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                   THIRD AMENDED AND RESTATED CREDIT AGREEMENT


                                      among


                                    POINT.360
                                   as Borrower


                           THE LENDERS PARTIES HERETO,


                                       and


                         UNION BANK OF CALIFORNIA, N.A.
                                    as Agent




                             Dated as of May 2, 2002


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<PAGE>

                                TABLE OF CONTENTS

                                                                           Page
                                                                           ----

SECTION 1.      DEFINITIONS...................................................1
         1.1    Defined Terms.................................................1
         1.2    Other Definitional Provisions................................14

SECTION 2.      AMOUNT AND TERMS OF LOANS....................................15
         2.1    Loans........................................................15
         2.2    Agreements Regarding Existing Letter of Credit...............16
         2.3    Optional Prepayments.........................................18
         2.4    Mandatory Prepayments........................................19
         2.5    Interest Rates and Payment Dates.............................19
         2.6    Computation of Interest and Fees.............................19
         2.7    Pro Rata Treatment and Payments..............................20
         2.8    Increased Costs..............................................20
         2.9    Taxes........................................................20
         2.10   Mitigation of Costs..........................................21
         2.11   Amendment Fee................................................21

SECTION 3.      REPRESENTATIONS AND WARRANTIES...............................22
         3.1    Organization and Good Standing...............................22
         3.2    Power and Authority..........................................22
         3.3    Validity and Legal Effect....................................22
         3.4    No Violation of Laws or Agreements...........................22
         3.5    Title to Assets; Existing Encumbrances; Legal Names..........22
         3.6    Capital Structure; Equity Ownership..........................23
         3.7    Subsidiaries and Affiliates..................................23
         3.8    Material Contracts...........................................23
         3.9    Taxes and Assessments........................................23
         3.10   Litigation and Legal Proceedings.............................24
         3.11   Accuracy of Financial Information............................24
         3.12   Accuracy of Other Information................................24
         3.13   Compliance with Laws Generally...............................24
         3.14   ERISA Compliance.............................................24
         3.15   Environmental Compliance.....................................25
         3.16   Federal Regulations..........................................26
         3.17   Fees and Commissions.........................................26
         3.18   Solvency.....................................................26
         3.19   Investment Company Act; Public Utility Holding Company Act...26
         3.20   Nature of Business...........................................26
         3.21   Event of Default.............................................26
         3.22   Ranking of Loans.............................................26

SECTION 4.      CONDITIONS PRECEDENT.........................................27
         4.1    Conditions to Restatement Date...............................27
         4.2    Condition Subsequent.........................................29

SECTION 5.      AFFIRMATIVE COVENANTS........................................30
         5.1    Financial Statements.........................................30
         5.2    Certificates; Other Information..............................31
         5.3    Payment of Obligations.......................................33
         5.4    Conduct of Business and Maintenance of Existence.............33
         5.5    Maintenance of Property......................................33
         5.6    Insurance....................................................33
         5.7    Inspection of Property; Books and Records; Discussions.......33
         5.8    Environmental Laws...........................................34
         5.9    Compliance With Laws, Etc....................................34
         5.10   Certain Obligations Respecting Subsidiaries;
                Prohibitions on Certain Agreements...........................35
         5.11   Interest Rate Protection.....................................35
         5.12   Reviews and Appraisals.......................................35
         5.13   Financial Consultant.........................................35
         5.14   Bank Accounts................................................35
         5.15   Landlord Consents............................................35

<PAGE>

SECTION 6.      NEGATIVE COVENANTS...........................................36
         6.1    Financial Condition Covenants................................35
         6.2    Limitation on Indebtedness...................................37
         6.3    Limitation on Liens..........................................38
         6.4    Limitation on Fundamental Changes............................39
         6.5    Limitation on Sale of Assets.................................39
         6.6    Limitation on Dividends......................................39
         6.7    Limitation on Investments, Loans and Advances................39
         6.8    Transactions with Affiliates.................................40
         6.9    Fiscal Year..................................................40
         6.10   Sale-Leaseback Transactions..................................40
         6.11   Lines of Business............................................40
         6.12   Certain Accounting Changes...................................41

SECTION 7.      EVENTS OF DEFAULT............................................41

SECTION 8.      THE AGENT....................................................43
         8.1    Appointment..................................................43
         8.2    Delegation of Duties.........................................43
         8.3    Exculpatory Provisions.......................................43
         8.4    Reliance by the Agent........................................44
         8.5    Notice of Default............................................44
         8.6    Non-Reliance on the Agent and Other Lenders..................44
         8.7    Indemnification..............................................45
         8.8    The Agent in Its Individual Capacity.........................45
         8.9    Successor Agent..............................................45
         8.10   Collateral Documents.........................................46

SECTION 9.      MISCELLANEOUS................................................46
         9.1    Amendments and Waivers.......................................46
         9.2    Notices......................................................47
         9.3    No Waiver; Cumulative Remedies...............................47
         9.4    Survival of Representations and Warranties...................48
         9.5    Payment of Expenses and Taxes................................48
         9.6    Successors and Assigns; Participations; Purchasing Lenders...49
         9.7    Adjustments; Set-Off.........................................51
         9.8    Counterparts.................................................52
         9.9    Severability.................................................52
         9.10   Integration..................................................52
         9.11   GOVERNING LAW................................................52
         9.12   Acknowledgements.............................................52
         9.13   Headings.....................................................52
         9.14   Copies of Certificates, Etc..................................52
         9.15   Treatment of Certain Information; Confidentiality............52
         9.16   Consent to Jurisdiction; Waiver of Jury Trial................53
         9.17   Waivers......................................................54
         9.18   Effect of Amendment and Restatement..........................55

Exhibits

         A        Form of Note
         B        Form of Assignment and Acceptance
         C        Form of Release Agreement
         D        Form of Officer's Certificate
         E        Form of Covenant Compliance Certificate
         F        Projections

Schedules

         2.1      Loan Amounts
         3.1      Business Qualification Jurisdictions
         3.5      Legal and Trade Names
         3.6      Capital Structure; Equity Ownership
         3.7      Subsidiaries and Affiliates
         3.10     Litigation
         5.15     Value of Certain Personal Property
         6.3      Liens

<PAGE>

                   THIRD AMENDED AND RESTATED CREDIT AGREEMENT


        THIS THIRD  AMENDED AND RESTATED  CREDIT  AGREEMENT,  dated as of May 2,
2002, among (1) POINT.360,  a California  corporation (the "Borrower"),  (2) the
several banks and other  financial  institutions  parties to this Agreement (the
"Lenders"),  and (3) UNION BANK OF  CALIFORNIA,  N.A.,  as Agent for the Lenders
hereunder ("UBOC"; in its capacity as agent, the "Agent").


                                    RECITALS


        A. The  Borrower,  the  Agent,  and  certain  banks and other  financial
institutions named as Lenders therein are parties to that certain Second Amended
and Restated Credit Agreement dated as of September 28, 2000, as amended by that
certain  First  Amendment to Second  Amended and Restated  Credit  Agreement and
Waiver,  dated as of April 5, 2001,  that  certain  Second  Amendment  to Second
Amended and Restated Credit Agreement and Forbearance, dated as of June 11, 2001
and that certain Third Amendment to Second Amended and Restated Credit Agreement
and  Forbearance,  dated as of July  20,  2001  (such  Credit  Agreement,  as so
amended, the "Existing  Agreement") pursuant to which the Lenders made available
to  the  Borrower  a  revolving  credit  facility,   with  a  letter  of  credit
subfacility, upon the terms and conditions therein set forth.

        B. As of the date hereof, prior to the principal repayment  contemplated
by Section 4.1, the aggregate  principal  amount of revolving loans  outstanding
under  the  Existing  Agreement  is  $28,999,484.  The  sole  Letter  of  Credit
outstanding was issued by the Agent on January 30, 1998 to O.D.S.  Technologies,
LP in the face amount of $92,239.20 and bearing letter of credit no.  306S230996
(the "Existing Letter of Credit"). There is no past-due interest outstanding.

        C. The  Borrower  is in default of its  obligations  under the  Existing
Agreement.  The Borrower has requested  that the Agent and the Lenders (i) agree
to  restructure  such  obligations  on the terms set forth herein and (ii) waive
such  existing  defaults.  The  Agent  and  the  Lenders  have  agreed  to  such
restructuring  and such waiver, in each case subject to the terms and conditions
set forth herein.

        D. Accordingly,  the Borrower,  the Agent and the Lenders agree that the
Existing  Agreement is hereby  amended and restated in its entirety,  subject to
satisfaction  of the  conditions  set  forth in  Section  4.1,  on the terms and
conditions set forth herein.

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

SECTION 1. DEFINITIONS

1.1 DEFINED TERMS. As used in this Agreement, the following terms shall have the
following meanings:

        "ACCOUNTS   RECEIVABLE":   all  of  the   Borrower's   or  any  Domestic
Subsidiary's  now owned or hereafter  acquired (a) accounts  receivable  for the
sale of inventory or the performance of services,  book debts and other forms of
obligations,  whether arising out of goods sold or services rendered or from any
other  transaction;  (b) rights in, to and under all purchase orders or receipts
for goods or services;  (c) rights to any goods  represented  or purported to be
represented  by  any of the  foregoing  (including  unpaid  sellers'  rights  of
rescission,  replevin,  reclamation  and  stoppage  in  transit  and  rights  to
returned,  reclaimed or repossessed  goods);  (d) moneys due or to become due to
the Borrower or any Domestic  Subsidiary under all purchase orders and contracts
for the sale of goods or the  performance of services or both by the Borrower or
any Domestic Subsidiary (whether or not yet earned by performance on the part of
the  Borrower  or such  Domestic  Subsidiary),  including  the  proceeds  of the
foregoing; (e) any notes, drafts, letters of credit, insurance proceeds or other
instruments,  documents and writings evidencing or supporting the foregoing; and
(f) all collateral security and guarantees of any kind given by any other Person
with respect to any of the foregoing.

        "ACCOUNTANTS":  such firm of independent certified public accountants of
recognized  regional or national  standing as shall be selected by the  Borrower
and acceptable to the Majority  Lenders (such acceptance by the Majority Lenders
not to be unreasonably withheld, and to be in writing).

<PAGE>

        "AFFILIATE":  as to any Person, (a) any other Person which,  directly or
indirectly, is in control of, is controlled by, or is under common control with,
such Person or (b) any Person who is a director,  officer or partner (i) of such
Person  or  (ii)  of any  Subsidiary  of  such  Person.  For  purposes  of  this
definition,  "control" of a Person means the power,  directly or indirectly,  to
direct or cause the  direction  of the  management  and  policies of such Person
whether by contract or otherwise.

        "AGENT": as defined in the preamble hereto.

        "AGGREGATE  LOAN AMOUNT":  at any time of  determination,  the aggregate
principal amount of Loans outstanding at such time.

        "AGREEMENT":  this Third  Amended  and  Restated  Credit  Agreement,  as
amended, waived, supplemented or otherwise modified from time to time.

        "APPLICABLE  LENDING  OFFICE":  for any  Lender,  its  office  for Loans
specified below its signature on the signature pages hereof or in the Assignment
and Acceptance  pursuant to which it became a party hereto,  as the case may be,
any of which offices may,  upon 10 days' prior  written  notice to the Agent and
the Borrower, be changed by such Lender.

        "ASSET DISPOSITION": the sale, sale and leaseback, transfer, conveyance,
exchange,  long-term  lease  accorded  sales  treatment  under  GAAP or  similar
disposition (including by means of a merger, consolidation,  amalgamation, joint
venture or other substantive combination) of any of the Properties,  business or
assets (other than marketable  securities,  including  "margin stock" within the
meaning of Regulation U, liquid investments and other financial instruments but,
including,  without limitation,  the assignment of any lease,  license or permit
relating to the  Properties) of the Borrower or any of its  Subsidiaries  to any
Person or Persons other than to the Borrower or any Guarantor.

        "ASSIGNMENT AND ACCEPTANCE":  an Assignment and Acceptance substantially
in the form of Exhibit B to this Agreement.

        "BENEFITTED LENDER": as defined in Section 9.7.

        "BORROWER": as defined in the preamble hereto.

        "BUSINESS  DAY":  a day other  than a  Saturday,  Sunday or other day on
which  commercial banks in the State of California are authorized or required by
law to close.

        "CAPITAL EXPENDITURES": for any period, expenditures (including, without
limitation,  the aggregate  amount of  Capitalized  Lease  Obligations  incurred
during such period) made by the Borrower or any of its  Subsidiaries  to acquire
or construct fixed assets, plant and equipment (including renewals, improvements
and  replacements,  but  excluding  repairs)  during  such  period  computed  in
accordance with GAAP.

        "CAPITALIZED LEASE OBLIGATIONS": obligations for the payment of rent for
any real or personal  property  under  leases or  agreements  to lease that,  in
accordance  with GAAP,  have been or should be  capitalized  on the books of the
lessee and, for purposes hereof,  the amount of any such obligation shall be the
capitalized amount thereof determined in accordance with GAAP.

        "CAPITAL STOCK": any and all shares, interests,  participations or other
equivalents (however designated) of capital stock of a corporation,  any and all
equivalent  ownership interests in a Person (other than a corporation),  any and
all  warrants,  options or rights to purchase any of the  foregoing or any other
securities convertible into any of the foregoing.

        "CASH":  unrestricted cash held in a deposit account with the Agent or a
Lender;  provided  that "Cash"  shall not include  funds in the Cash  Collateral
Account  (unless and until such funds are returned to the Borrower in accordance
with Section 2.2).

        "CASH COLLATERAL ACCOUNT": as defined in Section 2.2(a).

        "CASH  INCOME  TAXES":  for any period,  cash  income  taxes paid by the
Borrower and its Subsidiaries.

        "CODE": the Internal Revenue Code of 1986, as amended from time to time.

        "COLLATERAL":  all of the property (tangible or intangible) purported to
be  subject  to the lien or  security  interest  purported  to be created by any
mortgage,  deed of trust,  security agreement,  pledge agreement,  assignment or
other  security  document  heretofore  or hereafter  executed by the Borrower as
security for all or part of the Obligations.

<PAGE>

        "COLLATERAL DOCUMENTS":  the Security Agreement,  any Control Agreements
executed pursuant to the Security Agreement, all Form UCC-1 Financing Statements
and  amendments  thereto and any other  document  encumbering  the Collateral or
evidencing  or  perfecting  a security  interest  therein for the benefit of the
Lenders executed by the Borrower.

        "COMMONLY  CONTROLLED ENTITY":  as to any Person, an entity,  whether or
not  incorporated,  which is under common  control  with such Person  within the
meaning  of  Section  4001 of ERISA or is part of a group  which  includes  such
Person and which is treated as a single employer under Section 414 of the Code.

        "CONTRACTUAL  OBLIGATION":  as to  any  Person,  any  provision  of  any
security  issued  by  such  Person  or of any  agreement,  instrument  or  other
undertaking  to  which  such  Person  is a party  or by  which  it or any of its
property is bound.

        "CONTROL AGREEMENT":  a control agreement,  restricted account agreement
or  similar  agreement  or  document,   in  each  case  in  form  and  substance
satisfactory  to the Agent and  entered  into for the  purpose of  perfecting  a
security interest in one or more deposit accounts or securities  accounts of the
Obligors.

        "COVENANT COMPLIANCE  CERTIFICATE":  a certificate of a senior financial
officer of the  Borrower,  substantially  in the form of Exhibit E hereto,  with
regard to (and setting  forth the  calculations  for) each of the  covenants set
forth in this Agreement.

        "DEBT  SERVICE":  for any  period,  the sum,  for the  Borrower  and its
Subsidiaries   (determined  on  a  consolidated  basis  without  duplication  in
accordance with GAAP), of the following: (a) all regularly scheduled payments or
regularly scheduled prepayments of principal of Indebtedness (including, without
limitation,  the principal  component of any payments in respect of  Capitalized
Lease  Obligations)  made during such period plus (b) all  Interest  Expense for
such period.

        "DEFAULT":  any of the events specified in Section 7, whether or not any
requirement  for the giving of notice,  the lapse of time, or both, or any other
condition, has been satisfied.

        "DOLLARS" AND "$": dollars in lawful currency of the United States.

        "DOMESTIC  SUBSIDIARY":  each Subsidiary organized under the laws of the
United States or any state thereof.

        "EBITDA":  for any period,  Net Income after  eliminating  extraordinary
gains and losses,  plus (i) provisions for income taxes,  (ii)  depreciation and
amortization, (iii) Interest Expense, (iv) the amount of any charge taken by the
Borrower solely for the adoption of FASB Rule 142 and (v) the fees  contemplated
by Section  4.1(e) and paid by the Borrower in connection  with the execution of
this Agreement.

        "ELIGIBLE   ACCOUNTS   RECEIVABLE":   an  Account  Receivable  which  is
acceptable  to the Agent,  but in no event shall  Eligible  Accounts  Receivable
include any Account Receivable:

   (a)  that  does not arise  from the sale of  finished  goods in the  ordinary
        course of the Borrower's or a Domestic Subsidiary's business;

   (b)  that is not subject to a valid,  perfected  first priority Lien in favor
        of the Agent;

   (c)  as to which any covenant,  representation  or warranty  contained in the
        Loan  Documents  with  respect  to  such  Account  Receivable  has  been
        breached;

   (d)  that is not  owned by the  Borrower  or any  Domestic  Subsidiary  or is
        subject to any right, claim or interest of another Person other than the
        Lien in favor of the Agent;

   (e)  with respect to which an invoice has not been sent;

   (f)  that is due and  payable  from a buyer  located  outside  of the  United
        States,  but  only  to  the  extent  that  inclusion  of  such  Accounts
        Receivable  as Eligible  Accounts  Receivable  would  result in Accounts
        Receivables  due and payable from buyers  located  outside of the United
        States  constituting in excess of 10% of the aggregate Eligible Accounts
        Receivable;

   (g)  that is not paid within 120 days from the date of the invoice;

<PAGE>

   (h)  that arises from a sale of goods to or  performance  of services  for an
        Affiliate  of  the  Borrower,  or an  employee  of  the  Borrower  or an
        Affiliate of the Borrower;

   (i)  that the Agent, in its reasonable judgment,  deems uncollectible for any
        reason;

   (j)  that is due and payable in a currency other than Dollars;

   (k)  that is due and payable  from a buyer who (i) applies for,  suffers,  or
        consents  to the  appointment  of,  or the  taking of  possession  by, a
        receiver,  custodian,  trustee  or  liquidator  of itself or of all or a
        substantial  part of its  property or calls a meeting of its  creditors,
        (ii) admits in writing its inability, or is generally unable, to pay its
        debts as they become due or ceases  operations of its present  business,
        (iii)  makes a general  assignment  for the benefit of  creditors,  (iv)
        commences a voluntary  case under any state or federal  bankruptcy  laws
        (as now or  hereafter  in  effect),  (v) is  adjudicated  as bankrupt or
        insolvent,  (vi) files a petition seeking to take advantage of any other
        law providing for the relief of debtors,  (vii)  acquiesces to, or fails
        to have  dismissed,  any  petition  which  is  filed  against  it in any
        involuntary  case under such bankruptcy laws, or (viii) takes any action
        for the purpose of effecting any of the foregoing;

   (l)  that arises from a bill-and-hold, guaranteed sale, sale-and-return, sale
        on approval,  consignment or any other  repurchase or return basis or is
        evidenced by chattel paper;

   (m)  for which the goods giving rise to such Account Receivable have not been
        shipped  and  delivered  to and  accepted  by the buyer or the  services
        giving rise to such Account  Receivable  have not been  performed by the
        Borrower or any  Domestic  Subsidiary  and  accepted by the buyer or the
        Account Receivable otherwise does not represent a final sale;

   (n)  that  is  subject  to  any  offset,  deduction,   defense,  dispute,  or
        counterclaim or the buyer is also a creditor or supplier of the Borrower
        or any Domestic  Subsidiary  or the Account  Receivable is contingent in
        any respect or for any reason;

   (o)  for which the Borrower or any Domestic Subsidiary has made any agreement
        with the buyer for any deduction therefrom,  except for (i) discounts or
        allowances  made in the ordinary  course of business for prompt  payment
        and (ii)  cooperative  advertising  discounts;  (p) for which any of the
        goods  giving  rise to  such  Account  Receivable  have  been  returned,
        rejected or  repossessed,  or for which any part of the payment due from
        buyer is overdue; or

   (q)  that arises from or out of any contract or other agreement involving the
        United States of America,  any agency or  instrumentality  of the United
        States of America,  or any entity  entitled to full of partial  immunity
        under the laws applicable in any domestic or foreign jurisdiction or any
        entity to which an assignment of claims is subject to consent.

        "ENVIRONMENTAL CONTROL STATUTES": as defined in Section 3.15.

        "EPA": as defined in Section 3.15.

        "EQUITY OFFERING":  the sale or issuance (or reissuance) by the Borrower
or any  Subsidiary  of any  equity  interest  (common  stock,  preferred  stock,
partnership interests,  member interests or otherwise) or any options, warrants,
convertible  securities  or other rights to purchase  such  beneficial or equity
interests.

        "EQUITY RIGHTS": with respect to any Person, any subscriptions, options,
warrants,  commitments,  preemptive rights or agreements of any kind (including,
without  limitation,  any  stockholders'  or voting  trust  agreements)  for the
issuance,  sale,  registration or voting of, or securities convertible into, any
additional  shares  of  capital  stock of any  class,  or  partnership  or other
ownership interests of any type in, such Person.

        "EQUITYHOLDER AGREEMENTS": each shareholder agreement, limited liability
company agreement,  partnership agreement, voting agreement, buy-sell agreement,
option,  warrant,  put, call, or right of first refusal, and any other agreement
or  instrument  with  conversion  rights  into  equity  of the  Borrower  or any
Subsidiary  either (a) between the Borrower or any  Subsidiary and any holder or
prospective  holder of any equity  interest of the  Borrower  or any  Subsidiary
(including interests  convertible into such equity) or (b) otherwise between any
two or more such holders of equity interests.

<PAGE>

        "ERISA": the Employee Retirement Income Security Act of 1974, as amended
from time to time.

