<PAGE>

                                 CREDIT AGREEMENT

                           DATED AS OF DECEMBER 12, 1997

                                     AMONG

                           PLATINUM ENTERTAINMENT, INC.

                                INTERSOUND, INC.,



                                  THE LENDERS
                                 PARTY HERETO,


                                     AND


                             BANK OF MONTREAL,
                          AS ADMINISTRATIVE AGENT

                                    AND

                            BANK OF MONTREAL,

                          AS SYNDICATION AGENT


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                           TABLE OF CONTENTS

SECTION                      DESCRIPTION                               PAGE

SECTION 1.       THE CREDITS .........................................   1
                                                                        
    Section 1.1.   Revolving Credit...................................   1
    Section 1.2.   Revolving Credit Loans.............................   2
    Section 1.3.   Letters of Credit .................................   3
    Section 1.4.   Term Credit .......................................   6
    Section 1.5.   Manner and Disbursement of Loans...................   7
    Section 1.6.   Late Payment By Lender.............................   8
    Section 1.7.   Appointment of Company as Agent for Borrowers;       
                   Reliance by Administrative Agent...................   9
           (a)     Appointment........................................   9
           (b)     Reliance...........................................   9

SECTION 2.     INTEREST, FEES, PREPAYMENTS AND TERMINATIONS...........   9

     Section 2.1.  Interest Rate Options..............................   9
     Section 2.2.  Commitment Fee.....................................  11
     Section 2.3.  Letter of Credit Fees..............................  11
     Section 2.4.  Administrative Agent's Fees........................  12
     Section 2.5.  Audit Fees.........................................  12
     Section 2.6.  Voluntary Prepayments..............................  12
     Section 2.7.  Mandatory Prepayments..............................  12
     Section 2.8.  Voluntary Terminations.............................  15
                                                                      
SECTION 3.     PLACE AND APPLICATION OF PAYMENTS......................  15
                                                                      
     Section 3.1.  Generally..........................................  15
     Section 3.2.  Application of Collateral Proceeds Before Default..  16
     Section 3.3.  Application After Default..........................  17
     Section 3.4.  Overfunded Commitments.............................  18
     Section 3.5.  Borrower's Right to Direct Application.............  18
     Section 3.6.  Weekly Settlement..................................  19
     Section 3.7.  Computation of Obligations Outstanding.............  21
     Section 3.8.  Notations..........................................  22

SECTION 4.     THE COLLATERAL AND GUARANTIES..........................  22

     Section 4.1.   Collateral........................................  22
     Section 4.2.   Collateral Proceeds...............................  23
     Section 4.3.   Further Assurances................................  24
     Section 4.4.   Guaranties from Subsidiaries......................  24
     Section 4.5.   Collateral Assignment of Life Insurance...........  24

SECTION 5.     DEFINITIONS; INTERPRETATION............................  24


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     Section 5.1.   Definitions.......................................  24
     Section 5.2.   Interpretation....................................  43
     Section 5.3.   Accounting Terms..................................  44

SECTION 6.     REPRESENTATIONS AND WARRANTIES.........................  44

     Section 6.1.   Organization and Power............................  44
     Section 6.2.   Corporate Authority and Validity of Obligations...  45
     Section 6.3.   Subsidiaries......................................  45
     Section 6.4.   Use of Proceeds; Regulation U.....................  45
     Section 6.5.   Financial Statements..............................  46
     Section 6.6.   Litigation, Taxes and Approvals...................  46
     Section 6.7.   Burdensome Contracts with Affiliates..............  46
     Section 6.8.   ERISA.............................................  47
     Section 6.9.   Full Disclosure...................................  47
     Section 6.10.  Compliance with Law...............................  47
     Section 6.11.  Solvency, etc.....................................  48

SECTION 7.     CONDITIONS PRECEDENT...................................  48

     Section 7.1.   All Advances......................................  48
     Section 7.2.   Initial Advance...................................  49
     Section 7.3.   Legal Matters.....................................  51

SECTION 8.     COVENANTS..............................................  52

     Section 8.1.   Maintenance of Business...........................  52
     Section 8.2.   Maintenance.......................................  52
     Section 8.3.   Taxes.............................................  52
     Section 8.4.   Insurance.........................................  52
     Section 8.5.   Financial Reports.................................  53
     Section 8.6.   Compliance with Laws..............................  55
     Section 8.7.   Liens.............................................  55
     Section 8.8.   Indebtedness......................................  57
     Section 8.9.   Consolidated Net Worth............................  58
     Section 8.10.  Leverage Ratio....................................  59
     Section 8.11.  Consolidated Working Capital......................  59
     Section 8.12.  Interest Coverage Ratio...........................  59
     Section 8.13.  Fixed Charge Coverage Ratio.......................  59
     Section 8.14.  Capital Expenditures..............................  60
     Section 8.15.  Acquisitions, Investments, Loans, Advances and
                    Guaranties........................................  60
     Section 8.16.  Dividends and Certain Other Restricted Payments...  63
     Section 8.17.  Mergers...........................................  64
     Section 8.18.  Sale of Assets....................................  64
     Section 8.19.  Sales and Leasebacks..............................  66
     Section 8.20.  Operating Leases..................................  66
     Section 8.21.  Burdensome Contracts with Affiliates..............  66


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     Section 8.22.  No Change in Fiscal Year........................... 66
     Section 8.23.  Formation of Subsidiaries.......................... 66
     Section 8.24.  Maintenance of Subsidiaries........................ 67
     Section 8.25.  Nature of Business................................. 67
     Section 8.26.  Subordinated Debt.................................. 67
     Section 8.27.  Double Negative Pledge............................. 68
     Section 8.28.  Intersound......................................... 68
     Section 8.29.  Interest Rate Protection........................... 69

SECTION 9.     EVENTS OF DEFAULT AND REMEDIES.......................... 69

     Section 9.1.   Events of Default.................................. 69
     Section 9.2.   Remedies Generally................................. 72
     Section 9.3.   Remedies Upon Insolvency........................... 72

SECTION 10.    THE ADMINISTRATIVE AGENT................................ 72

     Section 10.1.  Appointment and Authorization...................... 72
     Section 10.2.  Rights as a Lender................................. 73
     Section 10.3.  Standard of Care................................... 73
     Section 10.4.  Costs and Expenses................................. 74
     Section 10.5.  Indemnity.......................................... 74
     Section 10.6.  Syndication Agent.................................. 75

SECTION 11.    JOINT AND SEVERAL LIABILITY AND GUARANTEES.............. 75

     Section 11.1.  Joint and Several Liability and Guarantees......... 75
     Section 11.2.  Guarantee Unconditional............................ 75
     Section 11.3.  Discharge Only Upon Payment in Full; Reinstatement
                    in Certain Circumstances........................... 76
     Section 11.4.  Waivers............................................ 76
     Section 11.5.  Limit on Recovery.................................. 77
     Section 11.6.  Stay of Acceleration............................... 77
     Section 11.7.  Benefit to Guarantors.............................. 77
     Section 11.8.  Guarantor Covenants................................ 77

SECTION 12.    CHANGE IN CIRCUMSTANCE.................................. 77

     Section 12.1.  Change of Law...................................... 77
     Section 12.2.  Unavailability of Deposits or Inability to
                    Ascertain Adjusted LIBOR........................... 78
     Section 12.3.  Taxes and Increased Costs.......................... 78
     Section 12.4.  Capital Adequacy................................... 79
     Section 12.5.  Funding Indemnity.................................. 80
     Section 12.6.  Lending Branch..................................... 80
     Section 12.7.  Discretion of Lenders as to Manner of Funding...... 81
     Section 12.8.  Replacement of Lender.............................. 81


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SECTION 13.    MISCELLANEOUS........................................... 82

     Section 13.1.  Withholding Taxes.................................. 82
     Section 13.2.  Documentary Taxes.................................. 84
     Section 13.3.  Waivers, Modifications and Amendments.............. 84
     Section 13.4.  Costs and Expenses................................. 84
     Section 13.5.  Survival of Representations and Indemnities........ 85
     Section 13.6.  Waiver of Rights................................... 85
     Section 13.7   Non-Business Day................................... 85
     Section 13.8.  Notices............................................ 85
     Section 13.9.  Counterparts....................................... 86
     Section 13.10. Successors and Assigns............................. 86
     Section 13.11. Participations..................................... 87
     Section 13.12. Assignment Agreements.............................. 87
     Section 13.13. Construction....................................... 88
     Section 13.14. Entire Agreement................................... 88
     Section 13.15. Headings........................................... 88
     Section 13.16. Confidentiality.................................... 88
     Section 13.17. Exclusive Jurisdiction............................. 88
     Section 13.18. Waiver of Jury Trial............................... 89
     Section 13.19. Governing Law...................................... 89

Exhibit A - Revolving Credit Note
Exhibit B - Term Credit Note
Exhibit C - Borrowing Base Certificate
Exhibit D - Compliance Certificate
Exhibit E - Approved Collateral Locations
Exhibit F - Guaranty Agreement
Exhibit G - Assignment and Acceptance
Schedule 6.3 - Subsidiaries
Schedule 6.6 - Litigation
Schedule 6.7 - Affiliate Transactions
Schedule 8.7 - Permitted Liens
Schedule 8.8 - Existing Indebtedness


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<PAGE>

                                   CREDIT AGREEMENT 
To:

Bank of Montreal
Chicago, Illinois

and its from time to time assigns

Ladies and Gentlemen:

     The undersigned, Platinum Entertainment, Inc., a Delaware corporation (the
"COMPANY"), and Intersound, Inc., a Delaware corporation ("INTERSOUND"), (the
Company and Intersound being hereinafter referred to collectively as the
"BORROWERS" and individually as a "BORROWER"), each applies to you for your
several commitments, subject to the terms and conditions hereof and on the basis
of the representations and warranties hereinafter set forth, to extend credit to
the Borrowers, all as more fully hereinafter set forth.  Each of you is
hereinafter referred to as a "LENDER", all of you are hereinafter referred to
collectively as the "LENDERS" and Bank of Montreal ("BMO") in its capacity as
Administrative Agent hereunder is hereinafter referred to as the "ADMINISTRATIVE
AGENT", and Bank of Montreal in its capacity as syndication agent hereunder is
hereinafter referred to as the "SYNDICATION AGENT". 
 
