Document:

Merrill Lynch                                  TERM LOAN AND SECURITY AGREEMENT
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Term Loan and Security  Agreement NO. 0104552301 ("Loan  Agreement") dated as of
June 5, 2001, between  LASER-PACIFIC MEDIA CORPORATION,  a corporation organized
and existing under the laws of the State of Delaware having its principal office
at 809 N. Cahuenga Blvd., Los Angeles, CA 90038 ("Customer"),  and MERRILL LYNCH
BUSINESS FINANCIAL SERVICES INC., a corporation organized and existing under the
laws of the State of Delaware  having its principal  office at 222 North LaSalle
Street, Chicago, IL 60601 ("MLBFS").

In consideration of the mutual covenants of the parties hereto, Customer and
MLBFS hereby agree as follows:

                             Article I. DEFINITIONS

1.1  Specific  Terms.  In  addition  to terms  defined  elsewhere  in this  Loan
Agreement,  when used  herein  the  following  terms  shall  have the  following
meanings:

(a) "Account  Debtor" shall mean any party who is or may become  obligated  with
respect to an Account or Chattel Paper.

(b) "Additional  Agreements" shall mean all agreements,  instruments,  documents
and opinions  other than this Loan  Agreement,  whether with or from Customer or
any other party, which are contemplated hereby or otherwise  reasonably required
by MLBFS in connection  herewith,  or which  evidence the creation,  guaranty or
collateralization  of any of the  Obligations  or the granting or  perfection of
liens or security  interests upon the Collateral or any other collateral for the
Obligations, and shall include, without limitation, the Note.

(c) "Bankruptcy  Event" shall mean any of the following:  (i) a proceeding under
any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt or
receivership law or statute shall be filed or consented to by Customer;  or (ii)
any such proceeding  shall be filed against  Customer and shall not be dismissed
or withdrawn within sixty (60) days after filing; or (iii) Customer shall make a
general  assignment  for  the  benefit  of  creditors;  or (iv)  Customer  shall
generally fail to pay or admit in writing its inability to pay its debts as they
become due; or (v) Customer shall be adjudicated a bankrupt or insolvent.

(d)  "Business  Day" shall mean any day other than a Saturday,  Sunday,  federal
holiday or other day on which the New York Stock Exchange is regularly closed.

(e) "Closing  Date" shall mean the date upon which all  conditions  precedent to
MLBFS'  obligation  to make the first  advance on account of the Loan shall have
been met to the satisfaction of MLBFS.

(f)  "Collateral"  shall mean the Equipment,  more fully  described on Exhibit A
attached hereto, of Customer,  howsoever arising,  whether now owned or existing
or hereafter acquired or arising, and wherever located;  together with all parts
thereof  (including spare parts),  all accessories and accessions  thereto,  all
books and records  (including  computer records)  directly related thereto,  all
proceeds  thereof  (including,  without  limitation,  proceeds  in the  form  of
Accounts  and  insurance  proceeds),  subject to any  existing  liens and future
purchase money liens upon Equipment other than the specific equipment  described
on Exhibit A, and the additional collateral described in Section 3.6 (b) hereof.

(g) "Commitment Expiration Date" shall mean July 5, 2001.

(h)  "Commitment  Fee" shall mean a fee of $10,000.00 due to MLBFS in connection
with this Loan Agreement.

(i)  "Conversion  Date" shall mean the first to occur of the date of funding the
final  advance on  account  of the Loan  permitted  under the terms  hereof,  or
November 30, 2001.

(j) "Default"  shall mean either an "Event of Default" as defined in Section 3.5
hereof,  or an event which with the giving of notice,  passage of time, or both,
would constitute such an Event of Default.

(k) "General Funding Conditions" shall mean each of the following  conditions to
each loan or advance by MLBFS hereunder:  (i) no Default shall have occurred and
be  continuing  or would  result  from the  making of any such  loan or  advance
hereunder by MLBFS;  (ii) there shall not have  occurred and be  continuing  any
material  adverse  change in the  business or  financial  condition of Customer;
(iii) all representations and warranties of Customer herein or in any Additional
Agreements shall then be true and correct in all material  respects;  (iv) MLBFS
shall have received  this Loan  Agreement and all  Additional  Agreements,  duly
executed and filed or recorded where  applicable,  all of which shall be in form
and substance  reasonably  satisfactory  to MLBFS;  (v) the Commitment Fee shall
have been paid in full;  (vi) MLBFS  shall have  received,  as and to the extent
applicable,  copies of invoices, bills of sale, loan payoff letters and/or other
evidence  reasonably  satisfactory  to it that the  proceeds  of the  Loan  will
satisfy the Loan Purpose;  (vii) MLBFS shall have received  evidence  reasonably
satisfactory  to it as to the ownership of the Collateral and the perfection and
priority  of  MLBFS'  liens  and  security  interests  thereon,  as  well as the
ownership  of and the  perfection  and  priority  of MLBFS'  liens and  security
interests on any other collateral for the Obligations  furnished pursuant to any
of  the  Additional  Agreements;  (viii)  MLBFS  shall  have  received  evidence
reasonably  satisfactory to it of the insurance required hereby or by any of the
Additional Agreements; and (ix) any additional conditions specified in the "Term
Loan  Approval"  letter  executed  by MLBFS  with  respect  to the  transactions
contemplated hereby shall have been met to the reasonable satisfaction of MLBFS.

(l) "Loan" shall mean a multi-advance  term  installment loan of five-years from
the first day of the calendar month  following the Conversion  Date in an amount
equal to the lesser of: (A) 100% of the amount  required  by Customer to satisfy
or fulfill the Loan Purpose,  (B) principal  balance of the Loan  outstanding on
the Conversion Date, or (C) $2,000,000.00.

(m) "Loan  Purpose"  shall mean the purpose  for which the  proceeds of the Loan
will be used; to wit: to refinance Customer's existing term loan (equipment line
of credit) with The CIT Group.

(n)  "Location  of Tangible  Collateral"  shall mean the address of Customer set
forth at the beginning of this Loan  Agreement,  together with any other address
or  addresses  set forth on an exhibit  hereto as being a Location  of  Tangible
Collateral.

(o)  "Obligations"  shall mean all liabilities,  indebtedness and obligations of
Customer to MLBFS, howsoever created, arising or evidenced, whether now existing
or hereafter arising, whether direct or indirect, absolute or contingent, due or
to become due,  primary or secondary or joint or several,  and, without limiting
the foregoing,  shall include interest accruing after the filing of any petition
in  bankruptcy,  and  all  present  and  future  liabilities,  indebtedness  and
obligations of Customer under the Note and this Loan Agreement.

(p) "Permitted  Liens" shall mean with respect to the Collateral:  (i) liens for
current taxes not delinquent, other non-consensual liens arising in the ordinary
course of business  for sums not due,  and, if MLBFS'  rights to and interest in
the Collateral are not materially and adversely affected thereby, any such liens
for  taxes or other  non-consensual  liens  arising  in the  ordinary  course of
business being contested in good faith by appropriate proceedings; (ii) liens in
favor of MLBFS;  (iii) liens which will be  discharged  with the proceeds of the
Loan;  (iv) existing liens upon and leases of Equipment  (excluding the specific
equipment  described on Exhibit A), if any,  together  with any future  purchase
money  liens upon and leases of  Equipment  (excluding  the  specific  equipment
described on Exhibit A); and (v) any other liens expressly  permitted in writing
by MLBFS.

1.2 Other Terms. Except as otherwise defined herein, all terms used in this Loan
Agreement which are defined in the Uniform  Commercial Code of Illinois  ("UCC")
shall have the meanings set forth in the UCC.

                              Article II. THE LOAN

2.1 Commitment.  Subject to the terms and conditions hereof, MLBFS hereby agrees
to make the Loan to Customer for the Loan Purpose, and Customer agrees to borrow
all amounts  borrowed to satisfy the Loan Purpose from MLBFS.  The Loan shall be
funded as requested by Customer in up to four (4) separate  advances on or prior
to the  Conversion  Date;  provided,  however,  that Customer  shall not request
funding of, and MLBFS shall not be obligated to fund, any advances on account of
the Loan in an amount less than  $100,000.00.  Each such advance shall either be
funded directly to the applicable  third party or parties on account of the Loan
Purpose or to  reimburse  Customer for amounts  directly  expended by it; all as
directed by Customer in n Advance  Certificate  to be executed and  delivered to
MLBFS prior to the funding date of each advance.

2.2 Note.  The Loan will be evidenced by and repayable in  accordance  with that
certain  Collateral  Installment  Note made by Customer  payable to the order of
MLBFS and issued  pursuant  to this Loan  Agreement  (the  "Note").  The Note is
hereby incorporated as a part hereof as if fully set forth herein.

2.3 Conditions of MLBFS'  Obligation.  The Closing Date and MLBFS' obligation to
make each advance on account of the Loan on or prior to the Conversion  Date are
subject to the prior fulfillment of each of the following conditions:  (a) MLBFS
shall have  received a written  request from Customer that an advance on account
of the Loan be  funded in  accordance  with the terms  hereof,  together  with a
written  direction from Customer as to the method of payment and payee(s) of the
proceeds of such advance,  which request and direction  shall have been received
by MLBFS not less than two Business  Days prior to any  requested  funding date;
(b) MLBFS shall have received a copy of invoices,  bills of sale, payoff letters
or other applicable evidence reasonably  satisfactory to it that the proceeds of
such advance will be applied on account of the Loan Purpose;  (c) the Conversion
Date  shall  not  then  have  occurred;  and  (d)  each of the  General  Funding
Conditions shall then have been met or satisfied to the reasonable  satisfaction
of MLBFS.

2.4 Use of Loan  Proceeds.  The  proceeds  of the Loan shall be used by Customer
solely for a Loan  Purpose,  or, with the prior  written  consent of MLBFS,  for
other lawful  business  purposes of Customer  not  prohibited  hereby.  Customer
agrees that under no  circumstances  will the proceeds of the Loan be used:  (a)
for personal,  family or household purposes of any person whatsoever,  or (b) to
purchase,  carry or trade in  securities,  or repay debt  incurred to  purchase,
carry or trade in securities, or (c) unless otherwise consented to in writing by
MLBFS,  to  pay  any  amount  to  Merrill  Lynch  and  Co.,  Inc.  or any of its
subsidiaries,  other than Merrill Lynch Bank USA, Merrill Lynch Bank & Trust Co.
or any  subsidiary of either of them  (including  MLBFS and Merrill Lynch Credit
Corporation).

2.5  Commitment  Fee. In  consideration  of the agreement by MLBFS to extend the
Loan to Customer in accordance  with and subject to the terms  hereof,  Customer
has paid or shall,  on or before the Closing  Date pay,  the  Commitment  Fee to
MLBFS.  Customer  acknowledges and agrees that the Commitment Fee has been fully
earned by MLBFS, and that it will not under any circumstances be refundable.

                         Article III. GENERAL PROVISIONS

3.1 REPRESENTATIONS AND WARRANTIES

Customer represents and warrants to MLBFS that:

(a)  Organization and Existence.  Customer is a corporation,  duly organized and
validly existing in good standing under the laws of the State of Delaware and is
qualified  to do  business  and in good  standing  in each other state where the
nature of its  business  or the  property  owned by it make  such  qualification
necessary.

(b) Execution, Delivery and Performance. The execution, delivery and performance
by Customer of this Loan  Agreement  and such of the  Additional  Agreements  to
which it is a party: (i) have been duly authorized by all requisite action, (ii)
do not and will  not  violate  or  conflict  with any law or other  governmental
requirement, or any of the agreements,  instruments or documents which formed or
govern  Customer,  and (iii) do not and will not  breach or  violate  any of the
provisions  of, and will not result in a default by  Customer  under,  any other
agreement,  instrument  or document to which it is a party or by which it or its
properties are bound.

Notices and Approvals.  Except as may have been given or obtained,  no notice to
or consent or  approval of any  governmental  body or  authority  or other third
party whatsoever (including, without limitation, any other creditor) is required
in connection with the execution, delivery or performance by Customer of such of
this Loan Agreement, the Note and the other Additional Agreements to which it is
a party.

(c)  Enforceability.  This  Loan  Agreement,  the  Note  and  such of the  other
Additional  Agreements  to which  Customer  is a party are the legal,  valid and
binding obligations of Customer, enforceable against it in accordance with their
respective  terms,  except as  enforceability  may be limited by bankruptcy  and
other  similar laws  affecting  the rights of creditors  generally or by general
principles of equity.

(d)  Collateral.  Except for any  Permitted  Liens:  (i)  Customer  has good and
marketable  title to the  Collateral,  (ii) none of the Collateral is subject to
any lien,  encumbrance  or security  interest,  and (iii) upon the filing of all
Uniform Commercial Code financing  statements  executed by Customer with respect
to the Collateral in the  appropriate  jurisdiction(s)  and/or the completion of
any other action  required by  applicable  law to perfect its liens and security
interests,  MLBFS  will  have  valid and  perfected  first  liens  and  security
interests upon all of the Collateral.

(e) Financial Statements.  Except as expressly set forth in Customer's financial
statements,  all financial  statements of Customer  furnished to MLBFS have been
prepared  in  conformity   with  generally   accepted   accounting   principles,
consistently applied, are true and correct in all material respects,  and fairly
present the  financial  condition  of it as at such dates and the results of its
operations for the periods then ended (subject, in the case of interim unaudited
financial statements, to normal year-end adjustments); and since the most recent
date covered by such financial  statements,  there has been no material  adverse
change in any such financial condition or operation.

(f)  Litigation.  No litigation,  arbitration,  administrative  or  governmental
proceedings  are pending or, to the  knowledge of Customer,  threatened  against
Customer, which would, if adversely determined,  materially and adversely affect
the  liens  and  security  interests  of MLBFS  hereunder  or  under  any of the
Additional  Agreements,  the  financial  condition of Customer or the  continued
operations of Customer.

(g) Tax  Returns.  All  federal,  state  and  local  tax  returns,  reports  and
statements required to be filed by Customer have been filed with the appropriate
governmental agencies and all taxes due and payable by Customer have been timely
paid  (except  to the  extent  that  any  such  failure  to file or pay will not
materially and adversely affect either the liens and security interests of MLBFS
hereunder or under any of the Additional Agreements,  the financial condition of
Customer, or the continued operations of Customer).

(h) Collateral Location. All of the tangible Collateral is located at a Location
of Tangible Collateral.

(i) No Outside  Broker.  Except for  employees of MLBFS,  MLPF&S or one of their
affiliates,  Customer has not in connection with the  transactions  contemplated
hereby  directly or indirectly  engaged or dealt with, and was not introduced or
referred to MLBFS by, any broker or other loan arranger.

Each of the foregoing representations and warranties: (i) has been and will be
relied upon as an inducement to MLBFS to make the Loan, and (ii) is continuing
and shall be deemed remade by Customer on the Closing Date, on the date of
funding of each additional advance on account of the Loan, and again on the
Conversion Date.

3.2 FINANCIAL AND OTHER INFORMATION

(a) Customer  shall furnish or cause to be furnished to MLBFS during the term of
this Loan Agreement all of the following:

(i) Annual Financial Statements.  Within 120 days after the close of each fiscal
year of Customer, a copy of the annual audited financial statements of Customer,
including  in  reasonable  detail,  a balance  sheet and  statement  of retained
earnings as at the close of such fiscal year and  statements  of profit and loss
and cash  flow for such  fiscal  year by KPMG or other  auditors  acceptable  to
MLBFS;

(ii) Interim Financial Statements. Within 45 days after the close of each fiscal
quarter of Customer,  a copy of the interim financial statements of Customer for
such fiscal quarter  (including in reasonable  detail both a balance sheet as of
the close of such  fiscal  period,  and  statement  of  profit  and loss for the
applicable fiscal period);  provided,  at such time as the ongoing  negotiations
between The Writers  Guild and the  Alliance  of Motion  Picture and  Television
Producers,  in  California,  should cease without  resolution or a strike by the
writers or actors should occur,  and at any and all times  thereafter,  Customer
will  further  provide  MLBFS  with a copy  of its  monthly  internal  financial
statements  certified as being true and correct by the chief financial office of
Customer.

(iii) A/R  Agings.  Within 45 days  after the close of each  fiscal  quarter  of
Customer,  a copy of the Accounts  Receivable Aging of Customer as of the end of
such fiscal quarter;

(iv) SEC Reports.  Customer  shall furnish or cause to be furnished to MLBFS not
later than 10 days after the date of filing  with the  Securities  and  Exchange
Commission  ("SEC"),  a copy of each 10-K,  10-Q and other report required to be
filed with the SEC during the term hereof by Customer;

(v)  Reporting  Requirements:  Customer will be required to provide MLBFS with a
copy of  each of its  annual  certified  financial  statements  and  such  other
information as MLBFS may from time to time reasonably request; provided, at such
time as the ongoing  negotiations  between The Writers Guild and the Alliance of
Motion Picture and  Television  Producers,  in California,  should cease without
resolution or a strike by the writers or actors should occur, and at any and all
times thereafter, Customer will further provide MLBFS with a copy of its monthly
internal financial  statements  certified as being true and correct by the chief
executive officer of Customer; and

(vi) Other  Information.  Such other  information as MLBFS may from time to time
reasonably request relating to Customer or the Collateral.