        "ERISA  AFFILIATE":  as to any Person,  each trade or business including
such Person, whether or not incorporated,  which together with such Person would
be treated as a single employer under Section 4001(a)(14) of ERISA.

        "EVENT OF DEFAULT":  any of the events  specified in Section 7, provided
that any  requirement  for the giving of notice,  the lapse of time, or both, or
any other condition, has been satisfied.

        "EXCLUDED TAXES": all taxes imposed on or by reference to the net income
of the Agent or any Lender or its Applicable  Lending Office by any Governmental
Authority and all franchise taxes,  taxes on doing business or taxes measured by
capital or net worth  imposed  on the Agent or on any  Lender or its  Applicable
Lending  Office  by any  Governmental  Authority  and any taxes  imposed  by any
Governmental  Authority arising as a consequence of the failure of any Lender to
provide accurate  documentation  required to be provided by such Lender pursuant
to Section 2.9(b).

        "EXISTING AGREEMENT": as defined in the Recitals hereto.

        "EXISTING LETTER OF CREDIT": as defined in the Recitals hereto.

        "FIXED CHARGE RATIO": as at any date of  determination,  with respect to
any  period,  determined  on a  consolidated  basis  for  the  Borrower  and its
Subsidiaries,  the ratio of EBITDA less  Capital  Expenditures  divided by Fixed
Charges for such period.

        "FIXED  CHARGES":  for any period,  the sum,  for the  Borrower  and its
Subsidiaries   (determined  on  a  consolidated  basis  without  duplication  in
accordance  with  GAAP),  of the  following:  (i) Debt  Service  for such period
(excluding (A) the $2,000,000 Reduction  Installment due on the Restatement Date
and (B)  $1,000,000 of the Reduction  Installment  due on December 31, 2002) and
(ii) Cash Income Taxes for such period.

        "FUNDED  DEBT":  the sum of the  outstanding  principal  balance  of all
Indebtedness  (including,  but not limited to,  Indebtedness  to the Lenders and
Capitalized   Lease   Obligations)  of  Borrower  and  its   Subsidiaries  on  a
consolidated basis.

        "GAAP": generally accepted accounting principles in the United States in
effect from time to time.

        "GOVERNMENTAL AUTHORITY":  any nation or government,  any federal, state
or other political  subdivision  thereof and any federal,  state or local entity
exercising  executive,  legislative,   judicial,  regulatory  or  administrative
functions of or pertaining to government.

        "GUARANTEE  AMENDMENT":  an amendment to each Guarantee  existing on the
Restatement Date, in each case in form and substance satisfactory to the Agent.

        "GUARANTEE  OBLIGATION":  as to any Person (the "guaranteeing  person"),
any  obligation  (without  duplication)  of (a) the  guaranteeing  person or (b)
another  Person  (including,  without  limitation,  any bank under any letter of
credit) to induce the  creation  of which the  guaranteeing  person has issued a
reimbursement,   counterindemnity   or  similar   obligation,   in  either  case
guaranteeing or in effect  guaranteeing any Indebtedness,  leases,  dividends or
other  obligations  (the "primary  obligations")  of any other third Person (the
"primary  obligor") in any manner,  whether  directly or indirectly,  including,
without limitation,  any obligation of the guaranteeing  person,  whether or not
contingent,  (i) to  purchase  any  such  primary  obligation  or  any  property
constituting  direct or indirect  security  therefor,  (ii) to advance or supply
funds for the purchase or payment of any such primary  obligation or to maintain
working  capital  or equity  capital of the  primary  obligor  or  otherwise  to
maintain  the net worth or solvency of the  primary  obligor,  (iii) to purchase
property, securities or services primarily for the purpose of assuring the owner
of any such  primary  obligation  of the ability of the primary  obligor to make
payment of such primary  obligation or (iv) otherwise to assure or hold harmless
the  owner of any such  primary  obligation  against  loss in  respect  thereof;
provided,  however,  that  the  term  Guarantee  Obligation  shall  not  include
endorsements  of instruments for deposit or collection in the ordinary course of
business.  The amount of any  Guarantee  Obligation of any  guaranteeing  person
shall be  deemed  to be the  lesser  of (a) an  amount  equal to the  stated  or
determinable amount of the primary obligation in respect of which such Guarantee
Obligation is made and (b) the maximum amount for which such guaranteeing person
may be liable  pursuant to the terms of the instrument  embodying such Guarantee
Obligation, unless such primary obligation and the maximum amount for which such
guaranteeing person may be liable are not stated or determinable,  in which case
the amount of such  Guarantee  Obligation  shall be such  guaranteeing  person's
maximum reasonably anticipated liability in respect thereof as determined by the
Borrower in good faith.

<PAGE>

        "GUARANTEES": the Second Amended and Restated Guarantees made by each of
VDIMI and Multi-Media,  each as amended by a Guarantee Amendment,  and all other
guarantees  executed by a Guarantor in favor of the Agent for the benefit of the
Lenders, in form and substance reasonably satisfactory to the Agent, as the same
may be  amended  or  modified  from  time to time in  accordance  with the terms
hereof.

        "GUARANTOR  COLLATERAL":  all of the property  (tangible or  intangible)
purported to be subject to the lien or security interest purported to be created
by any mortgage, deed of trust, security agreement, pledge agreement, assignment
or other security document  heretofore or hereafter executed by any Guarantor as
security for all or part of the Obligations or the Guarantees.

        "GUARANTOR COLLATERAL DOCUMENTS": the Guarantor Security Agreements, any
Control Agreements  executed pursuant to any Guarantor Security  Agreement,  all
Form UCC-1  Financing  Statements and amendments  thereto and any other document
encumbering  the  Guarantor  Collateral  or  evidencing or perfecting a security
interest therein for the benefit of the Lenders executed by any Guarantor.

        "GUARANTOR SECURITY  AGREEMENTS":  the security agreements,  in form and
substance reasonably satisfactory to the Agent, made by each Subsidiary in favor
of the Agent,  for the benefit of the  Lenders,  as the same may be amended from
time to time in accordance with the terms hereof.

        "GUARANTORS": each Subsidiary.

        "HAZARDOUS  MATERIAL":  collectively,  (a) any  petroleum  or  petroleum
products, flammable materials, explosives, radioactive materials, asbestos, urea
formaldehyde  foam insulation,  and transformers or other equipment that contain
polychlorinated  biphenyls  ("PCB's"),  (b) any chemicals or other  materials or
substances  that are now or  hereafter  become  defined  as or  included  in the
definition of "hazardous substances", "hazardous wastes", "hazardous materials",
"extremely hazardous wastes", "restricted hazardous wastes", "toxic substances",
"toxic  pollutants",  "contaminants",  "pollutants"  or words of similar  import
under any  Environmental  Control  Statute  and (c) any other  chemical or other
material or substance, exposure to which is now or hereafter prohibited, limited
or regulated under any Environmental Control Statute.

        "INDEBTEDNESS":  of any Person at any date, without duplication, (a) all
indebtedness  of such Person for  borrowed  money or for the  deferred  purchase
price of  property or services  (other  than trade  liabilities  (other than for
borrowed  money)  incurred  in the  ordinary  course of business so long as such
trade  liabilities  are payable within 90 days of the date the respective  goods
are delivered or the respective  services are rendered) or which is evidenced by
a note,  bond,  debenture or similar  instrument,  (b) all  obligations  of such
Person under Capitalized Lease  Obligations,  (c) all obligations of such Person
in respect of acceptances  issued or created for the account of such Person, (d)
all  liabilities  secured by any Lien on any property  owned by such Person even
though such Person has not assumed or  otherwise  become  liable for the payment
thereof, (e) all obligations of such Person, whether absolute or contingent,  in
respect of letters of credit  opened  for the  account of such  Person,  (f) all
obligations  of such Person under  Non-Compete  Agreements and (g) all Guarantee
Obligations  of such  Person in  respect  of any  indebtedness,  obligations  or
liabilities  of any other Person of the type  referred to in clauses (a) through
(f) of this definition.

        "INSOLVENCY": with respect to any Multiemployer Plan, the condition that
such Plan is insolvent within the meaning of Section 4245 of ERISA.

        "INTEREST  EXPENSE":  for any period,  the sum, for the Borrower and its
Subsidiaries   (determined  on  a  consolidated  basis  without  duplication  in
accordance  with  GAAP),  of the  following:  (i) all  interest  on Funded  Debt
(including,  without  limitation,  the  interest  component  of any  payments in
respect of Capitalized Lease Obligations) which was paid, payable and/or accrued
for such period and (ii) all commitment, letter of credit or line of credit fees
paid,  payable and/or accrued for such period  (without  duplication of previous
amounts) to any lender in exchange for such lender's commitment to lend.

        "INTEREST  PAYMENT DATE": (a) the first day of each month and (b) on the
day on which the Loans become due and payable in full and are paid or prepaid in
full.

        "INTEREST RATE PROTECTION AGREEMENT":  shall mean any interest rate swap
agreement,  interest  rate cap  agreement,  interest rate collar  agreement,  or
interest rate hedging agreement or other similar agreement or arrangement.

        "INVESTMENT": as defined in Section 6.7.

<PAGE>

        "LETTER  OF CREDIT  REQUEST":  with  respect to the  Existing  Letter of
Credit, the letter of credit application executed by the Borrower on the Agent's
standard form.

        "LANDLORD  CONSENT":  a  waiver  and  consent,  in  form  and  substance
reasonably  satisfactory  to the Agent,  of each Person who is the owner of real
property leased to the Borrower or any Guarantor.

        "LENDERS": as defined in the preamble hereto and Section 8.8.

        "LIEN":  any  mortgage,  pledge,  hypothecation,   assignment,   deposit
arrangement,  encumbrance, lien (statutory or other), or preference, priority or
other  security  agreement  or  preferential  arrangement  of any kind or nature
whatsoever (including,  without limitation,  any conditional sale or other title
retention  agreement,  any Capitalized Lease Obligation having substantially the
same economic  effect as any of the  foregoing,  and the filing of any financing
statement   under  the  Uniform   Commercial  Code  or  comparable  law  of  any
jurisdiction in respect of any of the foregoing).

        "LOAN": as defined in Section 2.1(a).

        "LOAN DOCUMENTS":  this Agreement,  the Notes, the Collateral Documents,
the Landlord Consents, the Release Agreement, the Guarantor Collateral Documents
and the Guarantees and any other agreement  executed by an Obligor in connection
therewith and herewith including, but not limited to, UCC-1 Financing Statements
and amendments  thereto,  the Letter of Credit  Request,  and the fee sideletter
executed  between the Borrower and the Agent,  as such  agreements and documents
may be  amended,  supplemented  and  otherwise  modified  from  time  to time in
accordance with the terms hereof.

        "LOAN  PERCENTAGE":  as to any Lender at any time, the percentage of the
Aggregate Loan then  constituted  by the  outstanding  principal  amount of such
Lender's Loans.

        "MAJORITY  LENDERS":  Lenders  having  at  least  51% of  the  aggregate
outstanding principal amount of the Loans, provided that during any such time as
UBOC alone would otherwise constitute a Majority Lender under the definition set
forth above,  "Majority  Lenders"  shall be deemed to refer to UBOC and at least
one other Lender.

        "MARGIN STOCK": as defined in Regulation U.

        "MATERIAL  ADVERSE  EFFECT":  a  material  adverse  effect  on  (a)  the
business, operations, property, financial condition, prospects or liabilities of
the  Borrower  and its  Subsidiaries  taken as a whole,  (b) the  ability of any
Obligor to perform its respective obligations under the Loan Documents,  (c) the
validity  or  enforceability  of any of the  Loan  Documents  or the  rights  or
remedies of the Agent and the Lenders  hereunder or thereunder or (d) the timely
payment of the principal of or interest on the Loans or other amounts payable in
connection therewith.

        "MATERIAL CONTRACTS":  each contract and agreement,  including,  but not
limited to, site leases and  licenses,  material to the  financial  condition or
operation of the Borrower or any Subsidiary.

        "MATURITY  DATE":  December 31, 2004,  or such earlier date as the Loans
shall  become  due and  payable  in full in  accordance  with the  terms  hereof
(whether by acceleration or otherwise).

        "MULTI-MEDIA": Multi-Media Services, Inc., a California corporation.

        "MULTIEMPLOYER PLAN": a plan which is a multiemployer plan as defined in
Section 4001(a)(3) of ERISA.

        "NET BOOK VALUE":  net book value as determined in accordance with GAAP.

        "NET INCOME": net income as determined in accordance with GAAP.

        "NET  PROCEEDS":  with  respect to any Equity  Offering,  the net amount
equal to the aggregate  amount  received in cash (including any cash received by
way  of  deferred  payment  pursuant  to  a  note  receivable,   other  non-cash
consideration  or  otherwise,  but only as and when such cash is so received) in
connection with such Equity Offering minus the reasonable fees,  commissions and
other  out-of-pocket  expenses  incurred by the Borrower in connection with such
Equity  Offering  (other than amounts payable to Affiliates of the Person making
such Equity Offering).

<PAGE>

        "NON-COMPETE AGREEMENTS":  all agreements pursuant to which the Borrower
or any  Subsidiary  has agreed to make payments  (whether in cash or in kind) to
another Person for the agreement of such Person not to compete with the Borrower
or such Subsidiary in a given area.

        "NOTE" AND "NOTES": as defined in Section 2.1(b).

        "OBLIGATIONS":  the unpaid  principal  of and  interest  on  (including,
without limitation,  interest accruing after the maturity the Loans and interest
accruing  on or  after  the  filing  of  any  petition  in  bankruptcy,  or  the
commencement of any insolvency,  reorganization or like proceeding,  relating to
the Borrower,  whether or not a claim for post-filing or post-petition  interest
is allowed in such  proceeding  and whether or not at a default rate) the Notes,
and all other  obligations  and liabilities of the Obligors to the Agent and the
Lenders,  whether direct or indirect,  absolute or contingent,  due or to become
due, or now existing or hereafter incurred, which may arise under, out of, or in
connection  with,  this  Agreement,  the Notes,  any other Loan Document and any
other  document  made,  delivered or given in connection  herewith or therewith,
including,  but not limited to, any Interest Rate Protection  Agreement to which
the Agent or any Lender is party,  whether on  account of  principal,  interest,
reimbursement  obligations,  fees,  indemnities,   costs,  expenses  (including,
without limitation,  all reasonable fees and disbursements of counsel (including
the allocated  reasonable cost of internal  counsel) to the Agent or the Lenders
that are  required  to be paid by the  Borrower  pursuant  to the  terms of this
Agreement) or otherwise.

        "OBLIGOR": the Borrower, each Guarantor and any other Person (other than
the Agent or a Lender) obligated under any Loan Document.

        "OPERATING  MACHINERY AND  EQUIPMENT":  the Net Book Value of all of the
machinery and equipment  set forth in the notes to the  Borrower's  consolidated
balance sheet, as determined in accordance with GAAP consistently applied.

        "ORGANIC DOCUMENTS": relative to any entity, its certificate or articles
of  incorporation  or  organization,  its by-laws or  operating  agreement,  any
Equityholder Agreements,  its partnership agreement, and any other agreements or
documents  relating to the  control or  management  of any such entity  (whether
existing  as  corporation,   a  partnership,  a  limited  liability  company  or
otherwise).

        "PARTICIPANT": as defined in Section 9.6(b).

        "PBGC": the Pension Benefit Guaranty Corporation established pursuant to
Subtitle A of Title IV of ERISA or any successor thereto.

        "PERSON": any individual, firm, partnership, joint venture, corporation,
association,    limited   liability   company,    business   enterprise   trust,
unincorporated organization, government or department or agency thereof or other
entity, whether acting in an individual, fiduciary or other capacity.

        "PLAN":  as to any Person,  any plan (other than a  Multiemployer  Plan)
subject to Title IV of ERISA  maintained  for  employees  of such  Person or any
ERISA  Affiliate of such Person (and any such plan no longer  maintained by such
Person or any of such Person's  ERISA  Affiliates to which such Person or any of
such  Person's   ERISA   Affiliates  has  made  or  was  required  to  make  any
contributions within any of the five preceding years).

        "PROHIBITED  TRANSACTION":  with  respect  to  any  Plan,  a  prohibited
transaction (as defined in Section 406 of ERISA) with respect to such Plan.

        "PROJECTIONS":  those certain  projections  delivered by the Borrower to
the Agent and the Lenders in connection with this Agreement,  a copy of which is
attached hereto as Exhibit F.

        "PROPERTIES":   the  collective  reference  to  the  real  and  personal
(tangible and intangible)  property owned,  leased,  used, occupied or operated,
under license or permit by the Obligors.

        "PURCHASING LENDERS": as defined in Section 9.6(c).

        "REFERENCE RATE": the rate of interest per annum publicly announced from
time to time by Union Bank of California, N.A. as its "reference rate" in effect
at its office in Los Angeles, California. Any change in the Reference Rate shall
be effective on the effective date specified in the public  announcement of such
change. The Reference Rate is an index rate determined by UBOC from time to time
as a means of pricing certain  extensions of credit and is neither directly tied
to any  external  rate of interest or index nor  necessarily  the lowest rate of
interest charged by UBOC at any given time.

<PAGE>

        "REGISTER": as defined in Section 9.6(d).

        "REGULATION  D":  Regulation  D of the Board of Governors of the Federal
Reserve  System,  as the same is from time to time in effect,  and all  official
rulings and interpretations  thereunder or thereof and any successor  regulation
thereto.

        "REGULATION  U":  Regulation  U of the Board of Governors of the Federal
Reserve  System,  as the same is from time to time in effect,  and all  official
rulings and interpretations  thereunder or thereof and any successor  regulation
thereto.

        "RELEASE  AGREEMENT":  a  Release  Agreement,  in the form of  Exhibit C
hereto,  executed by the Borrower  and each  Guarantor in favor of the Agent and
the Lenders.

        "REORGANIZATION":  with respect to any Multiemployer Plan, the condition
that such plan is in reorganization within the meaning of Section 4241 of ERISA.

        "REPORTABLE  EVENT":  any of the events set forth in Section  4043(b) of
ERISA,  other  than those  events as to which the  thirty  day notice  period is
waived under PBGC regulations.

        "REQUIREMENT  OF LAW": as to any Person,  the Organic  Documents of such
Person,  and any  law,  treaty,  rule or  regulation,  determination  or  policy
statement or  interpretation  of an arbitrator or a court or other  Governmental
Authority,  in each case applicable to or binding upon such Person or any of its
property or to which such Person or any of its property is subject.

        "RESPONSIBLE  OFFICER":  with respect to the Borrower or any Subsidiary,
the chief  executive  officer or the  president,  or, with  respect to financial
matters, the chief financial officer, treasurer or controller of such entity.

        "RESTATEMENT DATE": the date on which the conditions precedent set forth
in Section 4.1 have been satisfied.

        "RESTRICTED PAYMENTS": as defined in Section 6.6.

        "SECURITY AGREEMENT": the Second Amended and Restated Security Agreement
dated as of September 28, 2000, made by the Borrower in favor of the Agent,  for
the benefit of the Lenders,  in respect of the tangible and intangible  personal
property  of the  Borrower  described  therein,  as  amended  by the  applicable
Security  Agreement  Amendment,  as the same may be further amended from time to
time in accordance with the terms hereof.

        "SECURITY AGREEMENT AMENDMENT":  an amendment to the Security Agreement,
and each Guarantor  Security Agreement existing on the Restatement Date, in each
case in form and substance satisfactory to the Agent.

        "SINGLE  EMPLOYER PLAN": any Plan which is covered by Title IV of ERISA,
but which is not a Multiemployer Plan.

        "SOLVENT": when used with respect to any Person, that:

            (i) the present fair  salable  value of such  Person's  assets is in
            excess  of the  total  amount  of the  probable  liability  on  such
            Person's liabilities;

            (ii) such Person is able to pay its debts as they become due;

            (iii)such Person does not have  unreasonably  small capital to carry
            on such Person's business as theretofore operated and all businesses
            in which such Person is about to engage; and

            (iv) such Person is not  otherwise  insolvent  as defined in Section
            3439.02  of the  California  Civil  Code and as defined in 11 U.S.C.
            Section 101 (32) of the Bankruptcy Code.

        "SUBSIDIARY":  as  to  any  Person  at  any  time  of  determination,  a
corporation,  partnership  or other  entity  of which  shares  of stock or other
ownership  interests  having  ordinary  voting  power to elect a majority of the
board of  directors  or  other  persons  performing  similar  functions  of such
corporation,  partnership  or other  entity  (other  than  stock  or such  other
ownership  interests  having  such  power only by reason of the  happening  of a
contingency)  to elect a majority of the board of directors or other managers of
such  corporation,  partnership  or other  entity are at the time owned,  or the
management of which is otherwise controlled,  directly or indirectly through one
or  more  intermediaries  or  Subsidiaries,  or  both,  by such  Person.  Unless
otherwise  qualified,  all references to a "Subsidiary" or to  "Subsidiaries" in
this Agreement shall refer to a Subsidiary or Subsidiaries of the Borrower.

<PAGE>

        "TAXES": as defined in Section 2.9.

        "TERMINATION  EVENT":  (i) a Reportable  Event,  (ii) the institution of
proceedings  to terminate a Single  Employer Plan by the PBGC under Section 4042
of ERISA,  (iii) the  appointment  by the PBGC of a trustee  to  administer  any
Single  Employer Plan or (iv) the existence of any other event or condition that
would  reasonably be expected to constitute  grounds under Section 4042 of ERISA
for  the  termination  of,  or the  appointment  by the  PBGC  of a  trustee  to
administer, any Single Employer Plan.

        "TRANSFEREE": as defined in Section 9.6(f).

        "UBOC": as defined in the Recitals hereto.

        "UCC":  the  Uniform  Commercial  Code as the same may be in effect from
time to time in the State of California.

        "VDIMI": VDI Multimedia, Inc., a Delaware corporation.

        "WHOLLY OWNED SUBSIDIARY":  with respect to any Person, any corporation,
partnership  or other  entity of which  all of the  equity  securities  or other
ownership  interests  (other  than,  in the  case of a  corporation,  directors'
qualifying shares) are directly or indirectly owned or controlled by such Person
or one or more Wholly Owned Subsidiaries of such Person.