SECTION 1.     THE CREDITS.

     SECTION 1.1.   REVOLVING CREDIT.  Subject to the terms and conditions
hereof, each Lender severally agrees to extend a revolving credit (the
"REVOLVING CREDIT") to the Borrowers which may be availed of by each Borrower
from time to time during the period from and including the date hereof to but
not including the Revolving Credit Termination Date, at which time the
commitments of the Lenders to extend credit under the Revolving Credit shall
expire.  The maximum amount of the Revolving Credit which each Lender agrees to
extend to the Borrowers taken together, shall be such Lender's Revolving Credit
Commitment.  The Revolving Credit may be utilized by each Borrower in the form
of Revolving Loans and Letters of Credit, all as more fully hereinafter set
forth; PROVIDED, HOWEVER, that:

          (i)  the aggregate principal amount of Revolving Loans and Letters of
     Credit outstanding at any one time from the Borrowers, taken together,
     shall not exceed the lesser of (x) the aggregate of the Revolving Credit
     Commitments and (y) the Borrowing Base, in each case as then determined and
     computed for all the Borrowers, taken together; and

         (ii)  notwithstanding anything in this Agreement to the contrary,
     Intersound shall not be entitled to any additional credit under the
     Revolving Credit after the merger as required by Section 8.17(b) hereof.




<PAGE>



During the period from and including the date hereof to but not including the
Revolving Credit Termination Date, each Borrower may use the Revolving Credit
Commitments by borrowing, repaying and reborrowing Revolving Loans in whole or
in part and/or by having the Administrative Agent issue Letters of Credit,
having such Letters of Credit expire or otherwise terminate without having been
drawn upon or, if drawn upon, reimbursing the Administrative Agent for each such
drawing, and having the Administrative Agent issue new Letters of Credit, all in
accordance with the terms and conditions of this Agreement.  For purposes of
this Agreement, where a determination of the unused or available amount of the
Revolving Credit Commitments is necessary, the Revolving Loans and Letters of
Credit shall be deemed to utilize the Revolving Credit Commitments.  The
obligations of the Lenders hereunder are several and not joint, and no Lender
shall under any circumstances be obligated to extend credit under the Revolving
Credit in excess of its Revolving Credit Commitment.  Notwithstanding any other
provision of this Agreement to the contrary, the Administrative Agent (x) is
imposing the Initial Reserves and (y) may, in its reasonable discretion (based
on its analysis of material changes in the relevant Borrower's credit and
collection policies or practices arising after the Closing Date that cause
dilution of the value of Eligible Accounts, or on any other factors that change
in any material respect the credit risk of lending to the Borrowers on the
security of the Accounts and the inventory), from time to time establish
additional reserves against the amount of availability under the Revolving
Credit which the Borrowers may otherwise request hereunder in such amounts as
the Administrative Agent shall deem necessary or appropriate in its reasonable
judgment.  The amount of such Initial Reserves and additional reserves shall be
subtracted from what would otherwise be the Borrowing Base when calculating the
amount of availability under the Revolving Credit Commitments.  The
Administrative Agent agrees to give the Company ten (10) Business Days' prior
notice of the establishment of any such additional reserve.  Without limiting
the Administrative Agent's discretion with respect to eligibility of the
Collateral, the Administrative Agent intends to review on a periodic basis the
standards for advances against accounts and inventory and impose reserves
against such collateral pursuant to the foregoing provisions.  

     SECTION 1.2.   REVOLVING CREDIT LOANS.  Subject to the terms and conditions
hereof, the Revolving Credit may be availed of by any Borrower in the form of
loans (individually a "REVOLVING LOAN" and collectively the "REVOLVING LOANS"). 
Each Revolving Loan to a Borrower shall be in a minimum amount of $100,000
(except to the extent Section 2 hereof shall require a larger amount for LIBOR
Portions).  Each Revolving Loan shall be made pro rata by the Lenders in
accordance with the amounts of their Revolving Credit Commitments.  Each
Revolving Loan shall initially constitute part of the Domestic Rate Portion
except to the extent the Company has timely elected at any time after the LIBOR
Condition has been satisfied that such Revolving Loan, or any part thereof,
constitutes part of a LIBOR Portion as provided in Section 2.1 hereof.  Each and
every advance made by a Lender of its pro rata share of a Revolving Loan shall
be made against and evidenced by a single Revolving Credit Note of the Borrowers
(individually a "REVOLVING CREDIT NOTE" and collectively the "REVOLVING CREDIT
NOTES"), jointly and severally, payable to the order of such Lender in the
amount of its Revolving Credit Commitment, with each Revolving Credit Note to be
in the form (with appropriate insertions) attached hereto as Exhibit A.  Each
Revolving Credit Note shall be dated the date of issuance thereof, be expressed
to bear interest as set forth in 


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Section 2.1 hereof, and be expressed to mature on the Revolving Credit 
Termination Date.  Without regard to the principal amount of each Revolving 
Credit Note stated on its face, the actual principal amount at any time 
outstanding and owing by the Borrowers on account thereof shall be the sum of 
all advances then or theretofore made thereon less all payments of principal 
actually received.

     SECTION 1.3.   LETTERS OF CREDIT.

     (a)  GENERAL TERMS.  Subject to the terms and conditions hereof, the
Revolving Credit may be availed of by any Borrower in the form of commercial or
standby letters of credit issued by the Administrative Agent for the account of
any one or more of the Borrowers (individually a "LETTER OF CREDIT" and
collectively the "LETTERS OF CREDIT"), provided that the aggregate amount of
Letters of Credit issued and outstanding hereunder shall not at any time exceed
$1,000,000 (such amount, as the same may be reduced pursuant to Section 2.8
hereof, being hereinafter referred to as the "L/C COMMITMENT").  For purposes of
this Agreement, a Letter of Credit shall be deemed outstanding as of any time in
an amount equal to the maximum amount which could be drawn thereunder under any
circumstances and over any period of time plus any unreimbursed drawings then
outstanding with respect thereto.  If and to the extent any Letter of Credit
expires or otherwise terminates without having been drawn upon, the availability
under the Revolving Credit Commitments shall to such extent be reinstated.  The
Letters of Credit shall be issued by the Administrative Agent, but each Lender
shall be obligated to reimburse the Administrative Agent for such Lender's pro
rata share of the amount of each draft drawn under a Letter of Credit in
accordance with this Section 1.3 and, accordingly, each Letter of Credit shall
be deemed to utilize the Revolving Credit Commitments of all Lenders pro rata in
accordance with the amounts of their Revolving Credit Commitments.

     (b)  TERM.  Each Letter of Credit issued hereunder shall expire not later
than the earlier of (i) twelve (12) months from the date of issuance (or be
cancelable not later than twelve (12) months from the date of issuance and each
renewal) or (ii) the Revolving Credit Termination Date.  In the event the
Administrative Agent issues any Letter of Credit with an expiration date that is
automatically extended unless the Administrative Agent gives notice that the
expiration date will not so extend beyond its then scheduled expiration date,
the Administrative Agent will give such notice of non-renewal before the time
necessary to prevent such automatic extension if before such required notice
date (i) the expiration date of such Letter of Credit if so extended would be
after the Revolving Credit Termination Date, (ii) the Revolving Credit
Commitments have terminated or (iii) an Event of Default exists and the Required
Lenders have given the Administrative Agent instructions not to so permit the
extension of the expiration date of such Letter of Credit.

     (c)  GENERAL CHARACTERISTICS.  Each Letter of Credit issued hereunder shall
be payable in U.S. Dollars, conform to the general requirements of the
Administrative Agent for the issuance of commercial or standby letters of
credit, as the case may be, as to form and substance, and be a letter of credit
which the Administrative Agent may lawfully issue.  The Administrative Agent
agrees to issue amendments to the Letter(s) of Credit increasing the amount, or
extending the expiration date thereof at the request of the Company (which is


                                      -3-


<PAGE>


acting on behalf of the Borrowers pursuant to Section 1.7 hereof), subject to
the conditions of Section 7 and the other terms of this Section 1.3.  Without
limiting the generality of the foregoing, the Administrative Agent's obligation
to issue, amend or extend the expiration date of a Letter of Credit is subject
to the conditions of Section 7 and the other terms of this Section 1.3 and the
Administrative Agent will not issue, amend or extend the expiration date of any
Letter of Credit if any Lender notifies the Administrative Agent of any failure
to satisfy or otherwise comply with such conditions and terms and directs the
Administrative Agent not to take such action.

