<PAGE>

                                                                    Exhibit 10.2

                               SEVERANCE AGREEMENT

         THIS  AGREEMENT,  dated  September  30,  2003,  is made by and  between
Point.360 (the "Company") and Haig Bagerdjian (the "Executive").

         WHEREAS,  the Company  considers it essential to the best  interests of
its stockholders to foster the continued employment of key management personnel;
and

         WHEREAS,  the Board  recognizes that, as is the case with many publicly
held  corporations,  the possibility of a Change in Control exists and that such
possibility,  and  the  uncertainty  and  questions  which  it may  raise  among
management,  may result in the departure or distraction of management  personnel
to the detriment of the Company and its stockholders; and

         WHEREAS,  the Board has  determined  that  appropriate  steps should be
taken to reinforce  and encourage  the  continued  attention  and  dedication of
members of the Company's management,  including the Executive, to their assigned
duties without distraction in the face of potentially  disturbing  circumstances
arising from the possibility of a Change in Control;

         NOW,  THEREFORE,  in  consideration  of the  premises  and  the  mutual
covenants  herein  contained,  the Company  and the  Executive  hereby  agree as
follows:

         1. Defined Terms.  The  definitions  of capitalized  terms used in this
Agreement are provided in the last Section hereof.

         2. Term of Agreement.  The Term of this Agreement shall commence on the
date hereof and shall  continue in effect through  December 31, 2005;  provided,
however,  that commencing on January 1, 2006 and each January 1 thereafter,  the
Term shall  automatically be extended for one additional year unless,  not later
than September 30 of the preceding year, the Company or the Executive shall have
given notice not to extend the Term; and further  provided,  however,  that if a
Change in Control shall have occurred  during the Term, the Term shall expire no
earlier than  twenty-four  (24) months  beyond the month in which such Change in
Control occurred.

         3. Company's Covenants Summarized.  In order to induce the Executive to
remain in the employ of the  Company  and in  consideration  of the  Executive's
covenants  set  forth in  Section  4  hereof,  the  Company  agrees,  under  the
conditions described herein, to pay the Executive the Severance Payments and the
other payments and benefits described herein.  Except as provided in Section 9.1
hereof, no Severance Payments shall be payable under this Agreement unless there
shall have been (or,  under the terms of the  second  sentence  of  Section  6.1
hereof,  there shall be deemed to have been) a  termination  of the  Executive's
employment  with the Company  following a Change in Control and during the Term.
This Agreement shall not be construed as creating an express or implied contract
of employment and,  except as otherwise  agreed in writing between the Executive
and the Company,  the  Executive  shall not have any right to be retained in the
employ of the Company.


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         4. The Executive's Covenants. The Executive agrees that, subject to the
terms and conditions of this  Agreement,  in the event of a Potential  Change in
Control  during the Term, the Executive will remain in the employ of the Company
until the  earliest  of (i) a date which is six (6) months from the date of such
Potential  Change in Control,  (ii) the date of a Change in  Control,  (iii) the
date of  termination  by the Executive of the  Executive's  employment  for Good
Reason or by reason of death, Disability or Retirement,  or (iv) the termination
by the Company of the Executive's employment for any reason.

         5. Compensation Other Than Severance Payments.

              5.1 Following a Change in Control and during the Term,  during any
period that the Executive fails to perform the Executive's full-time duties with
the Company as a result of  incapacity  due to physical or mental  illness,  the
Company  shall pay the  Executive's  full salary to the Executive at the rate in
effect at the  commencement of any such period,  together with all  compensation
and benefits  payable to the Executive  under the terms of any  compensation  or
benefit  plan,  program or  arrangement  maintained  by the Company  during such
period (other than any disability  plan),  until the  Executive's  employment is
terminated by the Company for Disability.

              5.2 If the  Executive's  employment  shall be  terminated  for any
reason  following a Change in Control and during the Term, the Company shall pay
the Executive's full salary to the Executive  through the Date of Termination at
the rate in effect  immediately  prior to the Date of Termination or, if higher,
the rate in  effect  immediately  prior to the first  occurrence  of an event or
circumstance  constituting  Good  Reason,  together  with all  compensation  and
benefits  payable to the  Executive  through the Date of  Termination  under the
terms of the Company's  compensation and benefit plans, programs or arrangements
as in effect  immediately prior to the Date of Termination or, if more favorable
to the Executive,  as in effect  immediately prior to the first occurrence of an
event or circumstance constituting Good Reason.

              5.3 If the  Executive's  employment  shall be  terminated  for any
reason  following a Change in Control and during the Term, the Company shall pay
to the  Executive  the  Executive's  normal  post-termination  compensation  and
benefits as such payments  become due. Such  post-termination  compensation  and
benefits shall be determined  under,  and paid in accordance with, the Company's
retirement,  insurance and other  compensation  or benefit  plans,  programs and
arrangements  as in effect  immediately  prior to the Date of Termination or, if
more  favorable  to  the  Executive,  as in  effect  immediately  prior  to  the
occurrence of the first event or circumstance constituting Good Reason.