1.2 OTHER DEFINITIONAL PROVISIONS.

   (a)  Unless otherwise specified therein,  all terms defined in this Agreement
        shall have such defined  meanings when used in the Notes, any other Loan
        Document or any certificate or other document made or delivered pursuant
        hereto or thereto.

   (b)  As used herein,  in the Notes,  in any other Loan  Document,  and in any
        certificate  or other  document  made or  delivered  pursuant  hereto or
        thereto,  accounting  terms not  defined in Section  1.1 and  accounting
        terms partly  defined in Section  1.1, to the extent not defined,  shall
        have the respective meanings given to them under GAAP.

   (c)  The words "hereof," "herein" and "hereunder" and words of similar import
        when used in this Agreement shall refer to this Agreement as a whole and
        not  to  any  particular  provision  of  this  Agreement,  and  Section,
        subsection, Schedule and Exhibit references are to this Agreement unless
        otherwise specified.

   (d)  The meanings given to terms defined  herein shall be equally  applicable
        to both the singular and plural forms of such terms.

   (e)  For the purpose of determining  financial covenant compliance  hereunder
        for any  period,  divestitures  and asset  sales  occurring  during such
        period  will be included  in the  calculations  for such period on a pro
        forma  basis,  and will be deemed to have  occurred  on the first day of
        such period.

SECTION 2. AMOUNT AND TERMS OF LOANS

2.1 LOANS.

   (a)  Upon the occurrence of the  Restatement  Date, the revolving loans owing
        to each Lender under the Existing Agreement shall be deemed to be a term
        loan (each a "Loan,"  and  collectively,  the  "Loans")  payable to such
        Lender in the amount set forth on Part 1 of Schedule 2.1 with respect to
        such  Lender.  Each  Lender  may  maintain  its Loan by or  through  any
        Applicable  Lending Office. For the avoidance of doubt, in no event will
        any  borrowings  or  credit   advances  be  available   hereunder,   all
        commitments  of the Lenders to lend or make  extensions of credit having
        been terminated under the Existing Agreement.

   (b)  The Loans made by each Lender to the  Borrower  shall be  evidenced by a
        promissory note of the Borrower,  substantially in the form of Exhibit A
        (a "Note"),  with appropriate  insertions  therein as to payee, date and
        principal  amount,  payable to the order of such Lender and representing
        the  obligations of the Borrower to pay the aggregate  unpaid  principal
        amount of Loans  made by such  Lender  to the  Borrower,  with  interest
        thereon as  prescribed  in Sections  2.5 and 2.6.  Each Lender is hereby
        authorized  (but not  required)  to record  the date and  amount of each
        payment or  prepayment of principal of its Loans made to the Borrower in
        the books and records of such  Lender,  and any such  recordation  shall
        constitute  prima facie  evidence of the accuracy of the  information so
        recorded.  The  failure  of any Lender to make any such  recordation  or
        notation  in the books and  records  of the Lender (or any error in such
        recordation  or  notation)  shall  not  affect  the  obligations  of the
        Borrower  hereunder or under the Notes. Each Note shall (i) be dated the
        Restatement Date, (ii) provide for the payment of interest in accordance
        with  Sections  2.5 and 2.6 and (iii) be stated to be payable in full on
        the Maturity Date.

<PAGE>

   (c)  On each date described in the following table (each a "Reduction Date"),
        the  Borrower  shall repay the  principal  of the Loans in an  aggregate
        amount equal to the amount set forth below  opposite such Reduction Date
        (each such payment, a "Reduction Installment"):

                                  REDUCTION
        REDUCTION DATE            INSTALLMENT
        --------------            -----------

        Restatement Date          2,000,000.00

        May 31, 2002                325,000.00
        June 30, 2002               325,000.00
        July 31, 2002               283,333.33
        August 31, 2002             283,333.33
        September 30, 2002          283,333.34
        October 31, 2002            333,333.33
        November 30, 2002           333,333.33
        December 31, 2002         1,333,333.34
        January 31, 2003            416,666.66
        February 28, 2003           416,666.67
        March 31, 2003              416,666.67
        April 30, 2003              416,666.66
        May 31, 2003                416,666.67
        June 30 2003                416,666.67
        July 31 2003                416,666.66
        August 31, 2003             416,666.67
        September 30, 2003          416,666.67
        October 31, 2003            416,666.66
        November 30, 2003           416,666.67
        December 31, 2003           416,666.67
        January 31, 2004            500,000.00
        February 28, 2004           500,000.00
        March 31, 2004              500,000.00
        April 30, 2004              500,000.00
        May 31, 2004                500,000.00
        June 30, 2004               500,000.00
        July 31, 2004               500,000.00
        August 31, 2004             500,000.00
        September 30, 2004          500,000.00
        October 31, 2004            500,000.00
        November 30, 2004           500,000.00
        December 31, 2004        12,999,484.00

   (d)  All  outstanding  Loans  shall be due and  payable,  to the  extent  not
        previously  paid in accordance  with the terms  hereof,  on the Maturity
        Date.  The aggregate  amount payable to any Lender on any Reduction Date
        shall be determined in accordance with the provisions of Section 2.7.

   (e)  Each Reduction  Installment  shall be accompanied by accrued interest on
        the amount being prepaid to the date of such prepayment.

2.2 AGREEMENTS REGARDING EXISTING LETTER OF CREDIT(A).

   (a)  The Borrower shall at all times maintain with the Agent, for the benefit
        of the Agent in its capacity as issuer of the Existing Letter of Credit,
        a cash collateral account (the "Cash Collateral  Account"),  in at least
        the outstanding face amount of such letter of credit. Such account shall
        be pledged to the Agent  pursuant to the  Security  Agreement,  shall be
        under the sole dominion and control of the Agent, and the Borrower shall
        have no right to make  withdrawals  therefrom.  Within ten Business Days
        following  cancellation  or  termination  of such letter of credit,  and
        reimbursement  to the  Agent  of all  amounts  owing to the  Agent  with
        respect  thereto,  any remaining funds in such account shall be returned
        to the  Borrower;  provided that if a Default shall have occurred and be
        continuing,  such funds shall instead be deemed to be held by the Agent,
        for the  benefit  of  itself  and the  Lenders,  as  collateral  for all
        Obligations.

   (b)  Each  Lender  confirms  and  acknowledges  that it  holds  an  undivided
        interest  and  participation  in the  Existing  Letter of  Credit,  each
        drawing  thereunder  and the  obligations  of the  Borrower  under  this
        Agreement  in respect  thereof in an amount  equal to the product of (i)
        such Lender's Loan  Percentage and (ii) the maximum amount  available to
        be drawn  under  such  Letter of Credit  (assuming  compliance  with all
        conditions to drawing) which amount is, as of the  Restatement  Date, as
        set forth in Part 2 of Schedule 2.1. The payment by the Agent of a draft
        drawn under the  Existing  Letter of Credit shall first be made from the
        Cash  Collateral  Account.  In the event that  amounts on deposit in the

<PAGE>

        Cash  Collateral  Account are  insufficient  to compensate the Agent for
        such  drawing,  each Lender  agrees to forward to the Agent,  within one
        Business  Day  following  notice  thereof from the Agent to the Lenders,
        funds (the "Letter of Credit Funds") in an amount equal to the amount of
        such Lender's participation in such drawing for application to repay the
        Agent.  Any Letter of Credit Funds funded by any Lender  hereunder shall
        be due and payable by the Borrower  upon  demand,  shall be deemed to be
        Obligations  hereunder,  and shall accrue interest at the rate specified
        in Section 2.6(b) until repaid in full.

   (c)  The  obligations of the Borrower with respect to the Existing  Letter of
        Credit, the Letter of Credit Request with respect thereto, and any other
        agreement  or  instrument  relating  to such  Letter of Credit  shall be
        absolute,  unconditional  and  irrevocable and shall be paid strictly in
        accordance  with the  terms of the  aforementioned  documents  under all
        circumstances, including the following:

            (i) any lack of validity or enforceability of such Letter of Credit,
            this Agreement or any other Loan Document;

            (ii) the existence of any claim, setoff, defense or other right that
            the  Borrower  may  have at any  time  against  any  beneficiary  or
            transferee of such Letter of Credit (or any Person for whom any such
            beneficiary  or  transferee  may be acting),  the Agent,  any Lender
            (other  than the defense of payment to a Lender in  accordance  with
            the  terms  of this  Agreement)  or any  other  Person,  whether  in
            connection  with  this  Agreement,  any  other  Loan  Document,  the
            transactions   contemplated  hereby  or  thereby  or  any  unrelated
            transaction;

            (iii) any statement or other document presented under such Letter of
            Credit proving to be forged, fraudulent,  invalid or insufficient in
            any respect,  or any statement therein being untrue or inaccurate in
            any respect  whatsoever;  provided  that  payment by the Agent under
            such Letter of Credit shall not have constituted gross negligence or
            willful misconduct of the Agent under the circumstances in question,
            as determined by a final judgment of the highest  applicable  court;
            and

            (iv) any exchange,  release or  nonperfection  of any  Collateral or
            other collateral, or any release,  amendment or waiver of or consent
            to  departure  from any  Guarantee,  other  Loan  Document  or other
            guaranty, for any of the Obligations of the Borrower.

   (d)  The Borrower shall pay to the Agent for its own account, with respect to
        such  Letter of  Credit,  from time to time,  such  additional  fees and
        charges  (including  cable  charges) as are  generally  associated  with
        letters of credit,  in  accordance  with the Agent's  standard  internal
        charge guidelines and the related Letter of Credit Request.

   (e)  The Borrower  agrees to the  provisions in the Letter of Credit  Request
        form; provided, however, that the terms of the Loan Documents shall take
        precedence if there is any  inconsistency  between the terms of the Loan
        Documents and the terms of said form.

   (f)  The  Borrower  assumes  all  risks  of  the  acts  or  omissions  of any
        beneficiary  or  transferee of such Letter of Credit with respect to its
        use of such  Letter of Credit.  Neither the Agent nor any Lender nor any
        of their respective officers or directors shall be liable or responsible
        for (i) the use that may be made of such Letter of Credit or any acts or
        omissions of any beneficiary or transferee in connection  therewith;  or
        (ii) the validity,  sufficiency or  genuineness of documents,  or of any
        endorsement thereof, even if such documents should prove to be in any or
        all respects invalid, insufficient, fraudulent or forged; provided that,
        with respect to clause (ii) of this Section  2.2(f),  the Borrower shall
        retain  any and  all  rights  it may  have  against  the  Agent  for any
        liability  arising out of the gross negligence or willful  misconduct of
        the Agent,  as determined by a final judgment of the highest  applicable
        court. In furtherance and not in limitation of the foregoing,  the Agent
        may accept any document that appears on its face to be in order, without
        responsibility  for further  investigation,  regardless of any notice or
        information to the contrary.

<PAGE>

   (g)  The Borrower  hereby  indemnifies and holds harmless each Lender and the
        Agent  from  and  against  any  and  all  claims  and  damages,  losses,
        liabilities,  costs or expenses  that such Lender or the Agent may incur
        (or that may be claimed  against  such Lender or the Agent by any Person
        whatsoever)  by  reason  of or in  connection  with  the  execution  and
        delivery or  transfer  of or payment or refusal to pay by the Agent,  as
        issuer of such Letter of Credit; provided that the Borrower shall not be
        required to indemnify  any Lender or the Agent for any claims,  damages,
        losses,  liabilities,  costs or expenses to the extent,  but only to the
        extent,  caused by (x) the willful misconduct or gross negligence of the
        Agent,  as issuer of such  Letter of Credit,  in  determining  whether a
        request presented under such Letter of Credit complied with the terms of
        such Letter of Credit or (y) in the case of the Agent, as issuer of such
        Letter of Credit, the Agent's failure to pay under such Letter of Credit
        after the  presentation to it of a request  strictly  complying with the
        terms and  conditions of such Letter of Credit.  Nothing in this Section
        2.2 is  intended to limit the other  obligations  of the  Borrower,  any
        Lender, or the Agent under this Agreement.

2.3  OPTIONAL  PREPAYMENTS.  The Borrower may at any time and from time to time,
prepay the Loans, in whole or in part, without premium or penalty, upon at least
one Business  Day's  irrevocable  written notice from the Borrower to the Agent,
specifying  the date and amount of  prepayment.  Upon receipt of any such notice
from the Borrower,  the Agent shall promptly notify each Lender thereof.  If any
such  notice is given,  the amount  specified  in such  notice  shall be due and
payable by the Borrower on the date  specified  therein,  together  with accrued
interest to such date on the amount prepaid.  Each prepayment hereunder shall be
applied to the outstanding Reduction Installments in the order designated by the
Borrower in such notice or, if not so designated,  in inverse order of maturity.
Partial  prepayments of the Loans shall be in an aggregate  principal  amount of
$250,000 and integral multiples of $100,000 in excess thereof. For the avoidance
of doubt,  no amounts  prepaid  under this  Section 2.3 shall be  available  for
reborrowing.

2.4 MANDATORY PREPAYMENTS.

   (a)  If the Borrower or any of its Subsidiaries  receives  insurance proceeds
        or condemnation  proceeds with respect to any of their  Properties which
        are  not  fully  applied  (or   contractually   committed   pursuant  to
        contract(s)  approved by the Agent in its reasonable  discretion) toward
        the repair or replacement of such damaged or condemned  Property  within
        30 days of the receipt  thereof,  the Borrower  shall,  on such 30th day
        prepay the Loans in an amount  equal to the amount of such  proceeds not
        so applied.

   (b)  In the  event  that the  Borrower  or any of its  Subsidiaries  makes an
        Equity Offering,  the Borrower shall immediately  prepay the Loans in an
        amount  equal  to 100%  of the Net  Proceeds  of such  Equity  Offering;
        provided  that if such Equity  Offering is the result of the exercise of
        an option or other right to purchase  beneficial or equity  interests in
        the  Borrower  pursuant  to the 1996  Stock  Incentive  Plan or the 2000
        Non-Qualified Stock Option Plan, each as in effect as of the Restatement
        Date, then such prepayment shall be in an amount equal to 50% of the Net
        Proceeds  of such Equity  Offering.  No such  prepayment  shall limit or
        restrict the rights and remedies of the Lenders under the Loan Documents
        upon the occurrence and during the continuance of a Default.

   (c)  Each  prepayment of the Loans  pursuant to this Section 2.4 shall be (i)
        applied to the  outstanding  Reduction  Installments in inverse order of
        maturity and (ii) accompanied by payment in full of all accrued interest
        thereon  to and  including  the date of such  prepayment.  The  Borrower
        agrees  to give the  Agent  at least  five  Business  Days'  irrevocable
        written  notice  of any  prepayment  under  this  Section  2.4.  For the
        avoidance of doubt,  no amounts  prepaid under this Section 2.4 shall be
        available for reborrowing.

2.5 INTEREST RATES AND PAYMENT DATES.

   (a)  Each Loan shall bear interest at a rate per annum equal to the Reference
        Rate plus 1.25%.

   (b)  If any  Default  shall have  occurred  and be  continuing,  all  amounts
        outstanding  shall  bear  interest  at a rate  per  annum  equal  to the
        Reference  Rate  plus  3.25%  from  the date of the  occurrence  of such
        Default  until such  Default is no longer  continuing  (after as well as
        before judgment).

   (c)  Interest  shall be payable in arrears  on each  Interest  Payment  Date,
        provided  that  interest  accruing  pursuant  to  paragraph  (b) of this
        Section shall be payable on demand.

<PAGE>

2.6 COMPUTATION OF INTEREST AND FEES.

   (a)  Interest  on the Loans  shall be  calculated  on the basis of a 365- (or
        366-,  as the case may be),  day year for the actual days  elapsed,  and
        interest on all other Obligations of the Borrower shall be calculated on
        the basis of a 360-day year for the actual days  elapsed.  Any change in
        the interest  rate on a Loan  resulting  from a change in the  Reference
        Rate shall become  effective as of the opening of business on the day on
        which such change in the Reference Rate is announced. The Agent shall as
        soon as practicable notify the Borrower and the Lenders of the effective
        date and the amount of each such change in interest rate.

   (b)  Each  determination  of an  interest  rate by the Agent  pursuant to any
        provision  of this  Agreement  shall be  conclusive  and  binding on the
        Borrower and the Lenders in the absence of manifest error.

2.7 PRO RATA TREATMENT AND PAYMENTS. Each payment (including each prepayment) by
the  Borrower on account of principal of and interest on the Loans shall be made
pro rata according to the respective  outstanding principal and interest amounts
of the Loans then held by the Lenders.  All payments (including  prepayments) to
be made by the  Borrower  hereunder  and under the Notes,  whether on account of
principal,  interest,  fees  or  otherwise,  shall  be made  without  set off or
counterclaim and shall be made prior to 12:00 Noon, Los Angeles time, on the due
date thereof to the Agent,  for the account of the  applicable  Lenders,  at the
Agent's office specified in Section 9.2, in Dollars and in immediately available
funds.  The Agent  shall  distribute  such  payments to the  applicable  Lenders
promptly  upon  receipt  in like funds as  received.  If any  payment  hereunder
becomes due and payable on a day other than a Business  Day,  such payment shall
be extended to the next  succeeding  Business Day, and, with respect to payments
of  principal,  interest  thereon shall be payable at the then  applicable  rate
during such extension.

2.8 INCREASED COSTS.  If, after the date of this Agreement,  the introduction of
or any change in any  applicable  law, rule,  regulation or guideline  regarding
capital adequacy, or any change in the interpretation or administration  thereof
by any  Governmental  Authority,  central  bank or the National  Association  of
Insurance  Commissioners or comparable agency charged with the interpretation or
administration thereof, affects the amount of capital required or expected to be
maintained by any Lender or any  corporation  controlling  any Lender,  and such
Lender (taking into consideration  such Lender's or such corporation's  policies
with  respect  to  capital  adequacy)  determines  that the  amount  of  capital
maintained by such Lender or such corporation  which is attributable to or based
upon the Loans or this  Agreement  must be  increased as a  consequence  of such
introduction or change by an amount deemed by such Lender to be material,  then,
upon  demand of the Agent at the  request of such  Lender,  the  Borrower  shall
immediately  pay to the  Agent on  behalf  of such  Lender,  additional  amounts
sufficient to compensate such Lender or such corporation for the increased costs
to such Lender or corporation of such increased  capital.  Any such demand shall
be  accompanied  by a  certificate  of such Lender  setting  forth in reasonable
detail the computation of any such increased costs,  which  certificate shall be
conclusive,  absent manifest error.  This covenant shall survive the termination
of this  Agreement  and the payment of the Notes and all other  amounts  payable
hereunder.

2.9 TAXES.

   (a)  All payments made by the Borrower in respect of the Obligations shall be
        made free and clear of, and without  deduction or withholding  for or on
        account of, any present or future income,  stamp or other taxes, levies,
        imposts,  duties,  charges,  fees,  deductions or  withholdings,  now or
        hereafter  imposed,  levied,  collected,  withheld  or  assessed  by any
        Governmental  Authority or any political subdivision or taxing authority
        thereof or therein,  other than  Excluded  Taxes (all such  non-Excluded
        Taxes being hereinafter called "Taxes"). If any Taxes are required to be
        withheld from any amounts  payable to the Agent or any Lender in respect
        of the  Obligations,  the amounts so payable to the Agent or such Lender
        shall be increased to the extent necessary to yield to the Agent or such
        Lender (after  payment of all Taxes)  interest or any such other amounts
        payable  hereunder  at the  rates or in the  amounts  specified  in this
        Agreement  and the  Notes.  The Agent or a  Lender,  as the case may be,
        shall deliver to the Borrower a certificate  in good faith setting forth
        the  amount  of  such  Taxes,  the  calculation  of  such  Taxes  and an
        explanation of the requirement  therefor,  all in reasonable  detail and
        such certificate  shall be conclusive,  absent manifest error.  Whenever
        any  Taxes  are  payable  by  the  Borrower,  as  promptly  as  possible
        thereafter, the Borrower shall send to the Agent, for its own account or
        for the  account  of  such  Lender,  as the  case  may be,  a copy of an
        original  official  receipt  received by the  Borrower  showing  payment
        thereof or such other evidence of payment reasonably satisfactory to the
        Agent.  If  the  Borrower  fails  to  pay  any  Taxes  when  due  to the
        appropriate taxing authority or fails to remit to the Agent the required

<PAGE>

        receipts or other  required  documentary  evidence,  the Borrower  shall
        indemnify the Agent and the Lenders for any incremental taxes,  interest
        or penalties (and related  reasonable fees and expenses of counsel) that
        may  become  payable  by the Agent or any Lender as a result of any such
        failure. The agreements in this Section shall survive the termination of
        this  Agreement  and the  payment  of the Notes  and all  other  amounts
        payable hereunder.

   (b)  Each Lender that is not organized under the laws of the United States of
        America or a state  thereof  agrees that it will deliver to the Borrower
        and the  Agent two duly  completed  copies  of  United  States  Internal
        Revenue Service Form W-9, W-8BEN and/or W-8ECI (as applicable to it), or
        successor  applicable form(s), as the case may be. Each such Lender also
        agrees to deliver to the  Borrower  and the Agent two further  copies of
        Form W-9,  W-8BEN  and/or  W-8ECI (as  applicable  to it), or  successor
        applicable form(s) or other manner of certification, as the case may be,
        on or before the date that any such form expires or becomes  obsolete or
        after the occurrence of any event  requiring a change in the most recent
        form previously  delivered by it to the Borrower and the Agent, and such
        extensions  or renewals  thereof as may  reasonably  be requested by the
        Borrower  or the  Agent,  unless  in any such case an event  beyond  the
        control of such Lender  (including,  without  limitation,  any change in
        treaty,  law or regulation)  has occurred prior to the date on which any
        such delivery  would  otherwise be required which renders all such forms
        inapplicable or which would prevent such Lender from duly completing and
        delivering  any such form with  respect to it and such Lender so advised
        the Borrower and the Agent.  Each such Lender shall certify  pursuant to
        such  form(s)  that  it is  entitled  to  receive  payments  under  this
        Agreement  without deduction or withholding of any United States federal
        income taxes,  or that it is entitled to an exemption from United States
        backup withholding tax, as applicable.

