Document:

QuickLinks
 -- Click here to rapidly navigate through this document
EXHIBIT 10.9  

 

LOAN AND SECURITY AGREEMENT  

Dated as of June 17, 2004  

 Among  

PAWNMART, INC.  

(Borrower),  

XPONENTIAL, INC.  

(Parent),  

 and  

FCC, LLC, d/b/a First Capital  

(Lender)  

 

  

  

 
 

TABLE OF CONTENTS    
    

	 
	 	 
	 	Page

	1.	 	DEFINITIONS	 	1
	2.	 	BORROWING	 	7
	3.	 	INTEREST AND FEES	 	9
	4.	 	REPRESENTATIONS AND WARRANTIES OF OBLIGORS	 	10
	5.	 	COLLATERAL	 	12
	6.	 	FINANCIAL COVENANTS	 	13
	7.	 	COLLATERAL COVENANTS	 	13
	8.	 	NEGATIVE COVENANTS	 	15
	9.	 	REPORTING AND INFORMATION	 	16
	10.	 	INSPECTION RIGHTS; EXPENSES; ETC.	 	17
	11.	 	RIGHTS OF SETOFF, APPLICATION OF PAYMENTS, ETC.	 	18
	12.	 	ATTORNEY-IN-FACT	 	18
	13.	 	DEFAULTS AND REMEDIES	 	19
	14.	 	INDEMNIFICATION	 	21
	15.	 	PARENT GUARANTY	 	21
	16.	 	GENERAL PROVISIONS	 	22

Attachments:

Schedule

Exhibit A—Form of Borrowing Base Certificate

Exhibit B—Form of Compliance Certificate  

i

 
 

LOAN AND SECURITY AGREEMENT    
    

        This LOAN AND SECURITY AGREEMENT (this "Agreement") is entered into as of the 17th day of June, 2004
among PAWNMART, INC., a Nevada corporation ("Borrower"), XPONENTIAL, INC., a Delaware corporation
("Parent"; Borrower and Parent are sometimes referred to herein individually as an "Obligor" and
collectively as the "Obligors"), and FCC, LLC, d/b/a FIRST CAPITAL, a Florida limited liability company
("Lender"). 

 
 

RECITALS:    
    

        WHEREAS, Borrower is a wholly-owned subsidiary of Parent; and 

        WHEREAS,
Borrower and Parent have requested that Lender provide Borrower with a secured lending facility; and 

        WHEREAS,
Lender is willing to provide a secured lending facility to Borrower on the terms set forth in this Agreement, including, without limitation, the guaranty of Parent contained
herein. 

        NOW,
THEREFORE, Borrower, Parent and Lender hereby agree as follows: 

        1.    Definitions.    For purposes of this Agreement: 

        "Acceptable Pawn Documentation" means a written agreement between Borrower and a Customer of Borrower evidencing a Pawn Loan by Borrower
to such Customer which (a) contains language noting Lender's security interest in such documentation and the Accounts of Borrower arising therefrom, (b) complies with all applicable
laws, and (c) is otherwise in form and substance acceptable to Lender. 

        "Accounts" means all presently existing or hereafter arising accounts receivable due to Borrower (including medical and
health-care-insurance receivables), book debts, notes, drafts and acceptances and other forms of obligations now or hereafter owing to Borrower,
whether arising from the sale or lease of goods or the rendition of services by Borrower (including any obligation that might be characterized as an account, contract right, general intangible or
chattel paper under the UCC), all of Borrower's rights in, to and under all purchase orders now or hereafter received by Borrower for goods and services, all proceeds from the sale of Inventory, all
monies due or to become due to Borrower under all contracts for the sale or lease of goods or the rendition of services by Borrower (whether or not yet earned) (including the right to receive the
proceeds of said purchase orders and contracts), all collateral security and guarantees of any kind given by any obligor with respect to any of the foregoing, and all goods returned to or reclaimed by
Borrower that correspond to any of the foregoing. 

        "Affiliate" means, with respect to a Person, (a) any family member, officer, director, employee or managing agent of such Person,
and (b) any other Person (i) that, directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, such given Person,
(ii) that, directly or indirectly, beneficially owns or holds 10% or more of any class of voting stock or partnership or other interest of such Person or any subsidiary of such Person, or
(iii) 10% or more of the voting stock or partnership or other interest of which is directly or indirectly beneficially owned or held by such Person or a subsidiary of such Person. The term
"control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities or
partnership or other interests, by contract or otherwise. 

        "Agreement Date" means the date as of which this Agreement is dated. 

        "Borrower's Cost" means (a) for any Inventory which originally consisted of a Pawned Item, the loan amount advanced by Borrower to
the applicable Customer against such Inventory, excluding any pawn service charges, interest, and similar charges, and less any reserves established by Borrower, and (b) for all other
Inventory, the amount paid by Borrower to acquire such Inventory. 

        "Borrowing Base" has the meaning set forth in Item 1 of the Schedule. 

 

        "Borrowing Base Certificate" means the certificate, substantially in form of  Exhibit A, with appropriate insertions, to be submitted to Lender by Borrower pursuant
to this Agreement and certified as true and correct by the
Chief Executive Officer or the Chief Financial Officer of Borrower. 

        "Business Day" means any day excluding Saturday, Sunday, and any day which is a legal holiday under the laws of the State of Georgia or
which is a day on which Lender is otherwise closed for transacting business with the public. 

        "Collateral" has the meaning set forth in Section 5(b). 

        "Customer" means any customer of Borrower. 

        "Default" has the meaning set forth in Section 13(a). 

        "Eligible Accounts" means those Accounts arising from Pawn Loans made by Borrower in the ordinary course of Borrower's business;  provided, however, that Eligible Accounts shall not
include the following: 

        (a)   any
Account arising from a Pawn Loan which is not made in accordance with (i) Borrower's underwriting guidelines; and (ii) all applicable state and federal
laws, rules and regulations, including, without limitation, pawn regulations, usury laws, and the Federal Truth in Lending Act; 

        (b)   any
Account arising from a Pawn Loan with a repayment term in excess of 31 days from the date such Pawn Loan was made or in excess of 31 days from any
Qualifying Extension, whichever is later; 

        (c)   any
Account arising from a Pawn Loan (i) originated in Georgia which is more than 30 days past due, or (ii) originated in North Carolina or South
Carolina which is more than 60 days past due; 

        (d)   Accounts
arising from Pawn Loans with respect to which more than 30 days have elapsed since the origination thereof (or the most recent Qualifying Extension with
respect thereto); provided, however, that 85% of the Accounts arising from Pawn Loans originated in Georgia with respect to which less than
60 days have elapsed since the origination thereof (or the most recent Qualifying Extension with respect thereto) shall not be ineligible under this clause (d);  provided, further, that 85% of the Accounts arising from Pawn Loans originated in North Carolina and
South Carolina with respect to which less than 90 days have elapsed since the origination thereof (or the most recent Qualifying Extension with respect thereto) shall not be ineligible under
this clause (d); 

        (e)   any
Account arising from a Pawn Loan for which the maturity date has been extended in a manner that does not constitute a Qualifying Extension; 

        (f)    any
Account arising from a Pawn Loan for which the maturity date has been extended for more than (i) twelve Qualifying Extensions with respect to Vehicle Pawn
Loans and Pawn Loans for which the underlying Pawned Item is one or more items of jewelry; and (ii) eight Qualifying Extensions with respect to all other Pawn Loans; 

        (g)   any
Account arising from a Pawn Loan in excess of 70% of the minimum selling price of the underlying Pawned Item at the time such Pawn Loan is originated, or, with
respect to Vehicle Pawn Loans, 80% of the Black Book adjusted average wholesale value of the underlying Pawned Item; 

        (h)   any
Account arising from a Pawn Loan in excess of $500 (but only to the extent such Accounts exceed 15% of Eligible Accounts) or, with respect to Vehicle Pawn Loans,
$6,500 (but only to the extent that such Accounts exceed 5% of Eligible Accounts); 

        (i)    any
Account arising from a Pawn Loan which is not evidenced by Acceptable Pawn Loan Documentation; 

        (j)    Accounts
with respect to which the Customer is an Affiliate of any Obligor; 

2

 

        (k)   Accounts
with respect to which the Customer (i) is not a resident of or does not maintain its chief executive office in the United States, or (ii) is not
organized under the laws of the United States of America or any state thereof; or (iii) is the government of any foreign country or of any state, province, municipality, or other political
subdivision thereof; 

        (l)    any
and all Accounts as to which the perfection, enforceability, or validity of Lender's Collateral or security interest in such Account, or Lender's right or ability to
obtain direct payment to Lender of the proceeds of such Account, is governed by any federal or state statutory requirements other than those of the Uniform Commercial Code and applicable state and
federal pawn laws and regulations; 

        (m)  Accounts
arising from Pawn Loans which are originated in or subject to the laws of any state other than Georgia, North Carolina or South Carolina; 

        (n)   Accounts
which may be subject to offset or recoupment by the Customer, whether as the result of goods sold or services rendered by the Customer to Borrower or Parent,
any contractual arrangement between the Customer and Borrower or Parent (including any lease) or otherwise; 

        (o)   those
Accounts where Lender, in Lender's reasonable discretion, has notified Borrower that the Account or Customer is not acceptable to Lender; 

        (p)   Accounts
for which a Pawn Loan has not yet been advanced to the Customer (commonly referred to as "pre-billed accounts"); 

        (q)   Accounts
owed by a Customer not previously approved in writing by Lender where the dollar value for the aggregate amount of Accounts owed by such Customer is greater
than 0.50% of Borrower's Eligible Accounts; 

        (r)   any
Account with respect to all or part of which a check, promissory note, draft, trade acceptance, or other instrument for the payment of money has been received,
presented for payment, and returned uncollected for any reason; 

        (s)   any
Account with respect to which any one or more of the following events has occurred to the Customer on such Account: death or judicial declaration of incompetency of
a Customer who is an individual; the filing by or against the Customer of a request or petition for liquidation, reorganization, arrangement, adjustment of debts, adjudication as a bankrupt,
winding-up, or other relief under the bankruptcy, insolvency, or similar laws of the United States, any state or territory thereof, or any foreign jurisdiction, now or hereafter in effect;
the making of any general assignment by the Customer for the benefit of creditors; the appointment of a receiver or trustee for the Customer or for any of the assets of the Customer, including,
without limitation, the appointment of or taking possession by a "custodian," as defined in the Bankruptcy Code; the institution by or against the Customer of any other type of insolvency proceeding
(under the bankruptcy laws of the United States or otherwise) or of any formal or informal proceeding for the dissolution or liquidation of, settlement of claims against, or winding up of affairs of,
the Customer; the sale, assignment, or transfer of all or any material part of the assets of the Customer; the nonpayment generally by the Customer of its debts as they become due; or the cessation of
the business of the Customer as a going concern; 

        (t)    any
Account (or the applicable portion thereof) which constitutes pawn service charges, interest, late fees, finance charges, or similar charges; 

        (u)   any
Account arising from a Vehicle Pawn Loan unless Borrower has a perfected, first priority security interest in the underlying motor vehicle; 

        (v)   any
Account for which no personal property has been pledged to Borrower, or any Account arising from a Pawn Loan for which a firearm is the underlying Pawned Item; 

3

 

        (w)  any
Account arising from a Pawn Loan originated by any of Borrower's stores which has been in operation for more than 18 months and which has made a deficit
contribution towards Borrower's corporate overhead expenses for any three-month period; or 

        (x)   any
Account which is not subject to Lender's duly perfected, first-priority security interest, subject to no other Lien. 

        "Eligible Inventory" means and includes that Inventory which does not consist of firearms, packaging materials, labels or supplies and
which is located in the continental United States which Lender, in its discretion, deems to be Eligible Inventory. Without limiting the generality of the foregoing, no Inventory shall be Eligible
Inventory unless: 

        (a)   for
any Inventory which originally consisted of a Pawned Item, any applicable grace or redemption period has expired and Borrower has valid and legal title thereto
subject to no rights or claims by the Customer who originally pawned such Inventory; 

        (b)   at
all times it strictly complies with all of Borrower's warranties, covenants and representations to Lender; 

        (c)   it
is in salable condition at a price equal to or greater than Borrower's Cost; 

        (d)   it
is not unmerchantable, in Lender's reasonable discretion; 

        (e)   less
than 365 days (90 days in the case of motor vehicles) have elapsed since Borrower's acquisition thereof (which, for Inventory which originally
consisted of a Pawned Item, shall be deemed to be the date on which the applicable Customer forfeited such Pawned Item to Borrower and any grace or redemption period expired); 

        (e)   it
meets all standards imposed by any governmental agency or authority; 

        (f)    it
is at all times subject to Lender's duly perfected, first-priority security interest and there exists no other Lien thereon; 

        (g)   it
is in Borrower's possession and control situated at a location disclosed to Lender in compliance with this Agreement, Borrower's books reflect the Inventory, the
Inventory is insured to the full value thereof, the insurance policy lists Lender as loss payee and the Inventory is physically segregated from all Pawned Items; 

        (h)   it
is not in the hands of any third party, including a warehouseman, finisher, consignee, bailor, etc., unless such arrangement is fully disclosed to Lender in writing
and Borrower shall have provided to Lender such waivers, acknowledgments and other items requested by Lender in its discretion; 

        (i)    it
is not subject to any license or other agreement that limits, conditions, or restricts Borrower's or Lender's right to sell or otherwise dispose of such Inventory; 

        (j)    Borrower
owns such Inventory and such Inventory is not on "layaway" or in Borrower's possession based upon any consignment, guaranteed sale, or similar basis; 

        (k)   such
Inventory is not located at and did not originally constitute a Pawned Item at any of Borrower's stores which has been in operation for more than 15 months
and which has made a deficit contribution towards Borrower's corporate overhead expenses for any three-month period; and 

        (l)    it
is not of a type that Lender, in its reasonable discretion, has determined is not Eligible Inventory. 

        "Equipment" means all of Borrower's machinery, apparatus, equipment, motor vehicles, tractors, trailers, rolling stock, fittings, fixtures
and other tangible personal property of every kind and description, together with all parts, accessories and special tools and all increases and accessions thereto and substitutions and replacements
therefor. 

4

 

        "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board that are applicable to the circumstances as of the date of
determination and applied on a consistent basis. 

        "General Intangibles" means all of Borrower's present and future general intangibles and all other presently owned or hereafter acquired
intangible personal property of Borrower (including payment intangibles and any and all choses or things in action, goodwill, patents and patent applications, tradenames, servicemarks, trademarks and
trademark applications, copyrights, blueprints, drawings, purchase orders, customer lists, monies due or recoverable from pension funds, route lists, infringement claims, software, computer programs,
computer discs, computer tapes, literature, reports, catalogs, deposit accounts, tax refunds and tax refund claims) other than Goods and Accounts, as well as Borrower's books and records relating to
any of the foregoing. 

        "Goods" means all of Borrower's present and hereafter acquired goods, as defined in the UCC, wherever located, including imbedded software
to the extent included in "goods" as defined in the UCC, manufactured homes, and standing timber that is cut and removed for sale. 

        "Inventory" means all of Borrower's inventory as defined in the UCC, together with all of Borrower's present and future inventory,
including goods held for sale or lease or to be furnished under a contract of service and all of Borrower's present and future raw materials, work in process, finished goods, shelving and racking upon
which the inventory is stored and packing and shipping materials, wherever located, and any documents of title representing any of the above. 

        "Lien" means any security interest, security title, mortgage, deed to secure debt, deed of trust, lien, pledge, charge, conditional sale
or other title retention agreement, or other encumbrance of any kind in respect of any property, including the interest of each lessor under any capitalized lease and the interest of any bondsman
under any payment or performance bond, in, of or on any assets or properties of a Person, whether now owned or hereafter acquired and whether arising by agreement or operation of law. 

        "Loan Documents" means, collectively, this Agreement, and any other agreements, instruments, certificates or other documents entered into
in connection with this Agreement, including collateral documents, letter of credit agreements, security agreements, pledges, guaranties (including any validity guaranty and/or support agreement),
mortgages, deeds of trust, assignments and subordination agreements, and any other agreement executed by Borrower, Parent, any Support Party, any other guarantor or any Affiliate of Borrower, Parent
or any guarantor pursuant hereto or in connection herewith. 