         6. Severance Payments.

              6.1 If the Executive's employment is terminated following a Change
in Control and during the Term,  other than (A) by the Company for Cause, (B) by
reason of death or Disability, or (C) by the Executive without Good Reason, then
the Company shall pay the Executive the amounts,  and provide the Executive with
the benefits,  described in this Section 6.1 ("Severance  Payments") and Section
6.2, in addition to any payments and benefits to which the Executive is entitled
under  Section  5  hereof.  For  purposes  of this  Agreement,  the  Executive's
employment shall be deemed to have been terminated following a Change in Control
by the Company  without Cause or by the Executive  with Good Reason,  if (i) the
Executive's  employment is  terminated  by the Company  without Cause prior to a
Change in Control  (whether



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or not a Change in Control ever occurs) and such  termination was at the request
or direction of a Person who has entered into an agreement  with the Company the
consummation of which would  constitute a Change in Control,  (ii) the Executive
terminates his employment for Good Reason prior to a Change in Control  (whether
or not a Change in Control  ever  occurs)  and the  circumstance  or event which
constitutes  Good Reason  occurs at the request or direction of such Person,  or
(iii) the  Executive's  employment is terminated by the Company without Cause or
by the Executive for Good Reason and such  termination  or the  circumstance  or
event  which  constitutes  Good Reason is  otherwise  in  connection  with or in
anticipation  of a Change in Control  (whether  or not a Change in Control  ever
occurs).  For purposes of any  determination  regarding the applicability of the
immediately  preceding  sentence,  any position taken by the Executive  shall be
presumed to be correct unless the Company  establishes to the Committee by clear
and convincing evidence that such position is not correct.

              (A) In lieu of any further  salary  payments to the  Executive for
periods  subsequent  to the  Date of  Termination  and in lieu of any  severance
benefit  otherwise  payable  to the  Executive,  the  Company  shall  pay to the
Executive a lump sum severance payment, in cash, equal to two and three quarters
(2.75) times the sum of (i) the Executive's base salary as in effect immediately
prior to the Date of Termination or, if higher,  in effect  immediately prior to
the first occurrence of an event or circumstance  constituting Good Reason,  and
(ii) the amount of the highest  bonus earned by the  Executive in respect of the
three fiscal years ending  immediately  prior to the fiscal year in which occurs
the Date of Termination.

              (B) For the thirty three (33) month period  immediately  following
the Date of Termination,  the Company shall arrange to provide the Executive and
his  dependents  life,  disability,   accident  and  health  insurance  benefits
substantially  similar to those  provided to the  Executive  and his  dependents
immediately  prior to the  Date of  Termination  or,  if more  favorable  to the
Executive,  those provided to the Executive and his dependents immediately prior
to the first occurrence of an event or circumstance constituting Good Reason, at
no greater  cost to the  Executive  than the cost to the  Executive  immediately
prior to such date or occurrence;  provided, however, that, unless the Executive
consents to a different  method  (after  taking into  account the effect of such
method on the  calculation  of  "parachute  payments"  pursuant  to Section  6.2
hereof),  such health insurance benefits shall be provided through a third-party
insurer. Benefits otherwise receivable by the Executive pursuant to this Section
6.1(B) shall be reduced to the extent  benefits of the same type are received by
or made  available  to the  Executive  during the thirty three (33) month period
following  the  Executive's  termination  of  employment  (and any such benefits
received by or made available to the Executive  shall be reported to the Company
by the  Executive);  provided,  however,  that the Company  shall  reimburse the
Executive for the excess,  if any, of the cost of such benefits to the Executive
over  such  cost  immediately  prior  to the  Date of  Termination  or,  if more
favorable to the  Executive,  the first  occurrence of an event or  circumstance
constituting Good Reason.

              (C)  Notwithstanding  any  provision  of any  annual or  long-term
incentive  plan to the  contrary,  the Company shall pay to the Executive a lump
sum amount, in cash, equal to any unpaid incentive  compensation  which has been
allocated  or awarded to the  Executive  for a  completed  fiscal  year or other
measuring  period  preceding  the Date of  Termination  under  any such plan and
which,  as of the Date of  Termination,  is  contingent  only upon the continued
employment of the Executive to a subsequent date.



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<PAGE>

              (D) If the Executive  would have become entitled to benefits under
the Company's  post-retirement health care or life insurance plans, as in effect
immediately  prior to the  Date of  Termination  or,  if more  favorable  to the
Executive, as in effect immediately prior to the first occurrence of an event or
circumstance constituting Good Reason, had the Executive's employment terminated
at any time  during the period of thirty  three  (33)  months  after the Date of
Termination,  the Company shall provide such post-retirement health care or life
insurance benefits to the Executive and the Executive's dependents commencing on
the  later  of (i) the date on which  such  coverage  would  have  first  become
available and (ii) the date on which  benefits  described in  subsection  (B) of
this Section 6.1 terminate.