2.10  MITIGATION OF COSTS.  If any Lender,  by changing its  Applicable  Lending
Office or taking any other reasonable  action,  so long as making such change or
taking  such  other  action  is  not  disadvantageous  to it in  any  financial,
regulatory  or other  respect,  can mitigate any adverse  effect on the Borrower
under Section 2.8 or 2.9, such Lender shall take such action.

2.11 AMENDMENT FEE. The Borrower shall pay to the Agent,  for the benefit of the
Lenders on a pro rata basis,  an amendment  fee of  $300,000.  Such fee shall be
deemed  earned in full on the  Restatement  Date,  and no part of such fee shall
refundable  notwithstanding  any earlier  termination of this Agreement or early
repayment of the Loans. Such fee shall be payable in immediately available funds
as follows: (i) $50,000 of such fee shall be payable on the Restatement Date and
(ii)  $250,000  of such fee shall be payable on June 30,  2003;  provided  that,
notwithstanding the foregoing,  the $250,000  installment  referred to in clause
(ii)  shall be waived by the  Lenders  if all  Obligations  of the Agent and the
Lenders shall have been paid in full on or before June 30, 2003.

SECTION 3. REPRESENTATIONS AND WARRANTIES

        To induce the Lenders to enter into this Agreement,  the Borrower hereby
represents and warrants to the Agent and each Lender that:

3.1 ORGANIZATION AND GOOD STANDING. The Borrower and each Subsidiary (a) is duly
incorporated,  validly  existing  and in good  standing  under  the  laws of its
jurisdiction  of  incorporation  as  indicated  on  Schedule  3.1,  (b)  has all
requisite corporate power and authority to own its properties and to conduct its
business as now conducted  and as currently  proposed to be conducted and (c) is
duly qualified to conduct business as a foreign  corporation and is currently in
good  standing  in each state and  jurisdiction  in which it  conducts  business
except,  in each case  referred to in clause (c), to the extent that the failure
to do so could not  reasonably  be expected to have a Material  Adverse  Effect.
Each state and jurisdiction in which the Borrower or any Subsidiary is or should
be qualified to conduct business is listed on Schedule 3.1.

3.2 POWER AND  AUTHORITY.  The Borrower and each  Subsidiary  has all  requisite
power and  authority  under  applicable  law and under its Organic  Documents to
execute, deliver and perform its respective obligations under the Loan Documents
to which it is a party. All actions, waivers and consents (corporate, regulatory
and otherwise)  necessary or appropriate for the Borrower and each Subsidiary to
execute, deliver and perform the Loan Documents to which it is a party have been
taken and/or received.

3.3 VALIDITY AND LEGAL EFFECT.  This Agreement  constitutes,  and the other Loan
Documents to which the Borrower or any Subsidiary is a party constitute (or will
constitute  when  executed  and  delivered),   the  legal,   valid  and  binding
obligations  of the  Borrower or such  Subsidiary,  as  applicable,  enforceable
against it in accordance with the terms thereof,  except as such  enforceability
may be limited by (a)  bankruptcy,  insolvency,  reorganization,  moratorium  or
similar laws of general  applicability  affecting the  enforcement of creditors'
rights and (b) the  application of general  principles of equity  (regardless of
whether such enforceability is considered in a proceeding in equity or at law).

<PAGE>

3.4 NO VIOLATION OF LAWS OR AGREEMENTS. The execution,  delivery and performance
of the Loan Documents (a) will not violate or contravene any Requirement of Law,
(b) will not result in any  material  breach or  violation  of, or  constitute a
material default under, any agreement or instrument by which the Borrower or any
Subsidiary,  or any of its property, may be bound, and (c) will not result in or
require  the  creation of any Lien upon or with  respect to any  property of the
Borrower or any  Subsidiary,  whether  such  property is now owned or  hereafter
acquired.

3.5 TITLE TO ASSETS;  EXISTING ENCUMBRANCES;  LEGAL NAMES. The Borrower and each
Subsidiary  has good  and  marketable  title  to all of its  real  and  personal
properties and assets,  free and clear of any Liens (other than those  permitted
by Section 6.3).  Neither the Borrower nor any Subsidiary has used (or permitted
the filing of any financing  statement under) any legal or operating name at any
time during the twelve  consecutive  calendar months  immediately  preceding the
execution of this Agreement, except as identified on Schedule 3.5.

3.6 CAPITAL  STRUCTURE;  EQUITY OWNERSHIP.  The authorized  capital stock of the
Borrower consists of an aggregate of 50,000,000 shares of common stock,  without
par value,  8,995,704 shares of which are issued and outstanding,  and 5,000,000
shares of preferred stock,  without par value, no shares of which are issued and
outstanding.  All of the issued and  outstanding  shares of common  stock of the
Borrower are duly and validly issued and outstanding, and each of such shares is
fully paid and nonassessable.  Except as set forth on Schedule 3.6, there are no
outstanding  Equity  Rights with respect to the Borrower or any  Subsidiary  and
there are no outstanding  obligations of the Borrower or any of its Subsidiaries
to repurchase,  redeem,  or otherwise acquire any shares of capital stock of the
Borrower,  nor are there any  outstanding  obligations of the Borrower or any of
its  Subsidiaries  to make  payments  to any  Person,  such as  "phantom  stock"
payments,  where the amount  thereof is  calculated  with  reference to the fair
market value or equity value of Borrower or any of its Subsidiaries.

3.7  SUBSIDIARIES  AND  AFFILIATES.   Schedule  3.7  accurately  and  completely
discloses  (i) each  Subsidiary  and  Affiliate of the Borrower  (other than its
officers and directors),  (ii) each Person holding  ownership  interests in such
Subsidiary  and (iii) the nature of the  ownership  interests  held by each such
Person and the  percentage of ownership of such  Subsidiary  represented by such
ownership interests.

3.8 MATERIAL CONTRACTS. Schedule 3.8 attached hereto sets forth a description of
the  Material  Contracts  of  the  Borrower  and  the  Subsidiaries  as  of  the
Restatement  Date.  Neither the Borrower nor any  Subsidiary  has  committed any
unwaived breach or default under any Material Contract,  and the Borrower has no
knowledge or reason to believe that any other party to any Material Contract has
committed any unwaived breach or default thereof. Each of the Material Contracts
is a legal,  valid and binding  obligation  of the Borrower or the  Subsidiaries
party   thereto,   enforceable   in  accordance   with  its  terms,   except  as
enforceability may be limited by applicable bankruptcy,  insolvency,  or similar
laws affecting the  enforcement of creditors'  rights  generally or by equitable
principles  relating to  enforceability.  The Borrower has made available to the
Lenders and the Agent a complete  and  correct  copy of each  Material  Contract
(including in each case all exhibits,  schedules and disclosure letters referred
to therein or delivered pursuant thereto, if any) and all amendments thereto and
other side  letters or  agreements  affecting  the terms  thereof.  Neither  the
Borrower  nor any of its  Subsidiaries  is party to any  current  agreements  or
letters of intent providing for the acquisition or disposition of any assets.

3.9 TAXES AND ASSESSMENTS. The Borrower and each Subsidiary has timely filed all
required  tax  returns and reports  (federal,  state and local) or has  properly
filed for  extensions  of the time for the filing  thereof.  The Borrower has no
knowledge of any deficiency, penalty or additional assessment due or appropriate
in connection with any such taxes. All taxes (federal,  state and local) imposed
upon the Borrower or any  Subsidiary  or any of its  properties,  operations  or
income  have been paid and  discharged  prior to the date when any  interest  or
penalty would accrue for the  nonpayment  thereof,  except for those taxes being
contested in good faith by  appropriate  proceedings  diligently  prosecuted and
with adequate reserves reflected on the financial  statements in accordance with
GAAP.  There are no taxes  imposed on the  Borrower or its  Subsidiaries  by any
political  subdivision or taxing authority due or payable either on or by virtue
of the execution and delivery by the Borrower,  the Subsidiaries,  the Agent, or
the Lenders of this  Agreement or any other Loan  Document to which the Borrower
or the  Subsidiaries  are party,  or on any  payment to be made by the  Borrower
pursuant hereto or thereto.

3.10  LITIGATION  AND LEGAL  PROCEEDINGS.  Except as disclosed on Schedule 3.10,
there is no litigation,  claim, investigation,  administrative proceeding, labor
controversy  or similar  action  that is  pending  or, to the  knowledge  of the
Borrower,  threatened (i) with respect to any Loan Document or the  transactions
contemplated  thereby,  or (ii)  against the  Borrower,  any  Subsidiary  or any
Property which, if determined adversely to the Borrower or any Subsidiary, would
reasonably be expected to have a Material Adverse Effect.

<PAGE>

3.11 ACCURACY OF FINANCIAL INFORMATION.

   (a)  All information  previously  furnished to the Agent and the Lenders that
        was prepared by or on behalf of the Borrower  concerning  the  financial
        condition and  operations of the Borrower or any  Subsidiary,  including
        the audited  consolidated  financial  statements of the Borrower and its
        Subsidiaries  for the fiscal year ended  December  31, 2001  (including,
        separately stated, consolidating statements of income, retained earnings
        and cash  flows of the  Borrower  and its  Subsidiaries),  (A) have been
        prepared in accordance  with GAAP  consistently  applied,  (B) are true,
        accurate and complete in all material  respects,  (C) fairly present the
        financial condition of the organizations covered thereby as of the dates
        and for the  periods  covered  thereby  and (D)  disclose  all  material
        liabilities   (contingent   and  otherwise)  of  the  Borrower  and  the
        Subsidiaries.

   (b)  Since  December 31, 2001 there has been no event or condition  resulting
        in a Material Adverse Effect.

3.12  ACCURACY  OF  OTHER   INFORMATION.   All  information   contained  in  any
application,  schedule, report,  certificate, or any other document given to the
Agent or any Lender by the Borrower or any agent of the  Borrower in  connection
with the Loan Documents is in all material respects true, accurate and complete,
and no such  Person has  omitted to state  therein  (or failed to include in any
such document) any material fact or any fact necessary to make such  information
not  misleading.  All  projections  given to the  Agent,  or any  Lender  by the
Borrower or any other Person have been prepared  with a reasonable  basis and in
good faith  making use of such  information  as was  available  at the date such
projection  was  made.  The  projections  and pro  forma  financial  information
contained in such materials are based upon good faith  estimates and assumptions
believed  by the  Borrower  to be  reasonable  at the  time  made  and as of the
Restatement  Date, it being recognized that such projections as to future events
are not to be viewed as facts  and that  actual  results  during  the  period or
periods covered by any such projections may differ from the projected results.

3.13  COMPLIANCE  WITH LAWS  GENERALLY.  The Borrower and each  Subsidiary is in
compliance in all material  respects with all  Requirements of Law applicable to
it, its operations and its properties.

3.14 ERISA COMPLIANCE.

   (a)  The  Borrower  and each  Subsidiary  is in  compliance  in all  material
        respects  with  all  applicable  provisions  of  ERISA,  and all  rules,
        regulations and orders implementing ERISA.

   (b)  Neither the Borrower nor any Subsidiary, or any ERISA Affiliate thereof,
        maintains or contributes  to (or has  maintained or contributed  to) any
        Multiemployer Plan under which the Borrower, any Subsidiary or any ERISA
        Affiliate thereof could have any withdrawal liability.

   (c)  Neither the Borrower nor any Subsidiary, or any ERISA Affiliate thereof,
        sponsors or maintains any defined benefit pension plan under which there
        is an accumulated  funding  deficiency within the meaning of Section 412
        of the Code, whether or not waived.

   (d)  The liability for accrued  benefits under each defined  benefit  pension
        plan  that  will  be  sponsored  or  maintained  by  the  Borrower,  any
        Subsidiary or any ERISA  Affiliate  thereof  (determined on the basis of
        the  actuarial  assumptions  utilized  by the PBGC)  does not exceed the
        aggregate  fair  market  value of the  assets  under  each such  defined
        benefit pension plan.

   (e)  The aggregate liability of the Borrower,  each Subsidiary and each ERISA
        Affiliate  thereof  arising  out  of or  relating  to a  failure  of any
        employee  benefit  plan within the  meaning of Section  3(2) of ERISA to
        comply  with  provisions  of ERISA or the Code will not have a  Material
        Adverse Effect.

   (f)  There does not exist any unfunded liability  (determined on the basis of
        actuarial  assumptions utilized by the actuary for the plan in preparing
        the most recent annual  report) of the Borrower,  any  Subsidiary or any
        ERISA Affiliate thereof under any plan, program or arrangement providing
        post-retirement, life or health benefits.

   (g)  No Reportable Event and no Prohibited  Transaction (as defined in ERISA)
        has  occurred or is  occurring  with  respect to any plan with which the
        Borrower or any Subsidiary is associated.

<PAGE>

3.15 ENVIRONMENTAL COMPLIANCE.

   (a)  The Borrower and each  Subsidiary has received all permits and filed all
        notifications  necessary  under and is  otherwise in  compliance  in all
        material  respects  with all  federal,  state and local laws,  rules and
        regulations  governing the control,  removal,  storage,  transportation,
        spill, release or discharge of Hazardous Materials,  including,  without
        limitation,  as provided in the provisions of and the regulations  under
        (i) the Comprehensive Environmental Response, Compensation and Liability
        Act of 1980, as amended by the Superfund  Amendment and  Reauthorization
        Act of 1986,  (ii) the Solid Waste  Disposal Act,  (iii) the Clean Water
        Act and the Clean Air Act, (iv) the Hazardous  Materials  Transportation
        Act, (v) the Resource Conservation and Recovery Act of 1976 and (vi) the
        Federal  Water  Pollution  Control  Act  Amendments  of 1972 (all of the
        foregoing  enumerated  and  nonenumerated  statutes,  including  without
        limitation  any  applicable  state or local  statutes,  all as  amended,
        collectively, the "Environmental Control Statutes").

   (b)  Neither the  Borrower nor any  Subsidiary  has given any written or oral
        notice to the  Environmental  Protection  Agency ("EPA") or any state or
        local agency with regard to any actual or imminently threatened removal,
        storage, transportation, spill, release or discharge of Hazardous Wastes
        either  (i) on  properties  owned  or  leased  by the  Borrower  or such
        Subsidiary  or (ii)  otherwise  in  connection  with the  conduct of its
        business and operations.

   (c)  Neither the Borrower nor any Subsidiary  has received  notice that it is
        potentially   responsible  for  costs  of  clean-up  of  any  actual  or
        imminently  threatened  spill,  release or discharge of Hazardous Wastes
        pursuant to any Environmental Control Statute.

   (d)  No judicial  proceedings or  governmental  or  administrative  action is
        pending,  or, to the  knowledge of the Borrower,  threatened,  under any
        Environmental  Control  Statute  to  which  the  Borrower  or any of its
        Subsidiaries  is named as a party with respect to the  Properties or the
        business conducted at the Properties,  nor are there any consent decrees
        or other decrees, consent orders, administrative orders or other orders,
        or other administrative or judicial  requirements  outstanding under any
        Environmental  Control  Statute with respect to the  Properties  or such
        business.

3.16 FEDERAL  REGULATIONS.  No part of the proceeds of any Loans are intended to
be or will be used,  directly or indirectly  for any purpose which  violates the
provisions of the  Regulations of the Board of Governors of the Federal  Reserve
System.  If  requested  by any  Lender  or the  Agent,  and  in any  event  upon
consummation of any acquisition  involving the purchase of stock by the Borrower
or any  Subsidiary,  the  Borrower  will  furnish to the Agent and each Lender a
statement to the foregoing  effect in conformity  with the  requirements of Form
U-1 referred to in Regulation U.

3.17 FEES AND COMMISSIONS.  Except for the fees referred to in Sections 2.11 and
4.1(e),  neither the  Borrower nor any  Subsidiary  owes or will owe any fees or
commissions of any kind in connection  with this  Agreement or the  transactions
contemplated hereby or thereby,  and the Borrower does not know of any claim (or
any basis for any claim) for any fees or  commissions  in  connection  with this
Agreement or the transactions contemplated hereby or thereby.

3.18 SOLVENCY.  Immediately  prior to and upon the execution of this  Agreement,
the Borrower and each Guarantor was, is and will be Solvent.

3.19 INVESTMENT COMPANY ACT; PUBLIC UTILITY HOLDING COMPANY ACT.

   (a)  Neither the Borrower nor any Subsidiary is an "investment company", or a
        company "controlled" by an "investment  company",  within the meaning of
        the Investment Company Act of 1940, as amended.

   (b)  Neither the Borrower nor any  Subsidiary  is a "holding  company," or an
        "affiliate"  of a  "holding  company"  or a  "subsidiary  company"  of a
        "holding  company,"  within the  meaning of the Public  Utility  Holding
        Company Act of 1935, as amended.

3.20 NATURE OF BUSINESS.  Neither the Borrower  nor any of its  Subsidiaries  is
engaged in any material business other than as described in Section 6.11.

3.21 EVENT OF DEFAULT. No Event of Default exists.

3.22 RANKING OF LOANS.  This Agreement and the other Loan Documents to which the
Borrower is party, when executed,  and the Loans, are and will be the direct and
general obligations of the Borrower.  The Borrower's  obligations  hereunder and
thereunder  rank and will rank at least pari passu in priority of payment to all
other Indebtedness.

<PAGE>

SECTION 4. CONDITIONS PRECEDENT

4.1 CONDITIONS TO RESTATEMENT DATE. The agreement of each Lender to execute this
Agreement,  to waive the Events of Default  referred to in Section 9.17,  and to
amend and restate the  Existing  Agreement  on the terms set forth  herein,  are
subject to the satisfaction of the following conditions precedent:

   (a)  CREDIT AGREEMENT. The Agent shall have received this Agreement, executed
        and delivered by an officer of the Borrower as of the Restatement Date.

   (b)  OTHER LOAN  DOCUMENTS.  The Agent  shall have  received  the Notes,  the
        Release Agreement,  a Guarantee Amendment with respect to each Guarantee
        existing on the Restatement  Date, a Security  Agreement  Amendment with
        respect to the Security  Agreement,  a Security Agreement Amendment with
        respect to each Guarantor Security Agreement existing on the Restatement
        Date,  the fee sideletter  executed  between the Borrower and the Agent,
        and all other agreements or instruments  required to create or perfect a
        security  interest  in the  Collateral  and  the  Guarantor  Collateral,
        including any Control Agreements  requested by the Lenders,  executed in
        connection  herewith,  in each case executed and delivered by an officer
        of the relevant Obligor.

   (c)  CORPORATE  DOCUMENTS.  The Agent shall have received certified copies of
        the charter and by-laws of each Obligor and of all  corporate  authority
        for each  Obligor  (including,  without  limitation,  board of  director
        resolutions   and  evidence  of  the  incumbency,   including   specimen
        signatures,  of officers)  with respect to the  execution,  delivery and
        performance  of such of the Loan  Documents  to which  such  Obligor  is
        intended to be a party and each other  document to be  delivered by such
        Obligor from time to time in connection  herewith and the  extensions of
        credit  hereunder  (or,  with  respect any charter or by-laws  delivered
        under the Existing  Agreement with respect to any Obligor, a certificate
        of the Secretary or Assistant Secretary of such Obligor, certifying that
        such document(s)  delivered under the Existing Agreement remain true and
        correct  and in full force and effect or, if either has been  amended or
        replaced,  attaching such amendment or replacement  and certifying  that
        such  documents are true and correct and in full force and effect).  The
        Agent shall have  received  (x)  subject to Section  4.2, a copy of each
        Material  Contract  and (y)  whether  or not such  contracts  constitute
        Material  Contracts,  a copy of each employment  agreement with a senior
        officer of the Borrower or any  Subsidiary,  in each case certified by a
        Responsible  Officer of the  Borrower to be true and correct and in full
        force and effect (or, with respect any Material Contract delivered under
        the Existing  Agreement,  a  certificate  of the  Secretary or Assistant
        Secretary of such Obligor,  certifying  that such  Material  Contract(s)
        delivered  under the Existing  Agreement  remain true and correct and in
        full  force  and  effect  or,  if any have  been  amended  or  replaced,
        attaching  such  amendment  or  replacement  and  certifying  that  such
        documents are true and correct and in full force and effect).

   (d)  PRINCIPAL REPAYMENT.  The Agent shall have received,  for the benefit of
        the Lenders,  in immediately  available funds, the $2,000,000  Reduction
        Installment  required  to be paid on the  Restatement  Date  pursuant to
        Section 2.1(c).

   (e)  FEES AND COSTS.  The Agent shall have  received  payment of (i) all fees
        owing  to  Ernst & Young  in  connection  with  their  valuation  of the
        Borrower,  (ii) the first  installment of the amendment fee contemplated
        by Section 2.9 and (iii) all other fees,  costs and expenses,  including
        legal fees and any LIBOR  breakage  costs,  of the Agent and the Lenders
        incurred pursuant to the Existing  Agreement or this Agreement,  in each
        case in immediately available funds.

   (f)  LIEN  SEARCHES.  The Agent shall have  received such lien searches as it
        shall  request,  none of which shall  evidence  Liens  (except for Liens
        permitted  by  Section  6.3)  covering  any  of  the  Collateral  or the
        Guarantor Collateral.

   (g)  COVENANT  COMPLIANCE  CERTIFICATE.  The  Agent  shall  have  received  a
        Covenant Compliance  Certificate prepared on a pro forma basis as of the
        Restatement  Date  (provided  that  EBITDA,  Fixed  Charges and Eligible
        Accounts  Receivable  shall  be as of  March  31,  2002),  and  assuming
        repayment of the Reduction Installment due on such date.

   (h)  GOOD  STANDING  CERTIFICATES.  With respect to each  Obligor,  the Agent
        shall have received a certificate, dated a recent date, of the Secretary
        of State of the  state  of  formation  of such  Obligor  and each  other
        jurisdiction  where  such  Obligor is  required  to be  qualified  to do
        business under such  jurisdiction's  law (each as respectively set forth
        on Schedule  3.1),  certifying as to the existence and good standing of,
        and the payment of taxes by, each such Obligor in such state.