        "Negotiable Collateral" means all of Borrower's present and future letters of credit, advises of credit, notes, drafts, instruments, and
documents, including, without limitation, bills of lading, leases, and chattel paper, and Borrower's books and records relating to any of the foregoing. 

        "Obligations" means all indebtedness, obligations and liabilities of the Obligors to Lender and its Affiliates of every kind and
description, direct or indirect, secured or unsecured, joint or several, absolute or contingent, due or to become due, including any overdrafts, whether for payment or performance, now existing or
hereafter arising, whether presently contemplated or not, regardless of how the same arise, or by what instrument, agreement or book account they may be evidenced, or whether evidenced by any
instrument, agreement or book account, including, but not limited to, all loans (including any loan by modification, renewal or extension), all guaranty obligations, all indebtedness arising from any
derivative transactions, all undertakings to take or refrain from taking any action, all indebtedness, liabilities or obligations owing from any Obligor to others which Lender may have obtained by
purchase, negotiation, discount, assignment or otherwise, and all interest, taxes, fees, charges, expenses and reasonable attorney's fees (whether or not such attorney is a regularly 

5

 

salaried
employee of Lender or any of its Affiliates) chargeable to any Obligor or incurred by Lender under this Agreement or any other document or instrument delivered in connection herewith. 

        "Pawn Loan" means a pawn loan made by Borrower to a Customer against the value of the underlying Pawned Item. 

        "Pawned Item" means an item of personal property pledged by a Customer to Borrower to secure a Pawn Loan. 

        "Permitted Liens" means (a) Liens or charges for current taxes, assessments or other governmental charges which are not delinquent
or remain payable without any penalty, or the validity of which is contested in good faith by appropriate proceedings upon stay of execution of the enforcement thereof and for which appropriate
reserves have been established in accordance with GAAP; (b) deposits or pledges to secure (i) statutory obligations, (ii) surety or appeal bonds, or (iii) bonds for release
of attachment, stay of execution or injunction; (c) statutory Liens on property arising in the ordinary course of business which, in the aggregate, do not materially impair the use of such
property or materially detract from the value of such property; (d) Liens on Equipment securing all or part of the purchase price of such Equipment;  provided, however, that (i) such Lien is created contemporaneously with the acquisition of such
Equipment, (ii) such Lien attaches only to the specific items of Equipment so acquired, and (iii) such Lien secures only the indebtedness incurred to acquire such Equipment;
(e) Liens described on Item 2 of the Schedule which secure Priority Tax Claims, but only so long as Parent has made all payments due and owing
with respect thereto in accordance with the terms and conditions of Parent's Chapter 11 bankruptcy plan, and (f) Liens in favor of Lender. 

        "Person" means an individual, corporation, partnership, limited liability company, association, trust, unincorporated organization,
government or any agency or political subdivision thereof, or any other entity. 

        "Priority Tax Claim" shall have the meaning ascribed to such term in Parent's Chapter 11 bankruptcy plan. 

        "Qualifying Extension" means an extension of the maturity date of an existing Pawn Loan for not more than 31 days (a) which
is agreed to in writing by Borrower and the applicable Customer, (b) in connection with which the applicable Customer pays all outstanding pawn service charges and accrued interest in cash
within the longer of the applicable statutory redemption period or the redemption period in effect pursuant to Borrower's internal policies disclosed to Lender prior to the Agreement Date, and
(c) after giving effect to such extension, Borrower will continue to accrue pawn service charges. 

        "Subordinated Debt" means all of the indebtedness owed by any Obligor to any other Person, the repayment of which is subordinated to the
repayment of the Obligations pursuant to the terms of a subordination agreement approved by Lender in its discretion. 

        "Support Party" means each of Robert W. Schleizer and Dwayne A. Moyers. 

        "UCC" means the Uniform Commercial Code, as in effect from time to time, of the State of Georgia or of any other state the laws of which
are required as a result thereof to be applied in connection with the issue of perfection of security interests; provided, that to the extent that the
UCC is used to define any term herein or in any other documents and such term is defined differently in different Articles or Divisions of the UCC, the definition of such term contained in Article or
Division 9 shall govern. 

        "Vehicle Pawn Loan" means a Pawn Loan in which the Pawned Item is a motor vehicle. 

6

           Other Definitional Provisions.    References to the "Schedule" or any "Section" or "Exhibit" refer
to
the Schedule or a section or exhibit, respectively, of this Agreement unless otherwise specifically provided. Any of the terms defined in  Section 1 may, unless the context otherwise requires, be
used in the singular or the plural depending on the reference. In this Agreement: words
importing any gender include the other genders; the words "including", "includes" and "include" shall be deemed to be followed by the words "without limitation"; references to agreements and other
contractual instruments shall be deemed to include subsequent amendments, assignments, and other modifications thereto, but only to the extent such amendments, assignments and other modifications are
not prohibited by the terms of this Agreement; references to any Person includes their respective permitted successors and assigns or people succeeding to the relevant functions of such Persons; any
and all terms which are defined in the UCC and are not defined herein shall be construed and defined in accordance with the definition of such terms under the UCC; all references to statutes and
related regulations shall include any amendments of same and any successor statutes and regulations; and all references to time of day shall refer to Atlanta, Georgia time. 

        2.    Borrowing.    

        (a)    Amount Available to Be Borrowed.    From time to time Borrower may request, and Lender
will, subject to the other terms and conditions of this Agreement, lend to Borrower up to an amount equal to the Borrowing Base at any time. Borrowed amounts that are repaid may be reborrowed upon the
terms and conditions of this Agreement. 

        (b)    Standards.    Lender will determine eligibility and the loan value of Collateral, in
its sole discretion, consistent with Lender's experience, prudent business judgment and standards of commercial reasonableness applicable to asset-based credits and in good faith. Any loans requested
by Borrower and made by Lender or at any time outstanding in excess of the Borrowing Base or any other limitation set forth in this Agreement will, nevertheless, be subject to the terms of this
Agreement, will constitute Obligations for all purposes and be entitled to the benefits of the Collateral. 

        (c)    Persons Authorized to Request Loans.    Borrower hereby authorizes and directs Lender
to make loan advances to or for the benefit of Borrower upon receipt of instructions from any of the persons listed on Item 3 of the Schedule. Lender
shall have no liability whatsoever to Borrower, Parent or any other Person for acting upon any such instructions which Lender, in good faith, believes were given by any such person, and Lender shall
have no duty to inquire as to the propriety of any disbursement. Lender is hereby authorized to make the loans provided for herein based on instructions received by facsimile, electronic mail,
telephone or other method of communication from any of such persons. Although Lender shall make a reasonable effort to determine the person's identity, Lender shall not be responsible for determining
the authenticity of any such instructions, and Lender may act on the
instructions of anyone it perceives to be one of the persons authorized to request loans hereunder. Lender shall have the right to accept the instructions of any of the foregoing persons unless and
until Lender actually receives from Borrower (in accordance with the notice provisions of this Agreement) written notice of termination of the authority of that person. Borrower may change persons
designated to give Lender borrowing instructions only by delivering to Lender written notice of such change. Borrower will ensure that each telephone instruction from any person designated in or
pursuant to this paragraph shall be followed by written confirmation of the request for disbursement in such form as Lender makes available to Borrower from time to time for such purpose;  provided,
however, that Borrower's failure to provide written confirmation of any telephonic instruction shall not invalidate such telephonic
instruction. 

        (d)    Application of Remittances.    

          (i)  Borrower
will use only pawn agreements and pawn tickets in forms that Lender has approved in its reasonable discretion, and Borrower's issuance of a pawn agreement
and/or pawn ticket will be conclusive evidence of assignment and transfer hereunder to Lender of the Accounts 

7

 

represented
thereby, whether or not Borrower executes any other instrument with regard to any specific Account. 

         (ii)  All
checks, cash payments or other remittances received by Borrower for application to Accounts will be received by Borrower in trust for Lender. From the Agreement
Date until such time as Lender notifies Borrower in writing to the contrary, Borrower shall cause all such checks, cash payments and other remittances, and all other proceeds of Accounts, to be
deposited into a depository account of Borrower's at SouthTrust Bank on each Tuesday and Thursday (or, if any such day is not a Business Day, then the following Business Day), and Borrower shall cause
SouthTrust Bank to promptly wire all available funds in such account to Lender for application to the Obligations. Borrower agrees to provide to Lender such information with respect to such deposits
and such account as Lender may reasonably request from time to time. From and after written notice from Lender to Borrower to such effect, Borrower will, on each Tuesday and Thursday (or, if any such
day is not a Business Day, then the following Business Day), cause all such checks, cash payments and other remittances, and all other proceeds of Accounts, to be deposited into such depository
account of Lender's as Lender may designate in such written notice for application to the Obligations. Notwithstanding anything to the contrary contained in this clause (ii), Borrower may
maintain not more than $6,000 in cash at each of Borrower's pawn shop locations. 

        (iii)  As
compensation to Lender for delays in the collection and clearance of such checks and other payments, Borrower agrees to pay interest on each remittance, including
wire transfers, from the date of Lender's receipt thereof plus the number of days set forth on Item 4 of the Schedule at the rate applicable to loans
outstanding hereunder, as set forth in Section 3 below. 

        (iv)  Borrower
will account fully and faithfully for and promptly pay or turn over to Lender proceeds in whatever form received of the sale or other disposition of any
Collateral, and Borrower agrees that the inclusion of proceeds in "Collateral" will not be deemed to mean that Lender consents to Borrower's disposition of Collateral other than in accordance with the
terms of this Agreement. 

        (e)    Conditions to Obligation to Make Loans.    Borrower acknowledges that Lender's
obligation to make loans to Borrower (or to issue or create or cause the issuance or creation by Lender or its Affiliates of letters of credit or acceptances for Borrower's account) is subject to the
following terms and conditions: 

          (i)  Lender
has no obligation to make the initial loan to Borrower or to extend any other financial accommodation to Borrower unless and until Borrower delivers to Lender,
in form and substance reasonably satisfactory to Lender, each agreement, instrument, legal opinion and other document specified on Item 5 of the
Schedule. 

         (ii)  Lender's
obligation to make any loans to Borrower and extend other financial accommodations to Borrower (including the initial loans) is subject to the conditions that,
as of the date of any such loan or other accommodation, no Default will have occurred and be continuing hereunder, there will have occurred no material adverse change in any Obligor's financial
condition or operations or in any Obligor's business prospects as compared to the state of facts existing on the Agreement Date, and the Obligors' representations and warranties set forth in this
Agreement (including any amendment, modification, supplement or extension hereof) will be true and correct as if made on and as of the date of each subsequent credit request. Each request for a
borrowing or other financial accommodation by Borrower will be deemed to be a reaffirmation of each Obligor's warranties and representations hereunder. 

        (f)    Repayment of Loans.    In the event of any breach by Borrower of any provision hereof
or upon termination of this Agreement, Borrower will repay upon demand all of the Obligations. If no demand 

8

 

is
earlier made, Borrower will repay all Obligations in full, without demand or notice, on the last day of the term of this Agreement (as provided in clause (g) below). If at any time for any
reason, the aggregate outstanding principal amount of all loans exceeds the Borrowing Base or any other limitation on the amount available to be borrowed hereunder, Borrower will immediately, without
notice or demand, repay the outstanding principal amount of the loans, together with accrued and unpaid interest on the amount repaid, in an amount equal to such excess. 

        (g)    Maturity.    This Agreement will continue in full force and effect from the Agreement
Date until the termination date provided for in Item 6 of the Schedule. 

        (h)    Voluntary Termination.    Borrower may terminate this Agreement at any time upon
90 days' prior written notice to Lender. On the date specified in such notice, termination will be effective, so long as Borrower has paid to Lender, in same day funds, an amount equal to the
aggregate principal amount of all loans outstanding on such date, together with accrued interest thereon, the originals of all letters of credit and bankers acceptances, if any, issued, guaranteed or
created by Lender or any of its Affiliates for Borrower's account have been returned for cancellation or have been presented and paid by Borrower or other arrangements satisfactory to Lender have been
made, all other Obligations outstanding and unpaid have been paid in full in cash, and Borrower has provided Lender an indemnification agreement satisfactory to Lender with respect to returned and
dishonored items and such other matters as Lender shall reasonably require. 

        (i)    Termination on Default.    Notwithstanding the foregoing, should a Default occur and be
continuing, Lender will have the right to terminate this Agreement at any time without notice. 

        (j)    Survival.    Notwithstanding termination, all the terms, conditions, and provisions
hereof (including Lender's security interest in the Collateral, but excluding any obligations of Lender hereunder) will continue to be fully operative until all Obligations have been fully disposed
of, concluded, paid, satisfied, and liquidated. 

        (k)    Payments as Loans.    Any Obligor's failure to pay any amount due from any Obligor
under this Agreement or any other Loan Document, whether for principal, interest, fees, premiums, costs, expenses or otherwise, shall be deemed to be a request by Borrower for a loan hereunder, and
Lender may charge Borrower's loan account for any such amount. Additionally, if Lender determines in its discretion that extensions of credit are necessary to protect the Collateral, Lender is hereby
authorized to make such extensions of credit and charge them to Borrower's loan account. 

        3.    Interest and Fees.    

        (a)    Interest on Loans.    Borrower will pay Lender or, at Lender's option, Lender may
charge Borrower's loan account with, interest on the average daily net principal amount of loans outstanding hereunder, calculated monthly and payable on the first day of each calendar month, at a
rate (computed on the basis of the actual number of days elapsed over a year of 360 days) equal to sum of the Prime Rate plus the interest margin specified in Item 7 of
the Schedule. The "Prime Rate" is, at any time, the rate of interest noted in The Wall Street
Journal, Money Rates section, as the "Prime Rate" (currently defined as the base rate on corporate loans posted by at least 75% of the nation's thirty (30) largest
banks). In the event that The Wall Street Journal quotes more than one rate, or a range of rates, as the Prime Rate, then the Prime Rate shall mean the
average of the quoted rates. In the event that The Wall Street Journal ceases to publish a Prime Rate, then the Prime Rate shall be the average of the
three (3) largest U.S. money center commercial banks, as determined by Lender. The "Prime Rate" may not be the lowest or best rate at which Lender calculates interest or extends credit. Any
change in the Prime Rate shall be effective for purposes of calculating interest hereunder as of the date of such change. 

        (b)    Default Interest.    To the extent permitted by law and without limiting any other
right or remedy of Lender hereunder, whenever there is a Default under this Agreement, the rate of interest 

9

 

on
the unpaid principal balance of the Obligations shall, at the option of Lender, be increased by adding the default margin identified on Item 8 of the
Schedule to the interest rate otherwise in effect hereunder. Lender may charge such default interest rate retroactively beginning on the date the applicable Default first
occurred or existed. Borrower acknowledges that: (i) such additional rate is a material inducement to Lender to make the loans described herein; (ii) Lender would not have made the loans
in the absence of the agreement of Borrower to pay such additional rate; (iii) such additional rate represents compensation for increased risk to Lender that the loans will not be repaid; and
(iv) such rate is not a penalty and represents a reasonable estimate of (A) the cost to Lender in allocating its resources (both personnel and financial) to the ongoing review,
monitoring, administration and collection of the loans, and (B) compensation to Lender for losses that are difficult to ascertain. In the event of termination of this Agreement by either party
hereto, Lender's entitlement to this charge will continue until all Obligations are paid in full. 

        (c)    Fees.    Borrower will pay to Lender the fees set forth in Item
9 of the Schedule. 

        (d)    No Usury.    Each Obligor acknowledges that Lender does not intend to reserve, charge
or collect interest on money borrowed under this Agreement at any rate in excess of the rates permitted by applicable law and that, should any interest rate provided for in this Agreement exceed the
legally permissible rate(s), the rate will automatically be reduced to the maximum rate permitted under applicable law. If Lender should collect any amount from any Obligor which, if it were interest,
would result in the interest rate charged hereunder exceeding the maximum rate permitted by applicable law, such amount will be applied to reduce principal of the Obligations or, if no Obligations
remain outstanding, will be refunded to Borrower. 

        (e)    Monthly Statements.    Lender will render a statement to Borrower each month for loans,
payments, and other transactions pursuant to this Agreement, and such statement rendered by Lender will be binding upon Borrower and Parent unless Lender is notified in writing to the contrary within
30 days after the date such statement is rendered. 

