EMPLOYMENT AGREEMENT

Exhibit 10.1

EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT (“Agreement”) is entered into as of July 21, 2008, by and between Lucinda M. Baier (“Executive”) and Movie Gallery, Inc., a Delaware corporation (the “Company”).

1. Duties and Scope of Employment .

(a) Position and Duties . For the term of her employment under this Agreement, the Company agrees to employ Executive in the position of Executive Vice President and Chief Financial Officer, with such customary duties, responsibility and authority of such role. The Executive shall have ultimate responsibility and authority for all financial operations of the company. Executive shall report to the Company’s President and Chief Executive Officer.

(b) Obligations to the Company . During the term of her employment with the Company, Executive shall devote her best efforts, talents and skills, and substantially all of her working time and attention to furthering the Company’s success, and follow and abide by all Company policies, rules, and procedures. Unless she obtains prior consent from the Board of Directors of the Company (the “Board”), Executive shall not serve as an employee, officer, or director of, or as a consultant or advisor to, any other for-profit or not-for-profit entity, or in any other similar capacity. Notwithstanding the foregoing, the parties agree that during the term of her employment, Executive may serve on the Board of Directors for The Bon-Ton Stores, Inc. or its successor.

(c) No Conflicting Obligations . Executive represents and warrants to the Company that she is under no obligations or commitments, whether contractual or otherwise, that are inconsistent with her obligations under this Agreement. Executive represents and warrants that she will not use or disclose, in connection with her employment by the Company, any trade secrets or other proprietary information or intellectual property in which Executive or any other person has any right, title or interest and that her employment by the Company as contemplated by this Agreement will not infringe or violate the rights of any other person or entity. Executive represents and warrants to the Company that she has returned all property and confidential information belonging to any prior employers.

(d) Commencement Date . The effective date of this Agreement shall be July 28, 2008 (“Commencement Date”).

2. Term of Employment .

(a) At-Will Employment . The term of Executive’s employment with the Company shall be from the Commencement Date until the date when Executive’s employment terminates pursuant to Section 2(b) below. Executive’s employment with the Company shall be “at will”, which means that either Executive or the Company may terminate Executive’s employment at any time, for any or no reason.

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(b) Termination . The Company may terminate Executive’s employment at any time and for any or no reason, by giving Executive thirty (30) days advance notice of termination in writing (unless the termination is for Cause in which case Executive’s termination of employment may be effected by the Company immediately pursuant to Section 9(d)). Executive may terminate her employment at any time, for any or no reason, by giving the Company sixty (60) days advance notice in writing. Executive’s employment shall terminate automatically in the event of her death or Permanent Disability as defined in Section 9(a) herein.

(c) Termination of Agreement . This Agreement shall terminate when all obligations of the parties hereunder have been satisfied. The termination of this Agreement shall not limit or otherwise affect any of Executive’s obligations under Sections 10 and 11.

3. Compensation .

(a) Salary . The Company shall pay Executive as compensation for her services an annual base salary in the amount of Four Hundred Thousand and No/100 Dollars ($400,000.00), less applicable taxes and withholdings (“Base Salary”), subject to such increases (but not decreases) as the Company deems appropriate in accordance with the Company’s customary procedures regarding the salaries of its senior officers, and payable in accordance with the Company’s standard payroll practices and procedures.

(b) Signing Bonus . Within thirty (30) days from the Commencement Date, Executive will be paid a signing bonus of One Hundred Thousand and No/100 Dollars ($100,000) (“Signing Bonus”), less applicable taxes and withholdings. If prior to one year from the Commencement Date (“First Anniversary Date”), Executive’s employment is terminated for Cause or she resigns from her employment with the Company (other than for Good Cause as defined in Section 9(e) below), she shall repay a prorated portion of the Signing Bonus to the Company in an amount equal to $100,000 multiplied by a fraction, the numerator of which is the number of days from Executive’s employment termination date through the First Anniversary Date and the denominator of which is the number of days from the Commencement Date through the First Anniversary Date.