(b) General  Agreements With Respect to Financial  Information.  Customer agrees
that except as otherwise  specified  herein or otherwise agreed to in writing by
MLBFS: (i) all annual financial  statements required to be furnished by Customer
to  MLBFS  hereunder  will  be  prepared  by  either  the  current   independent
accountants for Customer or other independent  accountants reasonably acceptable
to MLBFS, and (ii) all other financial  information  required to be furnished by
Customer  to MLBFS  hereunder  will be  certified  as  correct  in all  material
respects by the party who has  prepared  such  information,  and, in the case of
internally prepared  information with respect to Customer,  certified as correct
by its chief financial officer.

3.3 OTHER COVENANTS

Customer further agrees during the term of this Loan Agreement that:

(a) Financial Records; Inspection.  Customer will: (i) maintain at its principal
place of business  complete and accurate books and records,  and maintain all of
its  financial  records in a manner  consistent  with the  financial  statements
heretofore  furnished  to  MLBFS,  or  prepared  on such  other  basis as may be
approved  in  writing by MLBFS;  and (ii)  permit  MLBFS or its duly  authorized
representatives,  upon reasonable notice and at reasonable times, to inspect its
properties (both real and personal) and operations.

(b)  Taxes.  Customer  will  pay  when  due all  taxes,  assessments  and  other
governmental  charges,  howsoever  designated,  and all  other  liabilities  and
obligations,  except  to the  extent  that  any  such  failure  to pay  will not
materially and adversely affect either the liens and security interests of MLBFS
hereunder or under any of the Additional Agreements,  the financial condition of
Customer or the continued operations of Customer.

(c)  Compliance  With Laws and  Agreements.  Customer  will not violate any law,
regulation or other governmental requirement, any judgment or order of any court
or governmental agency or authority, or any agreement, instrument or document to
which  it is a party  or by  which  it is  bound,  if any  such  violation  will
materially and adversely affect either the liens and security interests of MLBFS
hereunder or under any of the Additional Agreements,  or the financial condition
or the continued operations of Customer.

(d) No Use of Merrill  Lynch Name.  Customer  will not  directly  or  indirectly
publish,  disclose or otherwise use in any advertising or promotional  material,
or press release or interview, the name, logo or any trademark of MLBFS, MLPF&S,
Merrill  Lynch  and Co.,  Incorporated  or any of their  affiliates,  except  as
required to comply with financial reporting requirements.

(e)  Notification By Customer.  Customer shall provide MLBFS with prompt written
notification  of: (i) any Default;  (ii) any  materially  adverse  change in the
business,  financial condition or operations of Customer;  (iii) any information
which  indicates that any financial  statements of Customer fail in any material
respect to present  fairly the  financial  condition  and results of  operations
purported to be presented in such statements;  and (iv) any change in Customer's
outside accountants. Each notification by Customer pursuant hereto shall specify
the  event  or  information  causing  such  notification,  and,  to  the  extent
applicable,  shall specify the steps being taken to rectify or remedy such event
or information.

(f)  Notice of  Change.  Customer  shall  give MLBFS not less than 30 days prior
written  notice of any change in the name  (including  any  fictitious  name) or
principal place of business or residence of Customer.

(g) Continuity.  Except upon the prior written  consent of MLBFS,  which consent
will not be  unreasonably  withheld:  (i)  Customer  shall not be a party to any
merger  or  consolidation   with,  or  purchase  or  otherwise  acquire  all  or
substantially  all of the assets of, or any material stock,  partnership,  joint
venture or other equity interest in, any person or entity, or sell,  transfer or
lease all or any substantial part of its assets, if any such action would result
in either: (A) a material change in the principal business, ownership or control
of Customer,  or (B) a material  adverse  change in the  financial  condition or
operations  of Customer;  (ii)  Customer  shall  preserve its existence and good
standing  in the  jurisdiction(s)  of  establishment  and  operation;  and (iii)
Customer shall not engage in any material business substantially  different from
its business in effect as of the date of application by Customer for credit from
MLBFS, or cease operating any such material business.

(h) Leverage Ratio. The ratio of (i) Customer's total debt less any subordinated
debt of  Customer,  to (ii) the sum of  Customer's  tangible  net worth plus any
subordinated  debt of Customer  shall not at any time exceed 1.6 to 1.0. For the
purposes  hereof,  the term "tangible net worth" shall mean Customer's net worth
as  shown  on  Customer's  regular  financial  statements  prepared  in a manner
consistent  with the terms  hereof,  but  excluding  an amount equal to: (i) any
assets which are  ordinarily  classified  as  "intangible"  in  accordance  with
generally accepted accounting principles,  and (ii) any amounts now or hereafter
directly or indirectly owing to Customer by officers, shareholders or affiliates
of Customer.

(i) Fixed Charge  Coverage  Ratio.  Customer  shall at all times during the term
hereof main tain a fixed charge  coverage ratio of no less than than 1.4 to 1.0.
The term  "Fixed  Charge  Coverage  Ratio"  shall  mean the ratio of: (a) income
before  interest  (including  payments in the nature of interest  under  capital
leases),  taxes,  depreciation  and  amortization,  (b) the sum of the aggregate
principal  and interest  paid ot accrued,  the  aggregate  rental under  capital
leases paid or accrued, any dividends and other distributions paid or payable to
shareholders  and taxes paid in cash; all as determined on a 12-month  basis, as
set  forth  in  Customer's  financial  statement  prepared  in  accordance  with
generally accepted accounting principles.

3.4 COLLATERAL

(a) Pledge of Collateral.  To secure payment and performance of the Obligations,
Customer hereby pledges,  assigns,  transfers and sets over to MLBFS, and grants
to MLBFS first liens and security  interests in and upon all of the  Collateral,
subject only to Permitted Liens.

(b) Liens.  Except upon the prior written  consent of MLBFS,  Customer shall not
create or permit to exist any lien,  encumbrance  or security  interest  upon or
with respect to the specific Collateral as described herein.

(c)  Performance of  Obligations.  Customer shall perform all of its obligations
owing on account of or with respect to the Collateral;  it being understood that
nothing herein, and no action or inaction by MLBFS, under this Loan Agreement or
otherwise,  shall be deemed an  assumption  by MLBFS of any of  Customer's  said
obligations.

(d) Sales and  Collections.  So long as no Event of Default  shall have occurred
and be continuing, Customer may in the ordinary course of its business: (i) sell
any  Inventory  normally  held by  Customer  for sale,  (ii) use or consume  any
materials  and supplies  normally held by Customer for use or  consumption,  and
(iii) collect all of its Accounts.  Customer shall take such action with respect
to protection of its Inventory and the other  Collateral  and the  collection of
its Accounts as MLBFS may from time to time reasonably request.

(e) Account Schedules.  Upon the request of MLBFS, made now or at any reasonable
time or times  hereafter,  Customer  shall deliver to MLBFS,  in addition to the
other information required hereunder,  a schedule identifying,  for each Account
and all Chattel  Paper  subject to MLBFS'  security  interests  hereunder,  each
Account  Debtor by name and address and amount,  invoice or contract  number and
date of  each  invoice  or  contract.  Customer  shall  furnish  to  MLBFS  such
additional  information with respect to the Collateral,  and amounts received by
Customer as proceeds  of any of the  Collateral,  as MLBFS may from time to time
reasonably request.

(f) Alterations and Maintenance. Except upon the prior written consent of MLBFS,
Customer  shall not make or permit  any  material  alterations  to any  tangible
Collateral which might materially  reduce or impair its market value or utility.
Customer  shall at all times keep the tangible  Collateral in good condition and
repair, reasonable wear and tear excepted, and shall pay or cause to be paid all
obligations arising from the repair and maintenance of such Collateral,  as well
as all obligations with respect to any Location of Tangible  Collateral,  except
for  any  such  obligations  being  contested  by  Customer  in  good  faith  by
appropriate proceedings.

(g) Location. Except for movements required in the ordinary course of Customer's
business, Customer shall give MLBFS 30 days' prior written notice of the placing
at or movement of any tangible  Collateral to any location other than a Location
of Tangible Collateral.  In no event shall Customer cause or permit any material
tangible  Collateral  to be removed from the United  States  without the express
prior written consent of MLBFS.

(h)  Insurance.  Customer  shall insure all of the tangible  Collateral  under a
policy or policies of physical  damage  insurance  providing that losses will be
payable to MLBFS as its interests may appear pursuant to a Lender's Loss Payable
Endorsement and containing such other  provisions as may be reasonably  required
by MLBFS.  Customer  shall further  provide and maintain a policy or policies of
comprehensive  public  liability  insurance  naming MLBFS as an additional party
insured.  Customer shall maintain such other insurance as may be required by law
or is  customarily  maintained  by companies in a similar  business or otherwise
reasonably  required by MLBFS.  All such  insurance  policies shall provide that
MLBFS  will  receive  not  less  than  10  days  prior  written  notice  of  any
cancellation,  and shall  otherwise be in form and amount and with an insurer or
insurers  reasonably  acceptable to MLBFS.  Customer  shall furnish MLBFS with a
copy or certificate of each such policy or policies and, prior to any expiration
or cancellation, each renewal or replacement thereof.

(i) Event of Loss.  Customer shall at its expense promptly repair all repairable
damage to any tangible Collateral.  In the event that any tangible Collateral is
damaged  beyond repair,  lost,  totally  destroyed or confiscated  (an "Event of
Loss") and such Collateral had a value prior to such Event of Loss of $25,000.00
or more,  then,  on or  before  the  first to  occur  of (i) 90 days  after  the
occurrence  of such Event of Loss,  or (ii) 10  Business  Days after the date on
which  either  Customer or MLBFS  shall  receive any  proceeds of  insurance  on
account  of  such  Event  of  Loss,  or any  underwriter  of  insurance  on such
Collateral shall advise either Customer or MLBFS that it disclaims  liability in
respect of such Event of Loss,  Customer  shall,  at Customer's  option,  either
replace the Collateral subject to such Event of Loss with comparable  Collateral
free of all liens other than  Permitted  Liens (in which event Customer shall be
entitled to utilize the  proceeds of  insurance on account of such Event of Loss
for such  purpose,  and may retain any excess  proceeds of such  insurance),  or
prepay the Loan by an amount  equal to the actual cash value of such  Collateral
as  determined by either the insurance  company's  payment (plus any  applicable
deductible)  or,  in  absence  of  insurance  company  payment,   as  reasonably
determined by MLBFS. Notwithstanding the foregoing, if at the time of occurrence
of such Event of Loss or any time thereafter prior to replacement or prepayment,
as  aforesaid,  an  Event of  Default  shall  have  occurred  and be  continuing
hereunder, then MLBFS may at its sole option, exercisable at any time while such
Event of Default shall be  continuing,  require  Customer to either replace such
Collateral  or make a  prepayment  on account  of the Loan,  as  aforesaid.  Any
partial  prepayment of the Loans shall be applied to installments due in inverse
order of maturity.

(j) Notice of Certain Events.  Customer shall give MLBFS immediate notice of any
attachment,  lien, judicial process, encumbrance or claim affecting or involving
an aggregate  amount of $100,000.00  or more of the  Collateral  within a 30 day
period.

(k)  Indemnification.  Customer shall indemnify,  defend and save MLBFS harmless
from and against any and all claims,  liabilities,  losses,  costs and  expenses
(including, without limitation,  reasonable attorneys' fees and expenses) of any
nature whatsoever which may be asserted against or incurred by MLBFS arising out
of or in any manner occasioned by (i) the ownership, collection, possession, use
or operation of any  Collateral,  or (ii) any failure by Customer to perform any
of its obligations hereunder;  excluding,  however, from said indemnity any such
claims,  liabilities,  etc.  arising directly out of the willful wrongful act or
active gross negligence of MLBFS. This indemnity shall survive the expiration or
termination of this Loan  Agreement as to all matters  arising or accruing prior
to such expiration or termination.

3.5 EVENTS OF DEFAULT

The  occurrence  of any of the  following  events shall  constitute an "Event of
Default" under this Loan Agreement:

(a)  Failure to Pay.  Customer  shall  fail to pay when due any amount  owing by
Customer  to MLBFS under the Note or this Loan  Agreement,  or shall fail to pay
when due any other  Obligations,  and any such failure  shall  continue for more
than five (5) Business Days after written  notice  thereof shall have been given
by MLBFS to Customer.

(b) Failure to Perform.  Customer shall default in the performance or observance
of any covenant or agreement on its part to be performed or observed  under this
Loan  Agreement,  the  Note  or any  of the  other  Additional  Agreements  (not
constituting  an Event of Default under any other clause of this  Section),  and
such default shall continue  unremedied for ten (10) Business Days after written
notice thereof shall have been given by MLBFS to Customer.

(c)  Breach  of  Warranty.  Any  representation  or  warranty  made by  Customer
contained  in this  Loan  Agreement,  the  Note or any of the  other  Additional
Agreements  shall  at any time  prove to have  been  incorrect  in any  material
respect when made.

(d) Default Under Other Agreement.  A default or Event of Default by Customer or
any other party providing  collateral for the Obligations  shall occur under the
terms of any other  agreement,  instrument  or document with or intended for the
benefit of MLBFS, Merrill Lynch, Pierce, Fenner & Smith Incorporated  ("MLPF&S")
or any of their  affiliates,  and any required  notice shall have been given and
required passage of time shall have elapsed.

(e) Bankruptcy Event. Any Bankruptcy Event shall occur.

(f)  Material  Impairment.  Any event shall occur which shall  reasonably  cause
MLBFS to in good faith believe that the prospect of full payment or  performance
by Customer of its  liabilities or obligations  under this Loan  Agreement,  the
Note or any of the other Additional  Agreements to which Customer is a party has
been materially  impaired.  The existence of such a material impairment shall be
determined in a manner consistent with the intent of Section 1-208 of the UCC.

(g) Acceleration of Debt to Other Creditors. Any event shall occur which results
in the  acceleration of the maturity of any  indebtedness of $100,000.00 or more
of Customer to another creditor under any indenture, agreement,  undertaking, or
otherwise.

(h)  Seizure  or Abuse of  Collateral.  The  Collateral,  or any  material  part
thereof,  shall be or become  subject to any  material  abuse or misuse,  or any
levy, attachment,  seizure or confiscation which is not released within ten (10)
Business Days.

3.6 REMEDIES

(a) Remedies Upon Default. Upon the occurrence and during the continuance of any
Event of Default,  MLBFS may at its sole option do any one or more or all of the
following,  at such time and in such  order as MLBFS may in its sole  discretion
choose:

(i)  Termination.  MLBFS may without notice terminate its obligation to make any
further advances on account of the Loan (if any portion of the Loan has not then
been  funded) or  otherwise  extend any credit to or for the benefit of Customer
(it being understood,  however, that upon the occurrence of any Bankruptcy Event
all such obligations  shall  automatically  terminate  without any action on the
part of MLBFS);  and upon any such  termination  MLBFS  shall be relieved of all
such obligations.

(ii)  Acceleration.  MLBFS may declare the  principal  of and  interest  and any
premium on the Note, and all other  Obligations to be forthwith due and payable,
whereupon  all  such  amounts  shall be  immediately  due and  payable,  without
presentment,  demand  for  payment,  protest  and notice of  protest,  notice of
dishonor, notice of acceleration, notice of intent to accelerate or other notice
or formality of any kind, all of which are hereby  expressly  waived;  provided,
however,  that upon the occurrence of any Bankruptcy  Event all such  principal,
interest,  premium  and other  Obligations  shall  automatically  become due and
payable without any action on the part of MLBFS.

(iii) Exercise Other Rights.  MLBFS may exercise any or all of the remedies of a
secured party under applicable law, including,  but not limited to, the UCC, and
any or all of its other rights and remedies  under this Loan  Agreement  and the
Additional Agreements.

(iv)  Possession.  MLBFS may  require  Customer to make the  Collateral  and the
records pertaining to the Collateral available to MLBFS at a place designated by
MLBFS which is reasonably  convenient to Customer, or may take possession of the
Collateral and the records  pertaining to the Collateral  without the use of any
judicial process and without any prior notice to Customer.

(v) Sale.  MLBFS may sell any or all of the Collateral at public or private sale
upon such terms and  conditions as MLBFS may reasonably  deem proper.  MLBFS may
purchase any  Collateral  at any such public sale.  The net proceeds of any such
public or private sale and all other amounts  actually  collected or received by
MLBFS pursuant  hereto,  after deducting all costs and expenses  incurred at any
time in the collection of the Obligations and in the protection,  collection and
sale of the Collateral, will be applied to the payment of the Obligations,  with
any remaining proceeds paid to Customer or whoever else may be entitled thereto,
and with Customer  remaining  liable for any amount  remaining unpaid after such
application.