        4.    Representations and Warranties of Obligors.    

        (a)    Authority, Compliance with Laws, Litigation, No Material Adverse Change, Etc.    Each
Obligor represents and warrants to Lender that: (i) each Obligor's exact legal name, type of organization, state of organization and organizational identification number are fully and
accurately set forth on Item 10 of the Schedule, and each Obligor is duly organized and validly existing under the laws of such state of organization;
(ii) the execution, delivery, and performance of this Agreement and the other Loan Documents are within each Obligor's corporate powers, have been duly authorized, do not violate any Obligor's
constituent documents, any law or regulation, including without limitation, any law or regulation relating to occupational health and safety or protection of the environment, applicable to any
Obligor, or any indenture, agreement, or undertaking to which any Obligor is a party or by which any Obligor or any Obligor's property is bound; (iii) this Agreement and the other Loan
Documents to which any Obligor is a party constitute valid, binding and enforceable obligations of each Obligor party thereto in accordance with the terms hereof and thereof, except as enforceability
may be limited by bankruptcy, insolvency, fraudulent conveyance, moratorium or other similar laws applicable to creditors' rights generally or by generally applicable equitable principles affecting
the enforcement of creditors' rights; (iv) no Obligor has any subsidiaries or other investments in other Persons, except as set forth on Item 11 of the
Schedule; (v) each Obligor is in compliance in all material respects with all laws, rules, regulations and licensing requirements applicable to such Obligor, including
all applicable laws, rules or regulations with respect to or concerning pawn shops, pawn loans, the environment, occupational health and safety and pensions or other employee benefits;
(vi) except as set forth on Item 12 of the Schedule, there is no litigation or investigation pending against any Obligor (or, so far as any
Obligor is aware, threatened) which, if it were decided adversely to such Obligor, could reasonably be expected to have a material adverse effect on such Obligor, such Obligor's financial or
operational condition or such 

10

 

Obligor's
prospects (taking into account any insurance coverage that has been acknowledged by the insurer); (vii) other than debt that is to be repaid from the proceeds of the first advance
hereunder, no Obligor is indebted to any other Person for money borrowed nor has any Obligor issued any guaranty of payment or performance by any other Person, except as set forth on  Item 13 of the
Schedule; (viii) since the date of the financial statements of the Obligors most recently delivered to Lender, there has been no
material adverse change in the Obligors' business, financial or operational condition or business prospects; and (ix) each Obligor is, and after giving effect to the initial loans under this
Agreement and the application of the proceeds of such loans each Obligor will be, solvent, and each Obligor has sufficient revenues to pay such Obligor's obligations as they come due and adequate
capital with which to conduct such Obligor's business. 

        (b)    Title to Assets, Other Collateral Matters.    Borrower represents and warrants to
Lender that: (i) Borrower has good and marketable title to the Collateral, free of all Liens except for Permitted Liens, and no financing statement, mortgage, notice of Lien, deed of trust,
security agreement, or any other agreement or instrument creating or giving notice of any Lien against any of the Collateral has been signed, authorized or delivered by Borrower, except in Lender's
favor or with respect to Permitted Liens; (ii) with regard to each of Borrower's Accounts as they arise, except as set forth on a Borrowing Base Certificate including such Account:
(A) Borrower will have made a Pawn Loan requested by such Customer; (B) the Customer will have accepted such Pawn Loan; and (C) no Customer dispute will exist in any respect,
including, without limitation, disputes as to price, terms, interest rate, pawn service charges, maturity and claims of set-off, release from liability or defense based upon any act of God
or a public enemy or war or because of the requirements of law or of rules, orders, or regulations having the force of law; (iii) all Inventory is in good condition, meets all applicable
governmental standards and is currently usable or saleable in the ordinary course of Borrower's business for a price approximating at least Borrower's cost thereof; (iv) all Equipment is in
good
condition and state of repair, ordinary wear and tear excepted; (v) all Collateral meets applicable government standards; (vi) in the past five years, except as set forth on  Item 14 of the
Schedule (A) no Obligor has used any other legal, trade or fictitious names, and (B) no Obligor has been a party to any
merger or purchased assets from any other Person other than in the ordinary course of business; and (vii) Borrower's chief executive office and principal place of business, all Inventory, all
Equipment and all other Collateral is located at the addresses set forth on Item 15 of the Schedule and has not been located at any other location
during the five year period prior to the Agreement Date. Borrower represents and warrants that all of Borrower's pawn agreements and pawn contracts contain the following language in a conspicuous
fashion: 

ALL
RIGHTS OF PAWNMART, INC. ARISING UNDER THIS AGREEMENT ARE SUBJECT TO A SECURITY INTEREST IN FAVOR OF FCC, LLC, D/B/A FIRST CAPITAL, AND ANY SALE OR OTHER ASSIGNMENT OF THIS AGREEMENT BY
PAWNMART, INC. WILL VIOLATE THE RIGHTS OF FCC, LLC, D/B/A FIRST CAPITAL. 

        (c)    Ownership Structure.    Each Obligor represents and warrants that
(i) Item 16 of the Schedule accurately describes the ownership of Borrower's capital stock, and (ii) Parent has full voting and managerial
control of Borrower. 

        (d)    Parent's Bankruptcy Plan.    Parent represents and warrants to Lender that Parent has
provided a true, correct and complete copy of Parent's Chapter 11 bankruptcy plan to Lender and that Parent is in full compliance with the terms and conditions of such plan. Without limiting the
generality of the foregoing, Parent represents and warrants that Parent has made all payments with respect to Priority Tax Claims (as defined in such bankruptcy plan) on or prior to the due date
thereof in accordance with such plan and that all of the tax and judgment Liens described on Item 2 of the Schedule secure only Priority Tax Claims. 

11

 

        (e)    Parent's 8% Notes.    Parent represents and warrants to Lender that Parent has provided
a true, correct and complete copy of the prospectus and the current draft of the indenture (the final version of which shall be promptly provided to Lender upon completion) with respect to the 8%
Limited Recourse Secured Convertible Subordinated Notes Due December 31, 2014 which Parent may issue after the Agreement Date. Parent represents and warrants that, as of the Agreement Date, no
such notes have been issued. Parent further represents and warrants that: (i) the prospectus and the draft indenture delivered to Lender prior to the Agreement Date set forth all of the
material terms and conditions of such notes, (ii) such notes are non-recourse to Borrower, and, other than the first five years of interest payments, such notes are
non-recourse to Parent, (iii) such notes are secured only by the common stock of Borrower owned by Parent, and (iv) Parent's Obligations under this Agreement and the other
Loan Documents shall constitute "Senior Indebtedness" under such
indenture. The Obligors agree to provide Lender with such information as Lender may reasonably request from time to time with respect to such notes. 

        (f)    Additional Representations.    Each Obligor represents and warrants to Lender that:
(i) no Obligor is engaged as one of such Obligor's principal activities in owning, carrying or financing the purchase or ownership by others of "margin stock" (as defined in Regulation U
of the Board of Governors of the Federal Reserve System); (ii) Borrower does not own any real property or lease any real property other than as listed on Item 17of the
Schedule; (iii) a true, correct and complete list of any warehousemen, processors, consignees or other bailees with possession or control of any Inventory is set forth
on Item 17 of the Schedule; and (iv) a list and brief description of all bank accounts maintained by Borrower with any bank or financial
institution is set forth on Item 18 of the Schedule. 

        5.    Collateral.    

        (a)    Grant of Security Interest by Borrower.    To induce Lender to accept this Agreement
and to make loans to Borrower from time to time pursuant to its terms, Borrower hereby grants to Lender, for itself and as agent for any Affiliate of Lender, a security interest in, and assigns,
mortgages and pledges to Lender, for itself and as agent for any Affiliate of Lender, all of Borrower's right, title and interest in and to all of Borrower's assets, whether real or personal, tangible
or intangible, now owned or existing or hereafter acquired or arising, including all of the following: 

          (i)  all
Accounts, Inventory, Equipment, Goods, General Intangibles and Negotiable Collateral; 

         (ii)  all
investment property, securities and securities accounts and financial assets, as well as all bank and depository accounts; 

        (iii)  all
chattel paper (whether tangible or electronic) and contract rights; 

        (iv)  all
guaranties, collateral, Liens on real or personal property, leases, letters of credit, letter-of-credit rights, supporting obligations, and
all other rights, agreements, and property securing or relating to payment of Accounts or any other Collateral; 

         (v)  all
documents, books and records relating to any Collateral or to Borrower's business; 

        (vi)  all
other property of Borrower now or hereafter in the possession or control of Lender or any of Lender's Affiliates (including cash, money, credits and balances of
Borrower held by or on deposit with Lender or any Affiliate of Lender); 

       (vii)  all
other assets of Borrower in which Lender receives a security interest to secure all or part of the Obligations or which hereafter come into the possession, custody
or control of Lender or any Affiliate of Lender; 

      (viii)  all
of Borrower's commercial tort claims listed on (A) Item 19 of the Schedule (which Borrower represents and
warrants is a true, accurate and complete list of all of Borrower's commercial tort claims as of the Agreement Date) or (B) any other writing provided to Lender pursuant to  Section 7(g); and

12

  

        (ix)  all
proceeds and products of all of the foregoing in any form, including amounts payable under any policies of insurance insuring all or any of the foregoing against
loss or damage, all parts, accessories, attachments, special tools, additions, replacements, substitutions and accessions to or for all or any of the foregoing, all condemnation or requisition
payments with respect to all or any of the foregoing and all increases and profits received from all or any of the foregoing. 

        (b)    Collateral for all Obligations.    The assets of Borrower described in
clause (a) above, together with any membership interests of Borrower pledged to Lender and any other assets of any Person now or hereafter pledged to Lender, are referred to herein as the
"Collateral". All of the Collateral secures all of the Obligations. 

        6.    Financial Covenants.    Borrower shall comply with each of the financial covenants set
forth on Item 20 of the Schedule. 

        7.    Collateral Covenants.    

        (a)    Accounts.    Borrower will notify Lender promptly of and settle all Customer disputes,
but, if Lender so elects, Lender will have the right at all times to settle, compromise, adjust, or litigate all Customer disputes directly with the Customer or other complainant upon such terms and
conditions as Lender deems advisable without incurring liability to Borrower or Parent for Lender's performance of such acts. All of Borrower's books and records concerning Accounts and a copy of
Borrower's general ledger will be maintained at the address of Borrower's chief executive office set forth on Item 15 of the Schedule. All Accounts
included on any Borrowing Base Certificate will be, except as indicated on such Borrowing Base Certificate or subsequently in writing to Lender, bona fide and existing obligations of Customers arising
out of the sale of goods and/or the rendering of services by Borrower in the ordinary course of Borrower's business, owned by and owing to Borrower without defense, setoff or counterclaim, and will be
subject to a perfected, first-priority security interest in Lender's favor and will be free and clear of all other Liens. 

        (b)    Inventory.    All Inventory will at all times be located at one of the Inventory
locations set forth on Item 15 of the Schedule as the current location of Borrower's chief executive office or a current location of other Collateral,
will be subject to a perfected, first-priority security interest in Lender's favor and will be free and clear of all other Liens. Sales of Inventory will be made in compliance with all material
requirements of applicable law. 

        (c)    Equipment.    Borrower will maintain all Equipment used or useful in Borrower's
business in good and workable condition, ordinary wear and tear excepted, subject to a perfected, first-priority security interest in Lender's favor and free and clear of all other Liens (other than
Permitted Liens), at one of the locations set forth on Item 15 of the Schedule as the current location of Borrower's chief executive office or a current
location of other Collateral of Borrower. 

        (d)    Defense of Title.    All Collateral will at all times be owned by Borrower, and
Borrower will defend its title to the Collateral against the claims of third parties; provided, however, that no Default shall arise under this clause (d) in the event that any immaterial
portion of the Inventory is confiscated by the police. Borrower will at all times keep accurate and complete records of the Collateral. 

        (e)    Perfection; Further Assurances.    The Obligors will give Lender at least
30 days' prior written notice of any change in any Obligor's name, state of organization or organizational identification number, any change in the location of any Obligor's principal place of
business or chief executive office, any change in the locations of any Inventory or Equipment and any acquisition by Borrower of any interest in real property. The Obligors will, at Borrower's
expense, promptly execute and deliver from time to time at Lender's request and pay the costs of filing such additional financing statements, mortgages, or other evidences of Liens as may be necessary
or desirable to perfect or continue perfection of Lender's security interest in the Collateral or, at Lender's request, to create and perfect a Lien on newly acquired real property of Borrower.
Borrower will use all reasonable efforts to obtain 

13

 

from
any landlord, warehouseman, or other third party operator of premises on which any Collateral is located an acceptable Lien waiver or subordination agreement in Lender's favor with respect to
such Collateral. All Collateral is and will continue to be, except as expressly consented to by Lender, personal property and will not, by reason of attachment or connection to any realty, either
become or be deemed to be a fixture or appurtenance to such realty and will at all times be readily removable without material damage to any realty. In the event that any Collateral, including
proceeds, is evidenced by or consists of Negotiable Collateral (including any pawn contract), Borrower shall, immediately upon written request therefor from Lender, endorse and assign such Negotiable
Collateral over to Lender and/or deliver actual physical possession of the Negotiable Collateral to Lender. Borrower shall cause all pawn contracts to include language noting Lender's security
interest therein in form and substance acceptable to Lender. Each Obligor shall at any time and from time to time take such steps as Lender may request for Lender (i) to obtain an
acknowledgment, in form and substance satisfactory to Lender, of any bailee having possession of any of the Collateral that such bailee holds such Collateral for Lender, (ii) to obtain
"control" of any investment property, deposit accounts, letter-of-credit rights or electronic chattel paper in accordance with Article 9 of the UCC, with any agreements
establishing control to be in form and substance satisfactory to Lender, and (iii) otherwise to insure the continued perfection and priority of Lender's security interest in any of the
Collateral and of the preservation of its rights therein. 

        (f)    Insurance.    Borrower will obtain and maintain in full force and effect insurance
covering the Collateral against all risks to which the Collateral is exposed, including loss, damage, fire, theft, and all other such risks, in such amounts, with such companies, under such policies
and in such form as will be
satisfactory to Lender, which policies will name Lender as an additional insured and provide that loss thereunder will be payable to Lender as Lender's interests may appear upon a loss payee
endorsement acceptable to Lender. All proceeds of any such insurance will be paid over to Lender directly, and Lender may apply such proceeds to payment of the Obligations, whether or not due, in such
order of application as Lender determines or, in Lender's sole discretion, apply such proceeds, in whole or in part, to the replacement, restoration or rebuilding of the lost or damaged property.
Borrower will provide to Lender from time to time certificates showing such coverage in effect and, at Lender's request, the underlying policies. 

        (g)    Commercial Tort Claims.    If Borrower shall at any time acquire a commercial tort
claim, Borrower shall immediately notify Lender in a writing signed by Borrower of the details thereof and grant to Lender in such writing a security interest therein and in the proceeds thereof, all
upon the terms of this Agreement, with such writing to be in form and substance satisfactory to Lender. 

        (h)    Financing Statements.    Lender may at any time and from time to time file financing
statements, continuation statements and amendments thereto that describe the Collateral as "all assets" of Borrower or words of similar effect, and which contain any other information required by
Part 5 of Article 9 of the UCC for the sufficiency or filing office acceptance of any financing statement, continuation statement or amendment, including whether Borrower is an
organization, the type of organization and any organization identification number issued to Borrower. Borrower agrees to furnish any such information to Lender promptly upon request. Any such
financing statements, continuation statements or amendments may be signed by Lender on behalf of Borrower or filed by Lender without the signature of Borrower and may be filed at any time in any
jurisdiction. Borrower acknowledges that it is not authorized to file any financing statement or amendment or termination statement with respect to any financing statement naming Borrower as the
debtor and Lender as the secured party without the prior written consent of Lender, and Borrower agrees that it shall not do so without the prior written consent of Lender. 

        (i)    Internal Controls; Monitoring.    Borrower shall maintain and comply with an internal
audit and monitoring program with respect to Borrower's lending guidelines, Accounts, Inventory, cash and other 

14

 

assets
that is acceptable to Lender, and Borrower shall provide Lender with such information and reports with respect to such program and Lender may reasonably request. 

        8.    Negative Covenants.    

        (a)    No Merger.    No Obligor will merge or consolidate with any other Person or sell,
transfer, lease, abandon, or otherwise dispose of a substantial portion of the Collateral or any interest therein, except that Parent may merge with other Persons, so long as Parent is the surviving
entity and, so long as no
Default has occurred and is continuing, Borrower may sell Inventory in the ordinary course of Borrower's business. 

