement, or other benefit plan that may be adopted
                 by the Company, in its sole discretion, and in which any of
                 Company's employees are eligible to participate;

          (iv)   participation by the Executive and his dependents in the
                 medical, hospital, surgical and dental plans offered by the
                 Company, subject to such Company-wide changes as may be made to
                 these plans from time to time in the Company's sole discretion;

          (v)    term life insurance in the amount of $500,000, payable to a
                 beneficiary as designated by Executive;

          (vi)   participation by the Executive in the Company's disability
                 insurance plan, subject to such Company-wide changes as may be
                 made to these plans from time to time in the Company's sole
                 discretion;

          (vii)  monthly payment by the Company of $600 to a country club of
                 Executive's choice, representing the payment of monthly dues
                 and an allowance;

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          (viii) personal tax planning assistance, at the Company's cost, not to
                 exceed $5,000 annually;

          (ix)   a company car, which shall have a fair market value of no more
                 than $40,000, for which Company will pay all downpayment,
                 security deposit, and monthly lease amounts.

                               SECTION 5 - OPTIONS

     Executive is granted options to purchase 30,000 shares of the common stock
of the Company, at an exercise price of $5.35 per share, pursuant to the terms
and conditions of the Company's 1998 Stock Option Plan and the Notice of Grant
attached hereto as Exhibit A.

                             SECTION 6 - TERMINATION

     (a) Termination for Cause by the Company. The Company may terminate
Executive's employment for "Cause" (as defined below), with such termination to
be effective immediately upon written notice to Executive. If Executive's
employment is terminated for Cause by the Company, Executive's Compensation, and
his rights under this Agreement, will terminate on the date his employment is
terminated, and the Company will have no further liability under this Agreement
except for payment of: (i) earned Base Salary which remains unpaid as of the
effective date of termination; and (ii) any expenses incurred by Executive
described in Section 4(c)(i) not theretofore reimbursed by the Company.

     For purposes of this Section 6, "Cause" will mean: (i) fraud, embezzlement,
theft, or misappropriation of funds or other property of the Company; (ii)
negligence in the performance by Executive of his duties pursuant to this
Agreement; (iii) the failure or refusal by Executive to perform his duties to
the Company as provided herein, other than due to Disability; (iv) the
commission by Executive of any acts of bad faith or misconduct against the
Company; (v) the indictment of Executive of a felony or other criminal act
involving dishonesty, whether or not relating to his employment with the
Company; (vi) the breach of an established policy or procedure of the Company;
(vii) disclosure of confidential information of the Company in violation of
Section 7 below; or (viii) engaging in activities that compete with the business
of the Company.

     Any termination of Executive's employment by reason of the activities or
events described in this Paragraph 6(a) will not be in limitation of any other
right or remedy which the Company may have under this Agreement, at law, or in
equity.

     (b) Termination without Cause by the Company. The Company will have the
right to terminate the Executive without cause upon thirty (30) days written
notice to the Executive. The Company will fulfill its obligations under this
Agreement and pay or provide to the Executive: (i) all unpaid earned Base Salary
which remains unpaid as of the effective date of termination; (ii) unpaid Base
Salary for the balance of the Initial Term ("Severance Payment"); (iii) any
expenses incurred by Executive described in Section 4(c)(i) not theretofore
reimbursed by the

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Company; (iv) benefits to which Executive is entitled under Section 4(c) for the
Initial Term. Payments of the Severance Payment will be made periodically in the
same amounts and at the same intervals as if the Employment Period had not ended
and the Base Salary had otherwise continued to be paid. Except as expressly
provided herein, in the event of a termination under this Section 6(b),
Executive will have no further rights, and the Company shall have no further
liability, under this Agreement.

     (c) Termination by the Company Upon Executive's Disability. The Company
will have the right to terminate Executive's employment upon a determination of
Disability. Termination of Executive's employment under this Paragraph 6(c) will
be effective immediately upon receipt by Executive of written notice of
termination. Upon such termination, Executive will be entitled to receive the
following payments, in addition to any disability insurance payments received
from the Company or its insurer: (i) all earned but unpaid Base Salary as of the
effective date of termination of employment; and (ii) any expenses incurred by
Executive described in Section 4(c)(i) not theretofore reimbursed by the
Company. Except as expressly provided in the preceding sentence, in the event of
a termination under this Section 6(c), Executive will have no further rights,
and the Company shall have no further liability, under this Agreement.