     (d)  APPLICATIONS.  At the time the Company (which is acting on behalf of
the Borrowers pursuant to Section 1.7 hereof) requests each Letter of Credit to
be issued (or prior to the first issuance of a Letter of Credit in the case of a
continuing application), the Borrower for whose account such Letter of Credit is
to be issued shall execute and deliver to the Administrative Agent an
application for such Letter of Credit in the form then customarily prescribed by
the Administrative Agent (individually an "APPLICATION" and collectively the
"APPLICATIONS").  Subject to the other provisions of this subsection, the
obligation of a Borrower to reimburse the Administrative Agent for drawings
under a Letter of Credit issued for such Borrower's account shall be governed by
the Application for such Letter of Credit.  Anything contained in the
Applications to the contrary notwithstanding, (i) in the event the
Administrative Agent is not reimbursed by a Borrower for the amount the
Administrative Agent pays on any draft drawn under a Letter of Credit issued
hereunder issued for such Borrower's account by 11:00 a.m. (Chicago time) on the
date when such drawing is paid, the obligation of such Borrower to reimburse the
Administrative Agent for the amount of such draft paid shall bear interest
(which such Borrower hereby promises to pay on demand) from and after the date
the draft is paid until payment in full thereof at a fluctuating rate per annum
determined by adding 2% to the Domestic Rate as from time to time in effect,
(ii) the Borrowers shall pay fees in connection with each Letter of Credit as
set forth in Section 2.3 hereof, (iii) except as otherwise provided in Section
2.7 hereof, prior to the occurrence of a Default or an Event of Default the
Administrative Agent will not call for additional collateral security for the
obligations of the Borrowers under the Applications other than the collateral
security contemplated by this Agreement and the Collateral Documents and
collateral security consisting of rights in goods (or documents of title
covering the same) financed under such Applications, and (iv) except as
otherwise provided in Section 2.7 hereof, prior to the occurrence of a Default
or an Event of Default the Administrative Agent will not call for the funding of
a Letter of Credit by any Borrower prior to being presented with a draft drawn
thereunder (or, in the event the draft is a time draft, prior to its due date). 
Each Borrower hereby irrevocably authorizes the Administrative Agent to charge
any of such Borrowers' deposit accounts maintained with the Administrative Agent
for the amount necessary to reimburse the Administrative Agent for any drafts
drawn under Letters of Credit issued hereunder.

     (e)  CHANGE IN LAWS.  If the Administrative Agent or any Lender shall
reasonably determine that any change after the Closing Date in any applicable
law, regulation or guideline (including, without limitation, Regulation D of the
Board of Governors of the Federal Reserve System) or the adoption after the
Closing Date of any new law, regulation or guideline, or any interpretation of
any of the foregoing by any governmental authority 


                                      -4-


<PAGE>


charged with the administration thereof or any central bank or other fiscal, 
monetary or other authority having jurisdiction over the Administrative Agent 
or such Lender (whether or not having the force of law), shall:

          (i)  impose, modify or deem applicable any reserve, special deposit or
     similar requirement against the Letters of Credit, or the Administrative
     Agent's or such Lender's or any Borrower's liability with respect thereto;
     or
         (ii)  impose on the Administrative Agent or such Lender any penalty
     with respect to the foregoing or any other condition regarding the
     Applications or the Letters of Credit;

and the Administrative Agent or such Lender shall determine in good faith that
the result of any of the foregoing is to increase the cost (whether by incurring
a cost or adding to a cost) to the Administrative Agent or such Lender of
issuing, maintaining or participating in the Letters of Credit hereunder
(without benefit of, or credit for, any prorations, exemptions, credits or other
offsets available under any such laws, regulations, guidelines or
interpretations thereof), then the relevant Borrower shall within fifteen (15)
days after demand by the Administrative Agent or such Lender pay the
Administrative Agent or such Lender such additional amounts as the
Administrative Agent or such Lender shall reasonably determine are sufficient to
compensate and indemnify it for such increased cost.  If the Administrative
Agent or any Lender makes such a claim for compensation, it shall provide the
Company (with a copy to the Administrative Agent in the case of any Lender) a
certificate setting forth the computation of the increased cost as a result of
any event mentioned herein in reasonable detail and such certificate shall be
deemed PRIMA FACIE correct.  In determining such amount, such Lender may use
reasonable averaging and attribution methods.  A Lender shall not be entitled to
compensation under this Section 1.3(e) with respect to any adoption or change
for any period prior to the earlier of (i) the date it notifies any Borrower of
the adoption or change giving rise to the request for compensation or (ii) the
date which is thirty (30) days prior to the date it becomes aware of the
adoption or change giving rise to the request for compensation if any Borrower
is notified of the adoption or change prior to the lapse of such 30-day period.

     (f)  PARTICIPATIONS IN LETTERS OF CREDIT.  Each Lender shall participate on
a pro rata basis in the Letters of Credit issued by the Administrative Agent,
which participation shall automatically arise upon the issuance of each Letter
of Credit.  Each Lender unconditionally agrees that in the event the
Administrative Agent is not immediately reimbursed by a Borrower for the amount
paid by the Administrative Agent on any draft presented under a Letter of Credit
issued for such Borrower's account, then in that event such Lender shall pay to
the Administrative Agent such Lender's pro rata share of the amount of each
draft so paid based on the percentage which its Revolving Credit Commitment
bears to the aggregate of the Revolving Credit Commitments and in return such
Lender shall automatically receive an equivalent percentage participation in the
rights of the Administrative Agent to obtain reimbursement from such Borrower
for the amount of such draft, together with interest thereon as provided for
herein.  The obligations of the Lenders to the Administrative Agent under this
subsection shall be absolute, irrevocable and unconditional under any and all


                                      -5-


<PAGE>


circumstances whatsoever and shall not be subject to any set-off, 
counterclaim or defense to payment which any Lender may have or have had 
against any Loan Party, the Administrative Agent, any other Lender or any 
other party whatsoever. In the event that any Lender fails to honor its 
obligation to reimburse the Administrative Agent for its pro rata share of 
the amount of any such draft, then in that event (i) each other Lender shall 
pay to the Administrative Agent its pro rata share of the payment due the 
Administrative Agent from the defaulting Lender, (ii) the defaulting Lender 
shall have no right to participate in any recoveries from the Loan Parties in 
respect of such draft and (iii) all amounts to which the defaulting Lender 
would otherwise be entitled under the terms of this Agreement or any of the 
other Loan Documents shall first be applied to reimbursing the Lenders for 
their respective pro rata shares of the defaulting Lender's portion of the 
draft, together with interest thereon as provided for herein.  Upon 
reimbursement to the other Lenders (pursuant to clause (iii) above or 
otherwise) of the amount advanced by them to the Administrative Agent in 
respect of the defaulting Lender's share of the draft together with interest 
thereon, the defaulting Lender shall thereupon be entitled to its 
participation in the Administrative Agent's right of recovery against the 
Loan Parties in respect of the draft paid by the Administrative Agent.

     (g)  MANNER OF OBTAINING LETTERS OF CREDIT.  The Company (which is 
acting on behalf of the Borrowers pursuant to Section 1.7 hereof) shall 
provide at least three (3) Business Days' advance written notice to the 
Administrative Agent of each Borrower's request for the issuance for such 
Borrower's account of a Letter of Credit which is a standby Letter of Credit 
and shall provide the Administrative Agent notice of each Borrower's request 
for the issuance for such Borrower's account of a Letter of Credit which is a 
commercial Letter of Credit not later than 11:00 a.m. (Chicago time) on the 
first Business Day preceding the Business Day on which such Letter of Credit 
is to be issued, such notice in each case to be accompanied by an Application 
for such Letter of Credit properly completed and executed by the Company or 
such Borrower together with the fees called for by this Agreement.  In the 
case of an extension or an increase in the amount of a Letter of Credit, the 
Company (which is acting on behalf of the Borrowers pursuant to Section 1.7 
hereof) shall provide the Administrative Agent a written request therefor, in 
a form acceptable to the Administrative Agent, in each case together with the 
fees called for by this Agreement at least three (3) Business Days in advance 
of such extension of or increase in a Letter of Credit which is a standby 
Letter of Credit and in the case of a request for such an extension of or 
increase in a Letter of Credit which is a commercial Letter of Credit, not 
later than 11:00 a.m. (Chicago time) on the first Business Day preceding the 
effective date of such extension or increase.  The Administrative Agent shall 
promptly notify each Lender of the Administrative Agent's receipt of each 
notice for such an issuance, extension or increase and the Administrative 
Agent's issuance, extension or increase of the Letter of Credit so requested.

     SECTION 1.4.   TERM CREDIT.  Subject to all of the terms and conditions
hereof, each Lender agrees to make a loan to the Company in the amount of its
Term Credit Commitment (the credit facility under which such loans are made
being hereinafter referred to as the "TERM CREDIT") (the loans from all the
Lenders under the Term Credit being hereinafter referred to collectively as the
"TERM LOAN").  The Term Loan shall be 


                                      -6-


<PAGE>


made pro rata by the Lenders in accordance with the amount of their Term 
Credit Commitments.  The Term Loan shall initially constitute part of the 
Domestic Rate Portion except to the extent the Company has timely elected at 
any time after the LIBOR Condition has been satisfied that the Term Loan, or 
any part thereof, constitutes part of a LIBOR Portion as provided in Section 
2.1 hereof.  The Lenders' advances of the Term Loan shall be made 
concurrently and the Term Loan shall be disbursed in a single advance made, 
if at all, on or before December 15, 1997, at which time the commitments of 
the Lenders to make the Term Loan shall expire.  Each Lender's pro rata share 
of the Term Loan shall be evidenced by a Term Credit Note of the Company 
(individually a "TERM CREDIT NOTE" and collectively the "TERM CREDIT NOTES") 
payable to the order of such Lender in the amount of its Term Credit 
Commitment, each Term Credit Note to be in the form (with appropriate 
insertions) attached hereto as Exhibit B.  Each Term Credit Note shall be 
expressed to mature in eleven (11) consecutive quarterly installments 
(commencing on June 1, 1998 and continuing on the first day of each 
September, December, March and June occurring thereafter to and including 
December 1, 2000, with all such installments (except the last such 
installment) on all Term Credit Notes to aggregate $1,000,000 per installment 
and the last such installment on all Term Credit Notes to aggregate 
$10,000,000 for such last installment and with the amount of each installment 
due on the Term Credit Note held by each Lender to be a pro rata part (based 
on the relationship which its Term Credit Commitment bears to the total Term 
Credit Commitments) of each such aggregate amount.  No amount repaid on the 
Term Credit Notes may be reborrowed.