        (b)    No Debt or Liens; Taxes.    Borrower will not obtain or attempt to obtain from any
Person other than Lender any loans, advances, or other financial accommodations or indebtedness of any kind, nor will Borrower enter into any direct or indirect guaranty of any obligation of another
Person, other than (i) Subordinated Debt, and (ii) indebtedness in connection with purchase money security interests constituting Permitted Liens (and capital leases) not to exceed, in
aggregated principal amount, the amount set forth on Item 21 of the Schedule at any one time outstanding. Borrower will not permit any Collateral to be
subject to any Lien other than Permitted Liens. Each Obligor shall pay when due (or before the expiration of any extension period) any tax or other assessment (including all required payments or
deposits with respect to withholding taxes), and each Obligor will, upon request by Lender, promptly furnish Lender with proof satisfactory to Lender that such Obligor has made such payments and
deposits. 

        (c)    No Distributions.    Borrower will not retire, repurchase or redeem any of Borrower's
capital stock or other ownership interest in Borrower, and Borrower will not declare or pay any dividend in cash or other property (other than additional shares of capital stock or additional
ownership interests) to any owner or holder of Borrower's shares or other ownership interest; provided, however, that Borrower may pay cash dividends to
Parent to the extent necessary to permit Parent to pay dividends or make redemptions with respect to Parent's preferred stock or to make payments with respect to Parent's 8% Limited Recourse Secured
Convertible Subordinated Notes so long as (i) no Default exists or would otherwise be caused thereby, (ii) Borrower is in compliance with all financial covenants set forth herein after
giving effect to such dividend, and (iii) at least five Business Days prior to any such dividend, the Chief Executive Officer or Chief Financial Officer of Borrower submits a certificate
setting forth the amount and date of the proposed dividend demonstrating compliance with the foregoing clauses (i) and (ii) and setting forth the use to be made by Parent of the proceeds
thereof. 

        (d)    No ERISA Liabilities.    Each Obligor will make timely payments of all contributions
required to meet the minimum funding standards for such Obligor's employee benefit plans subject to the Employee Retirement Income Security Act of 1974 (as amended,
"ERISA") and will promptly report to Lender the occurrence of any reportable event (as defined in ERISA) and any giving or receipt by such Obligor of
any governmental notice (other than routine requests for information) in respect of any such plan. 

        (e)    Transactions with Affiliates.    Borrower will not engage in any transaction with any
Obligor's officers, directors, employees or other Affiliates, except for an "arms-length" transaction on terms no less favorable to Borrower than would be granted to Borrower in a
transaction with a Person who is not an Affiliate, which transaction shall be approved by Borrower's disinterested directors and shall be disclosed in a timely manner to Lender prior to the
consummation of the transaction. 

        (f)    Loans/Investments.    Borrower will not make any loans or advances to or extend any
credit to any Person except (i) the extension of trade credit in the ordinary course of business; and (ii) advances to employees not to exceed an aggregate outstanding amount of $10,000
at any one time outstanding for all employees. Borrower shall not purchase, acquire or otherwise invest in any Person except: (A) existing investments in Borrower's subsidiaries described on  Item 11 of the
Schedule; (B) direct 

15

 

obligations
of the United States of America maturing within one year from the acquisition thereof; (C) certificates of deposit issued by, or investment accounts in, banks or financial
institutions having a net worth of not less than $50,000,000; and (E) commercial paper rated A-1 by Standard & Poor's Ratings Group or P-1 by Moody's Investors
Service, Inc. Without limiting the generality of the foregoing, Borrower shall not create any new subsidiary or make any transfer of assets to any Affiliate of any Obligor except to the extent
expressly permitted herein. 

        (g)    Capital Expenditures.    Borrower shall not make or incur capital expenditures in
excess of the amount set forth on Item 22 of the Schedule during any fiscal year. 

        (h)    Compensation.    Borrower shall not increase the total compensation paid to its
officers or directors (or any of their relatives), including salaries, withdrawals, fees, bonuses, commissions, drawing accounts and other payments, whether directly or indirectly, in money or
otherwise, during any fiscal year of Borrower during the term of this Agreement in an aggregate amount for all such officers and directors in excess of limit specified in Item
23 of the Schedule. 

        (i)    New Stores.    Borrower shall not open more than seven new stores in any twelve-month
period without the prior written consent of Lender. 

        9.    Reporting and Information.    

        (a)    Financial Statements.    Borrower will submit to Lender as soon as available, and in
any case not later than 30 days after the end of each month, a balance sheet and a detailed statement of profit and loss, prepared in accordance with GAAP. Such balance sheet and profit and
loss statement shall include Borrower's results only (and not those of Parent) and shall also include such information on a per-store basis. Such financial statements shall be certified by
the Chief Executive Officer or Chief Financial Officer of Borrower as presenting fairly, in accordance with GAAP, Borrower's financial condition as of the last day of such month and Borrower's results
of operations for such month and for the portion of Borrower's fiscal year ending with such month. Borrower will also submit to Lender annual financial statements within 90 days after the end
of each fiscal year, including a balance sheet and the related statement of profit and loss and stockholders' equity, prepared in accordance with the requirements set forth on  Item 24 of the Schedule which shall include Borrower's results only (and not those of Parent) and shall also include such information on a
per-store basis. Borrower will also submit to Lender annually at least 45 days prior to
Borrower's fiscal year end forecasted financial statements for the upcoming fiscal year, containing a projected balance sheet and profit and loss statement which shall include projections for
Borrower's results only (and not those of Parent) and shall also include such information on a per-store basis. Together with each monthly and annual financial statement, Borrower will
deliver to Lender the certification of the Chief Executive Officer or Chief Financial Officer of Borrower in the form of Exhibit C attached
hereto to the effect that the Obligors are in compliance with the terms and conditions of this Agreement, and setting forth in detail the calculation of all financial covenants, or, if the Obligors
are not in compliance, describing the nature of any noncompliance and the steps the Obligors are taking or propose to take to remedy the same. 

        (b)    Collateral Reports.    

          (i)  Concurrent
with the execution of this Agreement by the Obligors and concurrent with each request for a loan pursuant to  Section 2(a), but no less frequently than as required by Item
25 of the Schedule, Borrower shall
deliver to Lender a fully completed Borrowing Base Certificate certified by the Chief Executive Officer or Chief Financial Officer of Borrower as being true and correct. Concurrent with the delivery
of each such Borrowing Base Certificate, Borrower shall provide a written report to Lender of all materially significant returns, disputes and claims, together with sales and other reports relating to
the Accounts and Inventory as required by Lender. 

16

 

         (ii)  Borrower
shall deliver to Lender within ten (10) days after the end of each month a report, reflecting the status as of the end of each month and certified by
the Chief Executive Officer or Chief Financial Officer of Borrower as being true and correct, containing (A) a copy of Borrower's internal audit report for such month, (B) a current
detailed aging, by total and by store, of Borrower's Accounts, together with an aging of all Accounts by Customer for Borrower's three largest stores (based on gross revenue for the twelve-month
period most recently ended)) (and, upon Lender's request, Borrower shall provide a detailed aging for all Customers), (C) a current detailed aging, by total and by vendor, of Borrower's
accounts payable, (D) a detailed report of Borrower's Inventory, setting forth the quantity, type and cost thereof, and an aging thereof, (E) a bank reconciliation, (F) a vehicle
repossession recovery analysis, and (G) a copy of all cancelled checks relating to payments of taxes deferred in connection with Parent's bankruptcy reorganization plan, all of which shall be
set forth in a form and shall contain such information as is acceptable to Lender. 

        (iii)  Borrower
will conduct a physical inventory count no less frequently than annually, adjust Borrower's records to reflect the results of the count and deliver to Lender
monthly a list of locations of Inventory and the types and values of Inventory at each such location, in such form as Lender may require. 

        (iv)  At
Lender's request, Borrower shall conduct such physical inventory counts, and the Obligors deliver the information contemplated by this  Section 9, more or less often than described herein and
such other information with respect to the Collateral, any Obligor or any Obligor's business or financial condition as Lender may reasonably request. 

        (c)    Parent Financials.    Within thirty days after each fiscal quarter end, Parent shall
deliver to Lender Parent's consolidated financial statements as of such quarter-end, in such form as Lender may reasonably request. 

        (d)    Other Information.    The Obligors will notify Lender as promptly as possible of any
Default, any receipt by any Obligor of notice from any governmental authority that any Obligor has or may have violated any law, rule or regulation applicable to such Obligor or the terms or
conditions of any permit or license such Obligor holds or is required to hold in connection with the conduct of such Obligor's business, any amendment to any Obligor's constituent documents and any
change in Borrower's management or ownership, and the commencement of any material litigation, claim or action against any Obligor. 

        10.    Inspection Rights; Expenses; Etc.    

        (a)    Inspection.    Lender may examine and make copies of each Obligor's records, the
Collateral and all other assets of each Obligor or any portion thereof, wherever located, and may enter upon each Obligor's premises for such purposes, without notice, during business hours. Each
Obligor will assist Lender in whatever way necessary to make each such examination. Lender may discuss each Obligor's financial condition with such Obligor's independent accountants without liability
to Lender or such accountants, so long as an officer of such Obligor has been offered a reasonable opportunity to participate in such discussion. 

        (b)    Performance by Lender.    While any Default exists, Lender may, from time to time at
Lender's option, perform any agreement of any Obligor's hereunder which such Obligor fails to perform (provided, however, that, except with respect to
any failure by any Obligor to maintain any insurance on the Collateral required hereunder or to prevent the Collateral from becoming subject to any Lien other than a Permitted Lien, Lender shall give
at least five days prior notice to the Obligors prior to any such performance by Lender) and take any other action which Lender deems necessary for the maintenance or preservation of any of the
Collateral or Lender's interest therein, and Borrower agrees to reimburse Lender immediately on demand for all of Lender's expenses in connection with the foregoing 

17

 

(including,
without being limited to, reasonable fees and expenses of legal counsel), together with interest thereon at the default rate of interest provided for herein from the date any such expense
is incurred until reimbursed by Borrower. 

        (c)    Field Examinations; Inspections.    Lender shall have the right without hindrance or
delay to conduct field examinations to inspect the Collateral, each Obligor's books and records and all other aspects of each Obligor's business. Borrower agrees to pay for such examinations as more
fully described on Item 26 of the Schedule. Lender shall have full access to all records available to any Obligor from any credit reporting service,
bureau or similar service and shall have the right to examine and make copies of any such records. Lender may exhibit a copy of this Agreement to such service and such service shall be entitled
to rely on the provisions hereof in providing access to Lender as provided herein. 

        11.    Rights of Setoff, Application of Payments, Etc.    While a Default exists, Lender will
be entitled to hold or set off against the Obligations then due and owing all sums and all other property of any Obligor at any time to any Obligor's credit or in Lender's possession (or the
possession of any of Lender's Affiliates) by pledge or otherwise or upon or in which Lender may have a Lien, as security for any and all of the Obligations. Lender will have the right and is hereby
irrevocably authorized and directed to charge to Borrower's account the amounts of any and all such Obligations. Recourse to the Collateral or other security for the Obligations will not at any time
be required and each Obligor hereby waives any right of marshalling such Obligor may have. Borrower's obligation to pay or repay the Obligations is unconditional. Each Obligor agrees that Lender may
take such action with regard to the custody and collection of Accounts assigned to Lender as Lender may deem necessary. Each Obligor agrees that failure to take any action with regard to any given
Account will not be unreasonable until and unless Lender receives a written request for specific action from the applicable with regard thereto and fails to respond thereto within a commercially
reasonable time. Each Obligor irrevocably waives the right to direct the application of any and all payments and collections at any time or times hereafter received by Lender from or on behalf of any
Obligor (including any rights such Obligor may have under Section 13-4-42 of the Official Code of Georgia), and each Obligor hereby irrevocably agrees that Lender shall
have the continuing exclusive right to apply and reapply any and all such payments and collections received at any time or times hereafter by Lender or its agent against the Obligations, in such
manner and in such order as Lender may deem advisable. 

        12.    Attorney-in-Fact.    

        (a)   Borrower
hereby appoints and constitutes Lender as Borrower's attorney-in-fact: (i) at any time, (A) to endorse Borrower's name
upon any notes, acceptances, checks, drafts, money orders, and other evidences of payment that come into Lender's possession and to deposit or otherwise collect the same; (ii) to send
verifications of Accounts to Customers; and (iii) to execute in Borrower's name any financing statements, affidavits and notices with regard to any and all Lien rights (including any title
affidavits, certificates or other documents necessary or desirable to note Lender's or Borrower's security interest on a certificate of title for any motor vehicle of Borrower or any Customer or to
release any such security interest of Borrower); and (ii) while any Default exists, (i) to receive, open, and dispose of all mail addressed to Borrower; (ii) to notify the postal
authorities to change the address and delivery of mail addressed to Borrower to such address as Lender may designate; (iii) to sign Borrower's name on any invoice or bill of lading relating to
the Collateral, on drafts against Customers, and notices to Customers; and (iv) to do all other acts and things necessary to carry out this Agreement. 

        (b)   Parent
hereby appoints and constitutes Lender as Parent's attorney-in-fact: (i) at any time, to execute in Parent's name any financing
statements, affidavits and notices with regard to any and all Lien rights of Lender hereunder or any other Loan Document; and (ii) while any 

18

 

Default
exists, to take such actions in order to take possession of, sell or otherwise realize upon the Collateral of Parent as Lender deems appropriate. 

        (c)   All
acts of said attorney-in-fact are hereby authorized, ratified and approved, and said attorney-in-fact will not be
liable for any errors or mistake of fact or law. This power, being coupled with an interest, is irrevocable while any of the Obligations remain unpaid or Lender has any commitment to Borrower under
this Agreement or otherwise. 

        13.    Defaults and Remedies.    

        (a)    Defaults.    For purposes of this Agreement,
"Default" means the occurrence of any of the following events: (i) non-payment of any amount payable on any of the Obligations within
two days following the due date thereof or breach of any covenant or failure to perform any agreement or failure to meet any of any Obligor's obligations contained herein, in any other Loan Document
or in any agreement out of which any of the Obligations arose; provided, however, that no Default shall exist under  Section 7(c), 7(d), 7(g),  7(i) or 9(a) of this Agreement unless the Obligors fail to
cure such noncompliance within five days;
(ii) non-payment when due of the premium on any insurance policy required to be maintained hereunder; (iii) any statement, representation, or warranty made in writing in this
Agreement or in any other writing or statement at any time furnished or made by any Obligor to Lender proves to have been untrue in any material respect as of the date furnished or made;
(iv) any Obligor's default under any other agreement for borrowed money or any other agreement involving more than the amount set forth on Item 27 of the
Schedule; (v) suspension of the operation of Borrower's present business; (vi) any Obligor or any other Person primarily or secondarily, directly or indirectly,
liable on any of the Obligations, including, but not limited to, any guarantor thereof (individually a "Credit Party" and collectively, the
"Credit Parties"), becomes insolvent or unable to pay its debts as they mature, or admits in writing that it is insolvent or unable to pay its debts,
makes an assignment for the benefit of creditors, makes a conveyance fraudulent as to creditors under any state or federal law, or a proceeding is instituted by or against any Credit Party alleging
that such Credit Party is insolvent or unable to pay debts as they mature, or a petition under any provision of Title 11 of the United States Code, as amended, is filed by or against any Credit Party,
and in the case of any such involuntary proceeding, such proceeding continues undismissed or unstayed for 30 consecutive calendar days or any order granting the relief requested shall be entered;
(vii) entry of any judgment in excess of the amount set forth on Item 28 of the Schedule against any Credit Party or creation, assertion, or
filing of any judgment or tax Lien against the property of any Credit Party, in each case which remains undischarged for 10 days after such entry or filing, unless Lender receives evidence
satisfactory to Lender in its discretion that such Credit Party has set aside cash reserves sufficient to satisfy any such judgment or tax Lien in full, including all interest and penalties with
respect therewith; (viii) death of any Credit Party who was a natural person, or death or withdrawal of any partner of any Credit Party which is a partnership, or dissolution, merger, or
consolidation of any Credit Party which is a corporation, partnership or limited liability company; (ix) transfer of a substantial part (determined by market value) of the property of any
Credit Party; (x) sale, transfer or exchange, either directly or indirectly, of a controlling stock or equity ownership interest of any Credit Party; (xi) termination, unenforceability
or withdrawal of any guaranty for the Obligations, or failure of any Credit Party to perform any of its obligations under such a guaranty or assertion by any Credit Party that it has no liability or
obligation under such a guaranty; (xii) appointment of a receiver for the Collateral or for any other property in which any Credit Party has an interest; (xiii) seizure of any Collateral
by any Person other than Lender (other than immaterial amounts of Collateral consisting of stolen goods which may from time to time be seized by the police); (xiv) any person identified on  Item 29 of the
Schedule shall for any reason cease to hold the office of the applicable Obligor set forth opposite such person's name on  Item 29 of the Schedule and a replacement
satisfactory to Lender shall not be appointed within 60 days; (xv) the occurrence of any act,
omission, event or circumstance which has or could reasonably be excepted to have a materially adverse effect on any Credit Party; (xvi) payment by 

19

 

any
Obligor on any Subordinated Debt in violation of the applicable subordination agreement; (xvii) Parent's failure to make any payment when due with respect to any Priority Tax Claim (giving
effect to any applicable notice or cure period), or (xviii) the Pension Benefit Guaranty Corporation or the Department of Labor commences proceedings under ERISA to terminate any of any
Obligor's employee pension benefit plans. 