(vi) Delivery of Cash, Checks, Etc. MLBFS may require Customer to forthwith upon
receipt,  transmit and deliver to MLBFS in the form received,  all cash, checks,
drafts and other instruments for the payment of money (properly endorsed,  where
required, so that such items may be collected by MLBFS) which may be received by
Customer at any time in full or partial payment of any  Collateral,  and require
that  Customer not commingle any such items which may be so received by Customer
with any other of its funds or property but instead hold them separate and apart
and in trust for MLBFS until delivery is made to MLBFS.

(vii) Notification of Account Debtors.  MLBFS may notify any Account Debtor that
its Account or Chattel  Paper has been assigned to MLBFS and direct such Account
Debtor to make payment directly to MLBFS of all amounts due or becoming due with
respect to such  Account or Chattel  Paper;  and MLBFS may  enforce  payment and
collect, by legal proceedings or otherwise, such Account or Chattel Paper.

(viii)  Control of  Collateral.  MLBFS may otherwise  take control in any lawful
manner of any cash or non-cash items of payment or proceeds of Collateral and of
any rejected,  returned, stopped in transit or repossessed goods included in the
Collateral and endorse  Customer's name on any item of payment on or proceeds of
the Collateral.

(b) Set-Off.  MLBFS shall have the further right upon the  occurrence and during
the continuance of an Event of Default to set-off,  appropriate and apply toward
payment of any of the  Obligations,  in such order of  application  as MLBFS may
from time to time and at any time elect, any cash, credit,  deposits,  accounts,
financial  assets,  investment  property,  securities  and any other property of
Customer  which is in  transit  to or in the  possession,  custody or control of
MLBFS,  MLPF&S or any agent,  bailee, or affiliate of MLBFS or MLPF&S.  Customer
hereby  collaterally  assigns and grants to MLBFS a continuing security interest
in all such property as additional Collateral.

(c) Power of Attorney.  Effective upon the occurrence and during the continuance
of an  Event of  Default,  Customer  hereby  irrevocably  appoints  MLBFS as its
attorney-in-fact, with full power of substitution, in its place and stead and in
its name or in the name of MLBFS, to from time to time in MLBFS' sole discretion
take any action and to execute any instrument  which MLBFS may deem necessary or
advisable to accomplish the purposes of this Loan Agreement,  including, but not
limited  to, to  receive,  endorse  and  collect  all  checks,  drafts and other
instruments  for the payment of money made  payable to Customer  included in the
Collateral.

(d)  Remedies are  Severable  and  Cumulative.  All rights and remedies of MLBFS
herein are  severable  and  cumulative  and in addition to all other  rights and
remedies  available in the Note, the other Additional  Agreements,  at law or in
equity,  and  any  one or more of such  rights  and  remedies  may be  exercised
simultaneously or successively.

(e) Notices.  To the fullest extent permitted by applicable law, Customer hereby
irrevocably  waives and releases MLBFS of and from any and all  liabilities  and
penalties for failure of MLBFS to comply with any statutory or other requirement
imposed upon MLBFS relating to notices of sale,  holding of sale or reporting of
any sale, and Customer waives all rights of redemption or reinstatement from any
such sale.  Any notices  required  under  applicable law shall be reasonably and
properly  given to Customer if given by any of the  methods  provided  herein at
least 5 Business  Days  prior to taking  action.  MLBFS  shall have the right to
postpone  or adjourn any sale or other  disposition  of  Collateral  at any time
without  giving  notice of any such  postponed or adjourned  date.  In the event
MLBFS seeks to take possession of any or all of the Collateral by court process,
Customer further  irrevocably  waives to the fullest extent permitted by law any
bonds and any surety or security relating thereto required by any statute, court
rule or  otherwise  as an  incident  to such  possession,  and  any  demand  for
possession prior to the commencement of any suit or action.

3.7 MISCELLANEOUS

(a)  Non-Waiver.  No  failure  or delay on the part of MLBFS in  exercising  any
right,  power or remedy pursuant to this Loan Agreement,  the Note or any of the
other Additional  Agreements shall operate as a waiver thereof, and no single or
partial exercise of any such right,  power or remedy shall preclude any other or
further exercise thereof,  or the exercise of any other right,  power or remedy.
Neither any waiver of any provision of this Loan  Agreement,  the Note or any of
the other  Additional  Agreements,  nor any consent to any departure by Customer
therefrom,  shall be effective unless the same shall be in writing and signed by
MLBFS.  Any waiver of any provision of this Loan  Agreement,  the Note or any of
the other  Additional  Agreements  and any consent to any  departure by Customer
from the terms of this Loan Agreement,  the Note or any of the other  Additional
Agreements shall be effective only in the specific instance and for the specific
purpose for which  given.  Except as otherwise  expressly  provided  herein,  no
notice to or demand on Customer shall in any case entitle  Customer to any other
or further notice or demand in similar or other circumstances.

(b) Disclosure.  Customer hereby  irrevocably  authorizes  MLBFS and each of its
affiliates,  including without limitation MLPF&S, to at any time (whether or not
an Event of Default shall have occurred)  obtain from and disclose to each other
any and all financial and other information about Customer.

(c) Communications.  All notices and other communications  required or permitted
hereunder shall be in writing, and shall be either delivered personally,  mailed
by postage  prepaid  certified mail or sent by express  overnight  courier or by
facsimile.  Such notices and  communications  shall be deemed to be given on the
date  of  personal  delivery,  facsimile  transmission  or  actual  delivery  of
certified  mail,  or one  Business  Day after  delivery to an express  overnight
courier.  Unless otherwise specified in a notice sent or delivered in accordance
with the terms  hereof,  notices and other  communications  in writing  shall be
given to the  parties  hereto  at their  respective  addresses  set forth at the
beginning of this Loan Agreement, or, in the case of facsimile transmission,  to
the parties at their respective regular facsimile telephone number.

(d) Costs, Expenses and Taxes. Customer shall upon demand pay or reimburse MLBFS
for all reasonable fees and out-of-pocket  expenses (including,  but not limited
to,  reasonable  fees and  expenses  of outside  counsel)  incurred  by MLBFS in
connection with the collection of any sum payable  hereunder or under any of the
Additional  Agreements not paid when due, the enforcement of this Loan Agreement
or any of  the  Additional  Agreements  and  the  protection  of  MLBFS'  rights
hereunder  or  thereunder,  excluding,  however,  salaries  and normal  overhead
attributable  to MLBFS'  employees.  The  obligations  of  Customer  under  this
paragraph shall survive the expiration or termination of this Loan Agreement and
the discharge of the other Obligations.

(e) Right to Perform Obligations.  If Customer shall fail to do any act or thing
which it has covenanted to do under this Loan Agreement or any representation or
warranty  on the part of  Customer  contained  in this Loan  Agreement  shall be
breached,  MLBFS may,  in its sole  discretion,  after 5 Business  Days  written
notice is sent to Customer (or such lesser  notice,  including no notice,  as is
reasonable  under  the  circumstances),  do the  same or  cause it to be done or
remedy any such breach,  and may expend its funds for such purpose.  Any and all
reasonable  amounts so expended by MLBFS shall be repayable to MLBFS by Customer
upon demand,  with interest at the  "Interest  Rate" (as that item is defined in
the Note) during the period from and including the date funds are so expended by
MLBFS  to the  date of  repayment,  and all such  amounts  shall  be  additional
Obligations.   The  payment  or  performance  by  MLBFS  of  any  of  Customer's
obligations  hereunder shall not relieve  Customer of said obligations or of the
consequences of having failed to pay or perform the same, and shall not waive or
be deemed a cure of any Default.

(f) Late Charge.  Any payment  required to be made by Customer  pursuant to this
Loan Agreement or any of the Additional Agreements not paid within ten (10) days
of the  applicable due date shall be subject to a late charge in an amount equal
to the lesser of:  (i) 5% of the  overdue  amount,  or (ii) the  maximum  amount
permitted by applicable law. Such late charge shall be payable on demand.

(g) Further  Assurances.  Customer agrees to do such further acts and things and
to execute  and deliver to MLBFS such  additional  agreements,  instruments  and
documents as MLBFS may  reasonably  require or deem  advisable to effectuate the
purposes  of  this  Loan  Agreement,  the  Note or any of the  other  Additional
Agreements, or to establish,  perfect and maintain MLBFS' security interests and
liens  upon  the  Collateral,  including,  but not  limited  to:  (i)  executing
financing  statements or amendments thereto when and as reasonably  requested by
MLBFS;  and (ii) if in the reasonable  judgment of MLBFS it is required by local
law,  causing the owners  and/or  mortgagees  of the real  property on which any
Collateral   may  be  located  to  execute  and  deliver  to  MLBFS  waivers  or
subordinations  reasonably  satisfactory  to MLBFS with respect to any rights in
such Collateral.

(h)  Binding  Effect.  This Loan  Agreement,  the Note and the other  Additional
Agreements  shall be  binding  upon,  and shall  inure to the  benefit of MLBFS,
Customer and their respective successors and assigns.  Customer shall not assign
any of its rights or delegate any of its obligations  under this Loan Agreement,
the Note or any of the other  Additional  Agreements  without the prior  written
consent of MLBFS.  Unless  otherwise  expressly agreed to in a writing signed by
MLBFS,  no such  consent  shall  in any  event  relieve  Customer  of any of its
obligations  under this Loan Agreement,  the Note or any of the other Additional
Agreements.

(i) Headings. Captions and section and paragraph headings in this Loan Agreement
are  inserted  only as a  matter  of  convenience,  and  shall  not  affect  the
interpretation hereof.

(j) Governing Law. This Loan Agreement, the Note and, unless otherwise expressly
provided therein, each of the other Additional Agreements,  shall be governed in
all respects by the laws of the State of Illinois.

(k) Severability of Provisions.  Whenever possible,  each provision of this Loan
Agreement,  the Note and the other Additional Agreements shall be interpreted in
such manner as to be effective and valid under  applicable law. Any provision of
this Loan Agreement, the Note or any of the other Additional Agreements which is
prohibited or unenforceable in any jurisdiction  shall, as to such jurisdiction,
be  ineffective  only to the  extent  of such  prohibition  or  unenforceability
without invalidating the remaining  provisions of this Loan Agreement,  the Note
and the other Additional  Agreements or affecting the validity or enforceability
of such provision in any other jurisdiction.

(l) Term. This Loan Agreement  shall become  effective when accepted by MLBFS at
its office in Chicago, Illinois, and subject to the terms hereof, shall continue
in effect so long  thereafter  as there shall be any moneys  owing  hereunder or
under the Note, or there shall be any other Obligations outstanding.

(m)  Counterparts.   This  Loan  Agreement  may  be  executed  in  one  or  more
counterparts which, when taken together, constitute one and the same agreement.

(n)  Jurisdiction;  Waiver.  Customer  acknowledges  that this Loan Agreement is
being accepted by MLBFS in partial  consideration of MLBFS' right and option, in
its sole discretion, to enforce this Loan Agreement, the Term Note and the other
Additional  Agreements  in  either  the  State  of  Illinois  or  in  any  other
jurisdiction  where  Customer  or any  collateral  for  the  Obligations  may be
located.  Customer  irrevocably  submits itself to  jurisdiction in the State of
Illinois and venue in any State or Federal  Court in the County of Cook for such
purposes,  and Customer  waives any and all rights to contest said  jurisdiction
and venue  and the  convenience  of any such  forum,  and any and all  rights to
remove such  action from state to federal  court.  Customer  further  waives any
rights to commence any action  against MLBFS in any  jurisdiction  except in the
County of Cook and State of Illinois.  MLBFS and Customer  hereby each expressly
waive  any and all  rights  to a trial  by  jury in any  action,  proceeding  or
counterclaim  brought  by either of the  parties  against  the other  party with
respect to any matter  relating to,  arising out of or in any way connected with
the Term Loan, this Loan Agreement,  any Additional Agreements and/or any of the
transactions  which are the  subject  matter of this  Loan  Agreement.  Customer
further waives the right to bring any non-compulsory counterclaims.

(o)  Integration.  This  Loan  Agreement,  together  with the Note and the other
Additional  Agreements,  constitutes the entire understanding and represents the
full and final agreement  between the parties with respect to the subject matter
hereof,  and may not be contradicted by evidence of prior written  agreements or
prior,  contemporaneous or subsequent oral agreements of the parties.  There are
no unwritten  oral  agreements of the parties.  Without  limiting the foregoing,
Customer  acknowledges that: (i) no promise or commitment has been made to it by
MLBFS, MLPF&S or any of their respective employees, agents or representatives to
make the Loan on any terms other than as  expressly  set forth herein and in the
Note, or to make any other loan or otherwise extend any other credit to Customer
or any other party; and (ii) except as otherwise expressly provided herein, this
Loan Agreement supersedes and replaces any and all proposals,  letters of intent
and approval and commitment letters from MLBFS to Customer,  none of which shall
be considered  an Additional  Agreement.  No amendment or  modification  of this
Agreement or any of the Additional Agreements to which Customer is a party shall
be effective unless in a writing signed by both MLBFS and Customer.

(p) California Financial Code. This Loan Agreement and the Additional Agreements
are made  pursuant  to  Article 4 of Chapter 3 of  Division 9 of the  California
Financial Code (commencing with Section 22000.)

IN WITNESS WHEREOF, this Loan Agreement has been executed as of the day and year
first above written.

LASER-PACIFIC MEDIA CORPORATION

By:               /s/ Robert McClain                 /s/ Howard Fader
                  Signature (1)                      Signature (2)

                  Robert McClain                     Howard Fader
                  Printed Name                       Printed Name

                  CFO                                Controller
                  Title                              Title

Accepted at Chicago, Illinois:
MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC.

By:___________________________________________________________

<PAGE>

                                   EXHIBIT A

ATTACHED  TO AND  HEREBY  MADE A PART OF TERM LOAN AND  SECURITY  AGREEMENT  NO.
0104552301   BETWEEN  MERRILL  LYNCH  BUSINESS   FINANCIAL   SERVICES  INC.  AND
LASER-PACIFIC MEDIA CORPORATION
===============================================================================

Additional Locations of Tangible Collateral:

         823 Seward
         Los Angeles, California, 90038-3601
         (owned by customer)

         861 Seward
         Los Angeles, California, 90038-3601

         540 Hollywood Way
         Burbank, California, 91505-3405
         (lease will be terminated - will be moving out June 2001)

<PAGE>

Merrill Lynch                                             No. 0104552301
===============================================================================
$2,000,000.00                                               June 5, 2001

                           COLLATERAL INSTALLMENT NOTE

FOR VALUE RECEIVED, LASER-PACIFIC MEDIA CORPORATION, a corporation organized and
existing under the laws of the State of Delaware ("Customer") hereby promises to
pay  to  the  order  of  MERRILL  LYNCH  BUSINESS  FINANCIAL  SERVICES  INC.,  a
corporation  organized  and  existing  under the laws of the  State of  Delaware
("MLBFS"),  in lawful  money of the  United  States,  the  principal  sum of Two
Million  Dollars  ($2,000,000.00),  or if more or  less,  the  aggregate  amount
advanced  by  MLBFS  to  Customer  pursuant  to the Loan  Agreement  (the  "Loan
Amount");  together with interest on the unpaid balance of the Loan Amount, from
the Closing Date until payment, at the Interest Rate, as follows:

1. DEFINITIONS.

(a) In addition to terms  defined  elsewhere in this Note,  as used herein,  the
following terms shall have the following meanings:

(i)  "Closing  Date"  shall  mean the  date of the  first  advancement  of funds
hereunder.

(ii) "Conversion Date" shall mean the first to occur of: (i) the date of funding
the final  advance  permitted  under the  terms of the Loan  Agreement,  or (ii)
November 30, 2001.

(iii)  "Excess  Interest"  shall  mean any amount of  interest  in excess of the
maximum amount of interest permitted to be charged by law.

(iv)  "Interest  Rate" shall mean a variable  per annum rate equal to the sum of
(i) 2.20% per annum,  and (ii) the interest rate from time to time  published in
the "Money  Rates"  section of The Wall  Street  Journal  for 30-day  high-grade
unsecured notes sold through dealers by major  corporations  (the "30-day Dealer
Commercial  Paper  Rate").  The  Interest  Rate  will  change  as of the date of
publication in The Wall Street Journal of a 30-day Dealer  Commercial Paper Rate
that is different  from that  published on the  preceding  Business  Day. In the
event that The Wall  Street  Journal  shall,  for any  reason,  fail or cease to
publish the 30-day Dealer  Commercial Paper Rate, MLBFS will choose a reasonably
comparable index or source to use as the basis for the Interest Rate.

(v) "Loan  Agreement"  shall mean that certain TERM LOAN AND SECURITY  AGREEMENT
No.  0104552301  between  Customer  and MLBFS,  as the same may have been or may
hereafter be amended or supplemented.