<PAGE>

   (i)  OFFICER'S CERTIFICATE. A certificate of a senior officer of the Borrower
        substantially in the form of Exhibit D, dated the Restatement Date.

   (j)  INSURANCE  POLICIES.  The Agent shall have received evidence in form and
        substance  reasonably  satisfactory  to the  Agent  that  the  insurance
        required by Section 5.6 is in full force and effect.

   (k)  EXISTING  LETTER  OF  CREDIT.  The  Agent  shall  have  received  a cash
        collateral  deposit  in the  amount of  $92,239.20  to cash  secure  the
        Existing  Letter of Credit,  along with such account  agreement or other
        agreements,  documents  or  instruments  as the  Agent  may  request  to
        establish a separate account for such deposit.

   (l)  FINANCIAL  CONSULTANT.  The Agent  shall  have  received  a copy of that
        certain  letter  dated March 25,  2002,  pursuant to which the  Borrower
        retained Kibel Green, Inc., which letter shall be in the form previously
        delivered to the Agent, along with a certificate of the Borrower stating
        that such  copy is true,  correct  and  complete  and that  such  letter
        remains in full force and effect.

   (m)  STOCK  CERTIFICATES;  ETC. The Agent shall have received  original stock
        certificates  representing  all  outstanding  shares  of  stock  of each
        Subsidiary,  together  with an  undated  stock  power  for  each of such
        certificates,  duly  executed in blank by an  authorized  officer of the
        pledgor thereof.

   (n)  ADDITIONAL  PROCEEDINGS.  The  Agent  shall  have  received  such  other
        approvals, opinions and documents as the Agent may reasonably request.

   (o)  LEGAL  OPINIONS.  The Agent shall have received,  with a counterpart for
        each Lender, the following executed legal opinions:

            (i)  the  executed  legal  opinion  of  Troy  &  Gould  Professional
            Corporation, counsel to the Borrower and the Guarantors, in form and
            substance satisfactory to the Agent; and

            (ii) such other legal opinions as the Agent may reasonably request.

   (p)  ADDITIONAL CONDITIONS PRECEDENT. The following statements shall be true:

            (A) The representations  and warranties  contained in this Agreement
            and in each other Loan  Document and  certificate  or other  writing
            delivered to the Lenders prior to, on or after the Restatement  Date
            pursuant  hereto are correct on and as of such date in all  material
            respects  as though made on and as of such date except to the extent
            that such  representations  and  warranties  expressly  relate to an
            earlier date; and

            (B) No Default has occurred and is  continuing  or would result from
            the amendment and restatement of the Existing Agreement as set forth
            herein;

            (C) The amendment and  restatement of the Existing  Agreement as set
            forth  herein  shall  not  contravene  any law,  rule or  regulation
            applicable to any Lender or any Obligor.

   (q)  CERTIFICATION  RE  PROJECTIONS.  The Agent shall have received a copy of
        the duly executed certification regarding the Borrower's projections, in
        the  exact  form  prepared  by Ernst & Young in  connection  with  their
        valuation of the Borrower.

4.2  CONDITIONS  SUBSEQUENT.  The  agreement  of each  Lender  to  execute  this
Agreement,  to waive the Events of Default  referred to in Section 9.17,  and to
amend and restate the  Existing  Agreement  on the terms set forth  herein,  are
subject to the satisfaction of the following conditions subsequent:

   (a)  LEASES.  The Borrower  agrees to deliver to the Agent,  on or before May
        29, 2002,  copies of each real  property  lease to which the Borrower or
        any Subsidiary is party,  all certified by a Responsible  Officer of the
        Borrower to be true and correct and in full force and effect.

   (b)  UCC  TERMINATIONS.  The Borrower  agrees to deliver to the Agent,  on or
        before May 29,  2002,  evidence  of  termination  of the  following  UCC
        financing statements against Multi-Media:

            (A) Filing Number 211047 by Community Bank, N.A. in New York;
            (B) Filing Number 231261 by Community Bank, N.A. in New York;
            (C) Filing Number 240006 by Community Bank, N.A. in New York;
            (D) Filing Number 137761 by Community Bank, N.A. in New York;
            (E) Filing Number 204160 by Community Bank, N.A. in New York; and
            (F) Filing Number 215449 by Community  Bank National  Association in
            New York.

<PAGE>

   (c)  TRADEMARK REGISTRATIONS. The Borrower agrees to deliver to the Agent, on
        or before May 29, 2002, evidence of filing with the United States Patent
        and  Trademark  Office of all necessary  documentation  to register each
        trademark  listed  on  Schedule  A to  the  Security  Agreement  or  any
        Guarantor Security Agreement in the legal name of the Borrower or one of
        its Subsidiaries.

   (d)  GOOD STANDING CERTIFICATES. The Borrower agrees to deliver to the Agent,
        on or before May 29, 2002:

            (i) certificates,  dated a recent date, of the Secretary of State of
            Texas and New York with  respect to the  Borrower in its legal name,
            certifying as to the existence and good standing of, and the payment
            of taxes by, the Borrower in such states; and

            (ii) a  certificate,  dated a recent date, of the Secretary of State
            of  Illinois  with  respect  to  Multi-Media,  certifying  as to the
            existence  and good  standing  of,  and the  payment  of  taxes  by,
            Multi-Media in such state.

SECTION 5. AFFIRMATIVE COVENANTS

        The Borrower hereby agrees that from and after the Restatement  Date, so
long as any Note remains  outstanding and unpaid or any other amount is owing to
any Lender or the Agent hereunder:

5.1 FINANCIAL STATEMENTS.

   (a)  As soon as  available  and in any event  within 45 days after the end of
        the first  three  quarterly  fiscal  periods of each  fiscal year of the
        Borrower,  the  Borrower  shall  deliver to the Agent,  with  sufficient
        copies for each Lender, (i) consolidated  statements of income, retained
        earnings and cash flows of the Borrower  and its  Subsidiaries  for such
        period, and the related  consolidated balance sheets of the Borrower and
        its  Subsidiaries  as at the end of such period,  setting  forth in each
        case in comparative form (A) the corresponding  consolidated figures for
        the corresponding  periods in the preceding fiscal year (except that, in
        the case of the balance sheets, such comparison shall be to the last day
        of the prior  fiscal  year)  and (B) the  consolidated  figures  for the
        corresponding period in the Projections, accompanied by a certificate of
        a senior  financial  officer of the Borrower,  which  certificate  shall
        state that said  consolidated  financial  statements  fairly present the
        consolidated  financial  condition  and  results  of  operations  of the
        Borrower  and its  Subsidiaries,  in each case in  accordance  with GAAP
        consistently applied, as at the end of, and for, such period (subject to
        normal year-end audit adjustments and the absence of footnotes) and (ii)
        a schedule showing all equipment sales and purchases (including relevant
        serial  numbers)  during such  period,  such  schedule to be in form and
        detail acceptable to the Majority Lenders.

   (b)  As soon as  available  and in any event  within 90 days after the end of
        each fiscal year of the  Borrower,  the  Borrower  shall  deliver to the
        Agent,  with  sufficient  copies for each Lender,  audited  consolidated
        statements of income,  retained  earnings and cash flows of the Borrower
        and its Subsidiaries  for such fiscal year and the related  consolidated
        balance sheet of the Borrower and its Subsidiaries as at the end of such
        fiscal  year,  setting  forth  in  comparative  form  the  corresponding
        consolidated  figures for the preceding  fiscal year, and accompanied by
        (i) all management  letters relating thereto and (ii) an opinion thereon
        of the  Accountants,  which opinion  shall state that said  consolidated
        financial statements fairly present the consolidated financial condition
        and results of operations of the Borrower and its Subsidiaries as at the
        end of,  and for,  such  fiscal  year in  accordance  with  GAAP,  and a
        statement  of  the  Accountants  to  the  effect  that,  in  making  the
        examination necessary for their opinion, nothing came to their attention
        that caused them to believe that the Borrower was not in compliance with
        Section 6.1, insofar as such Section relates to accounting matters.

   (c)  As soon as  available  and in any event  within 60 days after the end of
        each fiscal year of the  Borrower,  the  Borrower  shall  deliver to the
        Agent,  with sufficient copies for each Lender,  unaudited  consolidated
        and  consolidating  statements  of income,  consolidated  statements  of
        retained  earnings and cash flows of the  Borrower and its  Subsidiaries
        for such fiscal year and the related  consolidated  balance sheet of the
        Borrower and its Subsidiaries as at the end of such fiscal year, setting
        forth in comparative form the corresponding consolidated figures for the
        preceding  fiscal year,  and  accompanied  by a certificate  of a senior
        financial  officer of the Borrower,  which  certificate shall state that
        said consolidated  financial  statements fairly present the consolidated
        financial  condition  and results of  operations of the Borrower and its
        Subsidiaries, in each case in accordance with GAAP consistently applied,
        as at the end of, and for, such period (subject to normal year-end audit
        adjustments and the absence of footnotes).

<PAGE>

   (d)  As soon as  available  and in any event  within 30 days after the end of
        each month,  the Borrower  shall deliver to the Agent,  with  sufficient
        copies for each Lender, (i) consolidated and consolidating statements of
        income,  consolidated  statements of retained earnings and cash flows of
        the  Borrower  and its  Subsidiaries  for such  month,  and the  related
        consolidated  balance sheets of the Borrower and its  Subsidiaries as at
        the  end  of  such  month,  accompanied  by a  certificate  of a  senior
        financial  officer of the Borrower,  which  certificate shall state that
        said consolidated  financial  statements fairly present the consolidated
        financial  condition  and results of  operations of the Borrower and its
        Subsidiaries, in each case in accordance with GAAP consistently applied,
        as at the end of, and for, such period (subject to normal year-end audit
        adjustments  and the absence of  footnotes),  (ii) a comparison  of such
        results with the consolidated  figures for the  corresponding  period in
        the   Projections   and  (iii)  the   corresponding   consolidated   and
        consolidating  figures for the  corresponding  periods in the  preceding
        fiscal  year  (except  that,  in the case of the  balance  sheets,  such
        comparison shall be to the last day of the prior fiscal year).

   (e)  The Borrower will promptly  furnish to the Agent such other  information
        (including information pertaining to the Borrower's financial condition,
        operations and otherwise) as the Agent may reasonably request.

5.2 CERTIFICATES; OTHER INFORMATION. The Borrower shall deliver to each Lender:

   (a)  within  45 days  after  the end of each  month,  a  Covenant  Compliance
        Certificate as of the end of such month;

   (b)  within  five  Business  Days  after  the same are  filed,  copies of all
        financial  statements  and reports which the Borrower or any  Subsidiary
        may make to, or file with, the Securities and Exchange Commission or any
        successor or analogous Governmental Authority;

   (c)  promptly  but, in any event,  within five  Business  Days after  receipt
        thereof, copies of all financial reports (including, without limitation,
        management letters), if any, submitted to the Borrower or any Subsidiary
        by the Accountants in connection with any annual or interim audit of the
        books thereof;

   (d)  as soon as available  and in any event within 30 days after  December 31
        of each fiscal year, a budget for the next following fiscal year setting
        forth anticipated income, expense and capital expenditure items for each
        month during such fiscal year;

   (e)  as soon as possible and in any event within five Business Days after the
        occurrence  of a  Default  or,  in the  good  faith  determination  of a
        Responsible  Officer of the Borrower,  a Material  Adverse  Effect,  the
        written  statement by a  Responsible  Officer of the  Borrower,  setting
        forth the  details of such  Default or Material  Adverse  Effect and the
        action which the Borrower proposes to take with respect thereto;

   (f)  (A) as soon as  possible  and in any  event  within  30 days  after  the
        Borrower  knows or has  reason to know that any  Termination  Event with
        respect to any Plan has occurred,  a statement of a Responsible  Officer
        of the Borrower  describing such  Termination  Event and the action,  if
        any,  which the  Borrower  proposes to take with  respect  thereto,  (B)
        promptly and in any event within ten days after  receipt  thereof by the
        Borrower or any ERISA Affiliate of the Borrower from the PBGC, copies of
        each notice  received by the  Borrower  or such ERISA  Affiliate  of the
        PBGC's intention to terminate any Plan or to have a trustee appointed to
        administer  any Plan, (C) promptly and in any event within 30 days after
        the filing  thereof with the Internal  Revenue  Service,  copies of each
        Schedule  B  (Actuarial  Information)  to the annual  report  (Form 5500
        Series)  with respect to each Single  Employer  Plan  maintained  for or
        covering  employees  of the  Borrower or any  Subsidiary  if the present
        value of the accrued  benefits  under the Plan  exceeds its assets by an
        amount in excess of $500,000  and (D)  promptly  and in any event within
        ten days after receipt thereof by the Borrower or any ERISA Affiliate of
        the Borrower from a sponsor of a Multiemployer  Plan or from the PBGC, a
        copy of each notice  received by the  Borrower or such ERISA  Affiliates
        concerning  the  imposition  or amount  of  withdrawal  liability  under
        Section 4202 of ERISA or  indicating  that such  Multiemployer  Plan may
        enter reorganization status under Section 4241 of ERISA;

   (g)  promptly after the commencement thereof, but in any event not later than
        five Business Days after service of process with respect  thereto on, or
        the obtaining of knowledge by, the Borrower or any Subsidiary, notice of
        each material  action,  suit or  proceeding  against the Borrower or any
        Subsidiary before any Governmental Authority;

<PAGE>

   (h)  within five days  following  receipt by the Borrower or any  Subsidiary,
        copies of all notices  received by the Borrower or such  Subsidiary from
        the Internal Revenue Service or other taxing  authority  relating to any
        material  dispute  regarding  deductions,  audits or any other  material
        matter; and

   (i)  promptly, such additional financial and other information as any Lender,
        through the Agent, may from time to time reasonably request.

5.3 PAYMENT OF  OBLIGATIONS.  The  Borrower  shall,  and shall cause each of its
Subsidiaries  to, pay,  discharge or otherwise  satisfy at or before maturity or
before  they  become  delinquent,  as the case may be,  all its  obligations  of
whatever nature (except for those referred to in Section 5.9),  except where the
failure to so satisfy such obligations  would not have a Material Adverse Effect
or except where the amount or validity  thereof is currently  being contested in
good faith by appropriate  proceedings and reserves in conformity with GAAP with
respect  thereto  have  been  provided  on  the  books  of the  Borrower  or its
Subsidiaries, as the case may be.

5.4 CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE.  The Borrower  shall,  and
shall  cause each of its  Subsidiaries  to, (i)  continue to engage in the video
duplication  business,  the  post-production   business,  the  audio  sweetening
business,  the business of distributing  national  television spot  advertising,
trailers  and  electronic  press  kits for the  motion  picture  and  television
industries, or engage in the business of owning (and renting) limited amounts of
niche programming and media buying, (ii) preserve,  renew and keep in full force
and effect its corporate existence, (iii) take all reasonable action to maintain
all rights,  registrations,  licenses,  privileges and  franchises  necessary or
desirable  in the  normal  conduct of its  business,  and (iv)  comply  with all
Contractual  Obligations and  Requirements  of Law except to the extent,  in the
case of this clause  (iv),  that failure to comply  therewith  would not, in the
aggregate, have a Material Adverse Effect.

5.5  MAINTENANCE OF PROPERTY.  The Borrower  shall,  and shall cause each of its
Subsidiaries  to, keep all property  useful or necessary in its business in good
working order and condition (ordinary wear and tear excepted).

5.6 INSURANCE.  The Borrower will, and will cause each of its  Subsidiaries  to,
maintain insurance with financially sound and reputable insurance companies, and
with respect to Property and risks of a character usually  maintained by Persons
engaged in the same or similar business similarly situated, against loss, damage
and  liability of the kinds and in the amounts  customarily  maintained  by such
Persons.  The Borrower  shall  designate  the Agent as loss payee or  additional
insured,  as appropriate with respect to such insurance and cause such insurance
to provide for 30 days' prior  written  notice to Agent of any  modification  or
cancellation of such insurance.

5.7 INSPECTION OF PROPERTY; BOOKS AND RECORDS;  DISCUSSIONS. The Borrower shall,
and shall cause each of its  Subsidiaries  to, keep proper  books of records and
account in which full,  true and correct entries in conformity with GAAP and all
Requirements of Law shall be made of all material  dealings and  transactions in
relation to its business and activities;  and upon reasonable notice and at such
reasonable  times during usual business  hours,  permit  representatives  of any
Lender to visit and  inspect  any of its  properties  and (i)  examine  and make
abstracts from any of its books and records at any reasonable  time and as often
as may reasonably be desired and to discuss the business, operations, properties
and  financial  and other  condition of the Borrower and its  Subsidiaries  with
officers  and  employees  of the  Borrower  and its  Subsidiaries  and  with its
Accountants, and (ii) make such further inspections and examinations,  including
appraisals and field audits, as deemed reasonably  necessary by the Agent or any
Lender and at the sole cost and expense of the Borrower.

5.8  ENVIRONMENTAL  LAWS.  The  Borrower  shall,  and  shall  cause  each of its
Subsidiaries to:

   (a)  Comply in all  material  respects  with,  and ensure  compliance  by all
        tenants and  subtenants,  if any,  with,  all  applicable  Environmental
        Control Statutes and obtain and comply in all material respects with any
        and all licenses,  approvals,  notifications,  registrations  or permits
        required by applicable Environmental Control Statutes;

   (b)  Conduct and complete all investigations,  studies, sampling and testing,
        and all remedial, removal and other actions required under Environmental
        Control  Statutes and promptly comply in all material  respects with all
        lawful orders and directives of all Governmental  Authorities  regarding
        Environmental  Control  Statutes  except to the extent that the same are
        being contested in good faith by appropriate proceedings; and

<PAGE>

   (c)  Defend, indemnify and hold harmless the Agent and the Lenders, and their
        respective employees,  agents, officers and directors,  from and against
        any and all claims, demands, penalties, fines, liabilities, settlements,
        damages, costs and expenses of whatever kind or nature known or unknown,
        contingent or  otherwise,  arising out of, or in any way relating to the
        violation of,  noncompliance  with or liability under any  Environmental
        Control Statutes  applicable to the operations of the Borrower or any of
        its  Subsidiaries,  or  the  Borrower's  or any  of  such  Subsidiaries'
        interest  in  Properties,  or any  orders,  requirements  or  demands of
        Governmental Authorities related thereto, including, without limitation,
        attorneys' and  consultants'  fees,  investigation  and laboratory fees,
        response  costs,  court  costs and  litigation  expenses,  except to the
        extent that any of the  foregoing  arise out of the gross  negligence or
        willful misconduct of the party seeking  indemnification  therefor. This
        indemnity  shall  continue  in full force and effect  regardless  of the
        termination of this Agreement.

5.9 COMPLIANCE WITH LAWS,  ETC. The Borrower shall comply,  and shall cause each
of its  Subsidiaries  to comply,  in all material  respects with all  applicable
Requirements of Law, such compliance to include,  without  limitation (i) paying
before the same  become  delinquent  all  taxes,  assessments  and  governmental
charges or levies  imposed  upon it or upon its income or profits or upon any of
its  Properties and (ii) paying all lawful claims which if unpaid might become a
Lien upon any of its Properties;  provided,  however,  that neither the Borrower
nor any of its  Subsidiaries  shall be required to pay and discharge or to cause
to be paid and discharged  any such tax,  assessment,  charge,  levy or claim so
long as (A) the  validity or  applicability  thereof is being  contested in good
faith by appropriate proceedings,  (B) the Borrower or such Subsidiary shall, to
the extent required by GAAP, have set aside on its books adequate  reserves with
respect  thereto and (C) the failure to pay or discharge  such tax,  assessment,
charge, levy or claim would not have a Material Adverse Effect or.

5.10  CERTAIN  OBLIGATIONS  RESPECTING  SUBSIDIARIES;  PROHIBITIONS  ON  CERTAIN
AGREEMENTS.

   (a)  The Borrower  will cause each of its  Subsidiaries  hereafter  formed or
        acquired to execute and deliver to the Agent promptly upon the formation
        or   acquisition   thereof  (i)  a  Guarantee  in  form  and   substance
        satisfactory  to  the  Agent,  guaranteeing  the  Obligations,   (ii)  a
        Guarantor Security Agreement,  in form and substance satisfactory to the
        Agent, granting to the Agent, for the benefit of the Lenders, a security
        interest  in the  tangible  and  intangible  personal  property  of such
        Subsidiary,  together with  appropriate  Lien searches  requested by the
        Agent  indicating  the Lenders'  first  priority  Lien on such  personal
        property,  (iii)  such UCC-1  Financing  Statements  as the Agent  shall
        request and (iv) such charter and  authorization  documents as the Agent
        shall request.

   (b)  The Borrower will not, and will not permit any of its  Subsidiaries  to,
        without the prior written  consent of the Majority  Lenders,  enter into
        any indenture, agreement, instrument or other arrangement that, directly
        or indirectly,  prohibits or restrains, or has the effect of prohibiting
        or  restraining,  or imposes  materially  adverse  conditions  upon, the
        incurrence  or payment  of  indebtedness,  the  granting  of Liens,  the
        declaration  or payment of dividends,  the making of loans,  advances or
        investments or the sale,  assignment,  transfer or other  disposition of
        Property,  or which imposes any  financial  covenants on the Borrower or
        any of its Subsidiaries.

5.11 INTEREST RATE PROTECTION.  The Borrower shall maintain in effect,  until at
least  November  28,  2003,  one or more  Interest  Rate  Protection  Agreements
mutually agreeable to the Borrower and the Agent establishing a fixed or maximum
interest rate acceptable to the Agent for a notional  principal  amount equal to
not less than $15,000,000.

5.12  REVIEWS AND  APPRAISALS.  The Agent  shall be  entitled  to conduct,  with
respect to the Borrower and the Subsidiaries and at the Borrower's expense,  (i)
quarterly  reviews  of the books and  records of such  entities  (with each such
review expected to involve several  Business Days, and provided that the cost to
the Borrower for such reviews shall not exceed $1,000 per day) and (ii) annually
(by June 30 of each year),  with a  semi-annual  update (by  December 31 of each
year),  appraisals  of their  assets.  Such reviews and  appraisals  shall be in
scope,  and by a review firm or appraisal firm (as  applicable)  satisfactory to
the  Majority  Lenders.  The Agent and the Lenders  shall be entitled to conduct
more  frequent  reviews and  appraisals,  at the expense of the  Borrower,  if a
Default exists.