              (E) The Company  shall  provide the  Executive  with  outplacement
services  suitable to the Executive's  position for a period of one (1) year or,
if  earlier,  until  the  first  acceptance  by the  Executive  of an  offer  of
employment;  provided,  however,  that in no  event  shall  the  cost  for  such
outplacement services exceed $10,000.

         6.2 (A) Whether or not the Executive  becomes entitled to the Severance
Payments,  if any of the payments or benefits (including the vesting of options)
received or to be  received  by the  Executive  in  connection  with a Change in
Control or the Executive's  termination of employment  (whether  pursuant to the
terms of this  Agreement or any other plan,  arrangement  or agreement  with the
Company,  any Person whose  actions  result in a Change in Control or any Person
affiliated  with the Company or such  Person) (all such  payments and  benefits,
excluding  the Gross-Up  Payment,  being  hereinafter  referred to as the "Total
Payments")  will be subject  to the Excise  Tax,  the  Company  shall pay to the
Executive an additional amount (the "Gross-Up Payment") such that the net amount
retained  by the  Executive,  after  deduction  of any  Excise  Tax on the Total
Payments and any federal, state and local income and employment taxes and Excise
Tax upon the  Gross-Up  Payment,  and after taking into account the phase out of
itemized deductions  attributable to the Gross-Up Payment, shall be equal to the
Total Payments.

              (B) For purposes of determining  whether any of the Total Payments
will be subject to the Excise Tax and the amount of such Excise Tax,  (i) all of
the Total Payments shall be treated as "parachute  payments" (within the meaning
of section  280G(b)(2) of the Code) unless,  in the opinion of tax counsel ("Tax
Counsel") reasonably  acceptable to the Executive and selected by the accounting
firm  which  was,  immediately  prior to the Change in  Control,  the  Company's
independent  auditor (the "Auditor"),  such payments or benefits (in whole or in
part) do not  constitute  parachute  payments,  including  by reason of  section
280G(b)(4)(A)  of the Code,  (ii) all  "excess  parachute  payments"  within the
meaning  of  section  280G(b)(l)  of the Code shall be treated as subject to the
Excise Tax unless, in the opinion of Tax Counsel, such excess parachute payments
(in whole or in part) represent  reasonable  compensation for services  actually
rendered (within the meaning of section  280G(b)(4)(B) of the Code) in excess of
the Base Amount allocable to such reasonable compensation,  or are otherwise not
subject to the Excise Tax,  and (iii) the value of any  noncash  benefits or any
deferred  payment or benefit  shall be  determined  by the Auditor in accordance
with the principles of sections  280G(d)(3) and (4) of the Code. For purposes of
determining the amount of the Gross-Up Payment, the Executive shall be deemed to
pay federal income tax at the highest  marginal rate of federal income  taxation
in the calendar  year in which the Gross-Up  Payment is to be made and state and
local  income  taxes at the highest  marginal  rate of taxation in the state and
locality of the Executive's residence on the Date of Termination (or if there is
no Date of  Termination,  then  the  date  on  which  the  Gross-Up  Payment  is
calculated  for purposes of this Section 6.2),  net of the maximum  reduction in
federal  income taxes which could be obtained  from  deduction of such state and
local taxes.



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              (C) In the event that the Excise Tax is finally  determined  to be
less than the amount taken into account  hereunder in  calculating  the Gross-Up
Payment, the Executive shall repay to the Company, within five (5) business days
following  the time  that the  amount of such  reduction  in the  Excise  Tax is
finally  determined,  the portion of the Gross-Up  Payment  attributable to such
reduction (plus that portion of the Gross-Up Payment  attributable to the Excise
Tax and federal,  state and local  income and  employment  taxes  imposed on the
Gross-Up  Payment  being  repaid  by the  Executive),  to the  extent  that such
repayment  results in a  reduction  in the  Excise  Tax and a  dollar-for-dollar
reduction in the  Executive's  taxable income and wages for purposes of federal,
state and local income and employment taxes, plus interest on the amount of such
repayment at 120% of the rate provided in section  1274(b)(2)(B) of the Code. In
the event  that the  Excise Tax is  determined  to exceed the amount  taken into
account  hereunder in calculating the Gross-Up  Payment  (including by reason of
any payment the existence or amount of which cannot be determined at the time of
the Gross-Up Payment),  the Company shall make an additional Gross-Up Payment in
respect of such excess (plus any interest, penalties or additions payable by the
Executive  with respect to such excess)  within five (5) business days following
the time that the amount of such excess is finally determined. The Executive and
the Company shall each  reasonably  cooperate with the other in connection  with
any administrative or judicial proceedings concerning the existence or amount of
liability for Excise Tax with respect to the Total Payments.

              (D)  Section  6.2 of  this  Agreement  shall  supplant  all  other
provisions for any Gross-Up Payment or similar payment in any other  agreements,
options and arrangements between the Company and the Executive.