(vi) "Note" shall mean this COLLATERAL INSTALLMENT NOTE.

(b) Capitalized  terms used herein and not defined herein shall have the meaning
set forth in the Loan  Agreement.  Without  limiting  the  foregoing,  the terms
"Additional  Agreements",  "Bankruptcy  Event" and "Event of Default" shall have
the respective meanings set forth in the Loan Agreement.

2. PAYMENT AND OTHER TERMS.  Customer shall pay the indebtedness under this Note
in consecutive  monthly  installments  commencing on the first day of the second
calendar  month  following  the Closing Date and  continuing on the first day of
each  calendar  month  thereafter  until this Note  shall be paid in full.  Each
installment  payable  prior  to  the  first  day of the  second  calendar  month
following the Conversion  Date shall be in an amount equal to accrued  interest.
Commencing on the first day of the second calendar month  immediately  following
the Conversion  Date,  Customer shall pay 60 consecutive  monthly  installments,
each in an amount  equal to the sum of (i) accrued  interest  and (ii) 1/60th of
the Loan Amount.

Each payment received  hereunder shall be applied first to any fees and expenses
of MLBFS payable by Customer under the terms of the Loan  Agreement  (including,
without  limitation,  late  charges),  next to accrued  interest at the Interest
Rate, as applicable, with the balance applied on account of the unpaid principal
hereof.  Any part of the  principal  hereof or  interest  hereon  or other  sums
payable  hereunder or under the Loan  Agreement not paid within ten (10) days of
the applicable due date shall be subject to a late charge equal to the lesser of
(i) 5% of the overdue amount,  or (ii) the maximum amount  permitted by law. All
interest  shall be computed on the basis of actual days  elapsed  over a 360-day
year. All sums payable  hereunder  shall be payable at 2356  Collections  Center
Drive,  Chicago,  Illinois 60693, or at such other place or places as the holder
hereof may from time to time appoint in writing.

Customer may prepay this Note at any time in whole or in part without premium or
penalty.  Any partial  prepayment  shall be applied to  installments of the Loan
Amount in inverse order of maturity.

This Note is the Collateral  Installment Note referred to in, and is entitled to
all of the benefits of the Loan  Agreement  and any  Additional  Agreements.  If
Customer shall fail to pay when due any  installment or other sum due hereunder,
and any such failure  shall  continue for more than five (5) Business Days after
written  notice  thereof shall have been given by the holder hereof to Customer,
or if any other Event of Default shall have occurred and be continuing,  then at
the option of the holder  hereof  (or,  upon the  occurrence  of any  Bankruptcy
Event, automatically,  without any action on the part of the holder hereof), and
in addition to all other rights and remedies  available to such holder under the
Loan Agreement, any Additional Agreements, and otherwise, the entire Loan Amount
at such time remaining  unpaid,  together with accrued  interest thereon and all
other sums then owing by Customer under the Loan  Agreement,  may be declared to
be and thereby become immediately due and payable.

It is  expressly  understood,  however,  that  nothing  contained  in  the  Loan
Agreement, any other agreement,  instrument or document executed by Customer, or
otherwise,  shall  affect  or  impair  the  right,  which is  unconditional  and
absolute,  of the holder  hereof to  enforce  payment of all sums due under this
Note at or after maturity, whether by acceleration or otherwise, or shall affect
the obligation of Customer, which is also unconditional and absolute, to pay the
sums payable under this Note in accordance  with its terms.  Except as otherwise
expressly  set forth herein or in the Loan  Agreement,  Customer  hereby  waives
presentment,  demand  for  payment,  protest  and notice of  protest,  notice of
dishonor,  notice of acceleration,  notice of intent to accelerate and all other
notices and formalities in connection with this Note.

Wherever  possible  each  provision  of this Note shall be  interpreted  in such
manner as to be effective and valid under  applicable  law, but if any provision
of this Note shall be prohibited  by or invalid  under such law, such  provision
shall be  ineffective to the extent of such  prohibition  or invalidity  without
invalidating the remainder of such provision or the remaining provisions of this
Note.  Notwithstanding  any  provision  to the  contrary in this Note,  the Loan
Agreement or any of the  Additional  Agreements,  no provision of this Note, the
Loan Agreement or any of the Additional  Agreements shall require the payment or
permit the collection of any Excess Interest. If any Excess Interest is provided
for, or is  adjudicated  as being provided for, in this Note, the Loan Agreement
or any of the Additional  Agreements,  then: (a) Customer shall not be obligated
to pay any  Excess  Interest;  and (b) any Excess  Interest  that MLBFS may have
received under this Note, the Loan Agreement or any of the Additional Agreements
shall,  at the option of MLBFS,  be: (i)  applied as a credit  against  the then
unpaid principal  balance of this Note, or accrued interest hereon not to exceed
the  maximum  amount  permitted  by law,  or both,  (ii)  refunded  to the payor
thereof, or (iii) any combination of the foregoing.

This  Note  shall be  construed  in  accordance  with  the laws of the  State of
Illinois and may be enforced by the holder hereof in any  jurisdiction  in which
the Loan Agreement may be enforced.

IN WITNESS  WHEREOF,  this Note has been  executed by Customer as of the day and
year first above written.

LASER-PACIFIC MEDIA CORPORATION

By:            /s/ Robert McClain                   /s/ Howard Fader
                  Signature (1)                      Signature (2)

                  Robert McClain                     Howard Fader
                  Printed Name                       Printed Name

                  CFO                                Controller
                  Title                              Title

<PAGE>

Merrill Lynch                              WCMA LOAN AND SECURITY AGREEMENT
===============================================================================

WCMA LOAN and Security  Agreement NO. 210-07G41 ("Loan  Agreement")  dated as of
June 5, 2001, between  LASER-PACIFIC MEDIA CORPORATION,  a corporation organized
and existing under the laws of the State of Delaware having its principal office
at 809 N. Cahuenga Blvd., Los Angeles, CA 90038 ("Customer"),  and MERRILL LYNCH
BUSINESS FINANCIAL SERVICES INC., a corporation organized and existing under the
laws of the State of Delaware  having its principal  office at 222 North LaSalle
Street, Chicago, IL 60601 ("MLBFS").

In accordance with that certain Working Capital  Management(R) Account Agreement
No. 210-07G41 ("WCMA Agreement") between Customer and MLBFS' affiliate,  Merrill
Lynch, Pierce, Fenner & Smith Incorporated  ("MLPF&S"),  Customer has subscribed
to the WCMA Program  described in the WCMA  Agreement.  The WCMA Agreement is by
this reference  incorporated as a part hereof.  In conjunction  therewith and as
part of the WCMA Program, Customer has requested that MLBFS provide, and subject
to the terms and  conditions  herein set forth  MLBFS has agreed to  provide,  a
commercial line of credit for Customer (the "WCMA Line of Credit").

Accordingly, and in consideration of the premises and of the mutual covenants of
the parties hereto, Customer and MLBFS hereby agree as follows:

                             Article I. DEFINITIONS

1.1  Specific  Terms.  In  addition  to terms  defined  elsewhere  in this  Loan
Agreement,  when used  herein  the  following  terms  shall  have the  following
meanings:

(a) "Account  Debtor" shall mean any party who is or may become  obligated  with
respect to an Account or Chattel Paper.

(b) "Activation  Date" shall mean the date upon which MLBFS shall cause the WCMA
Line of Credit to be fully  activated  under MLPF&S'  computer system as part of
the WCMA Program.

(c) "Additional  Agreements" shall mean all agreements,  instruments,  documents
and opinions  other than this Loan  Agreement,  whether with or from Customer or
any other party, which are contemplated hereby or otherwise  reasonably required
by MLBFS in connection  herewith,  or which  evidence the creation,  guaranty or
collateralization  of any of the  Obligations  or the granting or  perfection of
liens or security  interests upon the Collateral or any other collateral for the
Obligations.

(d) "Bankruptcy  Event" shall mean any of the following:  (i) a proceeding under
any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt or
receivership law or statute shall be filed or consented to by Customer;  or (ii)
any such proceeding  shall be filed against  Customer and shall not be dismissed
or withdrawn within sixty (60) days after filing; or (iii) Customer shall make a
general  assignment  for  the  benefit  of  creditors;  or (iv)  Customer  shall
generally fail to pay or admit in writing its inability to pay its debts as they
become due; or (v) Customer shall be adjudicated a bankrupt or insolvent.

(e)  "Business  Day" shall mean any day other than a Saturday,  Sunday,  federal
holiday or other day on which the New York Stock Exchange is regularly closed.

(f)  "Collateral"  shall mean all  Accounts,  Chattel  Paper,  Contract  Rights,
Inventory,   Fixtures,   General  Intangibles,   Deposit  Accounts,   Documents,
Instruments,  Investment  Property and Financial  Assets of Customer,  howsoever
arising,  whether now owned or existing or  hereafter  acquired or arising,  and
wherever located;  together with all parts thereof  (including spare parts), all
accessories and accessions  thereto,  all books and records (including  computer
records)  directly related thereto,  all proceeds  thereof  (including,  without
limitation,  proceeds in the form of Accounts and  insurance  proceeds,  and the
additional collateral described in Section 3.6 (b) hereof.

(g) "Commitment Expiration Date" shall mean July 5, 2001.

(h) "Default"  shall mean either an "Event of Default" as defined in Section 3.5
hereof,  or an event which with the giving of notice,  passage of time, or both,
would constitute such an Event of Default.

(i) "Default  Interest Rate" shall mean a rate equal to the sum of the "Interest
Rate", as determined below, plus two percent (2%) per annum.

(j) "General Funding Conditions" shall mean each of the following  conditions to
any WCMA Loan by MLBFS  hereunder:  (i) no Default  shall have  occurred  and be
continuing or would result from the making of any WCMA Loan  hereunder by MLBFS;
(ii) there shall not have occurred and be continuing any material adverse change
in the business or financial  condition of Customer;  (iii) all  representations
and warranties of Customer herein or in any Additional  Agreements shall then be
true and correct in all material  respects;  (iv) MLBFS shall have received this
Loan Agreement and all of the Additional Agreements,  duly executed and filed or
recorded  where  applicable,  all  of  which  shall  be in  form  and  substance
reasonably  satisfactory  to  MLBFS;  (v) MLBFS  shall  have  received  evidence
reasonably  satisfactory  to it as to the  ownership of the  Collateral  and the
perfection and priority of MLBFS' liens and security interests thereon,  as well
as the ownership of and the perfection and priority of MLBFS' liens and security
interests on any other collateral for the Obligations  furnished pursuant to any
of the Additional Agreements; (vi) MLBFS shall have received evidence reasonably
satisfactory to it of the insurance  required hereby or by any of the Additional
Agreements;  and (vii) any additional  conditions specified in the "WCMA Line of
Credit  Approval"  letter  executed  by MLBFS with  respect to the  transactions
contemplated hereby shall have been met to the reasonable satisfaction of MLBFS.

(k) "Initial  Maturity  Date" shall mean the first date upon which the WCMA Line
of Credit will expire  (subject to renewal in accordance with the terms hereof);
to wit: May 31, 2002.

(l) "Interest Due Date" shall mean the last Business Day of each calendar  month
during the term hereof (or, if Customer makes special  arrangements with MLPF&S,
the last Friday of each calendar month during the term hereof).

(m)  "Interest  Rate" shall mean a variable per annum rate of interest  equal to
the sum of 2.20% and the 30-day Dealer Commercial Paper Rate. The "30-day Dealer
Commercial  Paper  Rate" shall mean,  as of the date of any  determination,  the
interest rate from time to time  published in the "Money  Rates"  section of The
Wall Street Journal as the "Dealer  Commercial Paper" rate for 30-day high-grade
unsecured  notes sold through dealers by major  corporations.  The Interest Rate
will change as of the date of publication in The Wall Street Journal of a 30-day
Dealer  Commercial  Paper  Rate that is  different  from that  published  on the
preceding Business Day. In the event that The Wall Street Journal shall, for any
reason,  fail or cease to publish the 30-day Dealer Commercial Paper Rate, MLBFS
will choose a reasonably  comparable index or source to use as the basis for the
Interest Rate. Upon the occurrence and during the continuance of a Default,  the
Interest  Rate with  respect  the WCMA Line of Credit  may be  increased  to the
"Default Interest Rate", as herein provided.

(n) "Line Fee" shall mean a fee of  $18,000.00  payable  annually by Customer to
MLBFS in accordance with the provisions of Section 2.2 (k) hereof.

(o)  "Location  of Tangible  Collateral"  shall mean the address of Customer set
forth at the beginning of this Loan  Agreement,  together with any other address
or  addresses  set forth on an exhibit  hereto as being a Location  of  Tangible
Collateral.

(p)  "Maturity  Date"  shall  mean the date of  expiration  of the WCMA  Line of
Credit.

(q) "Maximum  WCMA Line of Credit" shall mean:  $6,000,000.00;  provided that in
the event the ongoing  negotiations between The Writers Guild, the Screen Actors
Guild,  and the American  Federation  of  Television  and Radio  Artists and the
Alliance of Motion  Picture  and  Television  Producers,  in  California,  cease
without  successful  resolution  on all  matters  or a strike by the  writers or
actors should occur (the "Strike"),  and unless otherwise provided herein, shall
at any and all times thereafter,  in the sole and absolute  discretion of MLBFS,
and upon 30 days  prior  written  notice  reduce the WCMA Line of Credit to such
lesser  amount  equal to the  greater of (a) the sum of (i) such  percentage  of
Customer's Accounts and Chattel Paper, as shown on its regular books and records
(excluding  Accounts over 90 days old, Chattel Paper with  installments or other
sums more than 90 days past due,  and  Accounts  and Chattel  Paper  directly or
indirectly due from any person or entity not domiciled in the continental United
States,  Alaska or  Hawaii,  or from any  shareholder,  officer or  employee  of
Customer or any affiliated  entity) as MLBFS shall  determine not to exceed 80%;
and (ii) such  percentage of  Customer's  Inventory,  as MLBFS shall  reasonably
determine,  not to exceed 50%; all as shown on its regular  books and records or
(b)  $3,000,000.00.  If prior to the  Initial  Maturity  Date,  there shall be a
successful  resolution  and cessation of any Strike,  MLBFS may, in its sole and
absolute  discretion,  and upon 30 days prior  written  request by the Customer,
reinstate  the  Maximum  WCMA  Line  of  Credit  to  an  amount  not  to  exceed
$6,000,000.00.

(r) "Obligations" shall mean all liabilities, indebtedness and other obligations
of Customer  to MLBFS,  howsoever  created,  arising or  evidenced,  whether now
existing  or  hereafter  arising,  whether  direct  or  indirect,   absolute  or
contingent, due or to become due, primary or secondary or joint or several, and,
without limiting the foregoing, shall include interest accruing after the filing
of  any  petition  in  bankruptcy,  and  all  present  and  future  liabilities,
indebtedness and obligations of Customer under this Loan Agreement.

(s) "Permitted  Liens" shall mean with respect to the Collateral:  (i) liens for
current taxes not delinquent, other non-consensual liens arising in the ordinary
course of business  for sums not due,  and, if MLBFS'  rights to and interest in
the Collateral are not materially and adversely affected thereby, any such liens
for  taxes or other  non-consensual  liens  arising  in the  ordinary  course of
business being contested in good faith by appropriate proceedings; (ii) liens in
favor of MLBFS;  (iii) liens which will be  discharged  with the proceeds of the
initial WCMA Loan;  and (iv) any other liens  expressly  permitted in writing by
MLBFS.

(t)  "Renewal  Year"  shall mean and refer to the  12-month  period  immediately
following the Initial Maturity Date and each 12-month period thereafter.

(u) "WCMA  Account"  shall  mean and  refer to the  Working  Capital  Management
Account of Customer  with MLPF&S  identified  as Account No.  210-07G41  and any
successor Working Capital Management Account of Customer with MLPF&S.

(v) "WCMA  Loan"  shall mean each  advance  made by MLBFS  pursuant to this Loan
Agreement.

(w) "WCMA Loan  Balance"  shall  mean an amount  equal to the  aggregate  unpaid
principal amount of all WCMA Loans.

1.2 Other Terms.  Except as otherwise defined herein: (i) all terms used in this
Loan  Agreement  which are  defined in the Uniform  Commercial  Code of Illinois
("UCC") shall have the meanings set forth in the UCC, and (ii) capitalized terms
used herein which are defined in the WCMA Agreement  shall have the meanings set
forth in the WCMA Agreement.