     SECTION 1.5.   MANNER AND DISBURSEMENT OF LOANS.  (a) The Company (which is
acting on behalf of the Borrowers pursuant to Section 1.7 hereof) shall give
written or telephonic notice to the Administrative Agent (which notice shall be
irrevocable once given and, if given by telephone, shall be promptly confirmed
in writing) by no later than 11:00 a.m. (Chicago time) of the date any Borrower
requests that any Revolving Loan be made to it under the Revolving Credit
Commitments and of the date it requests the Term Loan to be made to it under the
Term Credit, and the Administrative Agent shall promptly notify each Lender of
the Administrative Agent's receipt of each such notice.  Each such notice shall
specify the name of the Borrower to whom the Loan requested is to be made (in
the case of a Revolving Loan), the date of the Loan requested (which must be a
Business Day), whether such Loan is a Revolving Loan or Term Loan and the amount
of such Loan.  The Borrowers agree that the Administrative Agent may rely upon
any written or telephonic notice given by any person the Administrative Agent
reasonably and in good faith believes is an Authorized Representative without
the necessity of independent investigation and, in the event any telephonic
notice conflicts with the written confirmation, such telephonic notice shall
govern if the Administrative Agent and the Lenders have acted in reliance
thereon.

     (b)  The Borrowers hereby irrevocably authorize the Lenders to make
Revolving Loans from time to time hereunder for reimbursement of a drawing paid
by the Administrative Agent on a Letter of Credit, any such Revolving Loan may
be made without regard to the provisions of Section 7 hereof.  The Borrowers
acknowledge and agree, however, that the Lenders shall not be under any
obligation to make a Revolving Loan under 


                                      -7-


<PAGE>


this Section 1.5(b), and the Lenders shall incur no liability to any Borrower 
or any other Person for refusing to make a Revolving Loan under this 
Section 1.5(b).

     (c)  Not later than 1:00 p.m. (Chicago time) on the date specified for any
Loan to be made by a Lender hereunder, such Lender shall make the proceeds of
its pro rata share of such Loan available to the Administrative Agent in
Chicago, Illinois in immediately available funds.  Subject to the provisions of
Section 7 hereof, the proceeds of each Loan shall be made available to the
relevant Borrower at the principal office of the Administrative Agent in
Chicago, Illinois, in immediately available funds, upon receipt by the
Administrative Agent from each Lender of its pro rata share of such Loan. 
Unless the Administrative Agent shall have been notified by a Lender prior to
12:30 p.m. (Chicago time) on the date a Loan is to be made hereunder that such
Lender does not intend to make its pro rata share of such Loan available to the
Administrative Agent, the Administrative Agent may assume that such Lender has
made such share available to the Administrative Agent on such date and the
Administrative Agent may in reliance upon such assumption make available to the
relevant Borrower a corresponding amount.

     SECTION 1.6.   LATE PAYMENT BY LENDER.  If an amount due the Administrative
Agent from a Lender (x) to fund such Lender's pro rata share of a Loan as
required by Section 1.5, or (y) to effect the Settlement (as hereinafter
defined) of any Loan as required of Section 3.6 hereof, in the case of each of
clause (x) and (y), is not in fact made available to the Administrative Agent by
such Lender and the Administrative Agent has made the corresponding amount
available to such Borrower, the Administrative Agent shall be entitled to
receive such amount from such Lender forthwith upon the Administrative Agent's
demand, together with interest thereon in respect of each day during the period
commencing on the date such amount was made available to such Borrower and
ending on but excluding the date the Administrative Agent recovers such amount
at a rate per annum equal to the effective rate charged to the Administrative
Agent for overnight federal funds transactions with member banks of the federal
reserve system for each day as determined by the Administrative Agent (or in the
case of a day which is not a Business Day, then for the preceding day).  If such
amount is not received from such Lender by the Administrative Agent within five
(5) days after demand, the relevant Borrower will, on demand, repay to the
Administrative Agent the proceeds of the Loan attributable to such defaulting
Lender with interest thereon at a rate per annum equal to the interest rate
applicable to the relevant Loan, but (i) without such payment being considered a
payment or prepayment of a LIBOR Portion (so that the Company will have no
liability under Section 12.5 hereof with respect to such payment) and (ii)
without such payment impairing or otherwise prejudicing the relevant Borrower's
claims and other rights against such defaulting Lender.  The failure of any
Lender to make its share of a Loan to be made by it as required by Section 1.5
shall not relieve any other Lender of its obligations, if any, hereunder to make
its share of a Loan, or relieve the Lender who failed to make such amount
available to subsequently fund such amount, or relieve any Lender (including the
Lender that failed to make such amount available) of its obligation hereunder to
fund its ratable portion of any subsequent Revolving Loans.


                                      -8-


<PAGE>

     SECTION 1.7.  APPOINTMENT OF COMPANY AS AGENT FOR BORROWERS; RELIANCE BY 
ADMINISTRATIVE AGENT.

     (a)  APPOINTMENT.  Each Borrower irrevocably appoints the Company as its
agent hereunder to make requests on such Borrower's behalf under Section 1
hereof for Loans to be made by such Borrower or Letters of Credit to be issued
for such Borrower's account, to select (after the LIBOR Condition has been
satisfied) the interest rate to be applicable to the Loans, to terminate the
Revolving Credit Commitments and to take any other action contemplated by the
Loan Documents with respect to credit extended hereunder to such Borrower.  The
Administrative Agent and the Lenders shall be entitled to conclusively presume
that any action by the Company under the Loan Documents is taken on behalf of
any one or more of the Borrowers whether or not the Company so indicates.

     (b)  RELIANCE.  All requests for Loans and Letters of Credit may be written
or oral, including by telephone or telecopy.  The Borrowers agree that the
Administrative Agent may rely on any such notice given by any person the
Administrative Agent reasonably and in good faith believes is an Authorized
Representative without the necessity of independent investigation (the Borrowers
hereby indemnifying the Administrative Agent and Lenders from any liability or
loss ensuing from such reliance), and in the event any such telephonic or other
oral notice conflicts with any written confirmation, such oral or telephonic
notice shall govern if the Administrative Agent has acted in reliance thereon.

SECTION 2.     INTEREST, FEES, PREPAYMENTS AND TERMINATIONS

     SECTION 2.1.   INTEREST RATE OPTIONS.

     (a)  PORTIONS.  Subject to the terms and conditions of this Section 2,
portions of the principal indebtedness evidenced by the Notes (all of the
indebtedness evidenced by the Notes bearing interest at the same rate for the
same period of time being hereinafter referred to as a "PORTION") may, at the
option of the Company (which is acting on behalf of the Borrowers pursuant to
Section 1.7 hereof), bear interest with reference to the Domestic Rate
("DOMESTIC RATE PORTIONS") or with reference to the Adjusted LIBOR ("LIBOR
PORTIONS"), and Portions may be converted from time to time from one basis to
another.  All of the indebtedness evidenced by the Notes which is not part of a
LIBOR Portion shall constitute a single Domestic Rate Portion.  Prior to
satisfaction of the LIBOR Condition, all of the indebtedness evidenced by the
Notes shall constitute a single Domestic Rate Portion.  All of the indebtedness
evidenced by the Notes which bears interest with reference to a particular
Adjusted LIBOR for a particular Interest Period shall constitute a single LIBOR
Portion.  There shall not be more than ten (10) LIBOR Portions applicable to the
Notes outstanding at any one time, and each Lender shall have a ratable interest
in each Portion.  Anything contained herein to the contrary notwithstanding, (i)
no LIBOR Portion shall be created prior to satisfaction of the LIBOR Condition
and (ii) the obligation of the Lenders to create, continue or effect by
conversion any LIBOR Portion shall be conditioned upon the fact that at the time
of each such creation, continuance or conversion into a LIBOR Portion, as the
case may be, no Default or Event of Default shall have occurred and be
continuing.  The 


                                      -9-


<PAGE>

Company hereby promises to pay interest on each Portion at the rates and 
times specified in this Section 2.1.

     (b)  DOMESTIC RATE PORTION.  Each Domestic Rate Portion shall bear 
interest at the rate per annum determined by adding the Applicable Domestic 
Rate Margin to the Domestic Rate as in effect from time to time, provided 
that if and so long as any Default or Event of Default under Section 9.1(a) 
hereof (a "PAYMENT DEFAULT") shall have occurred and be continuing such 
Portion shall bear interest until payment in full thereof at the rate per 
annum determined by adding 2% to the interest rate which would otherwise be 
applicable thereto from time to time. Interest on each Domestic Rate Portion 
shall be payable monthly in arrears on the first Business Day of each month 
(commencing on January 1, 1998) and at maturity of the Notes, and interest 
after maturity (whether by lapse of time, acceleration or otherwise) shall be 
due and payable upon demand.  Any change in the interest rate on the Domestic 
Rate Portions resulting from a change in the Domestic Rate shall be effective 
on the date of the relevant change in the Domestic Rate.

