EMPLOYMENT AGREEMENT
                              --------------------



         This  Employment  Agreement  (the  "Agreement")  is entered into by and
between VDI MultiMedia,  a California  corporation (the "Company"),  and Alan R.
Steel (the "Executive"), as of November 3, 2000.

I.       RECITAL.
         --------

         WHEREAS,  the Company  desires to employ the  Executive  as Senior Vice
President-Finance and Administration.

         NOW,  THEREFORE,  the Company and the Executive  desire to set forth in
this Agreement the terms and conditions of the  Executive's  employment with the
Company.

II.      EMPLOYMENT.
         ----------

         The Company  hereby  employs the  Executive  and the  Executive  hereby
accepts such  employment,  upon the terms and conditions  hereinafter set forth,
from November 3, 2000 to and including December 31, 2002. The term of employment
in this Agreement shall be automatically  extended by one additional year unless
the Executive or the Company gives notice to the other, in writing,  at least 30
days prior to December 1, 2001 or, thereafter, 13 months prior to the expiration
of this  Agreement,  of its or his desire to terminate  this Agreement or modify
its terms.  The Company  agrees  that the  Executive  will be located,  and will
render such services, in the Hollywood, California area.

III.     DUTIES.
         -------

         A. The  Executive  shall serve during the course of his  employment  as
Senior Vice  President-Finance  and Administration of the Company and shall have
such other similar duties and  responsibilities as the Board of Directors of the
Company shall determine from time to time.

         B. The Executive agrees to devote substantially all of his time, energy
and  ability to the  business  of the  Company  and shall not be involved in the
operations or management of any other competitive business. Nothing herein shall
prevent the  Executive,  upon written  approval of the Board of Directors of the
Company,  from  serving  as a  director  or  trustee  of other  corporations  or
businesses  which are not in competition  with the business of the Company or in
competition with any present or future affiliate of the Company.

         C. For the term of this  Agreement,  the Executive  shall report to the
Chief Executive Officer of the Company.

IV.      COMPENSATION.
         -------------

         A. BASE SALARY.  The Company shall pay the Executive a base salary at a
rate to be  determined by the  Compensation  Committee of the Board of Directors
but which rate shall not be less than the greater of


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<PAGE>

             1. $175,000 per year, or

             2. if such rate is increased from time to time by the  Compensation
Committee, such increased rate of Base Salary.

Such  salary  shall  be  earned   monthly  and  shall  be  payable  in  periodic
installments  no less  frequently  than monthly in accordance with the Company's
customary  practices.  Amounts payable shall be reduced by standard  withholding
and other authorized deductions.

         B. ANNUAL BONUS, INCENTIVE, SAVINGS AND RETIREMENT PLANS. The Executive
shall be entitled to  participate  in all annual bonus,  incentive,  savings and
retirement plans, practices, policies and programs applicable generally to other
peer  executives of the Company as well as  discretionary  plans approved by the
Compensation Committee.

         C.  WELFARE  BENEFIT  PLANS.   The  Executive  shall  be  eligible  for
participation  in and shall receive all benefits  under welfare  benefit  plans,
practices,  policies  and  programs  provided  by  the  Company  to  the  extent
applicable  generally  to  other  peer  executives  of the  Company  as  well as
discretionary plans approved by the Compensation Committee.

         D.  EMPLOYMENT  EXPENSES.  The  Executive  shall be entitled to receive
prompt  reimbursement for all reasonable  employment expenses incurred by him in
accordance  with the policies,  practices and procedures as in effect  generally
with respect to other peer executives of the Company.

         E. FRINGE BENEFITS.  The Executive shall be entitled to fringe benefits
in  accordance  with the plans,  practices,  programs  and policies as in effect
generally with respect to other peer executives of the Company.

         F. ACCRUED  VACATION.  The Executive shall be entitled to paid vacation
of four weeks per year.

         G. AUTOMOBILE.  The Company shall provide the Executive with the use of
a Company owned or leased automobile or, at the Company's option,  the Executive
shall be entitled to a $350.00 per month automobile allowance.

V.       TERMINATION.
         ------------

         A. DEATH OR DISABILITY.  The  Executive's  employment  shall  terminate
automatically  upon the  Executive's  death.  If the Company  determines in good
faith that disability of the Executive has occurred  (pursuant to the definition
of Disability set forth below),  it may give to the Executive  written notice of
its  intention to  terminate  the  Executive's  employment.  In such event,  the
Executive's  employment with the Company shall terminate effective on the day of
receipt  of such  notice  by the  Executive.  For  purposes  of this  Agreement,
"Disability"  shall mean the absence of the  Executive  from his duties with the
Company on the basis  provided in this  agreement  for a period of 3 months as a
result of incapacity due to mental or physical illness which is determined to be
total and  permanent by a physician  selected by the Company or its insurers and
acceptable to the Executive or his legal  representative.  "Incapacity"  as used
herein shall be limited only to such  Disability  which  substantially  prevents
Company from availing itself of the services of the Executive.