                       ARTICLE II. THE WCMA LINE OF CREDIT

2.1 WCMA PROMISSORY NOTE. FOR VALUE RECEIVED, Customer hereby promises to pay to
the  order of  MLBFS,  at the  times  and in the  manner  set forth in this Loan
Agreement,  or in such other  manner  and at such  place as MLBFS may  hereafter
designate in writing, the following: (a) on the Maturity Date, or if earlier, on
the date of termination of the WCMA Line of Credit,  the WCMA Loan Balance;  (b)
interest at the Interest Rate (or, if applicable,  at the Default Interest Rate)
on the outstanding  WCMA Loan Balance,  from and including the date on which the
initial  WCMA Loan is made  until the date of payment of all WCMA Loans in full;
and (c) on  demand,  all other sums  payable  pursuant  to this Loan  Agreement,
including,  but not  limited  to, the  periodic  Line Fee.  Except as  otherwise
expressly  set forth herein,  Customer  hereby  waives  presentment,  demand for
payment,  protest  and  notice  of  protest,  notice  of  dishonor,   notice  of
acceleration,  notice  of  intent  to  accelerate  and  all  other  notices  and
formalities  in  connection  with  this  WCMA  Promissory  Note  and  this  Loan
Agreement.

2.2 WCMA LOANS

(a) Activation Date. Provided that: (i) the Commitment Expiration Date shall not
then have occurred,  and (ii) Customer shall have subscribed to the WCMA Program
and its subscription to the WCMA Program shall then be in effect, the Activation
Date shall occur on or promptly after the date, following the acceptance of this
Loan Agreement by MLBFS at its office in Chicago,  Illinois,  upon which each of
the  General  Funding  Conditions  shall  have  been  met  or  satisfied  to the
reasonable  satisfaction  of MLBFS.  No  activation by MLBFS of the WCMA Line of
Credit for a nominal amount shall be deemed evidence of the  satisfaction of any
of the  conditions  herein  set  forth,  or a  waiver  of any  of the  terms  or
conditions hereof.  Customer hereby authorizes MLBFS to pay out of and charge to
Customer's WCMA Account on the Activation Date any and all amounts  necessary to
fully pay off any bank or other financial  institution having a lien upon any of
the Collateral other than a Permitted Lien.

(b) WCMA Loans.  Subject to the terms and conditions  hereof,  during the period
from and after the Activation Date to the first to occur of the Maturity Date or
the date of termination of the WCMA Line of Credit pursuant to the terms hereof,
and in addition to WCMA Loans  automatically  made to pay accrued  interest,  as
hereafter  provided:  (i) MLBFS will make WCMA Loans to Customer in such amounts
as Customer may from time to time request in  accordance  with the terms hereof,
up to an  aggregate  outstanding  amount not to exceed the Maximum  WCMA Line of
Credit,  and (ii)  Customer  may repay any WCMA Loans in whole or in part at any
time,  and  request a  re-borrowing  of  amounts  repaid on a  revolving  basis.
Customer  may  request  such  WCMA  Loans by use of WCMA  Checks,  FTS,  Visa(R)
charges,  wire  transfers,  or such  other  means of  access to the WCMA Line of
Credit as may be permitted by MLBFS from time to time; it being  understood that
so long as the WCMA Line of Credit  shall be in  effect,  any charge or debit to
the WCMA Account  which but for the WCMA Line of Credit would under the terms of
the WCMA Agreement result in an overdraft, shall be deemed a request by Customer
for a WCMA Loan.

(c) Conditions of WCMA Loans.  Notwithstanding the foregoing, MLBFS shall not be
obligated to make any WCMA Loan, and may without notice refuse to honor any such
request by Customer,  if at the time of receipt by MLBFS of Customer's  request:
(i) the making of such WCMA Loan would cause the Maximum  WCMA Line of Credit to
be exceeded;  or (ii) the Maturity Date shall have occurred, or the WCMA Line of
Credit shall have otherwise been terminated in accordance with the terms hereof;
or (iii) Customer's subscription to the WCMA Program shall have been terminated;
or (iv) an event shall have occurred and be  continuing  which shall have caused
any of the General  Funding  Conditions  to not then be met or  satisfied to the
reasonable satisfaction of MLBFS. The making by MLBFS of any WCMA Loan at a time
when any one or more of said conditions shall not have been met shall not in any
event be  construed  as a  waiver  of said  condition  or  conditions  or of any
Default,  and shall not prevent MLBFS at any time thereafter while any condition
shall not have been met from  refusing to honor any  request by  Customer  for a
WCMA Loan.

(d) Limitation of Liability.  MLBFS shall not be responsible,  and shall have no
liability to Customer or any other  party,  for any delay or failure of MLBFS to
honor any  request of  Customer  for a WCMA Loan or any other act or omission of
MLBFS,  MLPF&S or any of their  affiliates  due to or resulting  from any system
failure, error or delay in posting or other clerical error, loss of power, fire,
Act of God or other cause beyond the reasonable control of MLBFS,  MLPF&S or any
of their  affiliates  unless directly arising out of the willful wrongful act or
active gross  negligence of MLBFS. In no event shall MLBFS be liable to Customer
or any other party for any incidental or consequential  damages arising from any
act or omission by MLBFS,  MLPF&S or any of their  affiliates in connection with
the WCMA Line of Credit or this Loan Agreement.

(e) Interest.  (i) An amount equal to accrued  interest on the WCMA Loan Balance
shall be payable by Customer monthly on each Interest Due Date,  commencing with
the Interest Due Date  occurring in the calendar  month in which the  Activation
Date shall occur.  Unless otherwise hereafter directed in writing by MLBFS on or
after the first to occur of the Maturity Date or the date of  termination of the
WCMA  Line of  Credit  pursuant  to the  terms  hereof,  such  interest  will be
automatically  charged to the WCMA Account on the applicable  Interest Due Date,
and, to the extent not paid with free credit  balances or the  proceeds of sales
of any Money Accounts then in the WCMA Account, as hereafter provided, paid by a
WCMA Loan and added to the WCMA Loan Balance. All interest shall be computed for
the actual number of days elapsed on the basis of a year consisting of 360 days.

(ii) Upon the occurrence and during the continuance of any Default,  but without
limiting  the rights and  remedies  otherwise  available  to MLBFS  hereunder or
waiving such Default,  the interest  payable by Customer  hereunder shall at the
option of MLBFS accrue and be payable at the Default  Interest Rate. The Default
Interest Rate,  once  implemented,  shall  continue to apply to the  Obligations
under this Loan Agreement and be payable by Customer until the date such Default
is either cured or waived in writing by MLBFS.

(iii)  Notwithstanding any provision to the contrary in this Agreement or any of
the  Additional  Agreements,  no  provision  of  this  Agreement  or  any of the
Additional  Agreements shall require the payment or permit the collection of any
amount in excess of the maximum  amount of interest  permitted  to be charged by
law  ("Excess  Interest").  If  any  Excess  Interest  is  provided  for,  or is
adjudicated  as being  provided for, in this  Agreement or any of the Additional
Agreements,  then:  (A)  Customer  shall  not be  obligated  to pay  any  Excess
Interest;  and (B) any Excess Interest that MLBFS may have received hereunder or
under any of the Additional  Agreements  shall, at the option of MLBFS,  be: (1)
applied as a credit  against the then unpaid WCMA Loan Balance,  (2) refunded to
the payer thereof, or (3) any combination of the foregoing.

(f)  Payments.  All payments  required or permitted to be made  pursuant to this
Loan  Agreement  shall be made in  lawful  money of the  United  States.  Unless
otherwise directed by MLBFS, payments on account of the WCMA Loan Balance may be
made by the delivery of checks (other than WCMA  Checks),  or by means of FTS or
wire transfer of funds (other than funds from the WCMA Line of Credit) to MLPF&S
for credit to  Customer's  WCMA  Account.  Notwithstanding  anything in the WCMA
Agreement to the contrary,  Customer hereby  irrevocably  authorizes and directs
MLPF&S to apply  available  free  credit  balances  in the WCMA  Account  to the
repayment of the WCMA Loan Balance prior to  application  for any other purpose.
Payments to MLBFS from funds in the WCMA  Account  shall be deemed to be made by
Customer  upon the same  basis  and  schedule  as funds are made  available  for
investment  in the  Money  Accounts  in  accordance  with the  terms of the WCMA
Agreement.  All funds  received by MLBFS from MLPF&S  pursuant to the  aforesaid
authorization  shall be applied by MLBFS to repayment of the WCMA Loan  Balance.
The acceptance by or on behalf of MLBFS of a check or other payment for a lesser
amount  than  shall be due  from  Customer,  regardless  of any  endorsement  or
statement  thereon or transmitted  therewith,  shall not be deemed an accord and
satisfaction  or anything  other than a payment on account,  and MLBFS or anyone
acting on  behalf  of MLBFS  may  accept  such  check or other  payment  without
prejudice  to the  rights of MLBFS to recover  the  balance  actually  due or to
pursue any other remedy under this Loan  Agreement  or  applicable  law for such
balance.  All checks  accepted by or on behalf of MLBFS in  connection  with the
WCMA Line of Credit are subject to final collection.

(g)  Irrevocable  Instructions  to MLPF&S.  In order to  minimize  the WCMA Loan
Balance, Customer hereby irrevocably authorizes and directs MLPF&S, effective on
the Activation Date and continuing thereafter so long as this Agreement shall be
in effect: (i) to immediately and prior to application for any other purpose pay
to MLBFS to the  extent of any WCMA Loan  Balance  or other  amounts  payable by
Customer  hereunder all available free credit  balances from time to time in the
WCMA Account;  and (ii) if such available free credit balances are  insufficient
to pay the WCMA Loan Balance and such other  amounts,  and there are in the WCMA
Account  at  any  time  any  investments  in  Money  Accounts  (other  than  any
investments  constituting  any Minimum  Money  Accounts  Balance  under the WCMA
Directed Reserve Program),  to immediately liquidate such investments and pay to
MLBFS to the  extent  of any  WCMA  Loan  Balance  and such  other  amounts  the
available proceeds from the liquidation of any such Money Accounts.

(h)  Statements.  MLPF&S will include in each monthly  statement it issues under
the WCMA  Program  information  with  respect  to WCMA  Loans  and the WCMA Loan
Balance.  Any questions that Customer may have with respect to such  information
should be directed to MLBFS;  and any questions with respect to any other matter
in such  statements or about or affecting the WCMA Program should be directed to
MLPF&S.

(i) Use of WCMA Loan  Proceeds.  The  proceeds  of each WCMA Loan  initiated  by
Customer  shall be used by Customer  solely for working  capital in the ordinary
course of its business,  or, with the prior written consent of MLBFS,  for other
lawful business purposes of Customer not prohibited hereby. Customer agrees that
under no  circumstances  will the  proceeds  of any WCMA  Loan be used:  (i) for
personal,  family or  household  purposes of any person  whatsoever,  or (ii) to
purchase,  carry or trade in  securities,  or repay debt  incurred to  purchase,
carry or trade in securities, whether in or in connection with the WCMA Account,
another  account of Customer  with MLPF&S or an account of Customer at any other
broker  or dealer in  securities,  or (iii)  unless  otherwise  consented  to in
writing by MLBFS, to pay any amount to Merrill Lynch and Co., Inc. or any of its
subsidiaries,  other than Merrill Lynch Bank USA, Merrill Lynch Bank & Trust Co.
or any  subsidiary of either of them  (including  MLBFS and Merrill Lynch Credit
Corporation).

(j) Renewal at Option of MLBFS; Right of Customer to Terminate. MLBFS may at any
time,  in its sole  discretion  and at its sole  option,  renew the WCMA Line of
Credit for one or more Renewal Years; it being understood, however, that no such
renewal  shall be  effective  unless set forth in a writing  executed  by a duly
authorized  representative  of MLBFS and delivered to Customer.  Unless any such
renewal is  accompanied  by a  proposed  change in the terms of the WCMA Line of
Credit  (other than the extension of the Maturity  Date),  no such renewal shall
require  Customer's  approval.  Customer  shall,  however,  have  the  right  to
terminate the WCMA Line of Credit at any time upon written notice to MLBFS.

(k) Line Fees. (i) In  consideration of the extension of the WCMA Line of Credit
by MLBFS to Customer  during the period from the Activation  Date to the Initial
Maturity Date, Customer has paid or shall pay the Line Fee to MLBFS. If the Line
Fee has not heretofore been paid by Customer,  Customer hereby authorizes MLBFS,
at its option,  to either cause the Line Fee to be paid on the  Activation  Date
with a WCMA Loan, or invoice Customer for such Line Fee (in which event Customer
shall pay said fee within 5 Business  Days after  receipt of such  invoice).  No
delay in the Activation Date,  howsoever  caused,  shall entitle Customer to any
rebate or reduction in the Line Fee or to any extension of the Initial  Maturity
Date.

(ii)  Customer  shall  pay an  additional  Line Fee for each  Renewal  Year.  In
connection therewith, Customer hereby authorizes MLBFS, at its option, to either
cause  each  such  additional  Line Fee to be paid with a WCMA Loan on or at any
time after the first  Business  Day of such Renewal Year or invoiced to Customer
at such time (in which event  Customer shall pay such Line Fee within 5 Business
Days after receipt of such invoice).  Each Line Fee shall be deemed fully earned
by MLBFS on the date payable by Customer, and no termination of the WCMA Line of
Credit,  howsoever caused, shall entitle Customer to any rebate or refund of any
portion of such Line Fee;  provided,  however,  that if Customer shall terminate
the WCMA Line of Credit  not later than 5  Business  Days  after the  receipt by
Customer of notice from MLBFS of a renewal of the WCMA Line of Credit,  Customer
shall be  entitled  to a refund of any Line Fee charged by MLBFS for the ensuing
Renewal Year.

                         Article III. GENERAL PROVISIONS

3.1 REPRESENTATIONS AND WARRANTIES

Customer represents and warrants to MLBFS that:

(a)  Organization and Existence.  Customer is a corporation,  duly organized and
validly existing in good standing under the laws of the State of Delaware and is
qualified  to do  business  and in good  standing  in each other state where the
nature of its  business  or the  property  owned by it make  such  qualification
necessary.

(b) Execution, Delivery and Performance. The execution, delivery and performance
by Customer of this Loan  Agreement  and such of the  Additional  Agreements  to
which it is a party: (i) have been duly authorized by all requisite action, (ii)
do not and will  not  violate  or  conflict  with any law or other  governmental
requirement, or any of the agreements,  instruments or documents which formed or
govern  Customer,  and (iii) do not and will not  breach or  violate  any of the
provisions  of, and will not result in a default by  Customer  under,  any other
agreement,  instrument  or document to which it is a party or by which it or its
properties are bound.

(c) Notices and Approvals.  Except as may have been given or obtained, no notice
to or consent or approval of any  governmental  body or authority or other third
party whatsoever (including, without limitation, any other creditor) is required
in connection with the execution, delivery or performance by Customer of such of
this Loan Agreement and the Additional Agreements to which it is a party.

(d) Enforceability. This Loan Agreement and such of the Additional Agreements to
which  Customer  is a party are the  legal,  valid and  binding  obligations  of
Customer,  enforceable  against it in accordance  with their  respective  terms,
except as  enforceability  may be limited by  bankruptcy  and other similar laws
affecting the rights of creditors generally or by general principles of equity.

(e)  Collateral.  Except for any  Permitted  Liens:  (i)  Customer  has good and
marketable  title to the  Collateral,  (ii) none of the Collateral is subject to
any lien,  encumbrance  or security  interest,  and (iii) upon the filing of all
Uniform Commercial Code financing  statements  executed by Customer with respect
to the Collateral in the  appropriate  jurisdiction(s)  and/or the completion of
any other action  required by  applicable  law to perfect its liens and security
interests,  MLBFS  will  have  valid and  perfected  first  liens  and  security
interests upon all of the Collateral.

(f) Financial Statements.  Except as expressly set forth in Customer's financial
statements,  all financial  statements of Customer  furnished to MLBFS have been
prepared  in  conformity   with  generally   accepted   accounting   principles,
consistently applied, are true and correct in all material respects,  and fairly
present the  financial  condition  of it as at such dates and the results of its
operations for the periods then ended (subject, in the case of interim unaudited
financial statements, to normal year-end adjustments); and since the most recent
date covered by such financial  statements,  there has been no material  adverse
change in any such financial condition or operation.

(g)  Litigation.  No litigation,  arbitration,  administrative  or  governmental
proceedings  are pending or, to the  knowledge of Customer,  threatened  against
Customer, which would, if adversely determined,  materially and adversely affect
the  liens  and  security  interests  of MLBFS  hereunder  or  under  any of the
Additional  Agreements,  the  financial  condition of Customer or the  continued
operations of Customer.

(h) Tax  Returns.  All  federal,  state  and  local  tax  returns,  reports  and
statements required to be filed by Customer have been filed with the appropriate
governmental agencies and all taxes due and payable by Customer have been timely
paid  (except  to the  extent  that  any  such  failure  to file or pay will not
materially and adversely affect either the liens and security interests of MLBFS
hereunder or under any of the Additional Agreements,  the financial condition of
Customer, or the continued operations of Customer).

(i) Collateral Location. All of the tangible Collateral is located at a Location
of Tangible Collateral.

(j) No Outside  Broker.  Except for  employees of MLBFS,  MLPF&S or one of their
affiliates,  Customer has not in connection with the  transactions  contemplated
hereby  directly or indirectly  engaged or dealt with, and was not introduced or
referred to MLBFS by, any broker or other loan arranger.