     (c)  LIBOR PORTIONS.  Each LIBOR Portion shall bear interest for each
Interest Period selected therefor at a rate per annum determined by adding the
Applicable LIBOR Margin to the Adjusted LIBOR for such Interest Period, provided
that if and so long as any Payment Default shall have occurred and be continuing
such LIBOR Portion shall bear interest until such Payment Default no longer
exists (or, if earlier, the end of the Interest Period then applicable to such
LIBOR Portion) at the rate per annum determined by adding 2% to the interest
rate which would otherwise be applicable thereto, and effective at the end of
such Interest Period, if such Payment Default is then continuing, such LIBOR
Portion shall automatically be converted into and added to the applicable
Domestic Rate Portion and shall thereafter bear interest until such Payment
Default no longer exists at the interest rate applicable to such Domestic Rate
Portion during the continuance of a Payment Default.  Interest on each LIBOR
Portion shall be due and payable on the last day of each Interest Period
applicable thereto and, with respect to any Interest Period applicable to a
LIBOR Portion in excess of three (3) months, on the Business Day three (3)
calendar months following the date such Interest Period commenced and at the end
of such Interest Period, and interest after maturity (whether by lapse of time,
acceleration or otherwise) shall be due and payable upon demand.  The Company
(which is acting on behalf of the Borrowers pursuant to Section 1.7 hereof)
shall notify the Administrative Agent on or before 11:00 a.m. (Chicago time) on
the third Business Day preceding the end of an Interest Period applicable to a
LIBOR Portion whether such LIBOR Portion is to continue as a LIBOR Portion, in
which event the Company shall notify the Administrative Agent of the new
Interest Period selected therefor, and in the event the Company shall fail to so
notify the Administrative Agent, such LIBOR Portion shall automatically be
converted into and added to the applicable Domestic Rate Portion as of and on
the last day of such Interest Period.  The Administrative Agent shall promptly
notify each Lender of each notice received from the Company pursuant to the
foregoing provision.  

     (d)  MINIMUM LIBOR PORTION AMOUNTS.  Each LIBOR Portion shall be in an
amount equal to $1,000,000 or such greater amount which is an integral multiple
of $100,000.


                                      -10-


<PAGE>


     (e)  COMPUTATION OF INTEREST.  All interest on the Domestic Rate Portion of
the Notes shall be computed on the basis of a year of 365 or 366 days, as the
case may be, for the actual number of days elapsed.  All interest on LIBOR
Portions of the Notes shall be computed on the basis of a year of 360 days for
the actual number of days elapsed.

     (f)  MANNER OF RATE SELECTION.  The Company (which is acting on behalf of
the Borrowers pursuant to Section 1.7 hereof) shall notify the Administrative
Agent by 11:00 a.m. (Chicago time) at least three (3) Business Days prior to the
date upon which the Company requests that any LIBOR Portion be created or that
any part of the applicable Domestic Rate Portion be converted into a LIBOR
Portion (each such notice to specify in each instance the amount thereof and the
Interest Period selected therefor).  The Administrative Agent shall promptly
notify each Lender of each notice received from the Company pursuant to the
foregoing provision.  If any request is made to convert a LIBOR Portion into the
Domestic Rate Portion, such conversion shall only be made so as to become
effective as of the last day of the Interest Period applicable thereto.  All
requests for the creation, continuance and conversion of Portions under this
Agreement shall be irrevocable.  Such requests may be written or oral and the
Administrative Agent is hereby authorized to honor telephonic requests for
creations, continuances and conversions received by it from any person the
Administrative Agent in good faith believes to be an Authorized Representative
without the necessity of independent investigation, the Borrowers hereby
indemnifying the Administrative Agent and the Lenders from any liability or loss
ensuing from so acting.

     SECTION 2.2.   COMMITMENT FEE.  For the period from and including the date
hereof to but not including the Revolving Credit Termination Date, the Borrowers
shall pay to the Administrative Agent for the account of the Lenders a
commitment fee at the rate of 1/2 of 1% per annum (computed on the basis of a
year of 360 days for the actual number of days elapsed) on the average daily
unused portion of the Revolving Credit Commitments (whether or not available by
reason of, among other things, the Borrowing Base requirements hereof).  Such
commitment fee shall be payable monthly in arrears on the first Business Day of
each calendar month in each year (commencing January 1, 1998) and on the
Revolving Credit Termination Date.

     SECTION 2.3.   LETTER OF CREDIT FEES.  (i) SHARED FEES.  On the first
Business Day of each calendar quarter (commencing on January 1, 1998) to and
including, and on, the Revolving Credit Termination Date, the Borrowers shall
pay to the Administrative Agent for the ratable account of the Lenders a fee at
the rate of 1/2 of 1% per annum (computed on the basis of a year of 360 days for
the actual number of days elapsed) on the average daily outstanding amounts
during the preceding quarter (or such shorter period) of the Letters of Credit.

     (ii)      GENERALLY.  In addition to the letter of credit fees called for
above, the Borrowers further agree to pay to the Administrative Agent for its
own account such processing and transaction fees and charges as the
Administrative Agent from time to time customarily imposes in connection with
any amendment, cancellation, negotiation and/or payment of letters of credit and
drafts drawn thereunder.


                                      -11-
<PAGE>

               SECTION 2.4.   ADMINISTRATIVE AGENT'S FEES.  The Company shall 
pay to the Administrative Agent the fees agreed to in a letter exchanged 
between them.

               SECTION 2.5.   AUDIT FEES.  The Borrowers shall pay to the 
Administrative Agent for its own use and benefit charges for audits of the 
Collateral performed by the Administrative Agent or its agents or 
representatives in such amounts as the Administrative Agent may from time to 
time reasonably request (the Administrative Agent acknowledging and agreeing 
that such charges shall be computed in the same manner as the Administrative 
Agent at the time customarily uses for the assessment of charges for similar 
collateral audits); PROVIDED, HOWEVER, that in the absence of any Event of 
Default, (i) the Borrowers shall not be required to reimburse the 
Administrative Agent for its costs of conducting more than two (2) audits in 
any one (1) calendar year and (ii) the Borrowers shall not be liable during 
any one calendar year for more than $12,500 in charges for such audits plus 
reasonable out-of-pocket costs and expenses.  

               SECTION 2.6.   VOLUNTARY PREPAYMENTS.  In addition to such 
other prepayments of the Notes as result from the application of proceeds of 
the Collateral required by Section 4.2 hereof after the Loan Mechanization 
Date, each Borrower shall have the privilege of making additional prepayments 
of the Notes on which such Borrower is directly obligated, in whole or in 
part (but if in part, then in a minimum amount of $10,000), at any time upon 
one (1) Business Day's prior notice from the Company to the Administrative 
Agent (such notice if received subsequent to 11:00 a.m. (Chicago time) on a 
given day to be treated as though received at the opening of business on the 
next Business Day), which shall promptly so notify the Lenders, by paying to 
the Administrative Agent for the account of the Lenders (i) the principal 
amount to be prepaid, (ii) if such a prepayment prepays a Class of Notes in 
full, accrued interest on such Class of Notes to the date of prepayment plus 
(in the case such a prepayment in full of the Revolving Credit Notes is 
accompanied by the termination in whole of the Revolving Credit Commitments) 
any commitment fee which has accrued and is unpaid and (iii) any amounts due 
to the Lenders under Section 12.5 hereof.

               SECTION 2.7.   MANDATORY PREPAYMENTS.

               (a)  REVOLVING CREDIT COMMITMENT OR BORROWING BASE DEFICIENCY. 
 The Borrowers covenant and agree that if at any time the then unpaid 
principal balance of the Revolving Loans and outstanding Letters of Credit 
for all the Borrowers, taken together, shall be in excess of the lesser of 
(i) the Revolving Credit Commitments as then in effect or (ii) the Borrowing 
Base of all the Borrowers, taken together, as then determined and computed, 
the Borrowers shall immediately and without notice or demand pay the amount 
of the excess to the Administrative Agent for the account of the Lenders as 
and for a mandatory prepayment on such Obligations, with each such prepayment 
first to be applied to the Revolving Loans until payment in full thereof and 
any remaining balance of the payment so made to be applied against or held by 
the Administrative Agent as collateral security for the Obligations owing 
under the Applications.

               (b)  PREPAYMENTS DUE TO EXCESS CASH FLOW.  Within forty-five 
(45) days after the close of each semi-annual accounting period of the 
Company ending in February and August 

                                      -12-

<PAGE>

of each year (commencing with the accounting period ending on or about 
February 28, 1998), the Borrowers shall pay over to the Administrative Agent 
for the account of the Lenders as and for a mandatory prepayment on the Term 
Loan an amount equal to 66-2/3% of Consolidated Excess Cash Flow for such 
six-month accounting period; PROVIDED, HOWEVER, that no such prepayment is 
required if the Consolidated Excess Cash Flow for such six-month period is 
less than or equal to $150,000.  Each such prepayment shall be applied to the 
several installments due on the outstanding principal balance of the Term 
Loan in the inverse order of their maturity.

               (c)  CHANGE OF CONTROL MANAGEMENT EVENT.  If, no later than 
sixty (60) days after receiving notice under Section 8.5(i) of a Change of 
Control/Management Event, the Required Lenders notify the Company that they 
require prepayment of the Notes, on the date set forth in such notice (which 
date shall be no earlier than (i) three (3) days after such notice is given 
or (ii) the day on which any Borrower repays any other Indebtedness for 
Borrowed Money aggregating $200,000 or more before its original scheduled due 
date, whichever day is earlier), the Borrowers shall pay in full all 
Obligations then outstanding, and the Commitments shall terminate in full.