(c) Annual Bonus . For each calendar year in which Executive achieves her target performance goals as set by the Board, Executive shall earn and be paid a bonus (the “Annual Bonus”) equal to 100% of Base Salary. The amount of the Annual Bonus shall be determined based on the achievement of performance goals established by the Board. The Annual Bonus may be adjusted down from 100% for objectives not achieved. The performance goals shall be determined by the Board no later than ninety (90) calendar days after the first day of each calendar year. The performance goals will be established with the expectation that the Annual Bonus will equal 100%. Notwithstanding the foregoing, for the 2008 calendar year, the Annual Bonus will be set at $200,000. The Annual Bonus for the 2008 calendar year may be adjusted down from $200,000 for objectives not achieved. The Annual Bonus for each calendar year shall be paid no later than March 15 ^th following the calendar year to which the Annual Bonus applies.

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4. Equity .

(a) Stock Option Grant . The Company shall grant Executive an option (the “ Option ” ) to purchase shares of the Company’s common stock equal to three-fourths of one percent (0.75%) of 23,366,498 (the common stock of the Company outstanding on May 21, 2008), under the Company’s 2008 Omnibus Equity Incentive Plan, as it may be amended from time to time (the “ Plan ” ). The date on which any Option or Additional Option (defined below) is granted shall be the “ Grant Date ” . The Grant Date of the Option shall be as soon as practical after the Commencement Date (the “ Option Grant Date ” ). The per share exercise price of the Option will be the Fair Market Value of a share of common stock on the Option Grant Date. “ Fair Market Value ” shall have the meaning given to it under the Plan. The Executive shall vest in the Option over three (3) years in equal installments of one-third (1/3) of the Option on each of the first three anniversaries of the Commencement Date. The Option shall be subject to the terms of the Plan and the option agreement pursuant to which the Option shall be granted to Executive, and execution and delivery of such option agreement shall be a condition of the grant of the Option.

Executive shall be entitled to receive an additional option (the “ Additional Option ” ) to purchase shares of common stock in the Company at an exercise price per share at the greater of (i) the Fair Market Value on the Option Grant Date, or (ii) the Fair Market Value on the Grant Date of any such Additional Option, if the Company exceeds its 2009 business plan in effect as of the date of this Agreement (the “ 2009 Business Plan ” ) as follows:

More than $75 million and up to $100 million over 2009 Business Plan EBITDA: An Additional Option to purchase one-fifth of one percent (0.20%) of 23,366,498 (the common stock of the Company outstanding on May 21, 2008).

More than $100 million and up to $125 million over 2009 Business Plan EBITDA: An Additional Option to purchase one-third of one percent (0.33%) of 23,366,498 (the common stock of the Company outstanding on May 21, 2008).

More than $125 million and up to $150 million over 2009 Business Plan EBITDA: An Additional Option to purchase two-thirds of one percent (0.67%) of 23,366,498 (the common stock of the Company outstanding on May 21, 2008).

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More than $150 million over 2009 Business Plan EBITDA: An Additional Option to purchase one percent (1.0%) of 23,366,498 (the common stock of the Company outstanding on May 21, 2008).

The Grant Date of any Additional Option shall be as soon as practical after the achievement of performance criteria related to the 2009 Business Plan EBITDA described above are determined by the Board. The Executive shall vest in the Additional Option over three (3) years in equal installments of one-third (1/3) of the Additional Option on each of the first three anniversaries of the Grant Date of the Additional Option. The Additional Option shall be subject to the terms of the Plan and the option agreement pursuant to which the Additional Option shall be granted to Executive, and execution and delivery of such option agreement shall be a condition of the grant of the Additional Option. If there is a Change of Control in 2009 or soon thereafter prior to the Grant Date of the Additional Option, and the Executive is employed by the Company, and the Company is on target to achieve the performance goals in the 2009 Business Plan (as determined by the Board by looking at the twelve (12) months immediately preceding the date of the Change of Control), then the Executive shall vest in the proportion of the applicable percentage of the Additional Option based on achievement of performance goals in accordance with the following schedule:

(b) Change of Control . In the event of a Change of Control during Executive’s employment, Executive shall immediately and fully vest in her Option and in any Additional Option granted to her. “ Change of Control ” means the consummation and completion of any fundamental transaction by which a change in control of the Company occurs as follows: (i) consummation and completion of a sale of all the equity securities of the Company to an unrelated entity, (ii) consummation and completion of a sale of substantially all the assets of the Company to an unrelated entity, or (iii) consummation and completion of a merger, consolidation or reorganization with an unrelated business organization where less than forty percent (40%) of the voting power and economic interest of the Company or the surviving entity or the parent of either, are retained by the shareholders of the Company immediately prior to such merger, consolidation or reorganization.

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5. Benefits . During the term of this Agreement, Executive shall be entitled to participate in or receive benefits under all employee benefit plans or arrangements and perquisites of employment, including, without limitation, plans or arrangements providing for health and disability insurance coverage, life insurance for the benefit of Executive’s beneficiaries, and retirement and pension benefits, subject to the same terms and conditions as apply to other officers of the Company at Executive’s level of employment. During the term of Executive’s employment, the Company shall provide financial planning assistance to Executive on an annual basis in accordance with the terms of its policies as in effect from time to time. During her employment, Executive shall accrue vacation at the rate of no less than four (4) weeks for each year of employment with the Company, subject to and in accordance with the Company vacation policy as in effect from time to time.

6. Business Expenses . During the term of her employment, the Company shall reimburse Executive reasonable and necessary business expenses incurred by Executive in the performance of her duties subject to all applicable Company policies regarding business expense reimbursement, including all reasonable and necessary expenses incurred as a result of the Travel Requirement (as defined in Section 7(a) below). Notwithstanding the foregoing, Executive shall be reimbursed for reasonable and necessary business expenses relating to any commuting costs to and from her current principal residence to any destination more than 50 miles from her current principal residence, including, but not limited to, travel expenses and housing costs.

7. Travel Requirement .

(a) Executive agrees that in order to perform her duties under this Agreement, during the first 24 months following the Commencement Date, she will be required to travel from her principal residence on a regular basis as the Company may reasonably require in its sole discretion (“Travel Requirement”). The Travel Requirement shall expire at the end of said 24 months (“Travel Requirement Expiration Date”). The Company will not require Executive to relocate from or change her current principal residence without her consent (the “Non-Relocation Requirement”). The parties agree that (i) the Travel Requirement; (ii) the Travel Requirement Expiration Date; and (iii) the Non-Relocation Requirement are material terms of this Agreement.

(b) The parties further agree that, if at any time following the Commencement Date, the circumstances reflect with no uncertainty that the Travel Requirement must extend beyond the Travel Requirement Expiration Date in order for Executive to continue to fulfill her duties and responsibilities under this Agreement, said circumstances shall constitute a material breach of this Agreement.

8. Taxes and Applicable Withholdings . All payments made under this Agreement shall be subject to reduction to reflect taxes and other amounts required to be withheld by law, except that Executive will receive tax protection in the amount of a full-round gross-up (tax on tax) for any business expense reimbursement determined to be taxable.

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9. Termination Benefits .

(a) Termination by Reason of Death or Permanent Disability . Executive’s employment hereunder shall automatically terminate in the event of Executive’s death or Permanent Disability (as defined in this Section 9(a)). Within thirty (30) calendar days after the Executive’s death or Permanent Disability, Executive or Executive’s estate (as applicable) shall receive (i) Executive’s accrued Base Salary earned through the date of Executive’s death or Permanent Disability, (ii) the sum of any earned and accrued but unpaid Annual Bonus for the fiscal year prior to the fiscal year during which termination occurs, (iii) any expenses