     (d) Death of Executive. In the event of Executive's death during the
Employment Period, his compensation will automatically terminate as of the date
of his death, except for the following amounts which shall be payable to
Executive's family or estate: (i) earned Base Salary which remains unpaid as of
the date of death; and (ii) any expenses incurred by Executive described in
Section 4(c)(i) which are not theretofore reimbursed by the Company. Except as
expressly provided in the preceding sentence, in the event of a termination
under this Section 6(d), Executive will have no further rights, and the Company
shall have no further liability, under this Agreement.

                      SECTION 7 - CONFIDENTIAL INFORMATION

     (a) Confidentiality. As a consequence of Executive's employment with the
Company, Executive will receive and deal with confidential information and
business methods, including, but not limited to, advertisers, venues, innovative
proprietary technology and content, processes, programs, records, reports,
financial data, market data, marketing plans, unique business practices, pricing
techniques, relationships with customers and providers of services, and other
information relating to the Company's product development and operations
(collectively, the "Confidential Information"). For purposes of this Agreement,
Confidential Information will not include information that: (i) was clearly
obtainable in the public domain, (ii) becomes obtainable in the public domain
through no fault of Executive, (iii) was not acquired by Executive in connection
with his employment or affiliation with the Company; and (iv) was not acquired
by Executive from the Company or its representatives, unless such information
was provided by a third party in breach of such party's obligation not to
disclose.

     Executive further acknowledges that Confidential Information received or
dealt with by Executive is of such a value and nature as to make it reasonable
and necessary for the protection of the Company that the Executive not during
the term of this Agreement or thereafter use or

                                       5

<PAGE>

disclose any such Confidential Information (except in furtherance of the
Company's operations), and that the Company will be irreparably damaged if the
Executive were to use or disclose (except in furtherance of the Company's
operations) any of the Confidential Information that the Executive will acquire
or deal with as a result of his employment with the Company. Accordingly,
Executive agrees not to use or disclose the Confidential Information (except in
furtherance of the Company's operations) at any time. Upon demand by the
Company, and in any event within three days following termination of Executive's
employment with the Company for any reason, Executive will surrender to the
Company all Confidential Information and all other original and facsimile
records, documents and data in his possession or under his control pertaining to
the Company.

     (b) Exceptions. Notwithstanding the foregoing, the provisions of Section
7(a) do not apply, and Executive may disclose Confidential Information of the
Company in order to comply with: (i) a subpoena issued by a court having
jurisdiction over Executive or (ii) a written request made by any regulatory
authority or taxing authority having authority over such Executive; provided,
however, that prior to compliance with such request, Executive will give notice
to the Company to allow the Company to attempt to quash or limit such subpoena
or request.

                      SECTION 8 - NON-HIRE/NON-COMPETITION

     (a) Covenants. Executive acknowledges that financial data, trade secrets,
business plans, technical materials, advice and assistance of the Company and
its officers, customer lists and other confidential information, all provided to
Executive by the Company, are of such a value and nature as to make it
reasonable and necessary for the protection of the Company that Executive not
compete with the Company within the area and for the duration hereinafter set
forth. Accordingly, Executive covenants and agrees that he shall not, for a
period of one (1) years following the termination of his employment with the
Company for any reason (the "Restricted Period"), directly or indirectly, hire
any person employed by the Company during the Employment Period. Executive
further covenants and agrees that during the Restricted Period, Executive will
not, directly or indirectly, aid, advise, consult with, or in any way become
associated with (whether as an employee, representative, agent, independent
contractor, director, or in any other capacity) any Competing Entity. A
"Competing Entity" is any person or entity engaged in the rental purchase
industry that has any operations within any Area of Dominant Influence (or
"ADI") in which the Company is also operating by the time of Executive's
termination.

     (b) Reasonableness of Restrictions. Executive acknowledges that: (i) his
experience and capabilities are such that the provisions of this Section 8 will
not prevent him from earning a livelihood; (ii) the services to be rendered by
him to the Company are of a special nature and it would be very difficult or
impossible to replace those services; (iii) the terms and conditions contained
in this Section 8 are reasonable and necessary for the protection of the
Company's business; and (iv) the nature of the employment arrangement
contemplated hereby is such that the Company may not be adequately compensated
with monetary damages for any violation by the Executive of any of the
provisions of this Section 8 and/or Section 7 hereof.