         6.3 The payments  provided in  subsections  (A), (C) and (D) of Section
6.1 hereof and in Section 6.2 hereof  shall be made not later than the fifth day
following the Date of Termination (or if there is no Date of  Termination,  then
the date on which the Gross-Up Payment is calculated for purposes of Section 6.2
hereof);  provided,  however,  that if the  amounts of such  payments  cannot be
finally determined on or before such day, the Company shall pay to the Executive
on such day an estimate, as determined in good faith by the Executive or, in the
case of payments  under  Section  6.2 hereof,  in  accordance  with  Section 6.2
hereof, of the minimum amount of such payments to which the Executive is clearly
entitled and shall pay the remainder of such payments (together with interest on
the unpaid remainder (or on all such payments to the extent the Company fails to
make  such  payments  when  due)  at  120%  of  the  rate  provided  in  section
1274(b)(2)(B)  of the Code) as soon as the amount  thereof can be determined but
in no event later than the thirtieth  (30th) day after the Date of  Termination.
In the event  that the  amount of the  estimated  payments  exceeds  the  amount
subsequently determined to have been due, such excess shall constitute a loan by
the  Company to the  Executive,  payable on the fifth (5th)  business  day after
demand by the Company  (together  with  interest at 120% of the rate provided in
section  1274(b)(2)(B)  of the Code).  At the time that  payments are made under
this Agreement, the Company shall provide the Executive with a written statement
setting forth the manner in which such payments  were  calculated  and the basis
for such  calculations  including,  without  limitation,  any  opinions or other
advice the Company has received from Tax Counsel,  the Auditor or other advisors
or  consultants  (and any such  opinions or advice which are in writing shall be
attached to the statement).



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              6.4 The Company also shall pay to the Executive all legal fees and
expenses  incurred  by the  Executive  in  disputing  in good  faith  any  issue
hereunder relating to the termination of the Executive's employment,  in seeking
in good  faith to  obtain or  enforce  any  benefit  or right  provided  by this
Agreement  or in  connection  with any tax  audit or  proceeding  to the  extent
attributable  to the  application  of section 4999 of the Code to any payment or
benefit provided hereunder. Such payments shall be made within five (5) business
days after delivery of the Executive's  written requests for payment accompanied
with such evidence of fees and expenses  incurred as the Company  reasonably may
require.

         7. Termination Procedures and Compensation During Dispute.

              7.1 Notice of  Termination.  After a Change in Control  and during
the Term, any purported termination of the Executive's employment (other than by
reason of death) shall be communicated by written Notice of Termination from one
party hereto to the other party hereto in accordance with Section 10 hereof. For
purposes of this Agreement,  a "Notice of Termination" shall mean a notice which
shall indicate the specific termination  provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances  claimed to
provide  a  basis  for  termination  of the  Executive's  employment  under  the
provision so indicated.  Further,  a Notice of Termination for Cause is required
to include a copy of a resolution  duly adopted by the  affirmative  vote of not
less  than  three-quarters  (3/4) of the  entire  membership  of the  Board at a
meeting of the Board  which was called and held for the  purpose of  considering
such termination  (after  reasonable  notice to the Executive and an opportunity
for the Executive, together with the Executive's counsel, to be heard before the
Board)  finding that, in the good faith opinion of the Board,  the Executive was
guilty of  conduct  set forth in clause (i) or (ii) of the  definition  of Cause
herein, and specifying the particulars thereof in detail.

              7.2 Date of Termination.  "Date of  Termination,"  with respect to
any  purported  termination  of the  Executive's  employment  after a Change  in
Control and during the Term,  shall mean (i) if the  Executive's  employment  is
terminated for Disability, thirty (30) days after Notice of Termination is given
(provided  that  the  Executive   shall  not  have  returned  to  the  full-time
performance of the Executive's  duties during such thirty (30) day period),  and
(ii) if the Executive's  employment is terminated for any other reason, the date
specified in the Notice of Termination  (which,  in the case of a termination by
the  Company,  shall not be less than thirty (30) days  (except in the case of a
termination for Cause) and, in the case of a termination by the Executive, shall
not be less than fifteen (15) days nor more than sixty (60) days,  respectively,
from the date such Notice of Termination is given).

              7.3 Dispute  Concerning  Termination.  If within fifteen (15) days
after any Notice of  Termination  is given,  or, if later,  prior to the Date of
Termination  (as  determined  without  regard to this  Section  7.3),  the party
receiving  such Notice of  Termination  notifies  the other party that a dispute
exists  concerning the  termination,  the Date of Termination  shall be extended
until  the  earlier  of (i) the date on which  the Term ends or (ii) the date on
which the dispute is finally resolved, either by mutual written agreement of the
parties or by a final  judgment,  order or decree of an arbitrator or a court of
competent  jurisdiction  (which is not



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appealable  or with respect to which the time for appeal  therefrom  has expired
and no  appeal  has  been  perfected);  provided,  however,  that  the  Date  of
Termination shall be extended by a notice of dispute given by the Executive only
if such notice is given in good faith and the Executive  pursues the  resolution
of such dispute with reasonable diligence.

