EMPLOYMENT AGREEMENT



     This Employment  Agreement (the "Agreement") is entered into by and between
Point.360, a California  corporation (the "Company"),  and R. Luke Stefanko (the
"Executive"), as of June 7, 2001.

I.   RECITAL.

     WHEREAS,  the Company desires to employ the Executive as Chairman and Chief
Executive Officer.

     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.  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
Chairman  and Chief  Executive  Officer 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. 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

         1. $285,000 per year, or

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


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     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.

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 failure of the Executive to perform 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.  "Incapacity"  as used
herein shall be limited only to such  Disability  which  substantially  prevents
Company from availing itself of the services of the Executive.

     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:


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         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. WITHOUT  CAUSE.  If the  Executive's  employment  is  terminated  or
constructively   terminated  by  the  Company  without  Cause,  in  addition  to
Executive's  other rights,  the Company shall continue to pay  Executive's  Base
Salary,  health,  medical and other benefits for a period of 24 months following
the termination,  at which time the Executive will be entitled to pursue, at the
Executive's cost, applicable COBRA benefits.


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         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.

     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.


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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.

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.


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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.



Point.360                              R. Luke Stefanko


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

Its: Executive Vice President,
     Finance and Administration
     and Chief Financial Officer






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