     (c) Severability. It is further agreed that each of the covenants above set
forth in paragraph (a) of this Section are separate and distinct covenants,
independent of each other, and

                                       6

<PAGE>

that the illegality or invalidity of any one or more of them or any part of one
or more of them shall not render the other illegal or invalid, and that if the
invalidity or unenforceability is due to the unreasonableness of the time or
geographical area covered by said covenants and restrictions, said covenants and
restrictions shall nevertheless be enforced to the maximum extent permitted by
law and effective for such period of time and for such area as may be determined
to be reasonable by a court of competent jurisdiction, and Employee hereby
consents and agrees that such scope may be judicially modified, accordingly, in
any proceeding brought to enforce such covenants and restrictions.

                             SECTION 9 - NON-WAIVER

     The failure of either party at any time or from time to time to require
performance of any of the other party's obligations under this Agreement will in
no matter affect such party's rights to enforce any provision of this Agreement
at a subsequent time, and the waiver by either party of any right arising out of
any breach will not be construed as a waiver of any right arising out of any
subsequent breach.

                           SECTION 10 - MISCELLANEOUS

     (a) Amendments. This Agreement may be amended only in a writing executed by
both of the parties hereto.

     (b) Assignment. This Agreement is for personal services to be provided by
the Executive and may not be assigned or transferred by Executive to, or the
obligations of the Executive performed by, any other party. This Agreement and
the rights and obligations hereunder may not be assigned by the Company to any
other party, except that the restrictive covenants of the Executive set forth in
Sections 7 and 8 hereof, respectively, may be assigned by the Company to any
purchaser of the Company, whether by sale of assets, stock, merger or
consolidation.

     (c) Entire Agreement. This Agreement, together with the attached Notice of
Grant, which is incorporated by reference herein, contains the entire agreement
between the parties hereto regarding the subject matter hereof and supersedes
all prior and contemporaneous agreements, understandings, negotiations, and
discussions, whether oral or written. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which
together will constitute one and the same instrument.

     (d) Headings. Section and paragraph headings are not to be considered part
of this Agreement. They are included solely for convenience and are not intended
to be full or accurate descriptions of the contents hereof.

     (e) Governing Law/Arbitration/Injunctive Relief. This Agreement shall be
governed by, and construed in accordance with, the laws of the State of Ohio,
without regard to its choice of law principles. Any claim or action arising
hereunder shall be settled before a single arbitrator in Cleveland, Ohio under
the commercial rules of the American Arbitration Association then in effect, and
judgment upon such award rendered by the arbitrator may be entered in any court
of

                                       7

<PAGE>

competent jurisdiction. The arbitrators' fee shall be split equally among the
parties. Notwithstanding the foregoing, the Parties shall have the same rights
of discovery under the Ohio Rules of Civil Procedure as if the dispute had been
filed as an original action in an Ohio court of original jurisdiction.
Notwithstanding the foregoing, in the event Executive violates any of his
obligations under Sections 7 and/or 8 hereof, in addition to any other remedies
available in law or equity, Company may apply to any court of competent
jurisdiction for an injunction to prohibit further violations. Executive
acknowledges that in the event that he breaches any of his obligations in those
Sections, that Company will be irreparably damaged for which it will have no
adequate remedy at law.

     (f) Binding Effect. This Agreement will be binding upon and inure to the
benefit of the Company, its successors and assigns, and Executive, his heirs,
executors, administrators, personal representatives and successors.

     (g) Recitals. The recitals hereto are an integral part of this Agreement
and are incorporated herein by reference.

     (h) Costs and Expenses. Each party will bear its or his, as the case may
be, own costs and expenses in connection with the negotiation and preparation of
this Agreement.

     (i) Company Authority. The Company represents and warrants to Executive as
follows:

          (i)  the Company is a corporation duly organized, validly existing,
               and in good standing under the laws of the State of Ohio, and has
               all requisite corporate power and authority to enter into,
               execute, and deliver this Agreement, fulfill its obligations
               hereunder, and consummate the transactions contemplated hereby;
               and

          (ii) the execution and delivery of, performance of obligations under,
               and consummation of the transactions contemplated by this
               Agreement have been duly authorized and approved by all requisite
               corporate action, and this Agreement constitutes a legally valid
               and binding obligation of the Company enforceable against the
               Company by Executive in accordance with its terms.

     IN WITNESS WHEREOF, the parties hereto have set their hands as of the date
written above.

                                       RAINBOW RENTALS, INC.

/s/ S. ROBERT HARRIS                   By: /s/ WAYLAND J. RUSSELL
---------------------------------          -------------------------------------
S. ROBERT HARRIS,                          Wayland J. Russell
Individually                               Chief Executive Officer

                                       8

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