              7.4 Compensation During Dispute. If a purported termination occurs
following a Change in Control and during the Term and the Date of Termination is
extended in accordance  with Section 7.3 hereof,  the Company shall  continue to
pay the Executive the full compensation in effect when the notice giving rise to
the dispute was given  (including,  but not limited to, salary) and continue the
Executive as a participant in all  compensation,  benefit and insurance plans in
which the Executive was participating when the notice giving rise to the dispute
was given,  until the Date of  Termination,  as determined  in  accordance  with
Section 7.3 hereof.  Amounts  paid under this Section 7.4 are in addition to all
other amounts due under this  Agreement  (other than those due under Section 5.2
hereof)  and shall not be offset  against or reduce any other  amounts due under
this Agreement.

         8.  No  Mitigation.   The  Company  agrees  that,  if  the  Executive's
employment  with the Company  terminates  during the Term,  the Executive is not
required to seek other employment or to attempt in any way to reduce any amounts
payable to the Executive by the Company  pursuant to Section 6 hereof or Section
7.4 hereof.  Further,  the amount of any payment or benefit provided for in this
Agreement  (other  than  Section  6.1(B)  hereof)  shall not be  reduced  by any
compensation  earned by the  Executive  as the result of  employment  by another
employer,  by retirement  benefits,  by offset  against any amount claimed to be
owed by the Executive to the Company, or otherwise.

         9. Successors; Binding Agreement.

              9.1 In  addition  to any  obligations  imposed  by  law  upon  any
successor to the Company, the Company will require any successor (whether direct
or  indirect,  by  purchase,  merger,  consolidation  or  otherwise  to  all  or
substantially  all of the  business  and/or  assets of the Company) to expressly
assume and agree to perform  this  Agreement  in the same manner and to the same
extent  that the Company  would be required to perform it if no such  succession
had taken place.  Failure of the Company to obtain such assumption and agreement
prior to the  effectiveness  of any such  succession  shall be a breach  of this
Agreement and shall entitle the  Executive to  compensation  from the Company in
the same  amount and on the same terms as the  Executive  would be  entitled  to
hereunder if the Executive were to terminate the Executive's employment for Good
Reason after a Change in Control,  except that, for purposes of implementing the
foregoing,  the date on which any such  succession  becomes  effective  shall be
deemed the Date of Termination.

              9.2  This  Agreement   shall  inure  to  the  benefit  of  and  be
enforceable by the  Executive's  personal or legal  representatives,  executors,
administrators,  successors, heirs, distributees,  devisees and legatees. If the
Executive  shall die while any amount  would  still be payable to the  Executive
hereunder (other than amounts which, by their terms, terminate upon the death of
the Executive) if the Executive had continued to live, all such amounts,  unless
otherwise  provided  herein,  shall be paid in accordance with the terms of this
Agreement to the executors,  personal  representatives  or administrators of the
Executive's estate.



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<PAGE>

         10. Notices.  For the purpose of this Agreement,  notices and all other
communications  provided for in the  Agreement  shall be in writing and shall be
deemed  to have been  duly  given  when  delivered  or  mailed by United  States
registered mail, return receipt requested, postage prepaid, addressed, if to the
Executive,  to the address inserted below the Executive's signature on the final
page hereof and, if to the Company,  to the address set forth below,  or to such
other  address  as either  party may have  furnished  to the other in writing in
accordance herewith,  except that notice of change of address shall be effective
only upon actual receipt:

                   To the Company:

                   Point.360
                   7083 Hollywood Boulevard,
                   Suite 200
                   P.O. Box 1830
                   Hollywood, CA 90028
                   Attention: President

         11.  Miscellaneous.  No  provision of this  Agreement  may be modified,
waived or discharged unless such waiver,  modification or discharge is agreed to
in writing and signed by the Executive  and such officer as may be  specifically
designated  by the Board.  No waiver by either  party  hereto at any time of any
breach by the other  party  hereto of, or of any lack of  compliance  with,  any
condition  or  provision  of this  Agreement to be performed by such other party
shall be deemed a waiver of similar or  dissimilar  provisions  or conditions at
the same or at any prior or subsequent time. This Agreement supersedes any other
agreements  or  representations,  oral or  otherwise,  express or implied,  with
respect to the  subject  matter  hereof  which  have been made by either  party,
including  but not limited to the  Benefits  Agreement  entered into between the
Executive  and  the  Company;  provided,  however,  that  this  Agreement  shall
supersede  any  agreement   setting  forth  the  terms  and  conditions  of  the
Executive's  employment  with the Company only in the event that the Executive's
employment  with the Company is  terminated on or following a Change in Control,
by the Company  other than for Cause or by the  Executive  for Good Reason.  The
validity,  interpretation,  construction and performance of this Agreement shall
be governed by the laws of the State of  California.  All references to sections
of the Exchange  Act or the Code shall be deemed also to refer to any  successor
provisions to such sections.  Any payments  provided for hereunder shall be paid
net of any applicable withholding required under federal, state or local law and
any additional withholding to which the Executive has agreed. The obligations of
the Company and the  Executive  under this  Agreement  which by their nature may
require  either  partial or total  performance  after the expiration of the Term
(including,  without  limitation,  those  under  Sections 6 and 7 hereof)  shall
survive such expiration.