Each of the foregoing  representations and warranties:  (i) has been and will be
relied upon as an  inducement  to MLBFS to provide the WCMA Line of Credit,  and
(ii) is continuing and shall be deemed remade by Customer concurrently with each
request for a WCMA Loan.

3.2 FINANCIAL AND OTHER INFORMATION

(a) Customer  shall furnish or cause to be furnished to MLBFS during the term of
this Loan Agreement all of the following:

(i) Annual Financial Statements.  Within 120 days after the close of each fiscal
year of Customer, a copy of the annual audited financial statements of Customer,
including  in  reasonable  detail,  a balance  sheet and  statement  of retained
earnings as at the close of such fiscal year and  statements  of profit and loss
and cash  flow for such  fiscal  year by KPMG or other  auditors  acceptable  to
MLBFS;

(ii) Interim Financial Statements. Within 45 days after the close of each fiscal
quarter of Customer,  a copy of the interim financial statements of Customer for
such fiscal quarter  (including in reasonable  detail both a balance sheet as of
the close of such  fiscal  period,  and  statement  of  profit  and loss for the
applicable fiscal period);  provided,  at such time as the ongoing  negotiations
between The Writers  Guild and the  Alliance  of Motion  Picture and  Television
Producers,  in  California,  should cease without  resolution or a strike by the
writers or actors should occur,  and at any and all times  thereafter,  Customer
will  further  provide  MLBFS  with a copy  of its  monthly  internal  financial
statements  certified as being true and correct by the chief financial office of
Customer.

(iii) A/R  Agings.  Within 45 days  after the close of each  fiscal  quarter  of
Customer,  a copy of the Accounts  Receivable Aging of Customer as of the end of
such fiscal quarter;

(iv) SEC Reports.  Customer  shall furnish or cause to be furnished to MLBFS not
later than 10 days after the date of filing  with the  Securities  and  Exchange
Commission  ("SEC"),  a copy of each 10-K,  10-Q and other report required to be
filed with the SEC during the term hereof by Customer;

(v)  Reporting  Requirements:  Customer will be required to provide MLBFS with a
copy of  each of its  annual  certified  financial  statements  and  such  other
information as MLBFS may from time to time reasonably request; provided, at such
time as the ongoing  negotiations  between The Writers Guild and the Alliance of
Motion Picture and  Television  Producers,  in California,  should cease without
resolution or a strike by the writers or actors should occur, and at any and all
times thereafter, Customer will further provide MLBFS with a copy of its monthly
internal financial  statements  certified as being true and correct by the chief
executive officer of Customer; and

(vi) Other  Information.  Such other  information as MLBFS may from time to time
reasonably request relating to Customer or the Collateral.

(b) General  Agreements With Respect to Financial  Information.  Customer agrees
that except as otherwise  specified  herein or otherwise agreed to in writing by
MLBFS: (i) all annual financial  statements required to be furnished by Customer
to  MLBFS  hereunder  will  be  prepared  by  either  the  current   independent
accountants for Customer or other independent  accountants reasonably acceptable
to MLBFS, and (ii) all other financial  information  required to be furnished by
Customer  to MLBFS  hereunder  will be  certified  as  correct  in all  material
respects by the party who has  prepared  such  information,  and, in the case of
internally prepared  information with respect to Customer,  certified as correct
by its chief financial officer.

3.3 OTHER COVENANTS

Customer further covenants and agrees during the term of this Loan Agreement
that:

(a) Financial Records; Inspection.  Customer will: (i) maintain at its principal
place of business  complete and accurate books and records,  and maintain all of
its  financial  records in a manner  consistent  with the  financial  statements
heretofore  furnished  to  MLBFS,  or  prepared  on such  other  basis as may be
approved  in  writing by MLBFS;  and (ii)  permit  MLBFS or its duly  authorized
representatives,  upon reasonable notice and at reasonable times, to inspect its
properties (both real and personal) and operations.

(b)  Taxes.  Customer  will  pay  when  due all  taxes,  assessments  and  other
governmental  charges,  howsoever  designated,  and all  other  liabilities  and
obligations,  except  to the  extent  that  any  such  failure  to pay  will not
materially and adversely affect either the liens and security interests of MLBFS
hereunder or under any of the Additional Agreements,  the financial condition of
Customer or the continued operations of Customer.

(c)  Compliance  With Laws and  Agreements.  Customer  will not violate any law,
regulation or other governmental requirement, any judgment or order of any court
or governmental agency or authority, or any agreement, instrument or document to
which  it is a party  or by  which  it is  bound,  if any  such  violation  will
materially and adversely affect either the liens and security interests of MLBFS
hereunder or under any of the Additional Agreements,  or the financial condition
or the continued operations of Customer.

(d) No Use of Merrill  Lynch Name.  Customer  will not  directly  or  indirectly
publish,  disclose or otherwise use in any advertising or promotional  material,
or press release or interview, the name, logo or any trademark of MLBFS, MLPF&S,
Merrill  Lynch  and Co.,  Incorporated  or any of their  affiliates,  except  as
required to comply with financial reporting requirements.

(e)  Notification By Customer.  Customer shall provide MLBFS with prompt written
notification  of: (i) any Default;  (ii) any  materially  adverse  change in the
business,  financial condition or operations of Customer;  (iii) any information
which  indicates that any financial  statements of Customer fail in any material
respect to present  fairly the  financial  condition  and results of  operations
purported to be presented in such statements;  and (iv) any change in Customer's
outside accountants. Each notification by Customer pursuant hereto shall specify
the  event  or  information  causing  such  notification,  and,  to  the  extent
applicable,  shall specify the steps being taken to rectify or remedy such event
or information.

(f)  Notice of  Change.  Customer  shall  give MLBFS not less than 30 days prior
written  notice of any change in the name  (including  any  fictitious  name) or
principal place of business or residence of Customer.

(g) Continuity.  Except upon the prior written  consent of MLBFS,  which consent
will not be  unreasonably  withheld:  (i)  Customer  shall not be a party to any
merger  or  consolidation   with,  or  purchase  or  otherwise  acquire  all  or
substantially  all of the assets of, or any material stock,  partnership,  joint
venture or other equity interest in, any person or entity, or sell,  transfer or
lease all or any substantial part of its assets, if any such action would result
in either: (A) a material change in the principal business, ownership or control
of Customer,  or (B) a material  adverse  change in the  financial  condition or
operations  of Customer;  (ii)  Customer  shall  preserve its existence and good
standing  in the  jurisdiction(s)  of  establishment  and  operation;  and (iii)
Customer shall not engage in any material business substantially  different from
its business in effect as of the date of application by Customer for credit from
MLBFS, or cease operating any such material business.

(h) Leverage Ratio. The ratio of (i) Customer's total debt less any subordinated
debt of  Customer,  to (ii) the sum of  Customer's  tangible  net worth plus any
subordinated  debt of Customer  shall not at any time exceed 1.6 to 1.0. For the
purposes  hereof,  the term "tangible net worth" shall mean Customer's net worth
as  shown  on  Customer's  regular  financial  statements  prepared  in a manner
consistent  with the terms  hereof,  but  excluding  an amount equal to: (i) any
assets which are  ordinarily  classified  as  "intangible"  in  accordance  with
generally accepted accounting principles,  and (ii) any amounts now or hereafter
directly or indirectly owing to Customer by officers, shareholders or affiliates
of Customer.

(i) Fixed Charge  Coverage  Ratio.  Customer  shall at all times during the term
hereof main tain a fixed charge  coverage ratio of no less than than 1.4 to 1.0.
The term "Fixed Charge Coverage Ratio" shall mean the ratio of: (a) incom before
interest  (including  payments in the nature of interest under capital  leases),
taxes, depreciation and amortization, (b) the sum of the aggregate principle and
interest  paid ot accrued,  the aggregate  rental under  capital  leases paid or
accrued,  any dividends and other  distributions paid or payable to shareholders
and taxes paid in cash; all as determined on a 12-month  basis,  as set forth in
Customer's  financial  statement  prepared in accordance with generally accepted
accounting principles.

3.4 COLLATERAL

(a) Pledge of Collateral.  To secure payment and performance of the Obligations,
Customer hereby pledges,  assigns,  transfers and sets over to MLBFS, and grants
to MLBFS first liens and security  interests in and upon all of the  Collateral,
subject only to Permitted Liens.

(b) Liens.  Except upon the prior written  consent of MLBFS,  Customer shall not
create or permit to exist any lien,  encumbrance  or security  interest  upon or
with respect to the specific Collateral as described herein.

(c)  Performance of  Obligations.  Customer shall perform all of its obligations
owing on account of or with respect to the Collateral;  it being understood that
nothing herein, and no action or inaction by MLBFS, under this Loan Agreement or
otherwise,  shall be deemed an  assumption  by MLBFS of any of  Customer's  said
obligations.

(d) Sales and  Collections.  So long as no Event of Default  shall have occurred
and be continuing, Customer may in the ordinary course of its business: (i) sell
any  Inventory  normally  held by  Customer  for sale,  (ii) use or consume  any
materials  and supplies  normally held by Customer for use or  consumption,  and
(iii) collect all of its Accounts.  Customer shall take such action with respect
to protection of its Inventory and the other  Collateral  and the  collection of
its Accounts as MLBFS may from time to time reasonably request.

(e) Account Schedules.  Upon the request of MLBFS, made now or at any reasonable
time or times  hereafter,  Customer  shall deliver to MLBFS,  in addition to the
other information required hereunder,  a schedule identifying,  for each Account
and all Chattel  Paper  subject to MLBFS'  security  interests  hereunder,  each
Account  Debtor by name and address and amount,  invoice or contract  number and
date of  each  invoice  or  contract.  Customer  shall  furnish  to  MLBFS  such
additional  information with respect to the Collateral,  and amounts received by
Customer as proceeds  of any of the  Collateral,  as MLBFS may from time to time
reasonably request.

(f) Alterations and Maintenance. Except upon the prior written consent of MLBFS,
Customer  shall not make or permit  any  material  alterations  to any  tangible
Collateral which might materially  reduce or impair its market value or utility.
Customer  shall at all times keep the tangible  Collateral in good condition and
repair, reasonable wear and tear excepted, and shall pay or cause to be paid all
obligations arising from the repair and maintenance of such Collateral,  as well
as all obligations with respect to any Location of Tangible  Collateral,  except
for  any  such  obligations  being  contested  by  Customer  in  good  faith  by
appropriate proceedings.

(g) Location. Except for movements required in the ordinary course of Customer's
business, Customer shall give MLBFS 30 days' prior written notice of the placing
at or movement of any tangible  Collateral to any location other than a Location
of Tangible Collateral.  In no event shall Customer cause or permit any material
tangible  Collateral  to be removed from the United  States  without the express
prior written consent of MLBFS.

(h)  Insurance.  Customer  shall insure all of the tangible  Collateral  under a
policy or policies of physical  damage  insurance  providing that losses will be
payable to MLBFS as its interests may appear pursuant to a Lender's Loss Payable
Endorsement and containing such other  provisions as may be reasonably  required
by MLBFS.  Customer  shall further  provide and maintain a policy or policies of
comprehensive  public  liability  insurance  naming MLBFS as an additional party
insured.  Customer shall maintain such other insurance as may be required by law
or is  customarily  maintained  by companies in a similar  business or otherwise
reasonably  required by MLBFS.  All such  insurance  policies shall provide that
MLBFS  will  receive  not  less  than  10  days  prior  written  notice  of  any
cancellation,  and shall  otherwise be in form and amount and with an insurer or
insurers  reasonably  acceptable to MLBFS.  Customer  shall furnish MLBFS with a
copy or certificate of each such policy or policies and, prior to any expiration
or cancellation, each renewal or replacement thereof.

(i) Event of Loss.  Customer shall at its expense promptly repair all repairable
damage to any tangible Collateral.  In the event that any tangible Collateral is
damaged  beyond repair,  lost,  totally  destroyed or confiscated  (an "Event of
Loss") and such Collateral had a value prior to such Event of Loss of $25,000.00
or more,  then,  on or  before  the  first to  occur  of (i) 90 days  after  the
occurrence  of such Event of Loss,  or (ii) 10  Business  Days after the date on
which  either  Customer or MLBFS  shall  receive any  proceeds of  insurance  on
account  of  such  Event  of  Loss,  or any  underwriter  of  insurance  on such
Collateral shall advise either Customer or MLBFS that it disclaims  liability in
respect of such Event of Loss,  Customer  shall,  at Customer's  option,  either
replace the Collateral subject to such Event of Loss with comparable  Collateral
free of all liens other than  Permitted  Liens (in which event Customer shall be
entitled to utilize the  proceeds of  insurance on account of such Event of Loss
for such  purpose,  and may retain any excess  proceeds of such  insurance),  or
deposit  into the WCMA  Account an amount equal to the actual cash value of such
Collateral as determined  by either the  insurance  company's  payment (plus any
applicable   deductible)  or,  in  absence  of  insurance  company  payment,  as
reasonably  determined  by  MLBFS;  it being  further  understood  that any such
deposit shall be accompanied  by a like permanent  reduction in the Maximum WCMA
Line of Credit.  Notwithstanding the foregoing,  if at the time of occurrence of
such  Event  of  Loss  or any  time  thereafter  prior  to  replacement  or line
reduction,  as  aforesaid,  an Event  of  Default  shall  have  occurred  and be
continuing hereunder, then MLBFS may at its sole option, exercisable at any time
while such Event of Default  shall be  continuing,  require  Customer  to either
replace such  Collateral  or make a deposit into the WCMA Account and reduce the
Maximum WCMA Line of Credit, as aforesaid.

(j) Notice of Certain Events.  Customer shall give MLBFS immediate notice of any
attachment,  lien, judicial process, encumbrance or claim affecting or involving
an aggregate  amount of $100,000.00  or more of the  Collateral  within a 30 day
period.

(k)  Indemnification.  Customer shall indemnify,  defend and save MLBFS harmless
from and against any and all claims,  liabilities,  losses,  costs and  expenses
(including, without limitation,  reasonable attorneys' fees and expenses) of any
nature whatsoever which may be asserted against or incurred by MLBFS arising out
of or in any manner occasioned by (i) the ownership, collection, possession, use
or operation of any  Collateral,  or (ii) any failure by Customer to perform any
of its obligations hereunder;  excluding,  however, from said indemnity any such
claims,  liabilities,  etc.  arising directly out of the willful wrongful act or
active gross negligence of MLBFS. This indemnity shall survive the expiration or
termination of this Loan  Agreement as to all matters  arising or accruing prior
to such expiration or termination.

3.5 EVENTS OF DEFAULT

The  occurrence  of any of the  following  events shall  constitute an "Event of
Default" under this Loan Agreement:

(a) Exceeding the Maximum WCMA Line of Credit. If the WCMA Loan Balance shall at
any time  exceed  the  Maximum  WCMA Line of Credit and  Customer  shall fail to
deposit  sufficient  funds into the WCMA Account to reduce the WCMA Loan Balance
below the  Maximum  WCMA Line of Credit  within  five (5)  Business  Days  after
written notice thereof shall have been given by MLBFS to Customer.

(b) Other  Failure to Pay.  Customer  shall fail to pay to MLBFS or deposit into
the WCMA  Account  when due any other  amount  owing or  required  to be paid or
deposited by Customer under this Loan  Agreement,  or shall fail to pay when due
any other  Obligations,  and any such failure shall  continue for more than five
(5) Business Days after written notice thereof shall have been given by MLBFS to
Customer.

(c) Failure to Perform.  Customer shall default in the performance or observance
of any covenant or agreement on its part to be performed or observed  under this
Loan Agreement or any of the Additional Agreements (not constituting an Event of
Default under any other clause of this Section), and such default shall continue
unremedied  for ten (10) Business Days after written  notice  thereof shall have
been given by MLBFS to Customer.

(d)  Breach  of  Warranty.  Any  representation  or  warranty  made by  Customer
contained in this Loan  Agreement or any of the Additional  Agreements  shall at
any time prove to have been incorrect in any material respect when made.

(e) Default Under Other Agreement.  A default or Event of Default by Customer or
any other party providing  collateral for the Obligations  shall occur under the
terms of any other  agreement,  instrument  or document with or intended for the
benefit of MLBFS,  MLPF&S or any of their  affiliates,  and any required  notice
shall have been given and required passage of time shall have elapsed.

(f) Bankruptcy Event. Any Bankruptcy Event shall occur.

(g)  Material  Impairment.  Any event shall occur which shall  reasonably  cause
MLBFS to in good faith believe that the prospect of full payment or  performance
by Customer of its  liabilities or obligations  under this Loan Agreement or any
of the Additional  Agreements to which  Customer is a party has been  materially
impaired.  The existence of such a material  impairment shall be determined in a
manner consistent with the intent of Section 1-208 of the UCC.