        (b)    Remedies.    If a Default occurs and is continuing: 

          (i)  Lender
may, without demand or notice to any Obligor, terminate Lender's commitment, if any, to make loans or to extend other financial accommodations to Borrower, and
may declare the entire principal amount of all loans outstanding hereunder, all interest thereon, any unpaid fees and all other Obligations of any kind or nature to be, and thereupon the same will
immediately become, due and payable in full; and, in the event of a Default described under clause (vi) of Section 13(a), such termination
and acceleration shall automatically occur without any notice, demand or presentment of any kind. Borrower agrees to deposit with Lender a cash sum equal to the amount of letters of credit and
acceptances issued or guaranteed by Lender or any Affiliate of Lender which have not been drawn upon or matured, which funds will be used to reimburse Lender or such Affiliate of Lender upon drawing
under any letter of credit or maturity of any acceptances. 

         (ii)  Lender
may decrease the advance rates set forth in the definition of "Borrowing Base" in Lender's discretion. 

        (iii)  Lender
or Lender's designee may notify Customers that the Accounts have been assigned to Lender and that Lender has a security interest therein, collect them directly,
and charge the collection costs and expenses to Borrower's loan account. 

        (iv)  Without
notice to or demand upon any Obligor or any other Person, Lender may make such payments and do such acts as Lender considers necessary or reasonable to protect
its security interest in the Collateral. Each Obligor authorizes Lender to enter each premises where any Collateral is located, take and maintain possession of the Collateral, or any part of it, and
to pay, purchase, contest or compromise any Lien which in Lender's opinion appears to be prior or superior to its security interest and to pay all expenses incurred in connection therewith. 

         (v)  Lender
may ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale and sell the Collateral. Any such sale may be either a public or
private sale, or both, by way of one or more contracts or transactions, for cash or on terms. It is not necessary that the Collateral be present at any such sale. Without limiting the generality of
the foregoing, Lender may exercise any rights or remedies of Borrower under any pawn contracts. 

        (vi)  Lender
may, without notice to any Obligor except as expressly provided herein, at Lender's option, exercise any of the remedies available to Lender as a secured party
under the Uniform Commercial Code as in effect in any applicable jurisdiction, or otherwise available to Lender under applicable law. Each Obligor agrees, upon Default, to cease the sale or other
disposition of the Collateral, except with Lender's prior written consent, and to assemble at Borrower's expense all the Collateral at a convenient place acceptable to Lender. Lender may charge to
Borrower's loan account and Borrower will pay Lender upon demand all costs and expenses, including reasonable attorneys' fees (including fees of attorneys that are regular salaried employees of Lender
or any of its Affiliates), in connection with: (A) the liquidation of any Collateral; (B) obtaining or enforcing payment of the Obligations; (C) the settlement, adjustment,
compromise, or litigation of Customer disputes; or (D) the prosecution or defense of any action or proceeding either against Lender or against any Obligor concerning any matter growing out of
or in connection with this Agreement and/or any Collateral and/or any Obligations. If at any time Lender pays any state, city, local, federal, or other tax or levy attributable to the Collateral, 

20

 

Borrower
will repay to Lender the amount of tax so paid by Lender. Each Obligor agrees that Lender may apply any proceeds from disposition of the Collateral first to satisfy obligations secured by
Liens prior to Lender's security interest. Borrower will remain liable and will pay on demand any deficiencies arising upon the liquidation of any Collateral held by Lender. 

        (c)    Notices.    If any notice of intended disposition of the Collateral or of any other act
by Lender is required by law and a specific time period is not stated therein, such notice, if given five days before such disposition or act, in accordance with the provisions of  Section 16(a),
will be deemed reasonably and properly given. 

        (d)    License.    Each Obligor hereby grants to Lender a license or other right to use,
without charge, such Obligor's labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks and advertising matter, or any property of a similar nature, as it
pertains to the Collateral, in completing production of, advertising for sale and selling any Collateral and such Obligor's rights under all licenses, and all franchise agreements shall inure to
Lender's benefit. 

        (e)    Remedies Cumulative.    Lender's rights and remedies under this Agreement and all other
Loan Documents shall be cumulative. Lender shall have all other rights and remedies not inconsistent herewith as provided under the UCC, by law, or in equity. No exercise by Lender of one right or
remedy shall be deemed an election, and no waiver by Lender of any default on any Obligor's part shall be deemed a continuing waiver. No delay by Lender shall constitute a waiver, election or
acquiescence by it. 

        14.    Indemnification.    Borrower agrees to defend, indemnify, and hold harmless Lender and
Lender's directors, officers, employees, Affiliates, representatives, attorneys and agents (each an "Indemnified Person") from and against any and all
penalties, fines, liabilities, damages, costs, or expenses of whatever kind or nature asserted against any such Indemnified Person, arising out of, or in any way
related to this Agreement or any other Loan Document, or the transactions contemplated hereby or thereby (other than any such amounts arising from the gross negligence or willful misconduct of the
applicable Indemnified Person), including by reason of the violation of any law or regulation relating to the protection of the environment or the presence, generation, disposal, release, or
threatened release of any hazardous materials in connection with any Obligor's business on, at or from any property at any time owned or operated by any Obligor, including, without limitation,
reasonable attorneys' and consultants' fees, investigation and laboratory fees, court costs, and litigation expenses actually incurred. 

        15.    Parent Guaranty.    

        (a)    Guaranty.    Parent hereby unconditionally and irrevocably guarantees the full payment
and performance by Borrower of all of the Obligations, whether now existing or hereafter arising. Parent hereby unconditionally and irrevocably agrees that upon default in the payment when due
(whether at stated maturity, by acceleration or otherwise) of any principal of, or interest on, any loan or any other Obligation, Parent will forthwith pay the same, without notice or demand. 

        (b)    Obligations Absolute.    Parent agrees that the Obligations will be paid strictly in
accordance with the terms of the Loan Documents, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Lender with
respect thereto. All Obligations shall be conclusively presumed to have been created in reliance hereon. Parent's obligations under this Agreement shall be absolute and unconditional irrespective of:
(i) any lack of validity or enforceability of any Loan Document or any other agreement or instrument relating thereto; (ii) any change in the time, manner or place of payments of, or in
any other term of, all or any part of the Obligations, or any other amendment or waiver thereof or any consent to departure therefrom, including any increase in the Obligations resulting from the
extension of additional credit to Borrower or otherwise; (iii) any taking, exchange, release or non-perfection of any Collateral, or any release or amendment or waiver of or consent
to departure from any guaranty for all or any of the Obligations; (iv) any change, restructuring or termination of the corporate structure or existence of Borrower or any other guarantor; or
(v) any other circumstance which might otherwise constitute a defense available to, or a discharge of, Parent or Borrower. Parent's obligations under this Agreement shall continue to be
effective or be reinstated, as the case may be, if at any time any payment of any of the Obligations is rescinded or must otherwise be returned by Lender upon the insolvency, bankruptcy or
reorganization of any Obligor or otherwise, all as though such payment had not been made. Parent's obligations under this Agreement may be deemed by Lender to be an agreement of guaranty or surety. 

21

   
        (c)    Waiver of Suretyship Defenses.    Parent agrees that the liability of
Parent provided
for in clause (a) above shall not be impaired or affected by any modification, supplement, extension or amendment of any contract or agreement to which any Obligor may hereafter agree (other
than an agreement signed by Lender specifically releasing such liability), nor by any delay, extension of time, renewal, compromise or other indulgence granted by Lender with respect to any of the
Obligations, nor by any other agreements or arrangements whatever with Borrower or with any other Person, Parent hereby waiving all notice of such delay, extension, release, substitution, renewal,
compromise or other indulgence, and hereby consenting to be bound thereby as fully and effectually as if it had expressly agreed thereto in advance. The liability of Parent is direct and unconditional
as to all of the Obligations, and may be enforced without requiring Lender first to resort to any other right, remedy or security. Parent hereby expressly waives promptness, diligence, notice of
acceptance and any other notice (except to the extent expressly provided for herein or in another Loan Document) with respect to any of the Obligations, this Agreement or any other Loan Document and
any requirement that Lender protect, secure, perfect or insure any Lien or any property subject thereto or exhaust any right or take any action against Borrower or any other Person or any Collateral,
including any rights Parent may otherwise have under Official Code of Georgia Annotated Section 10-7-24 or any successor statute or any analogous statute in any
jurisdiction under the laws of which Parent is incorporated or in which Parent conducts business. To the extent that, notwithstanding the foregoing waivers, any notice is required to be delivered to
Parent under the provisions of any applicable law, this Agreement or any other Loan Document, Parent hereby appoints Borrower, and Borrower shall act, as Parent's agent for the purpose of receiving
such notice. 

        (d)    Contribution and Indemnification.    All rights and claims of contribution,
indemnification and reimbursement by Parent against Borrower for any payments made by Parent hereunder shall be subordinate in right of payment to the prior payment in full of the Obligations. 

        16.    General Provisions.    

        (a)    Notices.    Except as specifically provided in this Agreement or in any of the other
Loan Documents, all notices and communications hereunder and thereunder will be in writing or by telephone subsequently confirmed in writing. Notices in writing will be delivered personally or sent by
overnight courier service, by certified or registered mail, postage pre-paid, or by facsimile transmission and will be deemed received, in the case of personal delivery, when delivered; in
the case of overnight courier service, on the next Business Day after delivery to such service; in the case of mailing, on the fourth Business Day after mailing; and, in the case of facsimile
transmission, upon transmittal if confirmed by the sender's facsimile device. A telephonic notice to Lender as understood by Lender will be deemed to be the controlling and proper notice in the event
of a discrepancy with or failure to receive a confirming written notice. Notices to Lender or any Obligor will be sent to the addresses set forth on Item 30 of the
Schedule, or any other address for any Obligor or Lender of which the other is notified by like notice. 

        (b)    Governing Law.    This Agreement will be governed by and construed and enforced
according to the laws of the State of Georgia. 

        (c)    No Waiver.    No waiver hereunder will be valid unless in writing signed by Lender and
then only to the extent therein stated. No delay or failure on Lender's part in the exercise of any right or remedy hereunder will operate as a waiver thereof or of Lender's right to exercise any
other right or remedy. 

        (d)    Time of Essence.    Time is of the essence of this Agreement. 

        (e)    Severability.    Wherever possible, each provision of this Agreement will be
interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement will be prohibited by or invalid under applicable law, such provision will be
ineffective to the extent of such 

22

 

prohibition
or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. 

        (f)    Successors and Assigns.    The Obligors' and Lender's rights and obligations hereunder
will inure to the benefit of the Obligors' and Lender's respective successors and assigns, provided that each Obligor acknowledges and agrees that
without Lender's prior written consent, which may be withheld for any reason or no reason, no Obligor may assign such Obligor's rights or obligations or any part thereof hereunder to any other Person.
Lender may assign this Agreement and its rights and duties hereunder. Lender reserves the right to sell, assign, transfer, negotiate or grant participations in all or any part of, or any interest in,
Lender's rights and benefits hereunder. 

        (g)    Submission to Jurisdiction, Service, Etc.    (i) Each Obligor agrees that any
suit, action or proceeding directly or indirectly arising out of or relating to this Agreement, any other Loan Documents, the Obligations, the relationship between Borrower and/or Parent and Lender
created hereby, or arising out of any judgment against any Obligor entered by any court or other tribunal of competent jurisdiction with respect to the enforcement of this Agreement, may be instituted
in any state court located in the state of Georgia or the United States District Court for the Northern District of Georgia or in any other court having subject matter jurisdiction, as Lender may
select in Lender's sole discretion. Each Obligor hereby expressly and irrevocably submits and consents to the non-exclusive jurisdiction of any such court in any such suit, action or
proceeding, hereby waiving personal service of the summons and complaint, or other process or papers issued therein. Each Obligor hereby waives, to the fullest extent permitted by law, any objection
such Obligor may have to the venue of any such suit, action or proceeding. Further, each Obligor hereby irrevocably waives, to the fullest extent such Obligor may effectively do so, the defense of an
inconvenient forum to the maintenance of such suit, action or proceeding. Each Obligor further agrees that a final
judgment in any such suit, action or proceeding brought in any such court or tribunal will be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. 

         (ii)  Each
Obligor hereby agrees that service of process mailed or delivered to such Obligor at the Obligors' address for notices provided herein will be deemed in every
respect effective service of process upon each Obligor in any such suit, action or proceeding in any such court or tribunal and will be taken and held to be valid, personal service on such Obligor,
irrespective of whether such Obligor will then be doing, or at any time will have done, business within the State of Georgia. 

        (iii)  Nothing
in this Section 16(g) will affect Lender's right to serve legal process in any other manner permitted by
law or affect Lender's right to bring any action or proceeding against any Obligor or any Obligor's property in the courts of any other jurisdiction. 

        (h)    Waiver of Jury Trial.    TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH
OBLIGOR AND LENDER HEREBY IRREVOCABLY AND EXPRESSLY WAIVE ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT, THE OBLIGATIONS OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY OR ANY PARTY'S ACTIONS IN THE NEGOTIATION, ADMINISTRATION, OR ENFORCEMENT
HEREOF OR THEREOF. EACH OBLIGOR AND LENDER ACKNOWLEDGE THAT SUCH WAIVER IS MADE WITH FULL KNOWLEDGE AND UNDERSTANDING OF THE NATURE OF THE RIGHTS AND BENEFITS WAIVED HEREBY, AND WITH THE BENEFIT OF
ADVICE OF COUNSEL OF ITS CHOOSING. 

        (i)    Waiver of Hearing.    EACH OBLIGOR HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY
WAIVES ALL RIGHTS WHICH SUCH OBLIGOR HAS UNDER CHAPTER 14 OF TITLE 44 OF THE OFFICIAL CODE OF GEORGIA OR UNDER ANY SIMILAR 

23

 

PROVISION
OF APPLICABLE LAW TO NOTICE AND TO A JUDICIAL HEARING PRIOR TO THE ISSUANCE OF A WRIT OF POSSESSION ENTITLING LENDER, ITS SUCCESSORS AND ASSIGNS TO POSSESSION OF THE COLLATERAL UPON A
DEFAULT. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING AND WITHOUT LIMITING ANY OTHER RIGHT WHICH LENDER MAY HAVE, EACH OBLIGOR CONSENTS THAT, IF LENDER FILES A PETITION FOR AN IMMEDIATE WRIT OF
POSSESSION IN COMPLIANCE WITH SECTIONS 44-14-261 AND 44-14-262 OF THE OFFICIAL CODE OF GEORGIA OR UNDER ANY SIMILAR PROVISION OF APPLICABLE LAW AND THIS
WAIVER OR A COPY HEREOF IS ALLEGED IN SUCH PETITION AND ATTACHED THERETO, THE COURT BEFORE WHICH SUCH PETITION IS FILED MAY DISPENSE WITH ALL RIGHTS AND PROCEDURES HEREIN WAIVED AND MAY ISSUE
FORTHWITH AN IMMEDIATE WRIT OF POSSESSION IN ACCORDANCE WITH CHAPTER 14 OF TITLE 44 OF THE OFFICIAL CODE OF GEORGIA OR IN ACCORDANCE WITH ANY SIMILAR PROVISION OF APPLICABLE LAW, WITHOUT THE NECESSITY
OF AN ACCOMPANYING BOND AS OTHERWISE REQUIRED BY SECTION 44-14-263 OF THE OFFICIAL CODE OF GEORGIA OR IN ACCORDANCE WITH ANY SIMILAR PROVISION OF APPLICABLE LAW. 