5.13 FINANCIAL  CONSULTANT.  At the time of the  Restatement  Date, the Borrower
shall have  retained  Kibel  Green,  Inc.,  or such other  financial  consultant
satisfactory to the Lenders, to assist the Borrower in implementing a turnaround
of its performance, such retention to be on terms and conditions, and with scope
of services, satisfactory to the Lenders.

<PAGE>

5.14 BANK  ACCOUNTS.  The Borrower shall  maintain,  and shall cause each of its
Subsidiaries to maintain,  its primary operating bank account(s) with Union Bank
of California.

5.15 LANDLORD  CONSENTS.  The Borrower  agrees to use Best Efforts to deliver to
the Agent, in recordable form:

   (a)  within 30 days  after  the  Restatement  Date,  Landlord  Consents  with
        respect to each of the following properties at which the Borrower or any
        Subsidiary  maintains  personal  property  having a value of $100,000 or
        greater:  1) 1680 Vine Street, Los Angeles, CA 90028; 2) 1645 North Vine
        Street, Los Angeles,  CA 90028; 3) 430 West Erie Street,  Suites 101 and
        200, Chicago, IL 60610; 4) 114 West 26th Street, Suite 700, New York, NY
        10001;  5) 1025 Sansome  Street,  San  Francisco,  CA 94111;  and 6) 812
        Mariposa Street, Burbank, CA 91505; and

   (b)  prior to any personal  property of the Borrower or any Subsidiary having
        a value of  $100,000  or  greater  being  moved to, or  located  at, any
        premises not owned in fee by the Borrower or such Subsidiary, a Landlord
        Consent with respect to such premises.

        For purposes of this Section 5.15,  "Best  Efforts"  shall mean that the
        Borrower  has (i) made  written  request to the  relevant  landlord  for
        execution  of a  Landlord  Consent  (with  copies of such  request to be
        concurrently delivered to the Agent) and (ii) if requested by the Agent,
        has afforded the Agent and/or its counsel an  opportunity  to speak with
        representatives  of  such  landlord  regarding  any  objections  to such
        Landlord Consent.

   (c)  The Borrower  represents and warrants to the Agent and the Lenders that,
        as of the Restatement  Date, the book value of the personal  property of
        the Borrower and the Subsidiaries located at the premises referred to in
        Section  5.15(a) is  respectively as set forth on Schedule 5.15 attached
        hereto.

SECTION 6. NEGATIVE COVENANTS

         The Borrower hereby agrees that from and after the Restatement Date, so
long as any Note remains outstanding and unpaid or any other amount is owing to
any Lender or the Agent hereunder:

6.1 FINANCIAL  CONDITION  COVENANTS.  The Borrower  shall not violate any of the
following covenants (compliance with which shall be measured for the Borrower on
a consolidated basis):

   (a)  Maximum  Funded  Debt  to  EBITDA.  As of the  last  day  of any  month,
        commencing  with the month ending  March 31,  2002,  permit the ratio of
        Funded Debt to EBITDA, calculated on a cumulative 12-month rolling basis
        for such month and the eleven  immediately  preceding  months, to exceed
        the following levels for the months indicated:

        Month Ending                                         Ratio
        ------------                                         -----

        March 31, April 30 and May 31, 2002                  4.44
        June 30, July 31 and August 31, 2002                 3.40
        September 30, October 31 and November 30, 2002       2.95
        December 31, 2002, January 31, 2003
          and February 28, 2003                              2.73
        March 31, April 30 and May 31, 2003                  2.26
        June 30, July 31 and August 31, 2003                 1.98
        September 30, October 31 and November 30, 2003       1.77
        December 31, 2003, January 31, 2004
          and February 28, 2004                              1.51
        March 31, April 30 and May 31, 2004                  1.32
        June 30, July 31 and August 31, 2004                 1.16
        September 30, 2004 and thereafter                    1.01


<PAGE>

   (b)  Fixed Charge Ratio. As of the last day of any month, commencing with the
        month ending March 31, 2002,  permit the Fixed Charge Ratio,  calculated
        on a  cumulative  12-month  rolling  basis for such month and the eleven
        immediately  preceding  months, to be less than the following levels for
        the months indicated:


        Month Ending                                         Ratio
        ------------                                         -----

        March 31, April 30 and May 31, 2002                  1.07
        June 30, July 31 and August 31, 2002                 1.12
        September 30, October 31 and November 30, 2002       1.05
        December 31, 2002, January 31, 2003
          and February 28, 2003                              0.88
        March 31, April 30 and May 31, 2003                  0.90
        June 30, July 31 and August 31, 2003                 0.86
        September 30, October 31 and November 30, 2003       0.85
        December 31, 2003, January 31, 2004
          and February 28, 2004                              0.89
        March 31, April 30 and May 31, 2004                  0.92
        June 30, July 31 and August 31, 2004                 0.92
        September 30, 2004 and thereafter                    0.93

   (c)  Liquidity  Ratio.  As of the last day of any month,  commencing with the
        month ending March 31, 2002, permit the ratio of (i) the sum of (A) Cash
        on such date plus (B) 80% of  Eligible  Accounts  Receivable  as of such
        date to (ii) the outstanding  Obligations on such date, to be less than:
        (x) for the period from the Closing Date to and including July 31, 2002,
        0.34:1.00 and (y) thereafter, 0.39:1.00.

6.2 LIMITATION ON INDEBTEDNESS.  The Borrower shall not create, incur, assume or
suffer to exist any  Indebtedness,  and shall not permit any of its Subsidiaries
to create, incur, assume or suffer to exist any Indebtedness, except for:

   (a)  Indebtedness  created  hereunder  and under the Notes and the other Loan
        Documents;

   (b)  Indebtedness  (i) evidenced by performance  bonds issued in the ordinary
        course of business or reimbursement obligations in respect thereof, (ii)
        evidenced by a letter of credit facility related to insurance associated
        with  claims  for  work-related  injuries  or (iii) for bank  overdrafts
        incurred in the ordinary course of business that are promptly repaid, in
        an aggregate  amount  (under  clauses (i), (ii) and (iii)) not to exceed
        $100,000 at any one time outstanding;

   (c)  Indebtedness secured by Liens permitted by Section 6.3(g);

   (d)  Capitalized  Lease  Obligations  in an  aggregate  principal  amount not
        exceeding the following amounts for the periods indicated:  (i) from the
        Closing Date to and including  December 31, 2002, not more than $844,000
        outstanding,  (ii) from  January 1, 2003 to and  including  December 31,
        2003, not more than  $1,381,000  outstanding and (iii)  thereafter,  not
        more than $1,696,000 outstanding;

   (e)  Indebtedness  of  Wholly  Owned  Subsidiaries  of  the  Borrower  to the
        Borrower or to other Wholly Owned Subsidiaries of the Borrower; and

   (f)  Guarantee Obligations of the Borrower incurred in the ordinary course of
        business in respect of  Indebtedness  of any  Subsidiary;  provided that
        such Indebtedness is otherwise permitted by this Section 6.2.

6.3 LIMITATION ON LIENS. The Borrower shall not, and shall not permit any of its
Subsidiaries to, create,  incur,  assume or suffer to exist any Lien upon any of
its  property,  assets or  revenues,  whether now owned or  hereafter  acquired,
except for:

   (a)  Liens created hereunder or under any of the other Loan Documents;

   (b)  Liens for taxes not yet due or which are being  contested  in good faith
        by appropriate proceedings, provided that adequate reserves with respect
        thereto are maintained on the books of the Borrower or its Subsidiaries,
        as the case may be, in conformity with GAAP;

   (c)  Liens   created  by  operation  of  law  not  securing  the  payment  of
        Indebtedness  for money  borrowed or  guaranteed,  including  carriers',
        warehousemen's,  mechanics',  materialmen's,  repairmen's  or other like
        Liens arising in the ordinary  course of business  which are not overdue
        for a period of more than 30 days or which are being  contested  in good
        faith by appropriate proceedings;

<PAGE>

   (d)  pledges  or  deposits  in   connection   with   workers'   compensation,
        unemployment insurance and other social security legislation;

   (e)  deposits to secure the performance of bids,  trade contracts (other than
        for borrowed money), leases,  statutory  obligations,  surety and appeal
        bonds, performance bonds and other obligations of a like nature incurred
        in the ordinary course of business;

   (f)  easements,  rights-of-way,  restrictions and other similar  encumbrances
        incurred in the ordinary  course of business  which,  in the  aggregate,
        would not cause a Material Adverse Effect;

   (g)  Liens securing  Capitalized  Lease Obligations with respect to equipment
        used by the Borrower or its  Subsidiaries  in the ordinary course of its
        business;  provided that any such Lien attaches  solely to the equipment
        financed by such Capitalized Lease Obligation; and

   (h)  Liens  existing on the date hereof and  referred to in Schedule 6.3 (and
        not referred to in any other clause of this Section 6.3).

6.4  LIMITATION ON  FUNDAMENTAL  CHANGES.  The Borrower shall not, and shall not
permit any of its Subsidiaries  to, (i) enter into any merger,  consolidation or
amalgamation,   or  liquidate,  wind  up  or  dissolve  itself  (or  suffer  any
liquidation or dissolution),  or (ii) convey, sell, lease,  assign,  transfer or
otherwise  dispose of all or  substantially  all of its  property,  business  or
assets,  or (iii) acquire any business or Property from, or capital stock of, or
be a party to any  acquisition of, any Person except that, so long as no Default
has occurred and is continuing or would result therefrom:

   (a)  any  Subsidiary  of the Borrower may be merged or  consolidated  with or
        into:  (i) the  Borrower,  if the Borrower  shall be the  continuing  or
        surviving corporation or (ii) any other Subsidiary; provided that if any
        such  transaction  shall be  between  a  Subsidiary  and a Wholly  Owned
        Subsidiary,  the Wholly  Owned  Subsidiary  shall be the  continuing  or
        surviving corporation; and

   (b)  any Subsidiary may sell, lease,  transfer or otherwise dispose of any or
        all of its Property  (upon  voluntary  liquidation  or otherwise) to the
        Borrower or a Wholly Owned Subsidiary of the Borrower.

6.5 LIMITATION ON SALE OF ASSETS.  The Borrower will not, nor will it permit any
of its Subsidiaries to, make any Asset Disposition  except Asset Dispositions of
obsolete or worn-out  Property,  tools or  equipment no longer used or useful in
its business so long as the aggregate  amount  thereof sold in any single fiscal
year by the Borrower and its Subsidiaries  shall not have a fair market value in
excess of $250,000;  provided  that in each case, no Default has occurred and is
continuing or would result from such Asset Disposition.

6.6 LIMITATION ON DIVIDENDS. The Borrower shall not, and shall not permit any of
its  Subsidiaries  to (a) if a corporation,  declare or pay any dividend  (other
than  dividends   payable  solely  in  common  stock  of  the  Borrower  or  its
Subsidiaries)  on, or make any payment on account of, or set apart  assets for a
sinking or other  analogous  fund for,  the  purchase,  redemption,  defeasance,
retirement or other  acquisition of, any shares of any class of Capital Stock of
the Borrower or its Subsidiaries or any warrants or options to purchase any such
Capital Stock, whether now or hereafter outstanding, and (b) if a partnership or
a limited liability company, make any distribution with respect to the ownership
interests  therein,  or, in either case, make any other  distribution in respect
thereof,  either  directly  or  indirectly,  whether in cash or  property  or in
obligations  of the Borrower or any  Subsidiary  (such  declarations,  payments,
setting apart, purchases, redemptions, defeasance, retirements, acquisitions and
distributions  being  herein  called  "Restricted  Payments"),  except  that any
Subsidiary may make  Restricted  Payments to the Borrower or to any other Wholly
Owned  Subsidiary  of the  Borrower;  provided  that in each case no Default has
occurred and is  continuing  or would result from the making of such  Restricted
Payment.  Notwithstanding  any  provision  herein to the  contrary,  neither the
Borrower nor any  Subsidiary  shall  repurchase any of its Capital Stock without
the prior written approval of each Lender.

6.7 LIMITATION ON  INVESTMENTS,  LOANS AND ADVANCES.  The Borrower will not, and
will not permit any of its Subsidiaries to, make any advance, loan, extension of
credit or  capital  contribution  to,  or  purchase  any  stock,  bonds,  notes,
debentures or other securities of or any assets constituting a business unit of,
or make any other  investment in (any of the foregoing,  an  "Investment"),  any
Person, except for:

   (a)  investments  in  marketable  securities,  liquid  investments  and other
        financial  instruments that are acquired for investment purposes and may
        be readily sold or otherwise liquidated,  that have a value which may be
        readily established and which are investment grade;

<PAGE>

   (b)  operating deposit accounts with banks;

   (c)  investments by the Borrower and its Subsidiaries in the Borrower and its
        Subsidiaries;

   (d)  extensions  of credit  in the  nature of  accounts  receivable  or notes
        receivable  arising  from the sale or lease of goods or  services in the
        ordinary course of business; and

   (e)  that  certain  loan to R. Luke  Stefanko  (the  "Employee  Loan") in the
        principal  amount  outstanding on the Restatement  Date of $900,000,  as
        such amount may be reduced (but not increased) from time to time.

6.8 TRANSACTIONS  WITH AFFILIATES.  The Borrower shall not, and shall not permit
any of its  Subsidiaries  to,  enter into any  transaction,  including,  without
limitation,  any  purchase,  sale,  lease  or  exchange  of  property,  employee
compensation  arrangements,  or the rendering of any service, with any Affiliate
or any Subsidiary not a Wholly Owned  Subsidiary  unless such  transaction is in
the ordinary course of the Borrower's or such Subsidiary's  business and is upon
terms no less favorable to the Borrower or such Subsidiary,  as the case may be,
than it would obtain in a comparable arm's length  transaction with a Person not
an Affiliate;  provided that, if any such  transaction  has a value in excess of
$100,000  the Majority  Lenders  shall have  consented  thereto;  and  provided,
further,  that none of (i) the Employee  Loan,  (ii) the  Borrower's  employment
arrangements with its senior officers or (iii) the Borrower's  arrangements with
Holthouse  Carlin & Van Trigt  (with  which Greg  Hutchins,  a  director  of the
Borrower,  is associated) regarding preparation of the Borrower's taxes shall be
prohibited by this Section 6.8.

6.9 FISCAL YEAR. Borrower shall not permit its fiscal year or the fiscal year of
any of its Subsidiaries to end on a day other than December 31.

6.10 SALE-LEASEBACK  TRANSACTIONS.  The Borrower shall not, and shall not permit
any of its  Subsidiaries  to,  sell,  assign or  otherwise  transfer  any of its
Properties,  rights or assets  (whether now owned or hereafter  acquired) to any
Person and  thereafter  directly  or  indirectly  lease back the same or similar
property.

6.11 LINES OF  BUSINESS.  The  Borrower  will not, nor will it permit any of its
Subsidiaries  to,  engage  to any  substantial  extent  in any  line or lines of
business activity other than the business of video duplication, post-production,
audio  sweetening,  the  distribution of national  television spot  advertising,
trailers  and  electronic  press  kits for the  motion  picture  and  television
industries, and the ownership and rental of limited amounts of niche programming
and media buying.

6.12 CERTAIN  ACCOUNTING  CHANGES.  The Borrower shall not change any accounting
methodology  or  policy  with  respect  to the  calculation  of the value of its
Operating  Machinery  and  Equipment  without the prior  written  consent of the
Majority Lenders.

SECTION 7. EVENTS OF DEFAULT

        If any of the following events shall occur and be continuing:

   (a)  The  Borrower  shall  default in the payment when due (whether at stated
        maturity or upon  mandatory or optional  prepayment or otherwise) of any
        principal  of or  interest  on any  Loan,  any fee or any  other  amount
        payable by it hereunder or under any other Loan Document; or

   (b)  Any representation or warranty made or deemed made by any Obligor herein
        or in any other Loan Document or which is contained in any  certificate,
        document or financial or other statement  furnished at any time under or
        in connection with this Agreement or any other Loan Document shall prove
        to have been incorrect in any material respect when made or deemed made;
        or

   (c)  The Borrower  shall  default in the  observance  or  performance  of any
        agreement contained in Section 4.2, 5.4(ii),  5.9, 5.10(a),  5.11, 5.12,
        5.13, 5.14 or 5.15, or any provision of Section 6; or

   (d)  Any Obligor shall default in the  observance or performance of any other
        agreement or  obligation  contained in this  Agreement or the other Loan
        Documents  (other than as provided in paragraphs (a) through (c) of this
        Section),  and such default shall continue unremedied for a period of 30
        days after notice thereof from the Agent to the Borrower; or

   (e)  Any  Guarantee  shall  cease,  for any  reason,  to be in full force and
        effect; or

<PAGE>

   (f)  The Borrower or any other  Obligor shall default in the payment when due
        of principal of or interest on any  Indebtedness  (other than the Notes)
        issued  under the same  indenture  or other  agreement,  if the original
        principal amount of Indebtedness  covered by such indenture or agreement
        is  $100,000 or more;  or any event  specified  in any note,  agreement,
        indenture  or  other  document   evidencing  or  relating  to  any  such
        Indebtedness  shall  occur if the effect of such  event is to cause,  or
        (with the  giving of any  notice or the lapse of time or both) to permit
        the  holder or holders  of such  Indebtedness  (or a trustee or agent on
        behalf of such holder or holders) to cause,  such Indebtedness to become
        due, or to be prepaid in full (whether by redemption, purchase, offer to
        purchase or otherwise), prior to its stated maturity; or

   (g)  (i)  The  Borrower  or  any  other  Obligor  shall  commence  any  case,
        proceeding  or other  action (A) under any existing or future law of any
        jurisdiction,  domestic or foreign, relating to bankruptcy,  insolvency,
        reorganization or relief of debtors, seeking to have an order for relief
        entered  with respect to it, or seeking to  adjudicate  it a bankrupt or
        insolvent,   or   seeking   reorganization,   arrangement,   adjustment,
        winding-up, liquidation,  dissolution,  composition or other relief with
        respect to it or its debts,  or (B) seeking  appointment  of a receiver,
        trustee,  custodian or other  similar  official for it or for all or any
        substantial  part of its assets,  or the  Borrower or any other  Obligor
        shall make a general  assignment  for the benefit of its  creditors;  or
        (ii) there shall be commenced  against the Borrower or any other Obligor
        any case,  proceeding or other action of a nature  referred to in clause
        (i) above  which (A)  results in the entry of an order for relief or any
        such   adjudication   or   appointment   or  (B)  remains   undismissed,
        undischarged,  unstayed  or unbonded  for a period of 60 days;  or (iii)
        there shall be commenced  against the Borrower or any other  Obligor any
        case,  proceeding  or other  action  seeking  issuance  of a warrant  of
        attachment,  execution,  distraint or similar process against all or any
        substantial  part of its assets  which  results in the entry of an order
        for any such  relief  which  shall  not have been  vacated,  discharged,
        stayed or bonded  pending  appeal within 60 days from the entry thereof;
        or (iv) the  Borrower  or any other  Obligor  shall  take any  action in
        furtherance   of,  or  indicating  its  consent  to,   approval  of,  or
        acquiescence in, any of the acts set forth in clause (i), (ii), or (iii)
        above;  or (v) the Borrower or any other Obligor shall generally not, or
        shall be unable to, or shall admit in writing its  inability to, pay its
        debts as they become due or there shall be a general  assignment for the
        benefit of creditors; or

   (h)  (i) The Borrower or any Commonly  Controlled  Entity shall engage in any
        non-exempt "prohibited  transaction" (as defined in Section 406 of ERISA
        or Section 4975 of the Code) involving any Plan,  (ii) any  "accumulated
        funding deficiency" (as defined in Section 302 of ERISA), whether or not
        waived,  shall exist with respect to any Plan,  (iii) a Reportable Event
        shall occur with  respect to, or  proceedings  shall  commence to have a
        trustee appointed,  or a trustee shall be appointed, to administer or to
        terminate  any  Single  Employer  Plan,   which   Reportable   Event  or
        commencement of proceedings or appointment of a trustee would reasonably
        be expected to result in the  termination  of such Plan for  purposes of
        Title IV of ERISA,  (iv) any Single  Employer  Plan shall  terminate for
        purposes of Title IV of ERISA (other than a standard termination) or (v)
        the  Borrower or any Commonly  Controlled  Entity  would  reasonably  be
        expected to incur any liability in connection with a withdrawal from, or
        the Insolvency or Reorganization  of, a Multiemployer  Plan; and in each
        case regarding  clauses (i) through (v) above,  such event or condition,
        together  with all  other  such  events  or  conditions,  if any,  would
        reasonably be expected to result in a Material Adverse Effect; or

   (i)  One or more  judgments or decrees shall be entered  against the Borrower
        or any  Subsidiary  involving in the aggregate a liability  (not paid or
        fully covered by insurance  where the insurer has admitted  liability in
        respect of such  judgment)  of $250,000  or more,  or  involving  in the
        aggregate a liability  (regardless of insurance coverage) of $500,000 or
        more,  and all such  judgments or decrees  shall not have been  vacated,
        discharged,  stayed or  bonded  pending  appeal  within 30 days from the
        entry  thereof  or in any event  five days  before  the date of any sale
        pursuant to such judgment or decree; or

   (j)  The Liens  created by the  Collateral  Documents  and/or  the  Guarantor
        Collateral  Documents  shall  at  any  time  not  constitute  valid  and
        perfected  Liens on the  collateral  intended  to be covered  thereby in
        favor of the Agent,  free and clear of all other Liens (other than Liens
        permitted  under Section 6.3),  or, except for  expiration in accordance
        with its terms,  any of the  Collateral  Documents  and/or the Guarantor
        Collateral Documents shall for whatever reason be terminated or cease to
        be in full force and  effect,  or the  enforceability  thereof  shall be
        contested by any Obligor; or

<PAGE>

   (k)  (i) R. Luke  Stefanko,  or  another  officer of the  Borrower  as of the
        Restatement  Date, shall cease to be the Chief Executive  Officer of the
        Borrower,  (ii) R. Luke Stefanko shall cease to beneficially own Capital
        Stock  representing  at least  14% of the  votes  that may be cast in an
        election  of  directors  of  the  Borrower,  or  (iii)  individuals  who
        constituted the Borrower's Board of Directors as of the Restatement Date
        shall cease for any reason to  constitute  a majority  of the  directors
        then in office;

then, and in any such event, (A) if such event is an Event of Default  specified
in paragraph (g) above,  automatically the Loans made to the Borrower  hereunder
(with accrued  interest  thereon) and all other  Obligations  shall  immediately
become due and  payable,  and (B) if such event is any other  Event of  Default,
with the consent of the Majority Lenders,  the Agent may, or upon the request of
the Majority  Lenders,  the Agent shall,  by notice of default to the  Borrower,
declare the Loans (with  accrued  interest  thereon)  and all other  Obligations
under this  Agreement and the Notes to be due and payable  forthwith,  whereupon
the same shall  immediately  become  due and  payable.  In all  cases,  with the
consent of the Majority  Lenders,  the Agent may enforce any or all of the Liens
and security  interests  and other rights and remedies  created  pursuant to any
Loan  Document or  available at law or in equity.  Except as expressly  provided
above in this Section, presentment, demand, protest and all other notices of any
kind are hereby expressly waived by the Borrower.