         12. Validity.  The invalidity or  unenforceability  of any provision of
this  Agreement  shall not affect the  validity or  enforceability  of any other
provision of this Agreement, which shall remain in full force and effect.

         13.   Counterparts.   This   Agreement   may  be  executed  in  several
counterparts,  each of which shall be deemed to be an original  but all of which
together will constitute one and the same instrument.



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<PAGE>

         14. Settlement of Disputes; Arbitration.

              14.1 All claims by the Executive for benefits under this Agreement
shall be directed to and  determined  by the  Committee and shall be in writing.
Any denial by the Committee of a claim for benefits under this  Agreement  shall
be  delivered  to the  Executive  in  writing  and shall set forth the  specific
reasons for the denial and the  specific  provisions  of this  Agreement  relied
upon. The Committee shall afford a reasonable opportunity to the Executive for a
review of the decision  denying a claim and shall further allow the Executive to
appeal to the Committee a decision of the Committee within sixty (60) days after
notification by the Committee that the Executive's claim has been denied.

              14.2  Any  further  dispute  or  controversy  arising  under or in
connection  with this Agreement  shall be settled  exclusively by arbitration in
Los Angeles, California in accordance with the rules of the American Arbitration
Association then in effect;  provided,  however,  that the evidentiary standards
set  forth  in this  Agreement  shall  apply.  Judgment  may be  entered  on the
arbitrator's award in any court having jurisdiction.

Notwithstanding  any provision of this Agreement to the contrary,  the Executive
shall be entitled to seek specific  performance of the  Executive's  right to be
paid  until the Date of  Termination  during  the  pendency  of any  dispute  or
controversy arising under or in connection with this Agreement.

         15.  Definitions.  For purposes of this Agreement,  the following terms
shall have the meanings indicated below:

              (A)  "Affiliate"  shall have the  meaning  set forth in Rule 12b-2
promulgated under Section 12 of the Exchange Act.

              (B)  "Auditor"  shall have the  meaning  set forth in Section  6.2
hereof.

              (C) "Base  Amount"  shall  have the  meaning  set forth in section
280G(b)(3) of the Code.

              (D)  "Beneficial  Owner"  shall have the meaning set forth in Rule
13d-3 under the Exchange Act.

              (E) "Board" shall mean the Board of Directors of the Company.

              (F) "Cause"  for  termination  by the  Company of the  Executive's
employment shall mean (i) the willful and continued  failure by the Executive to
substantially  perform the  Executive's  duties with the Company (other than any
such failure resulting from the Executive's incapacity due to physical or mental
illness or any such actual or anticipated failure after the issuance of a Notice
of Termination for Good Reason by the Executive  pursuant to Section 7.1 hereof)
that has not been cured  within 30 days after a written  demand for  substantial
performance   is  delivered  to  the  Executive  by  the  Board,   which  demand
specifically  identifies  the  manner  in  which  the  Board  believes  that the
Executive has not  substantially  performed the Executive's  duties, or (ii) the
willful  engaging  by  the  Executive  in  conduct  which  is  demonstrably  and
materially  injurious  to  the  Company  or  its  subsidiaries,   monetarily  or


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<PAGE>

otherwise. For purposes of clauses (i) and (ii) of this definition,  (x) no act,
or failure to act,  on the  Executive's  part shall be deemed  "willful"  unless
done,  or omitted to be done,  by the  Executive  not in good faith and  without
reasonable  belief that the Executive's  act, or failure to act, was in the best
interest  of the  Company  and (y) in the  event  of a  dispute  concerning  the
application of this  provision,  no claim by the Company that Cause exists shall
be given effect  unless the Company  establishes  to the  Committee by clear and
convincing evidence that Cause exists.

              (G) A "Change in Control"  shall be deemed to have  occurred if an
the event of a nature  that would be required to be reported in response to Item
6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange
Act of 1934, as amended  ("Exchange Act");  provided that,  without  limitation,
such a change in control  shall be deemed to have occurred if (i) a tender offer
shall  be  made  and  consummated  for  the  ownership  of  35% or  more  of the
outstanding  voting securities of the Company,  (ii) the Company shall be merged
or  consolidated  with  another  corporation  and as  result  of such  merger or
consolidation  less  than  50%  of  the  outstanding  voting  securities  of the
surviving or resulting corporation shall be owned in the aggregate by the former
shareholders of the Company,  other than  affiliates  (within the meaning of the
Exchange  Act) of any party to such merger or  consolidation,  as the same shall
have  existed  immediately  prior to such  merger  or  consolidation,  (iii) the
Company shall sell, lease, exchange or transfer  substantially all of its assets
to another corporation, entity or person which is not a wholly-owned subsidiary,
(iv) a person (other than Executive), as defined in Sections 13(d) and 14(d) (as
in effect on the date hereof) of the Exchange Act,  shall acquire 35% or more of
the outstanding voting securities of the Company (whether directly,  indirectly,
beneficially  or of  record,  in a single  transaction  or a series  of  related
transactions  by one person or more than one person  acting in concert),  or (v)
the  shareholders  of the Company approve a plan or proposal for the liquidation
or dissolution of the Company.