                                       2
<PAGE>

         B. CAUSE.  The Company may terminate  the  Executive's  employment  for
Cause.  For  purposes of this  Agreement,  "Cause"  shall mean that the Company,
acting in good faith  based  upon the  information  then  known to the  Company,
determines that the Executive has:

             1.  committed an act of fraud upon, or an act  evidencing  material
dishonesty toward the Company; or

             2. been convicted of a felony,  which  conviction  through lapse of
time or otherwise is not subject to appeal; or

             3. refused to perform material required duties and responsibilities
or  performed  them  with  negligence  or  misconduct  and  failed  to cure such
misconduct  given the opportunity  within ten days written notice by the Company
to remedy such acts; or

             4.  materially  breached  any of the  covenants  set  forth in this
Agreement; or

             5.  committed  any  act  materially  detrimental  to the  Company's
business or goodwill.

         C.  OBLIGATIONS  OF THE COMPANY  UPON  TERMINATION  BASED UPON DEATH OR
DISABILITY OR CAUSE.


             1. DEATH OR DISABILITY. If the Executive's employment is terminated
by reason of the Executive's Death or Disability, this Agreement shall terminate
without further obligations to the Executive or his legal  representatives under
this  Agreement,  other than for payments  made by the Company to the  Executive
equal to the sum of:

                 (a) the  Executive's  annual  base  salary  through the date of
termination to the extent not theretofore paid

                 (b) reasonable employment expenses, as provided herein, through
the date of termination to the extent not theretofore paid and

                 (c) any accrued vacation pay to the extent not theretofore paid

The  sum of the  amounts  described  in  clauses  (a),  (b)  and  (c)  shall  be
hereinafter referred to as the "Accrued Obligations", which shall be paid to the
Executive or his estate or  beneficiary,  as  applicable,  in a lump sum in cash
within 30 days of the date of termination and in addition, the Company shall pay
to the Executive or his estate or  beneficiary,  as applicable,  any amounts due
pursuant to the terms of any applicable welfare or pension benefit plans.

             2.  CAUSE.  If the  Executive's  employment  is  terminated  by the
Company for Cause, this Agreement shall terminate without further obligations to
the Executive  other than for the timely payment of Accrued  Obligations and any
amounts due pursuant to the terms of any applicable  welfare or pension  benefit
plans.

                                       3
<PAGE>

             3. WITHOUT CAUSE.  If the  Executive's  employment is terminated by
the Company without Cause, in addition to Executive's other rights,  the Company
shall continue to pay  Executive's  health and medical  benefits for a period of
two  years  following  the  termination,  at which  time the  Executive  will be
entitled to pursue, at the Executive's cost, applicable COBRA benefits.

             4.  CONSTRUCTIVE  TERMINATION.  For  purposes  of  this  Agreement,
constructive termination shall occur if

                 (a)  the  Executive's  place  of  employment  or the  Company's
business office is moved more than 50 miles from its present location,

                 (b) there is a  material  downward  change  in the  Executive's
duties and responsibilities,

                 (c) there is a downward change in the Executive's  Base Salary,
or

                 (d)  there  is  a  change  in  the  Executive's   title  and/or
responsibilities that is clearly a demotion.

VI.      ARBITRATION.
         ------------

         Any  controversy or claim arising out of or relating to this Agreement,
its enforcement or interpretation,  or because of an alleged breach, default, or
misrepresentation  in connection with any of its provisions,  shall be submitted
to  arbitration,  to be held in Los Angeles,  California in accordance  with the
rules and  procedures  of the  American  Arbitration  Association.  In the event
either party institutes arbitration under this Agreement, the costs and expenses
of such  arbitration  (including  counsel  fees)  shall  be borne by each of the
parties, or as the arbitrator(s) may determine at the request of either party.

VII.     CONFIDENTIAL INFORMATION.
         -------------------------

         The Executive shall hold in a fiduciary capacity for the benefit of the
Company all secret or  confidential  information,  knowledge or data relating to
the Company or any of its affiliated companies, and their respective businesses,
which shall have been  obtained by the  Executive  during his  employment by the
Company  or any of its  affiliated  companies  and which  shall not be or become
public knowledge (other than by acts by the Executive or his  representatives in
violation of this Agreement).  After  termination of the Executive's  employment
with the  company,  he shall  not,  without  the prior  written  consent  of the
Company, or as may otherwise be required by law or legal process, communicate or
divulge any such information, knowledge or data to anyone other than the Company
and those designated by it.

VIII.    SUCCESSORS.
         -----------

         A. This  Agreement is personal to the Executive and shall not,  without
the prior written consent of the Company, be assignable by the Executive.

                                       4
<PAGE>
         B. This Agreement shall inure to the benefit of and be binding upon the
Company and its  successors and assigns and any such successor or assignee shall
be deemed  substituted for the Company under the terms of this Agreement for all
purposes.  As used herein,  "successor" and "assignee" shall include any person,
firm,  corporation  or other  business  entity  which at any  time,  whether  by
purchase, merger or otherwise,  directly or indirectly acquires the stock of the
Company or to which the Company  assigns  this  Agreement by operation of law or
otherwise.