        (j)    Expenses.    Borrower shall pay on demand all of Lender's costs and expenses in
connection with underwriting and performing due diligence with respect to the transactions contemplated hereby and the preparation, reproduction, execution, delivery, administration and enforcement of
this Agreement, including the reasonable fees and out-of-pocket expenses of Lender's counsel, in each case whether incurred on, prior or subsequent to the Agreement Date;  provided, however that Borrower
shall not be obligated to pay more than $20,000 in due diligence expenses in connection with the original underwriting
and closing of the credit facility evidenced hereby (it being understood that the fees and out-of-pocket expenses of legal counsel to Lender shall not be subject to such
$20,000 limitation and that Borrower shall reimburse Lender for the full amount of such fees and expenses). In addition, Borrower shall pay any and all stamp and other taxes and recording and filing
fees payable in connection with the execution and delivery of all other instruments and documents to be delivered hereunder. Such amounts may be charged by Lender to Borrower's account as one or more
loans hereunder. All provisions in this Agreement providing for the payment or reimbursement of Lender's attorneys' fees and expenses include, without limitation, such fees and expenses incurred
pursuant to or in connection with proceedings brought under 11 U.S.C., the Federal Bankruptcy Code. 

        (k)    Execution in Counterparts.    This Agreement may be executed in separate counterparts,
all of which shall constitute one and the same agreement. 

        (l)    Entire Agreement.    This Agreement and the other Loan Documents embody the entire
agreement and understanding between Lender and Borrower and supersede all prior agreements and understandings relating to the subject matter hereof. 

24

 

        IN
WITNESS WHEREOF, Borrower, Parent and Lender have executed this Agreement as of the day and year first above written. 

	

 	
 	

PAWNMART, INC.
	

 	
 	

By:	
 	

/s/ Robert W. Schleizer
 Robert W. Schleizer, Executive Vice President
	

 	
 	

XPONENTIAL, INC.
	

 	
 	

By:	
 	

/s/ Robert W. Schleizer
 Robert W. Schleizer, Chief Financial Officer
	

 	
 	

FCC, LLC, d/b/a FIRST CAPITAL
	

 	
 	

By:	
 	

/s/ Evan Jones
 Evan Jones, Senior Vice President
	

 	
 	

 	
 	

 

25

  

 
 

NOTARY JURAT FOR EXECUTION OF
  WRITTEN OBLIGATIONS TO PAY MONEY    
    

        On this the 17th day of June, 2004, before me, the undersigned, a Notary Public in and for the State of Texas, County of Dallas, Robert W. Schleizer personally
appeared, who is personally known to me or proved to me on the basis of satisfactory evidence to be the Executive Vice President of PawnMart, Inc., a Nevada corporation, who, being by me first
duly sworn, stated that: 

        1.     He
executed the foregoing Loan and Security Agreement on behalf of such corporation pursuant to its by-laws or a resolution of its board of directors, said
execution taking place in the State of Texas, County of Dallas; and 

        2.     He
has this day delivered the foregoing Loan and Security Agreement to FCC, LLC, d/b/a FIRST CAPITAL, at Cobb County, Georgia [via
personal delivery] [via overnight courier]. 

	 	 	Signature of Borrower's Officer:
	

 	
 	

By:	

/s/ Robert W. Schleizer
 Robert W. Schleizer
	

Sworn to and subscribed before me this 17th day of June, 2004:
	

/s/ Bevi J. Childers
 Notary Signature	
 	

 	

 
	

My Commission Expires: 09-29-05	

 
	

[Affix Notarial Seal]	

 

26

 
 
 

NOTARY JURAT FOR EXECUTION OF
  WRITTEN OBLIGATIONS TO PAY MONEY    
    

        On this the 17th day of June, 2004, before me, the undersigned, a Notary Public in and for the State of Texas, County of Dallas, Robert W. Schleizer personally
appeared, who is personally known to me or proved to me on the basis of satisfactory evidence to be the Chief Financial Officer of Xponential, Inc., a Delaware corporation, who, being by me
first duly sworn, stated that: 

        1.     He
executed the foregoing Loan and Security Agreement on behalf of such corporation pursuant to its by-laws or a resolution of its board of directors, said
execution taking place in the State of Texas, County of Dallas; and 

        2.     He
has this day delivered the foregoing Loan and Security Agreement to FCC, LLC, d/b/a FIRST CAPITAL, at Cobb County, Georgia [via
personal delivery] [via overnight courier]. 

	 	 	Signature of Borrower's Officer:
	

 	
 	

By:	

/s/ Robert W. Schleizer
 Robert W. Schleizer
	

Sworn to and subscribed before me this 17th day of June, 2004:
	

/s/ Bevi J. Childers
 Notary Signature	
 	

 	

 
	

My Commission Expires: 09-29-05	

 
	

[Affix Notarial Seal]	

 

27

 
 
 

AFFIDAVIT REGARDING DELIVERY    
    

        On this the            day of June, 2004, before me, the undersigned, a Notary Public in and for the State of Georgia, County
of                        , Evan Jones
personally appeared, personally known to me or proved to me on the basis of satisfactory evidence to be a Senior Vice President of FCC, LLC, d/b/a FIRST CAPITAL, who, being by me first duly sworn,
stated that he has received delivery of the foregoing Loan and Security Agreement on behalf of FCC, LLC, d/b/a FIRST CAPITAL in the State of Georgia, County of Cobb. 

	 	 	
 Signature of Officer of FCC, LLC, d/b/a First Capital
	

Sworn to and subscribed before me this    day of June, 2004:
	

 Notary Signature	

 
	

My Commission Expires:	

 
	

 [Affix Notarial Seal]	

 

28

  

 
 

SCHEDULE    
    

        This Schedule is a part of the foregoing Loan and Security Agreement dated as of June 17, 2004, among PAWNMART, INC., as borrower ("Borrower"),
XPONENTIAL, INC., as guarantor ("Parent"), and FCC, LLC, d/b/a FIRST CAPITAL, as lender ("Lender"). 

1.     Borrowing Base  

        "Borrowing Base" means, at any time, an amount equal to: 

	(a)
	the
lesser of:

	(i)
	$4,500,000,
and

	(ii)
	the
sum of:

	(A)
	75%
of the dollar amount of Eligible Accounts; plus

	(B)
	the
lesser of:

	(1)
	$1,000,000,
and

	(2)
	30%
of the dollar value (determined at the lower of Borrower's Cost or market value) of Eligible Inventory; 

provided, however, that the amount advanced pursuant to the foregoing clause (a)(ii) shall not exceed 35% of the total principal amount of
loans outstanding hereunder at any time; 

 minus  

	(b)
	the
sum of:

	(i)
	a
reserve in the amount of $1,000,000;

	(ii)
	a
reserve in an amount to be determined by Lender in the event that, for any calendar quarter, Borrower's Cost for all goods sold during such period divided by
Borrower's gross sales (excluding all pawn service charges, finance charges and similar items) during such period is greater than 0.80; plus

	(iii)
	a
reserve in an amount to be determined by Lender in the event that, for any consecutive three-month period, the dollar amount of Pawn Loans that result in a
forfeiture by the Customer of the Pawned Item exceeds 70% of the aggregate dollar amount of all Pawn Loans advanced during such period; plus

	(iv)
	a
reserve in an amount to be determined by Lender in the event that the dollar amount of Pawn Loans for which the underlying Pawned Items consisting of a single product
category (such as motor vehicles, jewelry, or general merchandise) exceeds 40% of the total amount of Pawn Loans at any time; plus

	(v)
	such
other reserves as Lender may establish from time to time in its discretion, plus

	(vi)
	the
amount available to be drawn under, plus the amount of any unreimbursed draws with respect to, any letters of credit or acceptances which have been issued or
created by Lender or any Affiliate of Lender for Borrower's account. 

29

 

2.     Permitted Liens  

        Existing Liens: 

State
Tax Liens recorded in Greenville County, South Carolina: 

No. 2001-69939
filed Aug 3, 2001—South Carolina Department of Revenue—$1,305.32

No. 2001-69940 filed Aug 3, 2001—South Carolina Department of Revenue—$1,958.47

No. 2001-69941 filed Aug 3, 2001—South Carolina Department of Revenue—$920.75

No. 2001-83545 filed Sept. 17, 2001—South Carolina Dept. of Revenue—$1,684.12

No. 2001-83596 filed Sept. 17, 2001—South Carolina Dept. of Revenue—$600.11

No. 2001-854323 filed Sept. 21, 2001—South Carolina Dept. of Revenue—$624.03

No. 2001-107241 filed Nov. 28, 2001—South Carolina Dept. of Revenue—$4,133.14

No. 2001-107242 filed Nov. 28, 2001—South Carolina Dept. of Revenue—$3,143.73

No. 2001-107243 filed Nov. 28, 2001—South Carolina Dept. of Revenue—$2,932.22

No. 2001-107616 filed Nov. 29, 2001—South Carolina Dept. of Revenue—$530.94

No. 2001-111334 filed Dec. 6, 2001—South Carolina Dept. of Revenue—$4,217.31

No. 2002-9467 filed Jan. 30, 2002—South Carolina Dept. of Revenue—$622.16

No. 2002-39556 filed April 29, 2002—South Carolina Dept. of Revenue—$3,919.84 

State
Tax Lien Recorded in Mobile County, Alabama: 

        No. 2003111227
filed 12-19-2003, State of Alabama—Department of Revenue—$4,410.72 

State
Tax Lien Recorded in Douglas County, Georgia: 

        Book
28, Page 281 filed 4-12-2001, State of Georgia—$6,262.25 

State
Tax Lien Recorded in Johnson County, Texas: 

        No. 15552
filed 6-20-2001, State of Texas—$5,065.42 

Judgments
Recorded in Fulton County, Georgia: 

Book
4219, Page 29 filed December 17, 1998, The City of Atlanta vs. Pawnmart, Inc.—$32.98

Book 4938, Page 657 filed November 9, 2000, Fulton County Tax Commissioner vs. Pawnmart, Inc. #40—$1,142.48

Book 4934, Page 614 filed November 9, 2000, The State of Georgia and Fulton County vs. Pawnmart #12—$3,041.52

Book 9936, Page 142 filed January 24, 2003, The City of Atlanta, Georgia and Pawnmart, Inc. #40—$3,028.78

Book 9936, Page 143 filed January 24, 2003, The State of Georgia and Fulton County vs. Pawnmart, Inc. #40—$1,207.25 

3.     Persons Authorized to Request Loans  

	Name:	 	Title:
	Dwayne A. Moyers	 	Chief Executive Officer
	Robert W. Schleizer	 	Chief Financial Officer

	4.
	Collection Days:    Three Business Days 

5.     Conditions To Initial Loans  

	1.
	Borrower
shall have received a cash equity investment of at least $1,000,000 from Parent.

	2.
	Items
listed below are required to be delivered, in form and substance satisfactory to Lender in its sole discretion, as a condition to Lender's obligation to fund the initial loan or
extend the first financial accommodation to Borrower under this Agreement. 

30

 

Certified
copy of articles/certificate of incorporation of each Obligor 

Bylaws
of each Obligor 

Secretary's
certificate for each Obligor as to constituent documents, bylaws, authorizing action (e.g., corporate resolutions) and incumbency of officers/status and specimen signatures of authorized
signers 

Good
Standing Certificate (state of organization and all other states in which the applicable Obligor is qualified to do business) 

Lien
search results 

Payoff
letter from Comerica Bank and any other lender whose loans are to be refinanced from proceeds of loans made under this Agreement 

Lien
termination documents from Comerica Bank and any other creditor whose filings are to be terminated, etc. 

Validity
Guaranty/Support Agreement from each Support Party 

Financial
statements 

Borrowing
Base Certificate as of a date acceptable to Lender, together with supporting documentation and schedules of Accounts and Inventory 

Financing
statements 

Officer's
certificate as to representations, warranties and no defaults 

Solvency
certificates for each Obligor and any other guarantor 

Opinion
letter of Obligors' legal counsel 

All
other items described on the Schedule of Closing Documents previously delivered by Lender or Lender's counsel to Borrower or Borrower's counsel 

	6.
	Termination Date:    This Agreement will terminate on the third anniversary of
the Agreement Date.

	7.
	Interest Margin:    2.00%

	8.
	Default Margin:    3.00% 

9.     Fees  

	a.
	Upon
execution of this Agreement, in consideration of Lender's structuring, approving and committing to this Agreement, but without affecting Borrower's obligation to reimburse Lender
for costs associated with this Agreement and the transactions contemplated hereby as provided elsewhere in this Agreement, Borrower agrees to pay Lender a fee in the amount of $40,000 which will be
fully earned on the Agreement Date and non-refundable when paid.

	b.
	For
services performed by Lender in connection with Lender's continuing administration hereof, Borrower shall pay to Lender a fee of $33,750 on the first anniversary of the Agreement
Date and $22,500 on the second anniversary of the Agreement Date.

	c.
	In
consideration of the maintenance of Lender's commitment hereunder, Borrower will pay Lender a fee at the rate of 0.25% per annum on the daily average unused portion of Lender's
commitment to make revolving loans hereunder, payable monthly in arrears on the first day of each calendar month, beginning on the first such date following the Agreement Date.

	d.
	For
services performed by Lender in connection with Lender's continuing administration hereof, Borrower shall pay to Lender a monthly fee equal to the greater of (i) $3,000, and
(ii) 0.25% of 

31

 

the
average outstanding loan balance during the immediately preceding month. Such fee is payable monthly on the first day of each calendar month beginning with the first such date following the
Agreement Date, and continuing so long as any loan shall remain outstanding or this Agreement shall not have been terminated. 

All
of the foregoing fees constitute compensation to Lender for services rendered and are not interest or a charge for the use of money. Each installment of such fees shall be fully earned when due
and payable and shall not be subject to refund or rebate. 

10.   Organizational Information  

Exact Legal Name of Borrower: PawnMart, Inc.
 State of Organization: Nevada
 Type of Organization:
Corporation
 Organizational Identification Number: C2291-2003 

Exact Legal Name of Parent: Xponential, Inc.
 State of Organization: Delaware
 Type of Organization: Corporation
 Organizational Identification Number: 2368084 

	11.
	Subsidiaries and Investments in Other Persons:    Borrower has no
subsidiaries or investments in other Persons.

	12.
	Pending Litigation: 

Everette
Johnson vs. PawnMart, Inc., filed in the Superior Court of Gwinnett County, Civil Action File No. 03-A-6563-4. Action arises out of the
repossession of a car for non-payment of interest. Damages are sought under TILA totaling $600 plus attorneys' fees (approximately $3000 total). Fred Stokes & Associates is handling
the lawsuit for PawnMart, Inc. 

13.   Existing Debt and Guarantees:  

        Borrower is indebted to AFCO with respect to certain insurance premiums in the amount of $7,164.04. This debt is unsecured by any assets of Borrower. Borrower and
Parent are indebted to Comerica in the amount of approximately $3,381,800, which indebtedness will be repaid in full on the Agreement Date. 

        Parent
is indebted to various state and local governments in the aggregate principal amount of $406,926.53 with respect to tax claims as described in Item 2 of
the Schedule, all of which constitute Priority Tax Claims. Parent is also indebted to Vertical Computer Systems, Inc. in the amount of $14,383.46, and such indebtedness
is unsecured by any assets of Parent. 

	14.
	Prior Legal Names of Borrower: None. 

        Prior or Current Trade or Fictitious Names of Borrower:    None. 

        Mergers and Acquisitions of Borrower:    None. 

        Prior Legal Names of Parent:    Parent changed its name from "PawnMart, Inc." to
"Xponential, Inc." on February 28, 2003. 

        Prior or Current Trade or Fictitious Names of Parent:    Pawnco, Inc. and PawnMart, Inc. 

        Mergers and Acquisitions of Parent:    Parent merged with C/M Holdings, Inc., a Texas
corporation, on August 30, 2002, with Parent being the surviving entity. 