SECTION 8. THE AGENT

8.1 APPOINTMENT.  Each Lender hereby  irrevocably  designates and appoints Union
Bank of California,  N.A., as Agent for such Lender under this Agreement and the
other Loan Documents,  and each such Lender irrevocably authorizes Union Bank of
California,  N.A.,  as the Agent  for such  Lender,  to take such  action on its
behalf under the  provisions of this  Agreement and the other Loan Documents and
to exercise  such powers and perform such duties as are  expressly  delegated to
the Agent by the terms of this Agreement and the other Loan Documents,  together
with such other powers as are reasonably incidental thereto. Notwithstanding any
provision to the contrary  elsewhere in this Agreement,  the Agent shall have no
duties or  responsibilities,  except those  expressly set forth  herein,  or any
fiduciary  relationship with any Lender,  and no implied  covenants,  functions,
responsibilities,  duties,  obligations or  liabilities  shall be read into this
Agreement or any other Loan Document or otherwise exist against the Agent.

8.2  DELEGATION  OF DUTIES.  The Agent may execute any of its duties  under this
Agreement and the other Loan Documents by or through agents or attorneys-in-fact
and shall be entitled to advice of counsel  concerning all matters pertaining to
such duties. The Agent shall not be responsible for the negligence or misconduct
of any agents or attorneys-in-fact selected by it with reasonable care.

8.3 EXCULPATORY PROVISIONS.  Neither the Agent, nor any of the Agent's officers,
directors,  employees,  agents,  attorneys-in-fact  or  Affiliates  shall be (i)
liable for any action lawfully taken or omitted to be taken by it or such Person
under or in connection  with this  Agreement or any other Loan Document  (except
for its or such  Person's own gross  negligence or willful  misconduct)  or (ii)
responsible  in any manner to any of the Lenders for any  recitals,  statements,
representations or warranties made by the Borrower,  any Subsidiary or any other
Obligor or any officer  thereof  contained  in this  Agreement or any other Loan
Document or in any certificate,  report, statement or other document referred to
or provided for in, or received by the Agent under or in connection  with,  this
Agreement or any other Loan Document or for the value, validity,  effectiveness,
genuineness, enforceability or sufficiency of this Agreement or the Notes or any
other Loan  Document or for any failure of the Borrower,  any  Subsidiary or any
other  Obligor to perform its  obligations  hereunder or  thereunder.  The Agent
shall not be under any obligation to any Lender to ascertain or to inquire as to
the  observance  or  performance  of any  of the  agreements  contained  in,  or
conditions  of, this  Agreement  or any other Loan  Document,  or to inspect the
properties,  books or  records  of the  Borrower,  any  Subsidiary  or any other
Obligor.

8.4  RELIANCE BY THE AGENT.  The Agent  shall be entitled to rely,  and shall be
fully protected in relying, upon any note, writing, resolution, notice, consent,
certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype
message, statement, order or other document or conversation believed by it to be
genuine and correct and to have been signed,  sent or made by the proper  Person
or Persons and upon advice and statements of legal counsel  (including,  without
limitation,   counsel  to  the  Borrower),   the   Accountants  and  independent
accountants  and other  experts  selected  by the Agent.  The Agent may deem and
treat the  payee of any Note as the  owner  thereof  for all  purposes  unless a
written  notice of assignment,  negotiation or transfer  thereof shall have been
filed with the Agent.  The Agent shall be fully justified in failing or refusing
to take any action  under this  Agreement or any other Loan  Document  unless it
shall first receive such advice or  concurrence  of the Majority  Lenders or all
Lenders,  as it deems  appropriate,  or it shall  first  be  indemnified  to its

<PAGE>

satisfaction  by the Lenders  against any and all liability and expense  (except
those  incurred  solely as a result of the Agent's  gross  negligence or willful
misconduct)  which may be  incurred by it by reason of taking or  continuing  to
take any such action. The Agent shall in all cases be fully protected in acting,
or in refraining  from acting,  under this Agreement and the Notes and the other
Loan  Documents  in  accordance  with a request of the  Majority  Lenders or all
Lenders, as may be required, and such request and any action taken or failure to
act  pursuant  thereto  shall be  binding  upon all the  Lenders  and all future
holders of the Notes.

8.5 NOTICE OF DEFAULT. The Agent shall not be deemed to have knowledge or notice
of the occurrence of any Default  hereunder unless the Agent has received notice
from a Lender or the  Borrower  referring  to this  Agreement,  describing  such
Default and stating that such notice is a "notice of default". In the event that
the Agent  receives  such a notice,  the Agent shall give notice  thereof to the
Lenders.  The Agent shall take such action with respect to such Default as shall
be reasonably  directed by the Majority  Lenders or all Lenders as  appropriate;
provided that unless and until the Agent shall have  received  such  directions,
the Agent may (but shall not be obligated to) take such action,  or refrain from
taking such action,  with respect to such Default as it shall deem  advisable in
the best  interests  of the Lenders or as the Agent shall  believe  necessary to
protect the Lenders' interests in the Collateral or the Guarantor Collateral.

8.6  NON-RELIANCE  ON  THE  AGENT  AND  OTHER  LENDERS.  Each  Lender  expressly
acknowledges that neither the Agent, nor any of the Agent's officers, directors,
partners,  employees,  agents,  attorneys-in-fact  or  Affiliates  has  made any
representations  or  warranties  to it and  that no act by the  Agent  hereafter
taken,  including any review of the affairs of the Borrower,  any  Subsidiary or
any other Obligor,  shall be deemed to constitute any representation or warranty
by the Agent to any  Lender.  Each Lender  represents  to the Agent that it has,
independently and without reliance upon the Agent or any other Lender, and based
on such  documents and  information as it has deemed  appropriate,  made its own
appraisal  of  and  investigation  into  the  business,  operations,   property,
financial  and  other  condition  and  creditworthiness  of  the  Borrower,  any
Subsidiary  and the other  Obligors  and made its own decision to make its Loans
hereunder and enter into this  Agreement.  Each Lender also  represents  that it
will, independently and without reliance upon the Agent or any other Lender, and
based on such  documents and  information  as it shall deem  appropriate  at the
time,  continue to make its own credit  analysis,  appraisals  and  decisions in
taking or not taking action under this  Agreement and the other Loan  Documents,
and to make such  investigation as it deems necessary to inform itself as to the
business,   operations,    property,   financial   and   other   condition   and
creditworthiness  of the  Borrower,  its  Subsidiaries  and the other  Obligors.
Except  for  notices,  reports  and other  documents  expressly  required  to be
furnished to the Lenders by the Agent hereunder, the Agent shall have no duty or
responsibility  to  provide  any  Lender  with any  credit or other  information
concerning  the  business,   operations,   property,   condition  (financial  or
otherwise), prospects or creditworthiness of the Borrower, any Subsidiary or any
other  Obligor  which  may come into the  possession  of the Agent or any of its
officers, directors, employees, agents, attorneys-in-fact or Affiliates.

8.7 INDEMNIFICATION. The Lenders agree to indemnify the Agent in its capacity as
such (to the extent not  reimbursed by the  Borrower,  its  Subsidiaries  or the
other  Obligors and without  limiting the  obligation of such Persons to do so),
ratably according to the respective amounts of their Loan Percentages,  from and
against  any and  all  liabilities,  obligations,  losses,  damages,  penalties,
actions, judgments,  suits, costs (including,  without limitation, the allocated
cost of internal  counsel),  expenses or  disbursements  of any kind  whatsoever
which may at any time (including,  without limitation, at any time following the
payment of the Notes) be imposed on, incurred by or asserted  against the Agent,
in its capacity as Agent, but not as a Lender hereunder,  in any way relating to
or  arising  out of this  Agreement,  any of the  other  Loan  Documents  or any
documents  contemplated by or referred to herein or therein or the  transactions
contemplated hereby or thereby or any action taken or omitted by the Agent under
or in  connection  with any of the  foregoing;  provided that no Lender shall be
liable for the payment of any portion of such liabilities,  obligations, losses,
damages, penalties,  actions, judgments, suits, costs, expenses or disbursements
to the extent they arise from the gross negligence or willful  misconduct of the
party to be  indemnified.  The  agreements  in this  Section  shall  survive the
payment of the Notes and all other amounts payable hereunder.

8.8 THE AGENT IN ITS INDIVIDUAL CAPACITY.  The Agent and its Affiliates may make
loans to, accept deposits from and generally engage in any kind of business with
the Borrower, any Subsidiary and the other Obligors as though the Agent were not
the  Agent  hereunder  and under the other  Loan  Documents.  The Loans  made or
renewed  by the  Agent,  and any Note  issued to the Agent  shall  have the same
rights  and powers  under this  Agreement  and the other Loan  Documents  as any
Lender and the Agent may exercise the same as though it were not the Agent,  and
the terms  "Lender"  and  "Lenders"  shall  include the Agent in its  individual
capacity.

<PAGE>

8.9 SUCCESSOR  AGENT.  The Agent may resign as Agent upon 30 days' notice to the
Lenders.  If the Agent shall resign as Agent under this  Agreement and the other
Loan Documents, then the Majority Lenders shall appoint from among the Lenders a
successor  agent for the Lenders,  which  successor agent (so long as no Default
has occurred and is continuing) shall be approved by the Borrower (which consent
shall not be  unreasonably  withheld),  whereupon  such  successor  agent  shall
succeed to the rights, powers and duties of the Agent and the term "Agent" shall
mean such  successor  agent,  effective  upon its  appointment,  and the  former
Agent's  rights,  powers and duties as Agent  shall be  terminated,  without any
other  or  further  act or deed on the part of such  former  Agent or any of the
parties  to this  Agreement  or any  holders of the  Notes.  After any  retiring
Agent's  resignation as Agent, the provisions of this Section shall inure to its
benefit as to any actions  taken or omitted to be taken by it while it was Agent
under this  Agreement  and the other Loan  Documents.  Further,  if the Agent no
longer has any Loans hereunder,  the Agent shall immediately resign and shall be
replaced, and have the benefits, as set forth in this Section 8.9.

8.10 COLLATERAL  DOCUMENTS.  Anything  contained in any of the Loan Documents to
the contrary  notwithstanding,  the  Borrower,  the Agent and each Lender hereby
agree that (a) no Lender shall have any right  individually  to realize upon any
of the Collateral or Guarantor  Collateral under any Loan Document or to enforce
any  Guarantee,  it being  understood  and agreed  that all  powers,  rights and
remedies under the Collateral  Documents and Guarantor  Collateral Documents and
the  Guarantees  may be  exercised  solely by the Agent for the  benefit  of the
Lenders  in  accordance  with  the  terms  thereof,  and (b) in the  event  of a
foreclosure  by the  Agent  on any of the  Collateral  or  Guarantor  Collateral
pursuant  to a public  or  private  sale,  the  Agent or any  Lender  may be the
purchaser of any or all of such  Collateral or Guarantor  Collateral at any such
sale and the Agent, as agent for and  representative of the Lenders (but not any
Lender or Lenders in its or their respective  individual  capacities  unless the
Majority  Lenders shall otherwise  agree in writing) shall be entitled,  for the
purpose of bidding and making  settlement  or payment of the purchase  price for
all or any portion of the  Collateral or Guarantor  Collateral  sold at any such
public sale, to use and apply any of the  Obligations  as a credit on account of
the purchase price for any such collateral payable by the Agent at such sale.

SECTION 9. MISCELLANEOUS

9.1  AMENDMENTS  AND  WAIVERS.  Except as otherwise  expressly  provided in this
Agreement,  any provision of the Loan Documents may be modified or  supplemented
only by an  instrument  in  writing  signed by the  Borrower,  the Agent and the
Majority  Lenders,  or by the  Borrower and the Agent acting with the consent of
the Majority  Lenders,  and any  provision of any Loan Document may be waived by
the  Majority  Lenders or by the Agent  acting with the consent of the  Majority
Lenders;  provided,  however,  that  no  such  waiver  and  no  such  amendment,
supplement  or  modification  shall (i) (a)  reduce  the  amount  or extend  the
maturity  of any Note or any  installment  due  thereon,  or reduce  the rate or
extend the time of payment of interest  thereon,  or reduce the amount or extend
the time of payment of any fee, indemnity or reimbursement payable to any Lender
hereunder,  or amend,  modify or waive any provision of Section 2.5, without the
written consent of the Lender affected  thereby;  or (b) amend,  modify or waive
any  provision  of this  Section 9.1 or reduce the  percentage  specified  in or
otherwise  modify  the  definition  of  Majority  Lenders,  or  consent  to  the
assignment or transfer by any Obligor of any of its rights and obligations under
this Agreement and the other Loan Documents  (except as permitted  under Section
6.4); or (c) release any Obligor from any liability  under its  respective  Loan
Documents; or (d) release any material portion of the Collateral or any material
portion of the Guarantor Collateral, except for any Asset Disposition or release
of Lien permitted by this  Agreement or any other Loan  Document;  or (e) amend,
modify or waive,  directly or indirectly,  any of the provisions of Section 2.6;
or (f) amend,  modify or waive any  provision of this  Agreement  requiring  the
consent or approval  of all  Lenders,  in each case set forth in clauses  (i)(b)
through  (i)(f) above  without the written  consent of all the Lenders;  or (ii)
amend, modify or waive any provision of Section 8 without the written consent of
the Agent.  Any such waiver and any such  amendment,  supplement or modification
shall  apply  equally  to each of the  Lenders  and  shall be  binding  upon the
Borrower,  the other Obligors,  the Lenders, the Agent and all future holders of
the Notes.  In the case of any waiver,  the Borrower,  the other  Obligors,  the
Lenders,  and the Agent shall be restored to their  former  position  and rights
hereunder and under the outstanding Notes and any other Loan Documents,  and any
Default  waived  shall be  deemed to be cured  and not  continuing;  but no such
waiver  shall extend to any  subsequent  or other  Default,  or impair any right
consequent thereon.

<PAGE>

9.2 NOTICES.  All notices,  requests and demands or other  communications  to or
upon  the  respective  parties  hereto  to be  effective  shall  be  in  writing
(including by telecopy),  and, unless otherwise expressly provided herein, shall
be  deemed to have been duly  given or made when  delivered  by hand,  or 3 days
after being  deposited in the United States mail,  certified and postage prepaid
and return receipt requested, or, in the case of telecopy notice, when received,
in each case addressed as follows in the case of the Borrower and the Agent, and
as set forth on the signature pages hereto,  or in the Assignment and Acceptance
pursuant to which a Person  becomes a party hereto,  in the case of the Lenders,
or to such other address as may be hereafter  notified by the respective parties
hereto and any future holders of the Notes:

The Borrower:     Point.360
                  7083 Hollywood Boulevard
                  Hollywood, California 90028
                  Attention:  Alan Steel
                  Telecopy:  (323) 957-2297

The Agent:        Union Bank of California, N.A
                  445 South Figueroa Street, 4th Floor
                  Los Angeles, California 90071-1100
                  Attention:  Christopher Zumberge
                  Telecopy:  (213) 236-7406

provided that any notice, request or demand to or upon the Agent or the Lenders
pursuant to Section 2.3 or 2.4 shall not be effective until received.

9.3 NO WAIVER;  CUMULATIVE  REMEDIES.  No failure  to  exercise  and no delay in
exercising,  on the part of the Agent or any Lender, any right, remedy, power or
privilege  hereunder shall operate as a waiver thereof;  nor shall any single or
partial exercise of any right, remedy, power or privilege hereunder preclude any
other or further  exercise  thereof or the exercise of any other right,  remedy,
power or privilege. The rights, remedies,  powers and privileges herein provided
are cumulative and not exclusive of any rights, remedies,  powers and privileges
provided by law.

9.4  SURVIVAL  OF  REPRESENTATIONS  AND  WARRANTIES.   All  representations  and
warranties  made  hereunder  and  in  any  document,  certificate  or  statement
delivered pursuant hereto or in connection  herewith shall survive the execution
and delivery of this Agreement and the Notes.

9.5 PAYMENT OF EXPENSES AND TAXES.  The Borrower  agrees (a) to pay or reimburse
the  Agent  and each  Lender  for all its  reasonable  costs  and  out-of-pocket
expenses  (including  travel and other expenses  incurred by it or its agents in
connection  with  performing  due  diligence  with  regard  hereto)  incurred in
connection  with  the  development,   preparation  and  execution  of,  and  any
amendment,  supplement  or  modification  to, this  Agreement and the other Loan
Documents and any other documents prepared in connection  herewith or therewith,
and the consummation and administration of the transactions  contemplated hereby
and  thereby,  including,  without  limitation,   syndication  efforts  (whether
completed  before  or after  the  Restatement  Date)  in  connection  with  this
Agreement and the reasonable fees and disbursements of counsel to the Agent, (b)
after  the  occurrence  and  during  the  continuance  of a  Default,  to pay or
reimburse  the  Agent  and  each  Lender  for  all  its  reasonable   costs  and
out-of-pocket   expenses   incurred  in  connection   with  the  enforcement  or
preservation  of any rights  under  this  Agreement,  the Notes,  the other Loan
Documents and any such other  documents or in connection with any refinancing or
restructuring  of the credit  arrangements  provided under this Agreement in the
nature of a "work-out" or of any insolvency or bankruptcy proceeding, including,
without  limitation,  reasonable legal fees and  disbursements of counsel to the
Agent and each Lender  (including the allocated costs of internal counsel to the
Agent and the Lenders which costs are not in duplication of any costs of outside
counsel  to the Agent  and each  Lender),  (c) to pay,  and  indemnify  and hold
harmless  each Lender and the Agent from any and all  recording  and filing fees
and any and all  liabilities  with  respect to, or  resulting  from any delay in
paying,  stamp,  excise  and  other  taxes,  if any,  which  may be  payable  or
determined  to be payable in  connection  with the execution and delivery of, or
consummation or  administration  of any of the transactions  contemplated by, or
any amendment,  supplement or modification of, or any waiver or consent under or
in respect of, this Agreement,  the Notes, the other Loan Documents and any such
other  documents and (d) to pay, and indemnify and hold harmless each Lender and
the  Agent  and  the  officers,  partners,  directors,   employees,  agents  and
affiliates  of the Agent or any  Lender  (collectively  "Indemnitees")  from and
against, any and all Indemnified  Liabilities,  provided that the Borrower shall
have no  obligation  hereunder  to the  Agent  or any  Lender  with  respect  to
Indemnified  Liabilities arising from the gross negligence or willful misconduct
of the Agent or any Lender.  As used herein,  "Indemnified  Liabilities"  means,
collectively, any and all liabilities,  obligations,  losses, damages (including
natural  resource  damages),   penalties,   actions,  judgments,  suits,  claims

<PAGE>

(including   environmental   claims),   costs   (including   the  costs  of  any
investigation,   study,  sampling,   testing,   abatement,   cleanup,   removal,
remediation or other response action necessary to remove, remediate, clean up or
abate  any   activities   relating  to   Hazardous   Materials),   expenses  and
disbursements  of any kind or nature  whatsoever  (including the reasonable fees
and   disbursements   of  counsel  for   Indemnitees  in  connection   with  any
investigative,  administrative or judicial proceeding commenced or threatened by
any Person, whether or not any such Indemnitee shall be designated as a party or
a potential party thereto,  and any fees or expenses  incurred by Indemnitees in
enforcing this indemnity), whether direct, indirect or consequential and whether
based on any federal,  state or foreign  laws,  statutes,  rules or  regulations
(including  securities and commercial laws,  statutes,  rules or regulations and
environmental  laws),  on  common  law or  equitable  cause  or on  contract  or
otherwise,  that may be imposed on,  incurred  by, or asserted  against any such
Indemnitee,  in any manner  relating to or arising out of this  Agreement or the
other  Loan  Documents  or  the  transactions  contemplated  hereby  or  thereby
(including  Lenders'  making of the Loans under the Existing  Credit  Agreement,
agreement to maintain the Loans hereunder,  or the use of the proceeds  thereof,
or any  enforcement  of any  of the  Loan  Documents  (including  any  sale  of,
collection  from,  or  other  realization  upon  any  of the  Collateral  or the
Guarantor Collateral or the enforcement of the Guarantees)). (To the extent that
the undertakings to defend,  indemnify,  pay and hold harmless set forth in this
Section 9.5 may be  unenforceable in whole or in part because they are violative
of any law or public policy,  the Borrower shall  contribute the maximum portion
that it is permitted to pay and satisfy under  applicable law to the payment and
satisfaction  of all Indemnified  Liabilities  incurred by Indemnitees or any of
them.) The  agreements in this Section shall survive  repayment of the Notes and
all other amounts payable hereunder.