IX.      WAIVER.
         -------

         No waiver  of any  breach of any term or  provision  of this  Agreement
shall be  construed  to be,  nor shall be, a waiver of any other  breach of this
Agreement.  No waiver shall be binding unless in writing and signed by the party
waiving the breach.

X.       MODIFICATION.
         -------------

         This  Agreement may not be amended or modified  other than by a written
agreement executed by the Executive and the Board of Directors of the Company.

XI.      SAVINGS CLAUSE.
         ---------------

         If any provision of this Agreement or the  application  thereof is held
invalid, the invalidity shall not affect other provisions or applications of the
Agreement  which  can  be  given  effect  without  the  invalid   provisions  or
applications and to this end the provisions of this Agreement are declared to be
severable.

XII.     COMPLETE AGREEMENT.
         -------------------

         This  instrument  constitutes  and  contains the entire  agreement  and
understanding  concerning  the  Executive's  employment  and the  other  subject
matters  addressed  herein between the parties,  and supersedes and replaces all
prior negotiations and all agreements proposed or otherwise,  whether written or
oral, concerning the subject matters hereof. This is an integrated document.

XIII.    GOVERNING LAW.
         --------------

         This  Agreement  shall be deemed to have been  executed  and  delivered
within the State of  California,  and the rights and  obligations of the parties
hereunder  shall be construed and enforced in accordance  with, and governed by,
by the laws of the State of California  without regard to principles of conflict
of laws.

XIV.     CONSTRUCTION.
         -------------

         Each party has  cooperated  in the  drafting  and  preparation  of this
Agreement.  Hence, in any  construction  to be made of this Agreement,  the same
shall not be  construed  against  any party on the basis  that the party was the
drafter.  The captions of this Agreement are not part of the  provisions  hereof
and shall have no force or effect.

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<PAGE>
XV.      COMMUNICATIONS.
         ---------------

         All notices, requests, demands and other communications hereunder shall
be in  writing  and shall be deemed to have been duly given if  delivered  or if
mailed by  registered  or  certified  mail,  postage  prepaid,  addressed to the
Executive at the  Executive's  residence  address on file with the  Company,  or
addressed to the Company at 7083 Hollywood Blvd.,  Hollywood,  California 90028.
Any party may  change  the  address  at which  notice  shall be given by written
notice given in the above manner.

XVI.     EXECUTION.
         ----------

         This Agreement is being executed in one or more  counterparts,  each of
which shall be deemed an original,  but all of which together  shall  constitute
one and the same instrument. Photographic copies of such signed counterparts may
be used in lieu of the originals for any purpose.

XVII.    LEGAL COUNSEL.
         --------------

         The Executive and the Company  recognize that this is a legally binding
contract and acknowledge and agree that they have had the opportunity to consult
with legal counsel of their choice.

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

VDI MULTIMEDIA
<S>                                                           <C>
                                                              --------------------------------------------------


By:                                                           /s/ Alan R. Steel
   --------------------------------------------------         -------------------------------------------------

Its:
    -------------------------------------------------

</TABLE>

                                      6
<PAGE>


                 ADDITIONAL EMPLOYMENT TERMS (November 3, 2000)


These Additional  Employment Terms ("Terms")  itemize Terms in addition to those
set forth in that certain Employment  Agreement  ("Agreement") dated November 3,
2000 between VDI MultiMedia (the "Company") and Alan R. Steel (the "Executive").

MOVING ALLOWANCE
----------------

The Company will pay the Executive's:

1. Moving  expenses from  Medford,  Oregon to the Los Angeles area for household
goods (i.e., packing, moving and unpacking).

2. Temporary  living expenses from the date of employment until escrow is closed
on a new home, not to exceed three months, together with tax gross-up amount.

3. Round trip coach air fare for two house hunting trips (for both the Executive
and his wife) and up to five round trips for the  Executive to return home until
escrow is closed on a new home.

STOCK OPTIONS
-------------

The  Executive  will be  provided a 10-year  option to purchase  250,000  shares
exercisable at $4.38, the closing market price on October 30, 2000, the date the
parties agreed on the employment  relationship.  Incentive stock options will be
granted to the  maximum  allowable.  The options  shall vest when the  Company's
common stock trades for 10 consecutive trading days as follows:

                      PRICE           % VESTING
                      -----           ---------
                     $ 8.50              20%
                      11.00              40%
                      14.00              60%
                      18.00              80%
                      23.00             100%

In the event  Executive  is  terminated  without  cause  during  the term of the
Agreement,  all options shall  immediately  vest.  However,  options to purchase
50,000  shares will be cancelled if the  Executive is  terminated  without cause
prior to December 31, 2001.

PAYMENT OF SALARY
-----------------

Although  Executive's  salary  shall accrue from  November 3, 2000,  the initial
payment for salary will be made on January 2, 2001,  which payments will include
all retroactive amounts due from Executive's employment date.


<TABLE>
<CAPTION>

VDI MULTIMEDIA
<S>                                                           <C>
                                                              --------------------------------------------------


By:                                                           /s/ Alan R. Steel
   --------------------------------------------------         -------------------------------------------------

Its:
    -------------------------------------------------

</TABLE>

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