               (d)  DISPOSITION PROCEEDS.  Any and all net proceeds (net 
proceeds for purposes of this Section and Section 8.18 hereof to mean gross 
proceeds net only of customary out-of-pocket fees, costs and expenses 
incurred in effecting the relevant sale or other disposition and taxes (other 
than income taxes) incurred and payable as a result of such disposition) 
derived from (x) the sale or disposition (whether voluntary or involuntary), 
or on account of the damage or destruction, of the real estate, furniture, 
fixtures, equipment or other fixed or capital assets of any Loan Party 
(collectively, "FIXED ASSETS") or (y) the sale or other disposition of any 
intellectual property (such as Music Rights) or other Property (other than 
fixed assets) permitted by Section 8.18 hereof to the extent such Section 
requires a prepayment under this Section shall, promptly but in any event 
within three (3) Business Days after receipt by any Loan Party or the 
Administrative Agent, be paid over to the Administrative Agent for the 
account of the Lenders as and for a mandatory prepayment on the Term Credit 
Notes (each such prepayment to be applied to the several installments due on 
the outstanding principal balance of the Term Loan in the inverse order of 
their maturity); PROVIDED, HOWEVER, that: 

          (i)  No prepayment shall be required with respect to proceeds received
     from the sale, damage or destruction of any fixed assets subject to liens
     permitted by Sections 8.7(c) and 8.7(d) hereof which are prior to the liens
     of the Collateral Documents to the extent such proceeds are applied in
     reduction of the indebtedness permitted by Section 8.8(b) hereof;

          (ii) So long as no Default or Event of Default has occurred or is
     continuing, the relevant Loan Party may retain the proceeds (including any
     insurance proceeds) derived from the sale, damage or destruction of fixed
     assets (collectively, "RETAINED  PROCEEDS") if and to the extent that the
     fixed assets sold, damaged or destroyed have been (or, within 180 days of
     such sale, damage or destruction, will be) replaced (or repaired in the
     case of damaged property) with new fixed assets or other assets useful 

                                         -13-

<PAGE>


     in the business of such Loan Party of similar value and utility which are
     subject to a first lien in favor of the Administrative Agent to secure the
     Obligations;


          (iii) So long as no Default or Event of Default has occurred or is
     continuing, the relevant Loan Party may retain the proceeds of any sale or
     other disposition of any Music Rights or other intellectual property
     (collectively, "LICENSE PROCEEDS") if and to the extent that (x) the
     intellectual property sold or otherwise disposed of is replaced within 270
     days of such sale or other disposition or (y) if a binding contract to
     replace such intellectual property has been entered into within 270 days of
     such sale or disposition, such intellectual property is replaced within 360
     days of such sale or disposition, in each case with similar intellectual
     property useful in the business of such Loan Party which is subject to a
     first lien in favor of the Administrative Agent to secure the Obligations; 

          (iv)  So long as no Default or Event of Default has occurred or is
     continuing, the relevant Loan Party may retain the proceeds of any sale or
     other disposition of any interest in the House of Blues Venture
     (collectively, "HOB PROCEEDS") if and to the extent that (x) the net
     proceeds of the interest sold or otherwise disposed of are reinvested
     within 270 days of such sale or other disposition or (z) if a binding
     contract to reinvest such net proceeds has been entered into within 270
     days of such sale or disposition, such net proceeds are reinvested within
     360 days of such sale or disposition, in each case in the business of such
     Loan Party in a form which is subject to a first lien in favor of the
     Administrative Agent to secure the Obligations;

          (v)  no prepayment shall be required with respect to up to $100,000 of
     net proceeds received in any calendar year from the sale or other
     disposition of fixed assets which are worn out, obsolete or, in the
     reasonable judgment of the Company, no longer necessary to the conduct of
     the business of the Company and its Subsidiaries as then conducted; and

          (vi) no prepayment shall be required with respect to any sales,
     transfers or other dispositions permitted pursuant to clauses (i), (ii),
     (iv) and (x) of Section 8.18 hereof.

Any retained proceeds, license proceeds or HOB proceeds not used for such 
replacement, repair or reinvestment must be prepaid on the Term Loan as 
provided above in this Section.  Pending application of such retained 
proceeds to such replacement or repair or application of such license 
proceeds to such replacement or reinvestment of such HOB proceeds, as the 
case may be, the Company shall not later than the time at which prepayment 
would have been (in the absence of its election to make such repair, 
replacement or reinvestment) required above, deposit (or cause the relevant 
Loan Party to deposit) such retained proceeds or license proceeds or HOB 
proceeds in an account of the Company maintained with the Administrative 
Agent pursuant to agreements in form, scope and substance reasonably 
satisfactory to the Administrative Agent.  The amount so held on deposit (the 
"SPECIAL DEPOSIT"), together with all earnings on the Special Deposit, shall 
be available to the Company (for its disbursement to the relevant Loan Party) 
solely for the applicable 

                                        -14-

<PAGE>

replacement or repair.  The Company hereby grants, and each other relevant 
Loan Party (by its execution of this Agreement or a Guaranty) thereby grants, 
a lien on the Special Deposit and such earnings as collateral security for 
the Obligations, it being understood and agreed that at such time as any 
Default or Event of Default shall occur, the balance of the Special Deposit 
and earnings thereon may be applied by the Administrative Agent to the 
Obligations as provided in Section 3 below.  The Administrative Agent shall 
be entitled to require reasonable assurances, as a condition to the making of 
any withdrawal from the Special Deposit, that the proceeds of such withdrawal 
are being used for the purposes permitted hereunder (it being understood and 
agreed that a certificate from the chief executive officer, chief operating 
officer or chief financial officer of the Company to the effect that such 
proceeds will be so used shall be sufficient for such purposes).

               SECTION 2.8.   VOLUNTARY TERMINATIONS.  The Company (which  is 
acting on behalf of the Borrowers pursuant to Section 1.7 hereof) shall have 
the privilege upon two (2) Business Days' prior notice from the Company 
(which need not be joined in by any other Borrower) to the Administrative 
Agent (which shall promptly notify the Lenders) to ratably terminate the 
Revolving Credit Commitments in whole or in part (but if in part then in the 
amount of $1,000,000 or such greater amount which is an integral multiple of 
$100,000); PROVIDED that the Revolving Credit Commitments may not be reduced 
to an amount less then the sum of the Revolving Loans and Letters of Credit 
then outstanding.  All partial terminations of the Revolving Credit 
Commitments hereunder shall automatically reduce the L/C Commitment hereof in 
each case as from time to time in effect hereunder, by the same percentage as 
the percentage termination in the Revolving Credit Commitments.  Not later 
than the termination date stated in such notice, there shall be made such 
payments to the Administrative Agent as may be necessary to reduce the sum of 
the aggregate outstanding Revolving Loans and Letters of Credit to the amount 
to which the Revolving Credit Commitments have been reduced, together with in 
the case of a termination in whole, all interest, fees and other amounts due 
on the Obligations.  The foregoing to the contrary notwithstanding, (i) no 
termination of the Revolving Credit may be effected hereunder if as a result 
thereof the outstanding aggregate amount of Letters of Credit would exceed 
the L/C Commitment as reduced by such termination and (ii) the Revolving 
Credit Commitments may not be terminated below $100,000 except concurrently 
with their termination in whole.  No termination of the Revolving Credit 
Commitments may be reinstated.

SECTION 3.     PLACE AND APPLICATION OF PAYMENTS.

               SECTION 3.1.   GENERALLY.  All payments of principal, 
interest, fees and all other Obligations payable hereunder and under the 
other Loan Documents shall be made to the Administrative Agent at its office 
at 115 South LaSalle Street, Chicago, Illinois (or at such other place as the 
Administrative Agent may specify) on the date any such payment is due and 
payable.  Payments received by the Administrative Agent after 12:00 noon 
(Chicago time) shall be deemed received as of the opening of business on the 
next Business Day.  All such payments shall be made in lawful money of the 
United States of America, in immediately available funds at the place of 
payment, without set-off or counterclaim.  Except as herein provided, all 
payments shall be received by the Administrative Agent for the ratable 
account of the Lenders and shall be promptly distributed by the 
Administrative 

                                       -15-

<PAGE>

Agent ratably to the Lenders.  Unless the Company otherwise directs, and 
subject in any event to the other provisions of this Section 3, principal 
payments on any Class of Notes shall be first applied in reduction of Loans 
against such Class of Notes of the Borrower making the payment and in 
reduction of borrowings in the direct order in which such Loans were 
disbursed.  Any amount paid or prepaid on the Revolving Credit Notes may, 
subject to all of the terms and conditions hereof, be borrowed, repaid and 
borrowed again.  No amount paid or prepaid on the Term Credit Notes may be 
reborrowed; and except to the extent otherwise provided in this Agreement, 
partial prepayments of the Term Credit Notes shall be applied to the several 
installments thereof in the direct order of their maturities.  Unless the 
Company directs otherwise or this Agreement provides otherwise, principal 
payments on a given Class of Notes (including payments made by virtue of the 
application of proceeds of Collateral under Section 3.2 hereof) shall be 
first applied to the Domestic Rate Portion of such Notes until payment in 
full thereof, with any balance applied to the LIBOR Portions of the same 
Class of Notes in the order in which their Interest Periods expire.  All 
payments (whether voluntary or required) shall be accompanied by any amount 
due the Lenders under Section 12.5 hereof, but no acceptance of such a 
payment without requiring payment of amounts due under Section 12.5 shall 
preclude a later demand by the Lenders for any amount due them under Section 
12.5 in respect of such payment.  Notwithstanding the foregoing, if and so 
long as no Default or Event of Default has occurred and is continuing, if and 
to the extent a mandatory prepayment required by Sections 2.7(b) or 2.7(d) 
hereof would otherwise be applied against any LIBOR Portion of the relevant 
Notes, the Company may direct that such prepayment be held in a cash 
collateral account maintained by the Company with the Administrative Agent 
pursuant to agreements in form, scope and substance reasonably satisfactory 
to the Administrative Agent (the "CASH COLLATERAL ACCOUNT") and not applied 
to any LIBOR Portion of such Notes until the earlier of (i) the last day of 
the Interest Period then applicable to such LIBOR Portion or (ii) the 
occurrence of any Default or Event of Default.  The Company hereby grants, 
and each other relevant Loan Party (by its execution of this Agreement or a 
Guaranty) thereby grants, a lien on the Cash Collateral Account and all 
earnings thereon as collateral security for the Obligations, it being 
understood and agreed that at such time as any Default or Event of Default 
shall occur, the balance of the Cash Collateral Account and earnings thereon 
may be applied by the Administrative Agent to the Obligations as provided in 
this Agreement.