              (H)  "Code"  shall  mean the  Internal  Revenue  Code of 1986,  as
amended from time to time.

              (I)  "Committee"  shall mean (i) the  individuals  (not fewer than
three in  number)  who,  on the  date six  months  before a Change  in  Control,
constitute the Compensation  Committee of the Board, plus (ii) in the event that
fewer than three  individuals  are available from the group  specified in clause
(i) above for any reason, such individuals as may be appointed by the individual
or  individuals  so  available  (including  for this purpose any  individual  or
individuals previously so appointed under this clause (ii)).

              (J) "Company"  shall mean  Point.360  and,  except in  determining
under Section  15(G) hereof  whether or not any Change in Control of the Company
has occurred,  shall  include any successor to its business  and/or assets which
assumes and agrees to perform this Agreement by operation of law, or otherwise.

              (K) "Date of  Termination"  shall  have the  meaning  set forth in
Section 7.2 hereof.

              (L) "Disability" shall be deemed the reason for the termination by
the Company of the  Executive's  employment,  if, as a result of the Executive's
incapacity  due to



                                       10
<PAGE>

physical  or mental  illness,  the  Executive  shall have been  absent  from the
full-time performance of the Executive's duties with the Company for a period of
six (6) consecutive  months, the Company shall have given the Executive a Notice
of Termination for Disability, and, within thirty (30) days after such Notice of
Termination  is given,  the  Executive  shall not have returned to the full-time
performance of the Executive's duties.

              (M) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended from time to time.

              (N) "Excise Tax" shall mean any excise tax imposed  under  section
4999 of the Code.

              (O)  "Executive"  shall  mean the  individual  named in the  first
paragraph of this Agreement.

              (P)  "Good  Reason"  for  termination  by  the  Executive  of  the
Executive's  employment  shall  mean the  occurrence  (without  the  Executive's
express  written  consent) after any Change in Control,  or prior to a Change in
Control  under the  circumstances  described  in  clauses  (ii) and (iii) of the
second sentence of Section 6.1 hereof (treating all references in paragraphs (I)
through  (VII)  below to a "Change in  Control" as  references  to a  "Potential
Change  in  Control"),  of any  one of the  following  acts by the  Company,  or
failures by the Company to act, unless, in the case of any act or failure to act
described in paragraph (i), (v), (vi) or (vii) below, such act or failure to act
is  corrected  prior to the  Date of  Termination  specified  in the  Notice  of
Termination given in respect thereof:

              (i) the  assignment  to the  Executive of any duties  inconsistent
with the Executive's  status as a senior  executive  officer of the Company or a
substantial  adverse  alteration  in the  nature or  status  of the  Executive's
responsibilities from those in effect immediately prior to the Change in Control
including,  without limitation,  if the Executive was,  immediately prior to the
Change in Control,  an  executive  officer of a public  company,  the  Executive
ceasing to be an executive officer of a public company;

              (ii) a  reduction  by the Company in the  Executive's  annual base
salary as in effect on the date hereof or as the same may be increased from time
to time;

              (iii)  the  relocation  of  the  Executive's  principal  place  of
employment to a location more than 50 miles from the Executive's principal place
of  employment  immediately  prior to the  Change in  Control  or the  Company's
requiring the Executive to be based anywhere other than such principal  place of
employment (or permitted  relocation  thereof) except for required travel on the
Company's  business to an extent  substantially  consistent with the Executive's
present business travel obligations;

              (iv)  the  failure  by the  Company  to pay to the  Executive  any
portion of the Executive's  current  compensation or to pay to the Executive any
portion  of  an  installment  of  deferred   compensation   under  any  deferred
compensation  program  of the  Company,  within  seven (7) days of the date such
compensation is due;



                                       11
<PAGE>

              (v)  the  failure  by  the  Company  to  continue  in  effect  any
compensation plan in which the Executive  participates  immediately prior to the
Change in Control  which is  material  to the  Executive's  total  compensation,
unless  an  equitable   arrangement   (embodied  in  an  ongoing  substitute  or
alternative plan) has been made with respect to such plan, or the failure by the
Company to continue the Executive's participation therein (or in such substitute
or alternative plan) on a basis not materially less favorable,  both in terms of
the  amount or timing  of  payment  of  benefits  provided  and the level of the
Executive's participation relative to other participants, as existed immediately
prior to the Change in Control;