9.6 SUCCESSORS AND ASSIGNS; PARTICIPATIONS; PURCHASING LENDERS.

   (a)  This  Agreement  shall be binding  upon and inure to the  benefit of the
        Borrower,  the Lenders,  the Agent,  all future holders of the Notes and
        their  respective  successors and assigns,  except that the Borrower may
        not assign,  transfer or delegate any of its rights or obligations under
        this Agreement without the prior written consent of each Lender.

   (b)  Any Lender  may, in the  ordinary  course of its  commercial  banking or
        finance business and in accordance with applicable law, at any time sell
        to one or more banks or other  entities  ("Participants")  participating
        interests  in any Loan  owing  to such  Lender,  any  Note  held by such
        Lender,  or any other  interest of such Lender  hereunder  and under the
        other   Loan   Documents;   provided   that  the   holder  of  any  such
        participation,  other than an  Affiliate  of such  Lender,  shall not be
        entitled  to  require  such  Lender  to take or omit to take any  action
        hereunder except action directly affecting the extension of the maturity
        of any  portion of the  principal  amount of a Loan,  or any  portion of
        interest or fees related thereto  allocated to such  participation  or a
        reduction of the principal amount or principal  payment amount of or the
        rate of interest payable on the Loans or any fees related thereto,  or a
        release of any Obligor or any  substantial  portion of the Collateral or
        the Guarantor  Collateral or any increase in participation  amounts.  In
        the event of any such sale by a Lender of  participating  interests to a
        Participant, such Lender's obligations under this Agreement to the other
        parties to this  Agreement  shall  remain  unchanged,  such Lender shall
        remain solely responsible for the performance thereof, such Lender shall
        remain the holder of any such Note for all purposes under this Agreement
        and the other  Loan  Documents,  and the  Borrower  and the Agent  shall
        continue to deal solely and directly with such Lender in connection with
        such Lender's rights and obligations  under this Agreement and the other
        Loan Documents.  The Borrower agrees that if amounts  outstanding  under
        this  Agreement  and the Notes  are due or  unpaid,  or shall  have been
        declared or shall have become due and payable upon the  occurrence of an
        Event of Default,  each Participant shall be deemed to have the right of
        setoff in respect of its  participating  interest in amounts owing under
        this  Agreement  and any Note to the same extent as if the amount of its
        participating  interest were owing directly to it as a Lender under this
        Agreement  or any Note,  provided  that such  Participant  shall only be
        entitled  to such  right  of  setoff  if it  shall  have  agreed  in the
        agreement  pursuant to which it shall have  acquired  its  participating
        interest to share with the Lenders the  proceeds  thereof as provided in
        Section  9.7. The Borrower  also agrees that each  Participant  shall be
        entitled to the  benefits of  Sections  2.8 and 2.9 with  respect to its
        participation in the Loans outstanding from time to time;  provided that
        no Participant  shall be entitled to receive any greater amount pursuant
        to such Sections than the transferor  Lender would have been entitled to
        receive in respect of the  amount of the  participation  transferred  by
        such  transferor  Lender  to  such  Participant  had  no  such  transfer
        occurred.

<PAGE>

   (c)  Any  Lender  may,  in the  ordinary  course  of its  commercial  banking
        business and in accordance  with applicable law, at any time sell to any
        of its Affiliates or to any Lender,  any Affiliate  thereof or to one or
        more additional banks or other entities, which additional banks or other
        entities  shall be subject to the  consent of the Agent  (which  consent
        will not be  unreasonably  withheld)  ("Purchasing  Lenders") all or any
        part of its rights and obligations  under this Agreement,  the Notes and
        the other  Loan  Documents  pursuant  to an  Assignment  and  Acceptance
        executed  by such  Purchasing  Lender  and such  transferor  Lender  and
        delivered to the Agent for its  acceptance and recording in the Register
        (as  defined in (d) below),  provided  that any such sale must result in
        the Purchasing  Lender having at least $5,000,000 in aggregate amount of
        obligations  under  this  Agreement,   the  Notes  and  the  other  Loan
        Documents. Upon such execution, delivery, acceptance and recording, from
        and  after the  transfer  effective  date  determined  pursuant  to such
        Assignment and Acceptance, (x) the Purchasing Lender thereunder shall be
        a party  hereto  and,  to the extent  provided  in such  Assignment  and
        Acceptance, have the rights and obligations of a Lender hereunder having
        outstanding  Loans as set forth therein,  and (y) the transferor  Lender
        thereunder shall, to the extent of such assigned portion and as provided
        in such  Assignment  and  Acceptance,  be released from its  obligations
        under this Agreement and the other Loan  Documents  (and, in the case of
        an Assignment and Acceptance  covering all or the remaining portion of a
        transferor  Lender's rights and obligations  under this Agreement,  such
        transferor Lender shall cease to be a party hereto). Such Assignment and
        Acceptance  shall be deemed to amend this  Agreement to the extent,  and
        only to the extent, necessary to reflect the addition of such Purchasing
        Lender and the resulting adjustment of Loan Percentages arising from the
        purchase by such Purchasing Lender of all or a portion of the rights and
        obligations of such transferor  Lender under this  Agreement,  the Notes
        and the other Loan Documents. On or prior to the transfer effective date
        determined pursuant to such Assignment and Acceptance,  the Borrower, at
        its own expense,  shall execute and deliver to the Agent in exchange for
        the surrendered  Note a new Note to the order of such Purchasing  Lender
        in an  amount  equal  to  the  Loans  assumed  by it  pursuant  to  such
        Assignment and  Acceptance,  and if the  transferor  Lender has retained
        Loans hereunder,  a new Note to the order of the transferor Lender in an
        amount equal to the Loans retained by it hereunder. Such new Notes shall
        be dated the Restatement  Date and shall otherwise be in the form of the
        Notes replaced  thereby.  The Note surrendered by the transferor  Lender
        shall be returned by the Agent to the Borrower marked "canceled."

   (d)  The Agent shall  maintain  at its  address  referred to in Section 9.2 a
        copy of each  Assignment and  Acceptance  delivered to it and a register
        (the  "Register")  for the recordation of the names and addresses of the
        Lenders and the principal  amount of the Loans owing to each Lender from
        time to time. The entries in the Register  shall be  conclusive,  in the
        absence of manifest error,  and the Borrower,  the Agent and the Lenders
        may treat each  Person  whose name is  recorded  in the  Register as the
        owner of the Loans recorded  therein for all purposes of this Agreement.
        The Register  shall be available  for  inspection by the Borrower or any
        Lender at any  reasonable  time and from  time to time  upon  reasonable
        prior notice.

   (e)  Upon its receipt of an Assignment and Acceptance  executed in accordance
        with  the  terms  hereof,  together  with  payment  to the  Agent by the
        Purchasing  Lender of a registration  and processing fee of $3,500,  the
        Agent shall (i) promptly  accept such Assignment and Acceptance and (ii)
        on the effective date determined pursuant thereto record the information
        contained therein in the Register.

   (f)  The Borrower  authorizes  each Lender to disclose to any  Participant or
        Purchasing Lender (each, a "Transferee") and any prospective  Transferee
        any and all  information  in such  Lender's  possession  concerning  the
        Borrower,  its  Subsidiaries,   and  their  Affiliates  which  has  been
        delivered  to such  Lender by or on behalf of the  Borrower  pursuant to
        this Agreement or any other Loan Document or which has been delivered to
        such  Lender by or on behalf of the  Borrower  in  connection  with such
        Lender's credit evaluation of the Borrower, its Subsidiaries,  and their
        Affiliates prior to becoming a party to this Agreement.

   (g)  Nothing  herein shall prohibit any Lender from pledging or assigning any
        of its rights under its Note to any Federal  Reserve Bank in  accordance
        with applicable law.

<PAGE>

9.7 ADJUSTMENTS; SET-OFF.

   (a)  If any Lender (a  "Benefitted  Lender")  shall at any time  receive  any
        payment of all or part of its Loans,  or interest  thereon,  or fees, or
        receive  any  collateral  in respect  thereof  (whether  voluntarily  or
        involuntarily,  by  set-off,  pursuant to events or  proceedings  of the
        nature  referred  to  in  Section  7(g),  or  otherwise),  in a  greater
        proportion than any such payment to or collateral  received by any other
        Lender,  if any, in respect of such other  Lender's  Loans,  or interest
        thereon,  or fees, such  Benefitted  Lender shall purchase for cash from
        the other  Lenders such portion of each such other  Lender's  Loans,  or
        fees,  or shall provide such other Lenders with the benefits of any such
        collateral, or the proceeds thereof, as shall be necessary to cause such
        Benefitted  Lender to share  the  excess  payment  or  benefits  of such
        collateral  or  proceeds  ratably  with each of the  Lenders;  provided,
        however,  that if all or any portion of such excess  payment or benefits
        is thereafter recovered from such Benefitted Lender, such purchase shall
        be  rescinded,  and the  purchase  price and benefits  returned,  to the
        extent of such recovery,  but without interest. The Borrower agrees that
        each  Lender  so  purchasing  a portion  of  another  Lender's  Loan may
        exercise all rights of payment (including, without limitation, rights of
        set-off)  with  respect to such  portion as fully as if such Lender were
        the direct holder of such portion.

   (b)  In addition to any rights and  remedies of the Lenders  provided by law,
        with the prior consent of the Majority  Lenders,  each Lender shall have
        the right, exercisable upon the occurrence and during the continuance of
        an Event of Default  and  acceleration  of the  Obligations  pursuant to
        Section 7, without prior notice to the  Borrower,  any such notice being
        expressly  waived by the Borrower to the extent  permitted by applicable
        law, to set-off and appropriate  and apply against any such  Obligations
        any and all deposits (general or special, time or demand, provisional or
        final), in any currency,  and any other credits,  indebtedness or claims
        in any currency,  in each case whether  direct or indirect,  absolute or
        contingent,  matured  or  unmatured,  at any time  held or owing by such
        Lender or any branch or agency thereof or bank  controlling  such Lender
        to or for the credit or the account of the Borrower.  Each Lender agrees
        promptly to notify the Borrower  after any such set-off and  application
        made by such Lender, provided that the failure to give such notice shall
        not affect the validity of such set-off and application.

9.8  COUNTERPARTS.  This Agreement may be executed by one or more of the parties
to this  Agreement  on any  number  of  separate  counterparts,  and all of said
counterparts  taken  together  shall be  deemed to  constitute  one and the same
instrument.  Delivery by  telecopier of an executed  counterpart  of a signature
page to this Agreement shall be effective as delivery of an originally  executed
counterpart of this Agreement.

9.9  SEVERABILITY.  Any  provision  of this  Agreement  which is  prohibited  or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability  without  invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render  unenforceable such provision in any
other jurisdiction.

9.10  INTEGRATION.  This  Agreement  represents  the  entire  agreement  of  the
Borrower,  the Agent and the Lenders with respect to the subject  matter hereof,
and there are no promises,  undertakings,  representations  or warranties by the
Agent or any Lender  relative to the subject  matter  hereof not  expressly  set
forth or referred to herein or in the other Loan Documents.

9.11 GOVERNING LAW. THIS AGREEMENT AND THE NOTES AND THE RIGHTS AND  OBLIGATIONS
OF THE PARTIES  UNDER THIS  AGREEMENT  AND THE NOTES  SHALL BE GOVERNED  BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE  WITH, THE INTERNAL LAWS OF THE STATE OF
CALIFORNIA, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.

9.12  ACKNOWLEDGEMENTS.  The Borrower hereby  acknowledges that: (a) it has been
advised by counsel in the negotiation,  execution and delivery of this Agreement
and the Notes and the other Loan Documents; (b) neither the Agent nor any Lender
has any fiduciary  relationship  to the Borrower  solely by virtue of any of the
Loan Documents,  and the relationship pursuant to the Loan Documents between the
Agent and the  Lenders,  on one hand,  and the  Borrower on the other  hand,  is
solely that of creditor and debtor;  and (c) no joint  venture  exists among the
Lenders or among the Borrower, on one hand and the Lenders, on the other hand.

9.13 HEADINGS. Section headings herein are included for convenience of reference
only and shall not constitute a part of this Agreement for any other purpose.

9.14 COPIES OF CERTIFICATES,  ETC.  Whenever the Borrower is required to deliver
notices,  certificates,  opinions,  statements or other information hereunder to
the Agent for delivery to any Lender, it shall do so in such number of copies as
the Agent shall reasonably specify.

<PAGE>

9.15 TREATMENT OF CERTAIN INFORMATION; CONFIDENTIALITY.

   (a)  The Borrower  acknowledges  that from time to time  financial  advisory,
        investment  banking and other services may be offered or provided to the
        Borrower or one or more of its  Subsidiaries  (in  connection  with this
        Agreement or otherwise) by any Lender, or by one or more Subsidiaries or
        affiliates of such Lender and the Borrower hereby authorizes each Lender
        to share any  information  delivered  to such Lender by the Borrower and
        its Subsidiaries  pursuant to this Agreement,  or in connection with the
        decision  of such  Lender  to enter  into  this  Agreement,  to any such
        Subsidiary or affiliate, it being understood that any such Subsidiary or
        affiliate receiving such information shall be bound by the provisions of
        clause (b) below as if it were a Lender  hereunder.  Such  authorization
        shall  survive the  repayment of the Loans and the  termination  of this
        Agreement.

   (b)  Each  Lender  and the Agent  agrees (on behalf of itself and each of its
        affiliates,  directors,  officers, employees and representatives) to use
        reasonable  precautions to keep  confidential,  in accordance with their
        customary procedures for handling  confidential  information of the same
        nature and in  accordance  with safe and sound  banking  practices,  any
        non-public  information  supplied to it by the Borrower pursuant to this
        Agreement  that is identified by the Borrower as being  confidential  at
        the time the same is  delivered  to the  Lenders or the Agent,  provided
        that nothing herein shall limit the  disclosure of any such  information
        (i) to the extent  required by  statute,  rule,  regulation  or judicial
        process,  (ii) to counsel for any of the Lenders or the Agent,  (iii) to
        bank examiners or other regulatory authorities, auditors or accountants,
        (iv) to the  Agent  or any  other  Lender,  (v) in  connection  with any
        litigation  to which  any one or more of the  Lenders  or the Agent is a
        party,  (vi) to a Subsidiary  or affiliate of such Lender as provided in
        clause (a) above or (vii) to any assignee or participant (or prospective
        assignee or  participant),  and provided  further that in no event shall
        any Lender or the Agent be obligated or required to return any materials
        furnished by the Borrower.

9.16 CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL.

   (a)  Each party hereto hereby irrevocably and unconditionally

            (i)  submits  for itself  and its  property  in any legal  action or
            proceeding  relating to this  Agreement and the other Loan Documents
            to which it is a party,  or for  recognition  and enforcement of any
            judgment  in  respect   thereof,   to  the   non-exclusive   general
            jurisdiction of the courts of the State of California, the courts of
            the United States of America for the Central District of California,
            and appellate courts from any thereof;

            (ii) consents  that any such action or proceeding  may be brought in
            such courts and waives any  objection  that it may now or  hereafter
            have to the venue of any such action or proceeding in any such court
            or that such action or  proceeding  was  brought in an  inconvenient
            forum and agrees not to plead or claim the same;

            (iii)  agrees  that  service  of  process  in  any  such  action  or
            proceeding  may be effected by mailing a copy thereof by  registered
            or  certified  mail (or any  substantially  similar  form of  mail),
            postage  prepaid,  to any party at its  address set forth in Section
            9.2;

            (iv) agrees that  nothing  herein  shall  affect the right to effect
            service  of process in any other  manner  permitted  by law or shall
            limit the right to sue in any other jurisdiction; and

            (v) waives,  to the maximum  extent not prohibited by law, any right
            it may have to claim or  recover in any legal  action or  proceeding
            referred to in this subsection any punitive damages.

   (b)  WAIVER OF JURY TRIAL.  THE  BORROWER,  THE AGENT AND THE LENDERS  HEREBY
        EXPRESSLY,  INTENTIONALLY  AND  DELIBERATELY  WAIVE TRIAL BY JURY IN ANY
        LEGAL ACTION OR PROCEEDING,  WHETHER  BROUGHT IN STATE OR FEDERAL COURT,
        RELATING  TO THIS  AGREEMENT  OR ANY OTHER  LOAN  DOCUMENT  OR ANY OTHER
        DOCUMENT  EXECUTED  IN  CONNECTION  HEREWITH  AND FOR  ANY  COUNTERCLAIM
        THEREIN SUCH WAIVER SHALL BE IRREVOCABLE AND UNCONDITIONAL.

<PAGE>

9.17 WAIVERS. The Borrower acknowledges that the following Events of Default (as
defined in the Existing  Agreement)  have occurred and are continuing  under the
Existing  Agreement and, but for the waiver  contemplated  by this Section 9.17,
would constitute Events of Default hereunder:

   (a)  Section  2.1(a) of the Existing  Agreement  provides  that the aggregate
        principal amount of Loans outstanding shall not exceed the lesser of the
        Aggregate  Commitment  or the  Borrowing  Base  at  any  time  (as  such
        capitalized terms are defined in the Existing Agreement). Section 2.5(d)
        of the Credit  Agreement  provides  that the  Borrower  shall prepay all
        Loans that exceed the Aggregate  Commitment  or the  Borrowing  Base (as
        such  capitalized  terms are defined in the Existing  Agreement.  At all
        times from May 2001 through the Closing Date,  the  aggregate  principal
        amount of Loans  (as  defined  in the  Existing  Agreement)  outstanding
        exceeded the Borrowing Base (as defined in the Existing Agreement),  and
        the Borrower  failed to repay such  overadvance in full. Such failure to
        repay constituted an Event of Default under Section 7(a) of the Existing
        Agreement.

   (b)  Section  6.1(c) of the  Existing  Agreement  required  the  Borrower  to
        maintain a Net Worth (as defined in the Existing  Agreement) of at least
        $32,400,000  as of May 31, 2001.  As of such date,  the  Borrower's  Net
        Worth (as defined  therein) was $32,274,060.  The Borrower's  failure to
        maintain the required Net Worth (as defined  therein) as of May 31, 2001
        is an Event of Default under Section 7(c) of the Existing Agreement.

At the Borrower's  request,  the Lenders agree to waive the foregoing  Events of
Default (as defined in the Existing Agreement), as well as any other Default (as
defined in the Existing  Agreement)  which has occurred and is continuing  under
the Existing Agreement, in each case through the Restatement Date and subject to
the terms and  conditions set forth herein.  The foregoing  waivers are given in
this instance only.  The foregoing  waivers shall not be construed as waivers of
or consents to any  violation  of, or deviation  from,  any term or condition of
this Agreement or any other Loan  Document,  nor shall such waivers be construed
to  evidence  the  willingness  of the Agent or the Lenders to give any other or
additional waiver, whether in similar or different circumstances.

9.18  EFFECT OF  AMENDMENT  AND  RESTATEMENT.  This  Agreement  is  intended  to
completely amend, restate and replace the Existing Agreement,  without novation.
The  Borrower  hereby  acknowledges,  certifies  and agrees that the  Borrower's
obligations  to repay the Loans are not  subject to any  defense,  counterclaim,
set-off, right of recoupment, abatement or other claim or determination.

        IN WITNESS WHEREOF,  the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly  authorized  officers as of
the day and year first above written.

                               BORROWER

                               POINT.360

                               By:    /s/ Alan R. Steel
                                    --------------------------------------
                               Name:      Alan R. Steel
                                      ------------------------------------
                               Title:     Executive Vice President
                                       -----------------------------------


                               AGENT

                               UNION BANK OF CALIFORNIA, N.A.,
                               as Agent

                               By:    /s/ Christopher D. Zumberge
                                    --------------------------------------
                               Name:      Christopher D. Zumberge
                                      ------------------------------------
                               Title:     Vice President
                                       -----------------------------------

<PAGE>

                               LENDERS

                               UNION BANK OF CALIFORNIA, N.A.,
                               as a Lender

                               By:    /s/ Christopher D. Zumberge
                                    ---------------------------------------
                               Name:      Christopher D. Zumberge
                                      -------------------------------------
                               Title:     Vice President
                                       ------------------------------------

                               Address for Notices

                               445 South Figueroa Street, 4th Floor
                               Los Angeles, California 90071-1100
                               Attention: Christopher Zumberge
                               Telephone: (213) 236-6406
                               Facsimile: (213) 236-6293

                               Applicable Lending Office

                               445 South Figueroa Street
                               Los Angeles, California 90071-1100



                               UNITED CALIFORNIA BANK,
                               as a Lender

                               By:    /s/ D. Tom Herrman
                                    ---------------------------------------
                               Name:      D. Tom Herrman
                                      -------------------------------------
                               Title:
                                       ------------------------------------

                               Address for Notices

                               601 South Figueroa Street, W9-2
                               Los Angeles, California 90017
                               Attention: D. Tom Herrman
                               Telephone: (213) 896-7308
                               Facsimile: (213) 896-7387

                               Approved Lending Office

                               601 South Figueroa Street, W9-2
                               Los Angeles, California 90017



                               U.S. BANK NATIONAL ASSOCIATION,
                               as a Lender

                               By:    /s/ David C. Larsen
                                    ---------------------------------------
                               Name:      David C. Larsen
                                      -------------------------------------
                               Title:
                                       ------------------------------------

                               Address for Notices

                               U.S. Bank Place -MPFP2516
                               601 Second Avenue South
                               Minneapolis, Minnesota 55402
                               Attention: David C. Larsen
                               Telephone: (612) 973-2129
                               Facsimile: (612) 973-2149

                               Approved Lending Office

                               601 Second Avenue South
                               Minneapolis, Minnesota 55402

<PAGE>
                                                                  SCHEDULE 2.1


                                     PART 1

                                  LOAN AMOUNTS


Lender                                         Loan Amount
------                                         -----------

Union Bank of California, N.A.                 $16,110,824.44
United California Bank                         $ 6,444,329.78
U.S. Bank National Association                 $ 6,444,329.78
                                               --------------
Total                                          $28,999,484


                                     PART 2

              LENDERS' PRO RATA SHARES OF EXISTING LETTER OF CREDIT



Lender                                          Pro Rata Share
------                                          --------------

Union Bank of California, N.A.                  $   51,244.00
United California Bank                          $   20,497.60
U.S. Bank National Association                  $   20,497.60
                                                -------------
Total                                           $   92,239.20