(h) Acceleration of Debt to Other Creditors. Any event shall occur which results
in the  acceleration of the maturity of any  indebtedness of $100,000.00 or more
of Customer to another creditor under any indenture, agreement,  undertaking, or
otherwise.

(i)  Seizure  or Abuse of  Collateral.  The  Collateral,  or any  material  part
thereof,  shall be or become  subject to any  material  abuse or misuse,  or any
levy, attachment,  seizure or confiscation which is not released within ten (10)
Business Days.

3.6 REMEDIES

(a) Remedies Upon Default. Upon the occurrence and during the continuance of any
Event of Default,  MLBFS may at its sole option do any one or more or all of the
following,  at such time and in such  order as MLBFS may in its sole  discretion
choose:

(i) Termination.  MLBFS may without notice terminate the WCMA Line of Credit and
all  obligations  to  provide  the WCMA Line of Credit or  otherwise  extend any
credit to or for the benefit of Customer  (it being  understood,  however,  that
upon the occurrence of any Bankruptcy Event the WCMA Line of Credit and all such
obligations  shall  automatically  terminate  without  any action on the part of
MLBFS);  and upon any  such  termination  MLBFS  shall be  relieved  of all such
obligations.

(ii)  Acceleration.  MLBFS may declare the principal of and interest on the WCMA
Loan  Balance,  and all  other  Obligations  to be  forthwith  due and  payable,
whereupon  all  such  amounts  shall be  immediately  due and  payable,  without
presentment,  demand  for  payment,  protest  and notice of  protest,  notice of
dishonor, notice of acceleration, notice of intent to accelerate or other notice
or formality of any kind, all of which are hereby  expressly  waived;  provided,
however,  that upon the occurrence of any Bankruptcy  Event all such  principal,
interest  and other  Obligations  shall  automatically  become  due and  payable
without any action on the part of MLBFS.

(iii) Exercise Other Rights.  MLBFS may exercise any or all of the remedies of a
secured party under applicable law, including,  but not limited to, the UCC, and
any or all of its other rights and remedies  under this Loan  Agreement  and the
Additional Agreements.

(iv)  Possession.  MLBFS may  require  Customer to make the  Collateral  and the
records pertaining to the Collateral available to MLBFS at a place designated by
MLBFS which is reasonably  convenient to Customer, or may take possession of the
Collateral and the records  pertaining to the Collateral  without the use of any
judicial process and without any prior notice to Customer.

(v) Sale.  MLBFS may sell any or all of the Collateral at public or private sale
upon such terms and  conditions as MLBFS may reasonably  deem proper.  MLBFS may
purchase any  Collateral  at any such public sale.  The net proceeds of any such
public or private sale and all other amounts  actually  collected or received by
MLBFS pursuant  hereto,  after deducting all costs and expenses  incurred at any
time in the collection of the Obligations and in the protection,  collection and
sale of the Collateral, will be applied to the payment of the Obligations,  with
any remaining proceeds paid to Customer or whoever else may be entitled thereto,
and with Customer  remaining  liable for any amount  remaining unpaid after such
application.

(vi) Delivery of Cash, Checks, Etc. MLBFS may require Customer to forthwith upon
receipt,  transmit and deliver to MLBFS in the form received,  all cash, checks,
drafts and other instruments for the payment of money (properly endorsed,  where
required, so that such items may be collected by MLBFS) which may be received by
Customer at any time in full or partial payment of any  Collateral,  and require
that  Customer not commingle any such items which may be so received by Customer
with any other of its funds or property but instead hold them separate and apart
and in trust for MLBFS until delivery is made to MLBFS.

(vii) Notification of Account Debtors.  MLBFS may notify any Account Debtor that
its Account or Chattel  Paper has been assigned to MLBFS and direct such Account
Debtor to make payment directly to MLBFS of all amounts due or becoming due with
respect to such  Account or Chattel  Paper;  and MLBFS may  enforce  payment and
collect, by legal proceedings or otherwise, such Account or Chattel Paper.

(viii)  Control of  Collateral.  MLBFS may otherwise  take control in any lawful
manner of any cash or non-cash items of payment or proceeds of Collateral and of
any rejected,  returned, stopped in transit or repossessed goods included in the
Collateral and endorse  Customer's name on any item of payment on or proceeds of
the Collateral.

(b) Set-Off.  MLBFS shall have the further right upon the  occurrence and during
the continuance of an Event of Default to set-off,  appropriate and apply toward
payment of any of the  Obligations,  in such order of  application  as MLBFS may
from time to time and at any time elect, any cash, credit,  deposits,  accounts,
financial  assets,  investment  property,  securities  and any other property of
Customer  which is in  transit  to or in the  possession,  custody or control of
MLBFS,  MLPF&S or any agent,  bailee, or affiliate of MLBFS or MLPF&S.  Customer
hereby  collaterally  assigns and grants to MLBFS a continuing security interest
in all such property as additional Collateral.

(c) Power of Attorney.  Effective upon the occurrence and during the continuance
of an  Event of  Default,  Customer  hereby  irrevocably  appoints  MLBFS as its
attorney-in-fact, with full power of substitution, in its place and stead and in
its name or in the name of MLBFS, to from time to time in MLBFS' sole discretion
take any action and to execute any instrument  which MLBFS may deem necessary or
advisable to accomplish the purposes of this Loan Agreement,  including, but not
limited  to, to  receive,  endorse  and  collect  all  checks,  drafts and other
instruments  for the payment of money made  payable to Customer  included in the
Collateral.

(d)  Remedies are  Severable  and  Cumulative.  All rights and remedies of MLBFS
herein are  severable  and  cumulative  and in addition to all other  rights and
remedies  available in the Additional  Agreements,  at law or in equity, and any
one or more of such  rights and  remedies  may be  exercised  simultaneously  or
successively.

(e) Notices.  To the fullest extent permitted by applicable law, Customer hereby
irrevocably  waives and releases MLBFS of and from any and all  liabilities  and
penalties for failure of MLBFS to comply with any statutory or other requirement
imposed upon MLBFS relating to notices of sale,  holding of sale or reporting of
any sale, and Customer waives all rights of redemption or reinstatement from any
such sale.  Any notices  required  under  applicable law shall be reasonably and
properly  given to Customer if given by any of the  methods  provided  herein at
least 5 Business  Days  prior to taking  action.  MLBFS  shall have the right to
postpone  or adjourn any sale or other  disposition  of  Collateral  at any time
without  giving  notice of any such  postponed or adjourned  date.  In the event
MLBFS seeks to take possession of any or all of the Collateral by court process,
Customer further  irrevocably  waives to the fullest extent permitted by law any
bonds and any surety or security relating thereto required by any statute, court
rule or  otherwise  as an  incident  to such  possession,  and  any  demand  for
possession prior to the commencement of any suit or action.

3.7 MISCELLANEOUS

(a)  Non-Waiver.  No  failure  or delay on the part of MLBFS in  exercising  any
right,  power or remedy pursuant to this Loan Agreement or any of the Additional
Agreements shall operate as a waiver thereof,  and no single or partial exercise
of any such right,  power or remedy shall preclude any other or further exercise
thereof, or the exercise of any other right, power or remedy. Neither any waiver
of any provision of this Loan Agreement or any of the Additional Agreements, nor
any consent to any departure by Customer  therefrom,  shall be effective  unless
the same shall be in writing and signed by MLBFS. Any waiver of any provision of
this Loan Agreement or any of the  Additional  Agreements and any consent to any
departure  by  Customer  from the  terms of this  Loan  Agreement  or any of the
Additional  Agreements shall be effective only in the specific  instance and for
the specific  purpose for which given.  Except as otherwise  expressly  provided
herein, no notice to or demand on Customer shall in any case entitle Customer to
any other or further notice or demand in similar or other circumstances.

(b) Disclosure.  Customer hereby  irrevocably  authorizes  MLBFS and each of its
affiliates,  including without limitation MLPF&S, to at any time (whether or not
an Event of Default shall have occurred)  obtain from and disclose to each other
any and all financial and other information  about Customer.  In connection with
said  authorization,  the parties recognize that in order to provide a WCMA Line
of Credit certain information about Customer is required to be made available on
a computer network accessible by certain affiliates of MLBFS, including MLPF&S.

(c) Communications.  All notices and other communications  required or permitted
hereunder shall be in writing, and shall be either delivered personally,  mailed
by postage  prepaid  certified mail or sent by express  overnight  courier or by
facsimile.  Such notices and  communications  shall be deemed to be given on the
date  of  personal  delivery,  facsimile  transmission  or  actual  delivery  of
certified  mail,  or one  Business  Day after  delivery to an express  overnight
courier.  Unless otherwise specified in a notice sent or delivered in accordance
with the terms  hereof,  notices and other  communications  in writing  shall be
given to the  parties  hereto  at their  respective  addresses  set forth at the
beginning of this Loan Agreement, or, in the case of facsimile transmission,  to
the parties at their respective regular facsimile telephone number.

(d) Fees,  Expenses and Taxes.  Customer  shall pay or  reimburse  MLBFS for all
reasonable  fees and  out-of-pocket  expenses  (including,  but not  limited to,
reasonable fees and expenses of outside counsel) incurred by MLBFS in connection
with the collection of any sum payable  hereunder or under any of the Additional
Agreements  not paid when due, the  enforcement of this Loan Agreement or any of
the  Additional  Agreements  and the  protection of MLBFS'  rights  hereunder or
thereunder,  excluding,  however,  salaries and normal overhead  attributable to
MLBFS'  employees.  Customer hereby  authorizes  MLBFS, at its option, to either
cause any and all such fees,  expenses and taxes to be paid with a WCMA Loan, or
invoice  Customer  therefor  (in which event  Customer  shall pay all such fees,
expenses and taxes within 5 Business  Days after receipt of such  invoice).  The
obligations  of Customer  under this  paragraph  shall survive the expiration or
termination of this Loan Agreement and the discharge of the other Obligations.

(e) Right to Perform Obligations.  If Customer shall fail to do any act or thing
which it has covenanted to do under this Loan Agreement or any representation or
warranty  on the part of  Customer  contained  in this Loan  Agreement  shall be
breached,  MLBFS may,  in its sole  discretion,  after 5 Business  Days  written
notice is sent to Customer (or such lesser  notice,  including no notice,  as is
reasonable  under  the  circumstances),  do the  same or  cause it to be done or
remedy any such breach,  and may expend its funds for such purpose.  Any and all
reasonable  amounts so expended by MLBFS shall be repayable to MLBFS by Customer
upon  demand,  with  interest  at the  Interest  Rate during the period from and
including the date funds are so expended by MLBFS to the date of repayment,  and
all such amounts shall be additional Obligations.  The payment or performance by
MLBFS of any of Customer's  obligations  hereunder shall not relieve Customer of
said  obligations or of the  consequences of having failed to pay or perform the
same, and shall not waive or be deemed a cure of any Default.

(f) Further  Assurances.  Customer agrees to do such further acts and things and
to execute  and deliver to MLBFS such  additional  agreements,  instruments  and
documents as MLBFS may  reasonably  require or deem  advisable to effectuate the
purposes  of this Loan  Agreement  or any of the  Additional  Agreements,  or to
establish,  perfect and maintain  MLBFS'  security  interests and liens upon the
Collateral, including, but not limited to: (i) executing financing statements or
amendments thereto when and as reasonably requested by MLBFS; and (ii) if in the
reasonable  judgment of MLBFS it is  required  by local law,  causing the owners
and/or mortgagees of the real property on which any Collateral may be located to
execute and deliver to MLBFS waivers or subordinations  reasonably  satisfactory
to MLBFS with respect to any rights in such Collateral.

(g) Binding Effect.  This Loan Agreement and the Additional  Agreements shall be
binding  upon,  and shall  inure to the  benefit  of MLBFS,  Customer  and their
respective  successors and assigns.  Customer shall not assign any of its rights
or  delegate  any of its  obligations  under this Loan  Agreement  or any of the
Additional  Agreements  without  the prior  written  consent  of  MLBFS.  Unless
otherwise  expressly  agreed to in a writing  signed by MLBFS,  no such  consent
shall in any event relieve  Customer of any of its  obligations  under this Loan
Agreement or the Additional Agreements.

(h) Headings. Captions and section and paragraph headings in this Loan Agreement
are  inserted  only as a  matter  of  convenience,  and  shall  not  affect  the
interpretation hereof.

(i) Governing Law. This Loan Agreement, and, unless otherwise expressly provided
therein, each of the Additional Agreements, shall be governed in all respects by
the laws of the State of Illinois.

(j) Severability of Provisions.  Whenever possible,  each provision of this Loan
Agreement and the Additional  Agreements  shall be interpreted in such manner as
to be  effective  and valid under  applicable  law.  Any  provision of this Loan
Agreement  or  any  of  the  Additional   Agreements   which  is  prohibited  or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the extent of such prohibition or unenforceability  without invalidating
the remaining provisions of this Loan Agreement and the Additional Agreements or
affecting  the  validity  or  enforceability  of  such  provision  in any  other
jurisdiction.

(k) Term.  This Loan  Agreement  shall become  effective on the date accepted by
MLBFS at its office in  Chicago,  Illinois,  and,  subject to the terms  hereof,
shall continue in effect so long  thereafter as the WCMA Line of Credit shall be
in effect or there shall be any Obligations outstanding.

(l)  Counterparts.   This  Loan  Agreement  may  be  executed  in  one  or  more
counterparts which, when taken together, constitute one and the same agreement.

(m)  Jurisdiction;  Waiver.  Customer  acknowledges  that this Loan Agreement is
being accepted by MLBFS in partial  consideration of MLBFS' right and option, in
its sole discretion, to enforce this Loan Agreement (including the WCMA Note set
forth herein) and the  Additional  Agreements in either the State of Illinois or
in any other  jurisdiction  where Customer or any collateral for the Obligations
may be located. Customer irrevocably submits itself to jurisdiction in the State
of  Illinois  and venue in any State or Federal  Court in the County of Cook for
such  purposes,  and  Customer  waives  any  and  all  rights  to  contest  said
jurisdiction  and venue and the  convenience of any such forum,  and any and all
rights to remove  such  action  from state to federal  court.  Customer  further
waives  any rights to  commence  any action  against  MLBFS in any  jurisdiction
except in the County of Cook and State of Illinois.  MLBFS and  Customer  hereby
each  expressly  waive  any and all  rights  to a trial  by jury in any  action,
proceeding or  counterclaim  brought BY either of the parties  against the other
party with  respect  to any matter  relating  to,  arising  out of or in any way
connected  with the WCMA Line of Credit,  this Loan  Agreement,  any  Additional
Agreements  and/or any of the transactions  which are the subject matter of this
Loan Agreement.  Customer  further waives the right to bring any  non-compulsory
counterclaims.

(n) Integration.  This Loan Agreement,  together with the Additional Agreements,
constitutes the entire understanding and represents the full and final agreement
between the parties with respect to the subject  matter  hereof,  and may not be
contradicted by evidence of prior written  agreements or prior,  contemporaneous
or  subsequent  oral  agreements  of the parties.  There are no  unwritten  oral
agreements of the parties. Without limiting the foregoing, Customer acknowledges
that except as otherwise expressly provided herein: (i) no promise or commitment
has been  made to it by  MLBFS,  MLPF&S  or any of their  respective  employees,
agents or  representatives to extend the availability of the WCMA Line of Credit
or the  maturity  date,  or to  increase  the  Maximum  WCMA Line of Credit,  or
otherwise  extend  any other  credit to  Customer  or any other  party;  (ii) no
purported  extension of the maturity date,  increase in the Maximum WCMA Line of
Credit  or other  extension  or  agreement  to extend  credit  shall be valid or
binding unless expressly set forth in a written  instrument signed by MLBFS; and
(iii) this Loan Agreement supersedes and replaces any and all proposals, letters
of intent and approval and  commitment  letters from MLBFS to Customer,  none of
which shall be considered an Additional Agreement.  No amendment or modification
of this  Agreement or any of the  Additional  Agreements to which  Customer is a
party shall be effective unless in a writing signed by both MLBFS and Customer.

(o) California Financial Code. This Loan Agreement and the Additional Agreements
are made pursuant to Article 4 of Chapter 3 of Division 9 of the California
Financial Code (commencing with Section 22000.)

<PAGE>

IN WITNESS WHEREOF, this Loan Agreement has been executed as of the day and year
first above written.

LASER-PACIFIC MEDIA CORPORATION

By:               /s/ Robert McClain                 /s/ Howard Fader
                  Signature (1)                      Signature (2)

                  Robert McClain                     Howard Fader
                  Printed Name                       Printed Name

                  CFO                                Controller
                  Title                              Title

Accepted at Chicago, Illinois:
MERRILL LYNCH BUSINESS FINANCIAL
SERVICES INC.