32

 

15.   Locations of Offices and Collateral  

Current Chief Executive Office of Borrower:

2175 Old Concord Road, Suite 200

Smyrna, Georgia 30080 

 Other Locations of Chief Executive Office of Borrower in past five years: None. 

 Other Current Collateral Locations of Borrower:  

7471
Highway 85, Suite C & D

Riverdale, Georgia 30274 

5966
Fairburn Road

Douglasville, Georgia 30134 

192
Scenic Highway

Lawrenceville, Georgia 30045 

5847
Albermarle Road

Charlotte, North Carolina 28212 

4325
South Boulevard

Charlotte, North Carolina 28209 

2419
Shorter Avenue

Rome, Georgia 30165 

1858
Cheshire Bridge Road

Atlanta, Georgia 30324 

4900
Memorial Drive

Stone Mountain, Georgia 30083 

460
Highway 53 East

Calhoun, Georgia 30701 

316
Cobb Parkway

Marietta, Georgia 30060 

5222
N. Henry Boulevard, Unit 1

Stockbridge, Georgia 30251 

6167
Memorial Drive

Stone Mountain, Georgia 30083 

4270
Lawrenceville Highway

Lilburn, Georgia 30047 

1168
Jesse Jewel

Gainesville, Georgia 30501 

400
East Wade Hampton

Greer, South Carolina 29651 

4554
North Tryon

Charlotte, North Carolina 28213 

33

 

2600-B
East Walnut Avenue

Dalton, Georgia 30721 

1501
Taylor Street

Griffin, Georgia 30224 

5445
Old National Highway

College Park, Georgia 30349 

4679
Jonesboro Road

Forest Park, Georgia 30297 

6125-C
Covington Highway

Decatur, Georgia 30035 

436
Beaver Ruin Road

Norcross, Georgia 30071 

295-A
Athens Highway SE

Loganville, Georgia 30052 

3355
Highway 78, Suite B

Snellville, Georgia 30078 

5548
Peachtree Industrial Boulevard

Chamblee, Georgia 30341 

4814
Highway 78, Suite 11

Lilburn, Georgia 30047 

	16.
	Ownership Structure:    Parent owns 100% of the outstanding capital stock of
Borrower.

	17.
	Owned Real Property of Borrower:    None. 

        Leased Real Property of Borrower (including legal name of landlord and monthly rent):

	Address:
 
	 	Landlord:
	 	Monthly Rent:

	2175 Old Concord Road, Suite 200

Smyrna, Georgia 30080	 	CNI, Ltd.	 	$	3,500.00
	

7471 Highway 85, Suite C & D

Riverdale, Georgia 30274	
 	

Brad Bradford Realty	
 	
 	

5,500.00
	

5966 Fairburn Road

Douglasville, Georgia 30134	
 	

Raymond E. Frost &

Patricia A. Frost	
 	
 	

4,950.00
	

192 Scenic Highway

Lawrenceville, Georgia 30045	
 	

D & L Leasing, Ltd	
 	
 	

4,048.30
	

5847 Albermarle Road

Charlotte, North Carolina 28212	
 	

Sitaris Properties	
 	
 	

4,932.33
	

4325 South Boulevard

Charlotte, North Carolina 28209	
 	

Philip Katapolis &

Mary Katapolis	
 	
 	

3,465.00
	

2419 Shorter Avenue

Rome, Georgia 30165	
 	

Brooke Temple

(2 leases)	
 	
 	

3,250.00
	

1858 Cheshire Bridge Road

Atlanta, Georgia 30324	
 	

M & M Interest, LLC	
 	
 	

6,450.00
	 	 	 	 	 	 

34

 

	

4900 Memorial Drive

Stone Mountain, Georgia 30083	
 	

Elias J. Livaditas &

James B. Livaditas, co-executors

of John B. Livaditas et al	
 	
 	

4,800.00
	

460 Highway 53 East

Calhoun, Georgia 30701	
 	

Peach State Finance and Leasing, Inc.	
 	
 	

4,620.00
	

316 Cobb Parkway

Marietta, Georgia 30060	
 	

Hubert Properties R. P. & S. Alan

Aycock & Harold S. Willingham	
 	
 	

7,000.00
	

5222 N. Henry Boulevard, Unit 1

Stockbridge, Georgia 30251	
 	

Brad Bradford Realty	
 	
 	

5,175.00
	

6167 Memorial Drive

Stone Mountain, Georgia 30083	
 	

Memorial Drive Joint Venture	
 	
 	

5,700.00
	

4270 Lawrenceville Highway

Lilburn, Georgia 30047	
 	

D & Leasing, Ltd	
 	
 	

5,750.00
	

1168 Jesse Jewel

Gainesville, Georgia 30501	
 	

Exennium Investments, Inc.	
 	
 	

4,505.42
	

400 East Wade Hampton

Greer, South Carolina 29651	
 	

Joseph Ray Johnson &

James M. Massie	
 	
 	

4,000.00
	

4554 North Tryon

Charlotte, North Carolina 28213	
 	

Fog Capital Retail Investors, LLC	
 	
 	

4,350.55
	

2600-B East Walnut Avenue

Dalton, Georgia 30721	
 	

Troy & Don Phillips	
 	
 	

3,300.00
	

1501 Taylor Street

Griffin, Georgia 30224	
 	

Fog Capital Retail Investors, LLC	
 	
 	

3,375.00
	

5445 Old National Highway

College Park, Georgia 30349	
 	

Chao Yung Wang	
 	
 	

3,008.00
	

4679 Jonesboro Road

Forest Park, Georgia 30297	
 	

Hoi V. Nguyen	
 	
 	

3,008.00
	

6125-C Covington Highway

Decatur, Georgia 30035	
 	

Panola Point, LLC	
 	
 	

3,523.80
	

436 Beaver Ruin Road

Norcross, Georgia 30071	
 	

Cash Tank, L.P.	
 	
 	

2,600.00
	

295-A Athens Highway SE

Loganville, Georgia 30052	
 	

APCI	
 	
 	

4,080.00
	

3355 Highway 78, Suite B

Snellville, Georgia 30078	
 	

W. H. Britt	
 	
 	

3,550.00
	

5548 Peachtree Industrial Boulevard

Chamblee, Georgia 30341	
 	

JDN Realty Corp	
 	
 	

2,575.00
	

4814 Highway 78, Suite 11

Lilburn, Georgia 30047	
 	

John Hardy Jones	
 	
 	

2,381.00

35

 

Warehousemen, processors, consignees or other bailees in possession or control of any Inventory (include name, address where Inventory is stored and description of the
arrangement):

Armored Car pickup:  

        Effective May 2004, Borrower engaged Dunbar Armored to pick up cash deposits and collect jewelry for processing in Borrower's jewelry center. Dunbar picks
up cash on Tuesday and Thursday for deposits at 23 store locations. Jewelry picked up on Tuesday from the stores is kept at Dunbar's location overnight. Jewelry picked at the jewelry center on
Wednesday for delivery to the stores on Thursdays is also kept at Dunbar's location. 

Their
physical address is: 

775
Great SW Pkwy

Atlanta, GA 30336 

Jewelry  

        All jewelry is picked up by Dunbar or shipped via registered mail from store locations to Borrower's jewelry center at 2175 Old Concord Rd, Suite 200, Smyrna, GA
and processed for repair, pricing and/or scrap. 

All
repairs and pricing are performed at: 

My
Jeweler Inc.

2300 Spring Road

Atlanta, GA 30339 

My
Jeweler, Inc. picks up and delivers from the jewelry center. 

36

   
        Borrower scraps/smelts broken jewelry into gold and silver and sells the metal to the smelter in the normal course of business. The jewelry in transit is the responsibility of Advance
Chemical Company, the smelter. They are located at: 

Advanced
Chemical Company

105 Bellows Street

Warwick, Rhode Island 02888 

        Advanced
returns the stones remaining from the smelting to Borrower and is responsible for them until received by Borrower. 

 Cars  

        Borrower repossesses and sells defaulted cars recovered in its collection process. At any time, a repossession company may hold several recovered vehicles for
Borrower's benefit until they are delivered to Borrower or until they are delivered to a public auction location at Borrower's request. The recovery firms and the auction firms currently utilized by
Borrower follow: 

Fulton
Wrecker Service

726 Starcrest Lane

Marietta, GA 30066 

NIR

2070 Covington Highway

Conyers, GA 30012 

Crown
Recovery

P.O. Box 2816

Acworth, GA 30102 

North
Georgia Recovery

P.O. Box 292

Rome, GA 30162 

3D
recovery

5529 Atlanta Highway

Flowery Branch, GA 30452 

FastTrack
Transport

372 Trotters Ridge

Lawrenceville, GA 30043 

Interstate
Recovery

P.O. Box 608

Loganville, GA 30052 

Big
Dog Recovery

702 Cavendar Rd

Dalton, GA 30721 

Brantley
Transport

3450 Old Due West Rod

Marietta, GA 30064 

Greenville
Auto Recovery

P.O. Box 1482

Greenville, SC 29602 

37

 

Palmetto
State Recovery Svs.

P.O. Box 148

Piedmont, SC 29673 

Nightbreed
Recovery

174 Darien Ct.

Jonesboro, GA 30208 

Bill
Sue

1006 West Sanctuary Rd.

Chattanooga, TN 37421 

Avondale
Industrial Towing

1761 Gerrard Rd

Lavonia, GA 30553 

R&R
Towing

331 Sumter Dr.

Marietta, GA 30066 

Stanley
Motors

868 Forest Parkway

Forest Park, GA 30297 

        Borrower
acknowledges and agrees that any motor vehicles, jewelry or other Inventory which is not in the possession and control of Borrower at one of the collateral locations specified
in Item 15 of the Schedule shall not constitute Eligible Inventory. 

18.   Bank Accounts:  

	

Comerica Bank—	
 	

1851334100 Operating

1851334118 Payroll

1851334126 LOC Clearing

1851334142 Merchants Clearing

1851334134 Telecheck Clearing
	

SouthTrust—	
 	

70991541 Operating

70992861 Depository

70973600 Store Cash
	

Regions—	
 	

668309320318 Depository

19.   Commercial Tort Claims: None. 

20.   Financial Covenants:  

        (a)   Borrower
shall maintain (without giving effect to the results of Parent), as of the last day of each month for the twelve-month period then ended, a ratio of Borrower's
(i) net income (excluding extraordinary gains) before provision for interest expense, taxes, depreciation and amortization, to (ii) interest expense, plus payments of principal actually
made or scheduled to be made with respect to indebtedness (other than scheduled but unpaid payments on Subordinated Debt and principal payments on revolving loans under this Agreement), plus payments
with respect to capitalized leases, plus taxes, plus dividends and distributions, plus unfinanced capital expenditures, of at least 1.0 to 1. In the event that Parent makes any cash capital
contribution to Borrower within ten days after the last day of the 

38

 

month
for which such ratio is measured, the amount of such cash contribution shall be included in the numerator of such ratio for purposes of determining compliance with this covenant. 

        (b)   Borrower
shall maintain (without giving effect to the results of Parent) a ratio of (i) indebtedness for borrowed money, to (ii) Tangible Net Worth, of not
more than 4.0 to 1 at all times. As used herein, "Tangible Net Worth" means, as of any date, the total assets of Borrower minus the total liabilities of Borrower calculated in conformity with GAAP,
less all amounts due from any Obligor's Affiliates and the amount of all intangible items reflected therein, including all unamortized debt discount and expense, unamortized research and development
expense, unamortized deferred charges, goodwill, intellectual property, unamortized excess cost of investments in subsidiaries over equity at dates of acquisition, and all similar items which should
properly be treated as intangibles in accordance with GAAP. 

        (c)   Borrower
(without giving effect to the results of Parent) shall maintain an Inventory Turnover Ratio of at least 3.0 to 1 as of the end of each month for the
twelve-month period then ended. As used herein, "Inventory Turnover Ratio" means the ratio of (i) Borrower's cost of goods sold, to (ii) (A) the sum of (1) the dollar
amount of Borrower's Inventory as of the first day of such twelve-month period, plus (2) the dollar amount of Borrower's Inventory as of the last day of such twelve-month period, divided by
(B) two. 

21.   Borrower's Permitted Purchase Money Debt: $250,000 

22.   Borrower's Permitted Capital Expenditures: $750,000 during any fiscal year 

23.   Maximum Annual Increase in Officers' Compensation: Borrower represents and warrants to
Lender that the aggregate compensation paid and to be paid to Borrower's officers and directors for Borrower's current fiscal year is $500,000. Such compensation shall not increase by more than 10%
per fiscal year hereafter. 

24.   Annual Financial Statements: To be audited and certified without qualification by an
independent practicing certified public accountant reasonably acceptable to Lender. 

25.   Borrowing Base Certificates: Borrower shall deliver to Lender a Borrowing Base
Certificate by 11:00 a.m. on each Business Day, prepared as of the close of business on the immediately preceding Business Day. 

26.   Field Examinations: Borrower agrees to pay to Lender Lender's customary fees and
disbursements relating to field examinations of the Collateral, Borrower, Borrower's business and Borrower's books and records, which, as of the Agreement Date, are $850 per examiner per day plus all
of the out-of-pocket examination costs and travel and other expenses incurred by such examiners; provided, however, that
Borrower shall not be obligated to pay for more than four such field examinations per calendar year, it being understood that any such field examination conducted while a Default exists shall not
count against such limitation. 

27.   Cross Default Amount: $100,000 

28.   Judgment Cross Default Amount: $100,000 

29.   Change of Management Default:

	Name
 
	 	Office

	Robert Schleizer	 	Chief Financial Officer of Borrower

39

 

30.   Notice Addresses:  

	If to any Obligor:	 	PawnMart, Inc.

2175 Old Concord Road SE, Suite 200

Smyrna, Georgia 30080

Attn.: Bob Schleizer

Facsimile No.: 678-305-7213
	

With a copy to:	
 	

Holland, Johns, Schwartz & Penny, L.L.P.

306 West Seventh Street, Suite 500

Fort Worth, Texas 76102

Attn.: Margaret E. Holland

Facsimile No.: 817-332-3140
	

If to Lender:	
 	

FCC, LLC, d/b/a First Capital

125 TownPark Drive, Suite 190

Kennesaw, Georgia 30144

Attn.: Brian J. Cuttic, Senior Vice President

Facsimile No.: 678-594-5901
	

With a copy to:	
 	

Stephen D. Palmer, Esq.

Troutman Sanders LLP

600 Peachtree Street, N.E., Suite 5200

Atlanta, Georgia 30308-2216

Facsimile No.: 404-885-3995

40

  

 
 

EXHIBIT A    
    

        [Attach form of Borrowing Base Certificate]

41

  

 
 

EXHIBIT B
  
    FORM OF COMPLIANCE CERTIFICATE
  [TO BE PROVIDED ON BORROWER'S LETTERHEAD]    
    

            ,
200  

FCC,
LLC, d/b/a First Capital

125 TownPark Drive, Suite 190

Kennesaw, Georgia 30144

Attn.: Brian J. Cuttic, Senior Vice President 

The
undersigned, the                    of PAWNMART, INC., a Nevada corporation ("Borrower"), gives this
certificate to  FCC, LLC, d/b/a First Capital, a Florida limited liability company ("Lender"), in accordance with the requirements of that certain Loan and Security
Agreement dated as of June 17, 2004 among Borrower, XPONENTIAL, INC., a Delaware corporation, and Lender (as amended from time to time,
the "Loan Agreement"). Capitalized terms used in this Certificate, unless otherwise defined herein, shall have the meanings ascribed to them in the Loan Agreement. 

No
Default exists on the date hereof, other than:                    [if none, so state]. 

As
of the date hereof, each Obligor is current in its payment of all accrued rent and other charges to Persons who own or lease any premises where any of the Collateral is located, and there are no
pending disputes or claims regarding any Obligor's failure to pay or delay in payment of any such rent or other charges. 

Set
forth on Annex 1 attached hereto is a true, accurate and complete calculation with respect to the financial covenants of Borrower under the Loan Agreement. 

	 	 	Yours truly,
	

 	
 	

PAWNMART, INC.
	