               SECTION 3.2.   APPLICATION OF COLLATERAL PROCEEDS BEFORE 
DEFAULT.  Except upon the occurrence and during the continuation of an Event 
of Default, all proceeds of Collateral received in a Restricted Account (as 
hereinafter defined) on and after the Loan Mechanization Date shall (subject 
to the other terms of this Agreement) be applied by the Administrative Agent 
against the outstanding Obligations as follows:

         (i)  first, to outstanding interest charges then due and payable in
    respect of the Obligations; 

         (ii) second, to the outstanding principal balance of the Revolving
    Loans and any liabilities in respect of unpaid drawings under Letters of
    Credit; and

                                           -16-

<PAGE>

         (iii)     finally, to be applied to, or held as collateral security
    for, any remaining unpaid or unsatisfied Obligations to the extent then due
    and payable.

               SECTION 3.3.   APPLICATION AFTER DEFAULT.  Anything contained 
herein to the contrary notwithstanding, but in any event subject to Section 
3.4 hereof, all payments and collections received in respect of the 
Obligations and all proceeds of the Collateral received, in each instance, by 
the Administrative Agent or any of the Lenders upon the occurrence and during 
the continuation of an Event of Default shall be remitted to the 
Administrative Agent and distributed as follows: 

         (i)  first, to the payment of any outstanding and reasonable 
    out-of-pocket costs and expenses incurred by the Administrative Agent in
    monitoring, verifying, protecting, preserving or enforcing the Liens on the
    Collateral, and in protecting, preserving or enforcing rights under this
    Agreement or any of the other Loan Documents, and in any event including
    all costs and expenses of a character which the Borrowers have agreed to
    pay under Section 13.4 hereof (such funds to be retained by the
    Administrative Agent for its own account unless it has previously been
    reimbursed for such costs and expenses by the Lenders, in which event such
    amounts shall be remitted to the Lenders to reimburse them for payments
    theretofore made to the Administrative Agent);

         (ii) second, to the payment of any outstanding interest or other fees
    or amounts due under this Agreement or any of the other Loan Documents
    other than for principal, pro rata as among the Administrative Agent and
    the Lenders in accord with the amount of such interest and other fees or
    amounts owing each;

         (iii)     third, to the payment of the principal of the Notes and any
    liabilities in respect of unpaid drawings under the outstanding Letters of
    Credit, pro rata as among the Lenders in accord with the then respective
    unpaid principal balances of the Notes and the then unpaid liabilities in
    respect of unpaid drawings under the Letters of Credit;

         (iv) fourth, to the Administrative Agent for the cash
    collateralization of the entire amount undrawn on the outstanding Letters
    of Credit, with amounts to be so remitted on account of such undrawn
    Letters of Credit until the Administrative Agent is holding an amount of
    cash equal to the then outstanding undrawn amount of all such Letters of
    Credit;

         (v)  fifth, to the Administrative Agent and the Lenders pro rata in
    accord with the amounts of any other indebtedness, obligations or
    liabilities of the Borrowers owing to them (other than the Hedging
    Liability) which bear interest and are secured by the Collateral Documents
    unless and until all such indebtedness, obligations and liabilities have
    been fully paid and satisfied;

                                                 -17-

<PAGE>

         (vi) sixth, to the Administrative Agent and the Lenders pro rata in
    accord with the amounts of any Hedging Liability owing to them unless and
    until all such Hedging Liability has been fully paid and satisfied; and

         (vii)     seventh, to the Company on behalf of the Borrowers (each
    Borrower hereby agreeing that its recourse for its share of such payment
    shall be to the Company and not the Administrative Agent or any Lender) or
    to whoever the Administrative Agent reasonably determines to be lawfully
    entitled thereto.

In the event that such payments and collections are insufficient to pay the 
entire amount of Obligations described in any one clause above, then such 
payments and collections shall be applied to the payment of the Obligations 
so described in such order of application as between the different items of 
such Obligations as the Lenders shall elect, pro rata as among the Lenders in 
accord with the amounts of such items owing to them.  In the event that the 
amount of any Hedging Liability is not fixed and determined at the time 
proceeds of Collateral are received which are to be allocated thereto, the 
proceeds of Collateral so allocated shall be held by the Administrative Agent 
as collateral security until such Hedging Liability is fixed and determined 
and then the same shall (if and when, and to the extent that, payment of such 
Hedging Liability is required by the terms of the relevant Hedging 
Arrangements) be applied to the Hedging Liability, with any surplus applied 
to the Notes and Letter of Credit liabilities and with other Collateral 
applications to be reallocated among the Lenders to cover any deficiency 
which would not have existed had the exact amount of the Hedging Liability 
been known at the time Collateral proceeds were originally distributed.

               SECTION 3.4.   OVERFUNDED COMMITMENTS.  The foregoing Section 
3.3 hereof to the contrary notwithstanding, if upon the occurrence of an 
Event of Default the percentages of the Revolving Credit Commitments and Term 
Credit Commitments in use from all the Lenders are not identical (whichever 
of such Commitments has the highest utilization being herein referred to as 
the "OVERFUNDED COMMITMENT" and each such Commitment which has a lower 
utilization being hereinafter referred to as an "UNDERFUNDED COMMITMENT") (i) 
payments which pursuant to the foregoing paragraph are to be allocated to the 
principal of the Notes shall first be applied to the Notes issued under the 
Overfunded Commitments until the utilization percentages of the Revolving 
Credit Commitments and Term Credit Commitments are identical and (ii) at the 
request of either the Administrative Agent or the Required Lenders (with the 
Required Lenders computed solely for this purpose as though the 
Administrative Agent had no Revolving Credit Commitment hereunder) the Lender 
or Lenders holding the Underfunded Commitment shall purchase from the Lender 
or Lenders holding the Overfunded Commitment participations in the overfunded 
Lenders' Loans (and reimbursement obligations under the Applications, if 
applicable) in an amount such that after giving effect thereto, the 
percentages of the Revolving Credit Commitments and Term Credit Commitments 
in use from all the Lenders are identical.  All of the foregoing principles 
shall be applied as though the Revolving Credit Commitments and Term Credit 
Commitments had not terminated, whether or not such is in fact the case.

               SECTION 3.5.   BORROWER'S RIGHT TO DIRECT APPLICATION.  Except 
as otherwise specifically provided for in this Agreement (including without 
limitation Section 3.1 

                                  -18-

<PAGE>

hereof), the Borrowers hereby irrevocably waive the right to direct the 
application of payments and collections at any time received by the 
Administrative Agent or any of the Lenders from or on behalf of the 
Borrowers, and the Borrowers hereby irrevocably agree that the Administrative 
Agent shall have the continuing exclusive right to apply and reapply any and 
all such payments and collections received at any time by the Administrative 
Agent or any of the Lenders against the Obligations in the manner described 
above.  

               SECTION 3.6.   WEEKLY SETTLEMENT.  (a)  If and to the extent 
the Administrative Agent so elects and provides the Company and Lenders at 
least five (5) Business Days' prior written notice, (i) advances and 
repayments of Revolving Loans (not the Term Loan) will then begin to be 
settled according to the procedures described in this Section 3.6 (the date 
on which such settlement shall so begin being hereinafter referred to as the 
"LOAN MECHANIZATION DATE"), and (ii) the Lenders' obligations hereunder with 
respect to unreimbursed drawings on Letters of Credit will also be settled 
according to such procedures by deeming (x) an unreimbursed drawing paid by 
the Administrative Agent to constitute an advance by the Administrative Agent 
of a Revolving Loan of like principal amount and (y) each payment or other 
collection in reimbursement of such drawing (other than from the Lenders) to 
be a repayment on such deemed Revolving Loan (with all references in this 
Section to Revolving Loans to include each such deemed Revolving Loan).  This 
Section shall not be applicable until the Loan Mechanization Date.  The 
Administrative Agent shall, once every seven (7) days, or sooner, if so 
elected by the Administrative Agent in its discretion, but in each case on a 
Business Day, (each such day being a "SETTLEMENT DATE"), distribute to each 
Lender a statement (the "ADMINISTRATIVE AGENT'S REPORT") disclosing as of the 
immediately preceding Business Day, the aggregate unpaid principal balance of 
Revolving Loans outstanding as of such date (including Revolving Loans made 
by the Administrative Agent under Section 3.6(e) hereof), repayments and 
prepayments of principal received from the Borrowers with respect to the 
Revolving Loans since the immediately preceding Administrative Agent's 
Report, additional Revolving Loans made to the Borrowers since the date of 
the immediately preceding Administrative Agent's Report and each Borrower's 
Borrowing Base as of the most recent determination thereof. Each 
Administrative Agent's Report shall disclose the net amount (the "SETTLEMENT 
AMOUNT") due to or due from the Lenders to effect a Settlement of any 
Revolving Loan.  The Administrative Agent's Report submitted to a Lender 
shall be prima facie evidence of the amount due to or from such Lender to 
effect a Settlement of any Revolving Loan.  If the Administrative Agent's 
Report discloses a net amount due from the Administrative Agent to any Lender 
to effect the Settlement of a Revolving Loan, the Administrative Agent, 
concurrently with the delivery of the Administrative Agent's Report to the 
Lenders, shall transfer, by wire transfer or otherwise, such amount to such 
Lender in funds immediately available to such Lender, in accordance with such 
Lender's instructions.  If the Administrative Agent's Report discloses a net 
amount due to the Administrative Agent from any Lender to affect the 
Settlement of any Revolving Loan, then such Lender shall wire transfer such 
amount, in funds immediately available to the Administrative Agent, as 
instructed by the Administrative Agent.  Such net amount due from a Lender to 
the Administrative Agent shall be due on the Settlement Date if such 
Administrative Agent's Report is received before 12:00 noon (Chicago time) 
and such net amount shall be due on the first Business Day following the 
Settlement Date if such Administrative Agent's Report is received after 12:00 
noon (Chicago time).  