              (vi) the  failure  by the  Company  to  continue  to  provide  the
Executive with benefits  substantially similar to those enjoyed by the Executive
under any of the Company's pension, savings, life insurance, medical, health and
accident,   or  disability  plans  in  which  the  Executive  was  participating
immediately  prior to the Change in Control,  the taking of any other  action by
the Company  which would  directly or indirectly  materially  reduce any of such
benefits or deprive the Executive of any material  fringe benefit enjoyed by the
Executive at the time of the Change in Control, or the failure by the Company to
provide  the  Executive  with the  number  of paid  vacation  days to which  the
Executive  is  entitled  on the basis of years of  service  with the  Company in
accordance  with the Company's  normal  vacation policy in effect at the time of
the Change in Control; or

              (vii) any  purported  termination  of the  Executive's  employment
which  is not  effected  pursuant  to a Notice  of  Termination  satisfying  the
requirements  of Section 7.1 hereof;  for  purposes of this  Agreement,  no such
purported termination shall be effective. The Executive's right to terminate the
Executive's  employment for Good Reason shall not be affected by the Executive's
incapacity  due  to  physical  or  mental  illness.  The  Executive's  continued
employment  shall not constitute  consent to, or a waiver of rights with respect
to, any act or failure to act constituting Good Reason  hereunder.  For purposes
of any  determination  regarding the existence of Good Reason,  any claim by the
Executive  that Good Reason  exists  shall be presumed to be correct  unless the
Company  establishes to the Committee by clear and convincing evidence that Good
Reason does not exist.

         (Q) "Gross-Up  Payment" shall have the meaning set forth in Section 6.2
hereof.

         (R) "Notice of Termination" shall have the meaning set forth in Section
7.1 hereof.

         (S) "Pension Plan" shall mean (i) any  tax-qualified,  supplemental  or
excess  defined  benefit  pension plan  maintained  by the Company and any other
defined  benefit plan or agreement  entered into between the  Executive  and the
Company which is designed to provide the Executive with supplemental  retirement
benefits and (ii)  tax-qualified,  supplemental  or excess defined  contribution
plan  maintained  by the  Company  and any other  defined  contribution  plan or
agreement entered into between the Executive and the Company.

         (T)  "Person"  shall have the meaning  given in Section  3(a)(9) of the
Exchange Act, as modified and used in Sections 13(d) and 14(d)  thereof,  except
that such term shall not  include  (i) the  Company or any of its  subsidiaries,
(ii) a trustee or other fiduciary



                                       12
<PAGE>

holding  securities  under an employee benefit plan of the Company or any of its
Affiliates,  (iii) an underwriter  temporarily holding securities pursuant to an
offering  of  such  securities,   or  (iv)  a  corporation  owned,  directly  or
indirectly,  by the  stockholders  of the  Company  in  substantially  the  same
proportions as their ownership of stock of the Company.

         (U)  "Potential  Change in Control" shall be deemed to have occurred if
the event set forth in any one of the following paragraphs shall have occurred:

              (i) the Company  enters into an  agreement,  the  consummation  of
which would result in the occurrence of a Change in Control;

              (ii) the Company or any Person publicly  announces an intention to
take or to consider  taking actions which, if  consummated,  would  constitute a
Change in Control;

              (iii)  any  Person  becomes  the  Beneficial  Owner,  directly  or
indirectly,  of securities of the Company representing 10% or more of either the
then  outstanding  shares of common stock of the Company or the combined  voting
power  of the  Company's  then  outstanding  securities  (not  including  in the
securities  beneficially  owned by such Person any securities  acquired directly
from the Company or its affiliates); or

              (iv) the  Board  adopts  a  resolution  to the  effect  that,  for
purposes of this Agreement, a Potential Change in Control has occurred.

              (V) "Retirement" shall be deemed the reason for the termination by
the Executive of the Executive's  employment if such employment is terminated in
accordance with the Company's  retirement  policy,  including early  retirement,
generally applicable to its salaried employees.

              (W)  "Severance  Payments"  shall  have the  meaning  set forth in
Section 6.1 hereof.

              (X) "Tax Counsel"  shall have the meaning set forth in Section 6.2
hereof.

              (Y) "Term"  shall mean the period of time  described  in Section 2
hereof (including any extension, continuation or termination described therein).

              (Z) "Total  Payments"  shall mean those  payments so  described in
Section 6.2 hereof.




                                       13
<PAGE>


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

                                POINT.360



                                By: /s/ Alan R. Steel
                                    ------------------------------------------
                                Name: Alan R. Steel
                                Title: Executive Vice President,
                                       Finance & Administration, and
                                       Chief Financial Officer




                                /s/ Haig S. Bagerdjian
                                -------------------------------------
                                Haig S. Bagerdjian

                        Address: 7083 Hollywood Blvd., Suite 200
                                 -------------------------------------
                                 Hollywood, CA 90028
                                 -------------------------------------



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