By:___________________________________________________________

<PAGE>

                                    EXHIBIT A

ATTACHED  TO AND  HEREBY  MADE A PART OF WCMA LOAN AND  SECURITY  AGREEMENT  NO.
210-07G41   BETWEEN   MERRILL  LYNCH  BUSINESS   FINANCIAL   SERVICES  INC.  AND
LASER-PACIFIC MEDIA CORPORATION
===============================================================================

Additional Locations of Tangible Collateral:

         823 Seward
         Los Angeles, California, 90038-3601
         (owned by customer)

         861 Seward
         Los Angeles, California, 90038-3601

         540 Hollywood Way
         Burbank, California, 91505-3405
         (lease will be terminated - will be moving out June 2001)

<PAGE>

                                          Private Client Group

                                          Merrill Lynch Business
                                          Financial Services Inc.
                                          222 North LaSalle Street
                                          17th Floor
                                          Chicago, Illinois 60601
                                          (312) 499-3073
                                          FAX: (312) 269-1378

                                          May 31, 2001

Laser-Pacific Media Corporation
809 N. Cahuenga Blvd
Los Angeles, CA 90038

                  Re: Amendment to Loan Documents

Ladies & Gentlemen:

This Letter Agreement will serve to confirm certain  agreements of Merrill Lynch
Business Financial  Services Inc. ("MLBFS") and Laser-Pacific  Media Corporation
("Customer") with respect to: (i) that certain TERM LOAN AND SECURITY  AGREEMENT
No. 0012340301 between MLBFS and Customer (including any previous amendments and
extensions thereof), and (ii) all other agreements between MLBFS and Customer in
connection  therewith  (collectively,  the "Loan Documents").  Capitalized terms
used herein and not defined  herein shall have the meaning set forth in the Loan
Documents.

Subject to the terms hereof,  effective as of the  "Effective  Date" (as defined
below), the Loan Documents are hereby amended as follows:

(a) The  ratio  of (i)  Customer's  total  debt  less any  subordinated  debt of
Customer, to (ii) the sum of Customer's tangible net worth plus any subordinated
debt of  Customer  shall not at any time  exceed  1.6 to 1.0.  For the  purposes
hereof,  the term "tangible net worth" shall mean  Customer's net worth as shown
on Customer's regular financial  statements prepared in a manner consistent with
the terms  hereof,  but  excluding  an amount equal to: (i) any assets which are
ordinarily  classified as  "intangible"  in accordance  with generally  accepted
accounting  principles,  and (ii)  any  amounts  now or  hereafter  directly  or
indirectly  owing  to  Customer  by  officers,  shareholders  or  affiliates  of
Customer.

(b) Customer  shall at all times during the term hereof main tain a fixed charge
coverage ratio of no less than than 1.4 to 1.0. The term "Fixed Charge  Coverage
Ratio" shall mean the ratio of: (a) incom before interest (including payments in
the  nature  of  interest  under  capital  leases),   taxes,   depreciation  and
amortization,  (b) the  sum of the  aggregate  principle  and  interest  paid of
accrued,  the  aggregate  rental  under  capital  leases  paid or  accrued,  any
dividends and other distributions paid or payable to shareholders and taxes paid
in cash;  all as  determined  on a 12-month  basis,  as set forth in  Customer's
financial  statement prepared in accordance with generally  accepted  accounting
principles.

(c) In addition to existing requirements, Customer shall provide to MLBFS:

Within 120 days after the close of each fiscal year of  Customer,  a copy of the
annual audited financial statements of Customer, including in reasonable detail,
a balance  sheet and  statement  of  retained  earnings  as at the close of such
fiscal year and statements of profit and loss and cash flow for such fiscal year
by KPMG or other auditors acceptable to MLBFS;

Within 45 days after the close of each fiscal quarter of Customer, a copy of the
interim financial  statements of Customer for such fiscal quarter  (including in
reasonable  detail both a balance  sheet as of the close of such fiscal  period,
and statement of profit and loss for the applicable fiscal period); provided, at
such time as the ongoing negotiations between The Writers Guild and the Alliance
of Motion Picture and Television Producers, in California,  should cease without
resolution or a strike by the writers or actors should occur, and at any and all
times thereafter, Customer will further provide MLBFS with a copy of its monthly
internal financial  statements  certified as being true and correct by the chief
financial office of Customer;

Within 45 days after the close of each fiscal quarter of Customer, a copy of the
Accounts Receivable Aging of Customer as of the end of such fiscal quarter;

Customer  shall furnish or cause to be furnished to MLBFS not later than 10 days
after the date of filing with the Securities and Exchange  Commission ("SEC"), a
copy of each  10-K,  10-Q and other  report  required  to be filed  with the SEC
during the term hereof by Customer; and

Customer  will be  required  to provide  MLBFS with a copy of each of its annual
certified financial statements and such other information as MLBFS may from time
to time reasonably request;  provided,  at such time as the ongoing negotiations
between The Writers  Guild and the  Alliance  of Motion  Picture and  Television
Producers,  in  California,  should cease without  resolution or a strike by the
writers or actors should occur,  and at any and all times  thereafter,  Customer
will  further  provide  MLBFS  with a copy  of its  monthly  internal  financial
statements  certified as being true and correct by the chief financial office of
Customer.

(d) The term "Location of Collateral" shall include:

         823 Seward
         Los Angeles, California, 90038-3601
         (owned by customer)

         861 Seward
         Los Angeles, California, 90038-3601

         540 Hollywood Way
         Burbank, California, 91505-3405
         (lease will be terminated - will be moving out June 2001)

Except as expressly  amended  hereby,  the Loan Documents shall continue in full
force and effect upon all of their terms and conditions.

Customer acknowledges,  warrants and agrees, as a primary inducement to MLBFS to
enter into this Agreement, that: (a) no Default or Event of Default has occurred
and is  continuing  under  the Loan  Documents;  (b) each of the  warranties  of
Customer  in the Loan  Documents  are true and correct as of the date hereof and
shall be deemed  remade as of the date hereof;  (c)  Customer  does not have any
claim  against  MLBFS or any of its  affiliates  arising out of or in connection
with the Loan  Documents or any other matter  whatsoever;  and (d) Customer does
not  have  any  defense  to  payment  of any  amounts  owing,  or any  right  of
counterclaim for any reason under, the Loan Documents.

Provided  that no Event of  Default,  or event  which with the giving of notice,
passage of time, or both, would constitute an Event of Default,  shall then have
occurred and be continuing under the terms of the Loan Documents, the amendments
and agreements in this Letter  Agreement will become  effective on the date (the
"Effective  Date") upon which: (a) Customer shall have executed and returned the
duplicate copy of this Letter Agreement enclosed herewith; and (b) an officer of
MLBFS shall have reviewed and approved this Letter Agreement as being consistent
in all respects with the original internal authorization hereof.

Notwithstanding  the  foregoing,  if  Customer  does not  execute and return the
duplicate copy of this Letter Agreement within 30 days from the date hereof,  or
if for any other reason (other than the sole fault of MLBFS) the Effective  Date
shall not occur  within  said 30-day  period,  then all of said  amendments  and
agreements will, at the sole option of MLBFS, be void.

Very truly yours,

Merrill Lynch Business Financial Services Inc.

By: __________________________________________________________
         Christie L. Foster
         Documentation Manager

Accepted:

Laser-Pacific Media Corporation

By: /s/ Robert McClain________________________________________

Printed Name: Robert McClain__________________________________

Title: CFO____________________________________________________

==============================================================================THIS FIRST SUPPLEMENTAL INDENTURE dated June 1, 2001, among THE CIT GROUP,
INC. (formerly known as Tyco Acquisition Corp. XX (NV)), a Nevada corporation,
("CIT"), CIT HOLDINGS (NV) INC. (formerly known as Tyco Acquisition Corp. XIX
(NV)), a Nevada corporation ("CIT Holdings"), and THE BANK OF NEW YORK, a
banking corporation organized and existing under the laws of New York (the
"Trustee").

WHEREAS:

      (1) The CIT Group, Inc., a Delaware corporation ("CIT Delaware"), and the
Trustee are parties to an Indenture dated as of September 24, 1998 (the
"Indenture"), pursuant to which CIT Delaware authorized the issue of an
unlimited amount of unsecured and unsubordinated debt securities (the
"Securities");

      (2) CIT Delaware did issue, under the Indenture, Securities in one or more
series varying in maturity date, interest rate, redemption price, denominations,
original issue date, issue price and as to other terms;

      (3) Effective as of the date hereof, CIT Delaware has merged into CIT
Holdings pursuant to a Certificate of Merger filed with the Delaware Secretary
of State on the date hereof and Articles of Merger filed with the Nevada
Secretary of State on the date hereof (the "Merger");

      (4) Immediately following the Merger, CIT Holdings is transferring all of
the assets owned by CIT Delaware immediately prior to the Merger to CIT and CIT
has assumed substantially all of the liabilities of CIT Delaware outstanding
immediately prior to the Merger (the "Transfer") pursuant to a Contribution and
Assumption Agreement (the "Assumption Agreement").

      (5) Pursuant to the terms of Merger and applicable law, CIT Holdings
succeeded to all of the rights and obligations of CIT Delaware, and pursuant to
the Assumption Agreement, CIT Holdings has transferred to CIT all such rights
and CIT has assumed all such obligations.

      (6) Section 15.01 of the Indenture requires as a condition to a merger of
the Corporation under the Indenture, and to a sale of substantially all of the
property and assets of the Corporation, that the successor corporation and/or
transferee of the property and assets expressly assume the due and punctual
payment of the principal of and interest, if any, on all of the Debt Securities,
according to their tenor, and the due and punctual performance and observance of
all the covenants and conditions of the Indenture to be performed or observed by
the Corporation by supplemental indenture, in form satisfactory to the Trustee,
executed and delivered to the Trustee by such successor or transferee.

<PAGE>

      (7) The parties wish to provide that CIT Holdings become the "Corporation"
under the Indenture by reason of the Merger and that, immediately thereafter,
CIT becomes the "Corporation" by reason of the Transfer.

NOW, THEREFORE, THIS FIRST SUPPLEMENTAL INDENTURE WITNESSETH:

                                   ARTICLE ONE

                        PROVISIONS OF GENERAL APPLICATION

Section 1.1 To be Read with Indenture; Governing Law

      This First Supplemental Indenture is supplemental to the Indenture, and
the Indenture and this First Supplemental Indenture shall hereafter be read
together and shall have effect with respect to the Debt Securities as if all the
provisions thereof and hereof were contained in one instrument, which instrument
shall be governed by and construed in accordance with the laws of the State of
New York, including the laws of the United States applicable therein.

Section 1.2 Interpretation

      In this First Supplemental Indenture, unless there is something in the
subject or context inconsistent therewith:

      (a)   "Indenture", "herein", "hereby", "hereof" and similar expressions
            mean and refer to the Indenture and this First Supplemental
            Indenture;

      (b)   the expression "Article" and "Section" followed by a number mean and
            refer to the specified Article or Section of this First Supplemental
            Indenture unless otherwise expressly stated; and

      (c)   other expressions defined in the Indenture shall have the same
            meanings when used in this First Supplemental Indenture.

                                      -2-

<PAGE>

                                   ARTICLE TWO

                             ASSUMPTION AND RELEASE

Section 2.1 Assumption and Substitution.

      (a) By reason of the Merger and this First Supplemental Indenture and
effective as of the consummation of the Merger, CIT Holdings did expressly
assume, as its direct and primary obligation, the due and punctual payment of
the principal of and interest, if any, on all the Debt Securities according to
their tenor, and the due and punctual performance and observance of all of the
covenants and conditions under the Indenture to be performed or observed by CIT
Delaware, and did succeed to, and was substituted for, CIT Delaware, with the
same effect as if CIT Holdings had been named in the Indenture.

      (b) By reason of Transfer and this First Supplemental Indenture and
effective as of the consummation of the Transfer, CIT does expressly assume the
due and punctual payment of the principal of and interest, if any, on all of the
Debt Securities, according to their tenor, and the due and punctual performance
and observance of all the covenants and conditions of the Indenture to be
performed or observed by CIT Holdings as successor of CIT Delaware, and does
succeeds to, and is substituted for, CIT Delaware and CIT Holdings, with the
same effect as if CIT had been named in the Indenture.

Section 2.2 Release.

      Effective as of the consummation of the Transfer, CIT Holdings is hereby
relieved, released and forever discharged of any further obligations or duties
under the Indenture.

                                  ARTICLE THREE

                         REPRESENTATIONS AND WARRANTIES

Section 3.1 Representations and Warranties of CIT Holdings.

      CIT Holdings hereby represents and warrants as follows:

            (a) CIT Holdings (i) is a corporation duly organized, validly
existing and in good standing under the laws of the State of Nevada, and (ii)
has the power and authority to execute, deliver and perform this First
Supplemental Indenture.

            (b) The execution, delivery and performance by CIT Holdings of this
First Supplemental Indenture (i) have been duly authorized by all necessary
company action, (ii) do not and will not contravene its articles of
incorporation or bylaws,

                                      -3-

<PAGE>

any material law or any material contractual restriction binding on or affecting
CIT Holdings or any of its material properties, and (iii) do not and will not
result in or require the creation of any lien, security interest or other charge
or encumbrance upon or with respect to any of its material properties.

            (c) No authorization or approval or other action by, and no notice
to or filing with, any governmental authority or other regulatory body is
required for the due execution, delivery and performance by CIT Holdings of this
First Supplemental Indenture or for its assumption of the obligations of CIT
Delaware under the Indenture.

            (d) This First Supplemental Indenture is, the legal, valid and
binding obligation of CIT Holdings, enforceable against CIT Holdings in
accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles (whether enforcement is sought by proceedings in equity or
at law).

            (e) No litigation, investigation or proceeding of or before any
arbitrator or governmental authority or other regulatory body is pending or, to
the knowledge of CIT Holdings, threatened by or against CIT Holdings with
respect to this First Supplemental Indenture or any of the transactions
contemplated hereby.

            (f) CIT Holdings was not, effective immediately following
consummation of the Merger, in default in the performance of any covenant or
condition in the Indenture.

Section 3.2 Representations and Warranties of CIT.

      CIT hereby represents and warrants as follows:

            (a) CIT (i) is a corporation duly organized, validly existing and in
good standing under the laws of the State of Nevada, and (ii) has the power and
authority to assume the obligations of Corporation under the Indenture and to
execute, deliver and perform this First Supplemental Indenture.

            (b) The execution, delivery and performance by CIT of this First
Supplemental Indenture and the assumption of the obligations of CIT Holdings
under the Indenture (i) have been duly authorized by all necessary company
action, (ii) do not and will not contravene its articles of incorporation or
bylaws, any material law or any material contractual restriction binding on or
affecting CIT or any of its material properties, and (iii) do not and will not
result in or require the creation of any lien, security interest or other charge
or encumbrance upon or with respect to any of its material properties.

            (c) No authorization or approval or other action by, and no notice
to or filing with, any governmental authority or other regulatory body is
required

                                   -4-

<PAGE>

for the due execution, delivery and performance by CIT of this First
Supplemental Indenture or for its assumption of the obligations of CIT Holdings
under the Indenture.

            (d) This First Supplemental Indenture is the legal, valid and
binding obligation of CIT, enforceable against CIT in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).

            (e) No litigation, investigation or proceeding of or before any
arbitrator or governmental authority or other regulatory body is pending or, to
the knowledge of CIT, threatened by or against CIT with respect to this First
Supplemental Indenture or any of the transactions contemplated hereby.

            (f) CIT is not, effective immediately following consummation of the
Transfer, in default in the performance of any covenant or condition in the
Indenture.

                                  ARTICLE FOUR

                           FURTHER ASSURANCES REQUIRED

Section 4.1 Trustee Documents.

      CIT Holdings and CIT have delivered to the Trustee, pursuant to the
Indenture, an Officer's Certificate and an Opinion of Counsel.

Section 4.2 Further Assurances Required.

      At any time and from time to time, upon the Trustee's request, CIT
Holdings and CIT will promptly execute and deliver such documents and
instruments and take such further actions as the Trustee may reasonably request
to effect the purposes of this First Supplemental Indenture, at their respective
cost and expense.

                                  ARTICLE FIVE

                                  MISCELLANEOUS

Section 5.1 Miscellaneous.

            (a) This First Supplemental Indenture may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of

                                      -5-

<PAGE>

which shall be deemed to be an original, but all of which taken together shall
constitute one and the same agreement.

            (b) This First Supplemental Indenture is effective in respect of CIT
Holdings, as of the consummation of the Merger and, in respect of CIT, as of the
consummation of the Transfer.

                                      -6-

<PAGE>

      IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental
Indenture to be duly executed, and their respective corporate seals to be
hereunto affixed and attested, all as of the day and year first above written.

                                             CIT HOLDINGS (NV) INC.
                                             (formerly known as Tyco Acquisition
                                             Corp. XIX (NV)), a Nevada
                                             corporation

                                             By:______________________________

                                             THE CIT GROUP, INC. (formerly
                                             known as Tyco Acquisition Corp. XX
                                             (NV)), a Nevada corporation

                                             By:______________________________

                                             THE BANK OF NEW YORK,
                                             Trustee

                                             By:______________________________

                                      -7-

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