 	
 	

By:	

 

	 	 	Name:	 

	 	 	Title:	 

42

  

 
 

Annex 1    
    

	A.
	Minimum
Fixed Charge Coverage Ratio Requirement of 1.0 to 1 (Borrower only) 

Fixed
Charge Coverage Ratio (a) net income (excluding extraordinary gains), plus interest expense, plus taxes, plus depreciation and amortization, divided by (b) interest expense, plus
principal payments made or scheduled to be made with respect to indebtedness (other than scheduled but unpaid amounts on Subordinated Debt and principal repayments of the revolving loans under the
Loan Agreement) plus payments on capitalized leases, plus taxes, plus dividends and distributions, plus unfinanced capital expenditures 

	Net Income	 	$            
	 	, plus
	Interest Expense	 	$            
	 	, plus
	Taxes	 	$            
	 	, plus
	Depreciation	 	$            
	 	, plus
	Amortization	 	$            
	 	equals
	

Numerator	
 	

$            
	
 	

 
	

Interest Expense	
 	

$            
	
 	

, plus
	Principal Payments made and scheduled to be made with respect to indebtedness	 	$            
	 	, plus
	Capitalized Lease Payments	 	$            
	 	, plus
	Taxes	 	$            
	 	, plus
	Dividends & Distributions	 	$            
	 	, plus
	Unfinanced capital expenditures	 	$            
	 	equals
	

Denominator	
 	

$            
	
 	

 
	

Actual Fixed Charge =

Coverage Ratio	
 	

	
 	

to 1]

	B.
	Maximum
Debt to Tangible Net Worth Ratio Requirement of 4.0 to 1 (Borrower only). 

Ratio
of Debt to Tangible Net Worth = Indebtedness for borrowed money, divided by (net worth less intangible items) 

	Indebtedness for borrowed money	 	$            
	 	, divided by the difference of
	

Net Worth	
 	

$            
	
 	

, less
	

Intangible Items	
 	

$            
	
 	

 

Actual
Ratio of Debt to Tangible Net Worth =                          to 1. 

43

 
	C.
	Minimum
Inventory Turnover Ratio of 3.0 to 1 (Borrower only) 

Inventory
Turnover Ratio = Cost of goods sold, divided by (sum of beginning and ending inventory value, divided by 2) 

	Cost of Goods Sold	 	$            
	 	(numerator)
	

Denominator:	
 	

 	
 	

 
	

Beginning Inventory Value	
 	

$            
	
 	

, plus
	Ending Inventory Value	 	$            
	 	equals
	 	 	$            
	 	, divided by 2 equals
	 	 	$            
	 	 

Actual
Inventory Turnover Ratio =                          to 1 

44

QuickLinks

TABLE OF CONTENTS

LOAN AND SECURITY AGREEMENT

RECITALS

NOTARY JURAT FOR EXECUTION OF WRITTEN OBLIGATIONS TO PAY MONEY

NOTARY JURAT FOR EXECUTION OF WRITTEN OBLIGATIONS TO PAY MONEY

AFFIDAVIT REGARDING DELIVERY

SCHEDULE

EXHIBIT A

EXHIBIT B FORM OF COMPLIANCE CERTIFICATE [TO BE PROVIDED ON BORROWER'S LETTERHEAD]

Annex 1QuickLinks
 -- Click here to rapidly navigate through this document
  

 
 

Exhibit 10.1    
    

Natural Gas Systems, Inc.

EMPLOYMENT AGREEMENT

  

ROBERT HERLIN

President & Chief Executive Officer  

        This Employment Agreement ("Agreement") is made and effective as of September 23, 2003 (the
"Effective Date") by and between Natural Gas Systems, Inc. ("NGS" or the
"Company"), and Mr. Robert Herlin ("Herlin") to serve as President and Chief Executive Officer of the Company. 

        NOW,
THEREFORE, the parties hereto agree as follows: 

1. Employment.  

        NGS hereby agrees to employ Herlin as its President and Chief Executive Officer. Herlin hereby accepts such employment in accordance with the terms of this
Agreement and the terms of employment applicable to regular employees of NGS. In the event of any conflict or ambiguity between the terms of this Agreement and terms of employment applicable to
regular employees, the terms of this Agreement shall control. Election or appointment of Herlin to another office or position, regardless of whether such office or position is inferior to Herlin's
initial office or position, shall not be a breach of this Agreement. 

2. Duties.  

        The duties of Herlin shall include the performance of all of the duties typical of the office held by President & CEO as described in the bylaws of NGS and
such other duties and projects as may be assigned by a superior officer of NGS, if any, or the board of directors (the "Board") of the Company. Herlin
shall devote essentially all of his normal work time, ability and attention to the business of the NGS, except as provided below, and shall perform all duties in a professional, ethical and
businesslike manner. Herlin will not, during the term of this Agreement, directly or indirectly engage in any other business, either as an employee, employer, consultant, principal, officer, director,
advisor, or in any other capacity, either with or without compensation, without the prior written consent of the Board. NGS hereby acknowledges and consents to Herlin serving as a member of the board
of directors of Boots and Coots Group, a publicly-owned oilfield service company, and similar service for Intercontinental Tower Corporation, a private company, which activities Herlin agrees shall
not substantially impair his provision of the above services to NGS. 

3. Compensation.  

        Herlin will be paid compensation during this Agreement as follows: 

        A.    Base Salary. A base salary of ONE HUNDRED EIGHTY THOUSAND ($180,000) per year, payable in installments on the
15th and last day of each month in arrears according to NGS' regular payroll schedule. The amount of the base salary is net the $3,000 per month paid to Tatum Partners pursuant to the
Resources Agreement referenced herein. 

        B.    Variable Compensation. A Management By Objectives (MBO) plan will be established by the Company and approved by the Board,
with a bonus of up to $100,000 per year based upon meeting or exceeding objectives. Twenty five percent (25%) of this variable compensation is subject to assignment or payment to a third party
pursuant to the Resources Agreement referenced herein. 

1

 

        C.    Common Stock Purchase. Herlin shall enter into the Common Stock Purchase Agreement, attached hereto as  Exhibit A (the "Common Stock Purchase
Agreement"), for
the purchase of 1,000,000 shares of common stock upon execution of this Agreement. This Common Stock Purchase Agreement is not subject to assignment or payment under the Resources Agreement referenced
herein. 

        D.    Stock Option Agreement. Herlin shall further be granted an incentive stock option
("Option") pursuant to a Stock Option Agreement ("Stock Option Agreement"), entitling him to purchase up
to 250,000 shares of common stock at the current fair market value, as determined by the Company's Board of Directors. Such Option shall be subject to the terms and conditions of the Company's Stock
Option Plan and Stock Option Agreement. The vesting requirements shall be as follows: 1/8th of the shares shall vest on the six month anniversary of this Agreement. and then
1/16th thereafter shall vest at the end of each successive three month period until the Option is fully vested at the end of four years. All of stock granted under this Stock Option
Agreement is subject to assignment or payment to a third party pursuant to the Resources Agreement referenced herein 

4. Benefits.  

        A.    Holidays. Herlin will be entitled to 10 paid holidays each calendar year and 5 personal days. Such holidays must be taken
during the calendar year and cannot be carried forward into the next year. 

        B.    Vacation. Herlin shall be entitled to 15 days paid vacation each year, accruing if not used to a maximum of
30 days over the period of this contract. 

        C.    Sick Leave. Herlin shall be entitled to sick leave and emergency leave according to the regular policies and procedures of
NGS. Additional sick leave or emergency leave over and above paid leave provided by the NGS, if any, shall be unpaid and shall be granted at the discretion of the board of directors. 

        D.    Medical and Group Life Insurance. NGS agrees to include Herlin in the group medical and hospital plan of NGS, to the
extent the Company has one. Herlin shall be responsible for payment of any federal or state income tax imposed upon these benefits. 

        E.    Pension and Profit Sharing Plans. Herlin shall be entitled to participate in any pension or profit sharing plan or other
type of plan adopted by NGS for the benefit of its officers and/or regular employees. 

        F.     Expense Reimbursement. Herlin shall be entitled to reimbursement for all reasonable expenses, including travel and
entertainment, incurred by Herlin in the performance of Herlin' duties. Herlin will maintain records and written receipts as required by the NGS expense policy and reasonably requested by the board of
directors to substantiate such expenses. 

5. Term and Termination. 

        A.    Trial Period. This Agreement shall commence Effective Date and shall be subject to immediate termination, with or without
Cause, by either party during a trial period ending on December 31, 2003 ("Trial Period"). No further compensation of any kind shall become due
and payable to Herlin upon separation of employment for any reason during the Trial Period, except that all wages, salary and accrued vacation earned as of the last day of employment shall be paid to
Herlin by NGS. 

        B.    Termination without Cause. After Trial Period of this Agreement, Herlin's employment may be terminated at NGS' discretion
without Cause, provided that NGS shall pay Herlin an amount equal to Herlin's base salary rate for six months on a monthly basis after such termination and all Options then vested shall be
exerciseable during the six month period after termination (and afterward such Options shall terminate). 

2

 

        B.    Termination by Herlin. This Agreement may be terminated at any time by Herlin at Herlin's discretion by providing at least
thirty (30) days prior written notice to NGS. In the event of termination by Herlin pursuant to this subsection, NGS may immediately relieve Herlin of all duties and immediately terminate this
Agreement, provided that NGS shall pay Herlin at the then applicable base salary rate up to an and including the date of termination, and Herlin shall not be paid any incentive salary payments or
other compensation, prorated or otherwise, and all Options then vested shall be exercisable during the 30 day period after termination (afterward all such options shall terminate). 

        C.    For Cause Termination. In the event that Herlin is in breach of any material obligation owed NGS in this Agreement,
habitually neglects the duties to be performed under this Agreement, engages in any conduct which is dishonest, damages the reputation or standing of NGS, or is convicted of any criminal act or
engages in any act of moral turpitude, then NGS may terminate this Agreement for cause ("Cause") upon fifteen (15) days notice to Herlin,
provided that such breach is not cured by Herlin during the notice period. In event of termination of the Agreement pursuant to this subsection, Herlin shall be paid only at the then applicable base
salary rate up to and including the date of termination. Herlin shall not be paid any incentive salary payments or other compensation, prorated or otherwise, and all Options then vested shall be
exercisable during the 30 day period after termination (afterward all such options shall terminate). 

        D.    In
the event that NGS is acquired, is the non-surviving party in a merger, or sells all or substantially all of its assets, this Agreement shall not be
terminated and NGS agrees to use its commercially reasonable efforts to ensure that the transferee or surviving entity is bound by the provisions of this Agreement. 

        E.    Herlin
understands and hereby acknowledges that his employment with the Company constitutes "at will" employment and may be terminated at any time, prior to, during, or
after that Trial Period, with or without good cause or for any reason or for no Cause, and with or without notice, subject to the rights and compensation upon termination described in this
Section 5 of this Agreement. 

6. Restrictive Covenants.  

	A.
	Confidential Information. 

        (i)    During
Herlin's employment and at all times thereafter, Herlin shall not, without the prior express written consent of the Board (except as may be required in connection
with any judicial or administrative proceeding or inquiry) disclose to any person, other than an officer or director of the Company or a person to whom disclosure is reasonably necessary or
appropriate in connection with the performance by Herlin of his duties as CEO and President, any confidential information with respect to the business and affairs of the Company or any of its
subsidiaries. 

        (ii)   Herlin
acknowledges that he has and will have access to proprietary information, trade secrets, and confidential material (including lists of key personnel, customers,
clients, vendors, suppliers, distributors or consultants) of the Company (the "Confidential Information"). Herlin agrees, without limitation in time or
until such information shall become public other than by the Executive's unauthorized disclosure, to maintain the confidentiality of the Confidential Information and refrain from divulging,
disclosing, or otherwise using in any respect the Confidential Information to the detriment of the Company and any of its subsidiaries, Affiliates, successors or assigns, or for any other purpose or
no purpose. 

        B.    No Solicitation. For a period of one (1) year after he ceases to be employed by the Company, Herlin agrees that he
will not, directly or indirectly, for his benefit or for the benefit of any other person, firm or entity, do any of the following: 

        (i)    solicit
from any client doing business with the Company as of Herlin's termination, business of the same or of a similar nature to the business of the Company with such
client; 

3

 

        (ii)   solicit
from any known potential client of the Company business of the same or of a similar nature to that which has been the subject of a known written or oral bid,
offer or proposal by the Company, or of substantial preparation with a view to making such a bid, proposal or offer, within six (6) months prior to Herlin's termination; 

        (iii)  solicit
the employment or services of, or hire, any person who was known to be employed by the Company upon termination of Herlin's employment, or within six
(6) months prior thereto, other than Herlin's personal secretary; or 

        (iv)  otherwise
knowingly interfere with the business or accounts of the Company. 

        C.    Covenant Not to Compete. During the Term and for a period of one (1) year following the termination of this
Agreement, Herlin shall not directly or indirectly engage in, or own any interest in any business which engages in, (i) the business of the Company or any of its subsidiaries as of the date of
this Agreement or (ii) any other business which the Company or any of its subsidiaries shall have acquired by purchase, merger or otherwise prior to the Date of Termination, in any state or
foreign country in which the Company or any of its subsidiaries does business; provided, however, that
this sentence shall not prohibit Herlin's ownership of not more than five (5) percent of the voting stock of any publicly held corporation. 

        D.    Survival. The covenants contained in this Section 6 shall survive any termination of Executive's employment. 

7. Resource Agreement.  

        NGS agrees to enter into the Resource Agreement, attached hereto as Exhibit B (the "Resource Agreement"),
by and between NGS and Tatum Partners, wherein Tatum shall provide certain services to NGS through Herlin and shall be compensated directly by NGS in the amount specified in the Resources Agreement.
NGS and Herlin agree that any stock or options due Tatum Partners as a result
of the stock or options awarded to Herlin pursuant to Section 3 shall reduce the amounts due Herlin by NGS. 

8. Notices. 

        Any
notice required by this Agreement or given in connection with it, shall be in writing and shall be given to the appropriate party by personal delivery or by certified mail, postage
prepaid, or recognized overnight delivery services; 

	If to NGS:	 	If to Herlin:
	

Natural Gas Systems, Inc.

10600 N. De Anza, #250

Cupertino, CA 95014	
 	

Robert Herlin

3 Raydon Lane

Houston, Texas 77024

9. Final Agreement.  

        This Agreement, the Resource Agreement referenced in Section 7 hereof, and the Common Stock Purchase Agreement and the Stock Option Agreement referenced in
Section 3 hereof, terminate and supersede all prior understandings or agreements on the subject matter hereof. This Agreement may be modified only by a further writing that is duly executed by
both parties. 

10. Governing Law.  

        This Agreement shall be construed and enforced in accordance with the laws of the State of Texas. 

4

 

11. Headings and Counterparts.  

        Headings used in this Agreement are provided for convenience only and shall not be used to construe meaning or intent. This Agreement may be signed in one or more
counterparts, each of which shall be deemed an original and all of which constitute one instrument. 

12. No Assignment. 

        The
Company may assign this Agreement without Herlin's consent. Neither this Agreement nor any or interest in this Agreement may be assigned by Herlin without the prior express written
approval of NGS, which may be withheld by NGS at NGS' absolute discretion. 

13. Severability. 

        If
any term of this Agreement is held by a court of competent jurisdiction to be invalid or unenforceable, then this Agreement, including all of the remaining terms, will remain in full
force and effect as if such invalid or unenforceable term had never been included. 

14. Arbitration.  

        The parties agree that they will use their best efforts to amicably resolve any dispute arising out of or relating to this Agreement. Any controversy, claim or
dispute that cannot be so resolved shall be settled
by final binding arbitration in accordance with the rules of the American Arbitration Association and judgment upon the award rendered by the arbitrator or arbitrators may be entered in any court
having jurisdiction thereof. Any such arbitration shall be conducted in Texas, or such other place as may be mutually agreed upon by the parties. Within fifteen (15) days after the commencement
of the arbitration, each party shall select one person to act arbitrator, and the two arbitrators so selected shall select a third arbitrator within ten (10) days of their appointment. Each
party shall bear its own costs and expenses and an equal share of the arbitrator's expenses and administrative fees of arbitration. 

        IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. 

	
Natural Gas Systems, Inc.	
 	
Robert S. Herlin
	

 By: Laird Q. Cagan, Chairman	
 	

 Robert S. Herlin

5

 
EXHIBT A

   

STOCK PURCHASE AGREEMENT  

6

 
EXHIBIT B

  

RESOURCES AGREEMENT  

7

QuickLinks

Exhibit 10.1

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00072-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00072-of-00352.parquet"}]]