                                        -19-

<PAGE>

Notwithstanding the foregoing, payments actually received by the 
Administrative Agent with respect to the following items shall be distributed 
by the Administrative Agent to each Lender as follows:

         (i)  any principal payment of a LIBOR Portion that is not converted or
    continued will be paid to the Lenders by the Administrative Agent on the
    same day as received;

         (ii) as soon as possible, but in any event, within one Business Day
    after receipt thereof by the Administrative Agent, payments applicable to
    interest on the Revolving Loans shall be paid to each Lender in proportion
    to its pro rata share of such Revolving Loans, subject to any adjustments
    for any Revolving Loans made by the Administrative Agent under Section 1.6
    hereof so that the Administrative Agent alone shall receive interest on the
    Revolving Loans so made until Settlement with such Lender on such Revolving
    Loans and each Lender shall only receive interest on the amount of funds
    actually advanced by such Lender.  Each Lender's share of interest accruing
    each day on the Revolving Loans shall be based on such Lender's Daily Loan
    Balance.  For purposes hereof, the term "DAILY LOAN BALANCE" shall mean as
    of any day for any Lender, an amount calculated as of the end of that day
    by subtracting (a) the cumulative principal amount paid by the
    Administrative Agent to such Lender on account of Revolving Loans from the
    date of the initial extension of credit under this Agreement (the "CLOSING
    DATE") through and including the date as of which the Daily Loan Balance is
    being determined from (b) the cumulative principal amount advanced by such
    Lender to the Administrative Agent for the benefit of a Borrower to fund
    Revolving Loans made on and after the Closing Date through and including
    such date of determination; and

         (iii)     as soon as possible, but in any event, within one Business
    Day after receipt thereof by the Administrative Agent, payments applicable
    to principal of and interest on the Term Loan, the fees set forth in
    Sections 2.2, 2.3 and 2.4 hereof and expenses payable under this Agreement,
    shall in each case be paid to each Lender as set forth in the applicable
    Section hereof.  

               (b)  All funds advanced to a Borrower by the Administrative 
Agent or a Lender pursuant to this Section 3.6 shall for all purposes be 
treated as a Revolving Loan or Term Loan, as appropriate, made by such Lender 
against the appropriate Note of such Lender and all funds received by any 
Lender pursuant to this Section 3.6 for all purposes be treated as a 
repayment of amounts owed with respect to Loans made by such Lender against 
the appropriate Note of such Lender.  

               (c)  In the event that any bankruptcy, reorganization, 
liquidation, receivership or similar cases or proceedings in which any 
Borrower is a debtor, prevent the Administrative Agent or any Lender from 
making any Loan to effect a Settlement contemplated hereby, the 
Administrative Agent or such Lender, as the case may be, will make such 
dispositions and arrangements with the other Lenders with respect to such 
Loans, either by way of purchase of participations, distribution, PRO TANTO 
assignment of claims, subrogation or otherwise, as 

                                      -20-

<PAGE>

shall result in each Lender's share of the outstanding Loans being equal, as 
nearly as may be, to the percentage which such Lender's Revolving Credit 
Commitment and Term Credit Commitment bears to the Revolving Credit 
Commitments and Term Credit Commitments of all the Lenders.  

               (d)  Payments to effect a Settlement shall be made without 
set-off, counterclaim or reduction of any kind.  The failure or refusal of 
any Lender to make available to the Administrative Agent at the aforesaid 
time and place the amount of the Settlement Amount due from such Lender (i) 
shall not relieve any other Lender from its several obligation hereunder to 
make available to the Administrative Agent the amount of such other Lender's 
Settlement Amount and (ii) shall not impose upon such other Lender any 
liability with respect to such failure or refusal or otherwise increase the 
Revolving Credit Commitment or Term Credit Commitment of such other Lender.

               (e)  Notwithstanding the notice requirements set forth in 
Section 1.5 above, but otherwise in accordance with the terms and conditions 
of this Agreement, the Administrative Agent may, in its sole discretion 
without conferring with the Lenders but on their behalf, make Loans to each 
Borrower in an amount requested by the Company.  Any such Loans so funded by 
the Administrative Agent shall be deemed Loans made by the Administrative 
Agent under its Revolving Credit Commitment, except for purposes of Section 
2.2 hereof.  Each Lender's obligation to fund its portion of any such Loan 
made by the Administrative Agent will commence on the date such Loan is 
actually so made by the Administrative Agent.  However, until the date on 
which the Settlement of such Loan is required in accordance with this Section 
3.6 above, such obligation of the Lender shall be satisfied by the 
Administrative Agent's making of such Loan.  The Borrowers acknowledge and 
agree that the making of such Loans by the Administrative Agent under this 
Section 3.6(e) shall, in each case, be subject in all respects to the 
provisions of this Agreement as if each such Loan were made in response to a 
notice requesting such Loan made in accordance with Section 1.5 hereof, 
including without limitation the limitations set forth in Section 1.1 hereof 
and the requirements of Section 2.7 hereof.  All actions taken by the 
Administrative Agent pursuant to the provisions of this Section 3.6(e) shall 
be conclusive and binding on the Borrowers in the absence of manifest error.  
Notwithstanding anything herein to the contrary, prior to the Settlement with 
any Lender of any Loan funded by the Administrative Agent under this Section, 
interest payable on such Loan otherwise allocable to such Lender shall be for 
the sole account of the Administrative Agent and payment of principal on such 
Loan otherwise allocable to such Lender shall be for the sole account of the 
Administrative Agent.

               SECTION 3.7.   COMPUTATION OF OBLIGATIONS OUTSTANDING.  For 
the purpose of calculating the aggregate principal balance of Obligations 
outstanding hereunder, Obligations shall be deemed to be paid on the date 
payments or collections, as the case may be, are deemed received under 
Section 3.1 hereof; PROVIDED, HOWEVER, for purposes of calculating interest 
accruing on the Obligations on and after the Loan Mechanization Date, any 
payment of the Obligations by virtue of the application of proceeds of 
Collateral pursuant to Section 3.2 hereof shall be deemed to be applied to 
the Obligations on the first Business Day following the date of the 
Administrative Agent's receipt (in the relevant lockbox established for a 

                                      -21-

<PAGE>

Restricted Account pursuant to Section 4.2 hereof) of the item representing 
such payment (any additional amount payable by the Borrowers solely by virtue 
of this deemed application to be paid to and retained by the Administrative 
Agent for its sole account as an administrative fee, with the Lenders to have 
no right to any share thereof); FURTHER PROVIDED, HOWEVER, that each payment 
or collection received by wire or ACH transfer directly to the Restricted 
Account maintained with the Administrative Agent as contemplated by Section 
4.2 hereof shall be deemed applied on the date of the Administrative Agent's 
receipt of such transfer.  Notwithstanding the foregoing, if any item 
presented for collection by the Administrative Agent is not honored, the 
Administrative Agent may reverse any provisional credit which has been given 
for the item and make appropriate adjustments to the amount of interest and 
principal otherwise due hereunder.

               SECTION 3.8.   NOTATIONS.  All Loans made against a Note, the 
Borrower to which each Loan was disbursed, the status of all amounts 
evidenced by a Note as constituting part of the Domestic Rate Portion or a 
LIBOR Portion, and, in the case of any LIBOR Portion, the rates of interest 
and Interest Periods applicable to such Portions shall be recorded by each 
Lender on its books and records or, at its option in any instance, endorsed 
on a schedule to its Note and the unpaid principal balance and status, 
Borrower, rates and Interest Periods so recorded or endorsed by such Lender 
shall be prima facie evidence in any court or other proceeding brought to 
enforce such Note of the principal amount remaining unpaid thereon, the 
status of the Loans evidenced thereby, the Borrower to which each Loan was 
disbursed and the interest rates and Interest Periods applicable thereto; 
PROVIDED that the failure of a Lender to record any of the foregoing shall 
not limit or otherwise affect the obligation of the Company to repay the 
outstanding principal amount of each Note together with accrued interest 
thereon.  Prior to any negotiation of a Note, a Lender shall record on a 
schedule thereto the status of all amounts evidenced thereby as constituting 
part of the applicable Domestic Rate Portion or a LIBOR Portion and, in the 
case of any LIBOR Portion, the rates of interest and the Interest Periods 
applicable thereto.

SECTION 4.     THE COLLATERAL AND GUARANTIES.

               SECTION 4.1.   COLLATERAL.  The Notes and the other 
Obligations, as well as any Hedging Liability, shall be secured by (a) valid, 
perfected and enforceable liens in all right, title and interest of each 
Borrower and of each Subsidiary in all capital stock or other equity interest 
in each Subsidiary, in each instance whether now owned or hereafter acquired, 
and all proceeds thereof and (b) valid, perfected (subject to the proviso 
appearing at the end of this sentence) and enforceable liens in all right, 
title and interest of each Borrower and of each Subsidiary in all accounts, 
chattel paper, general intangibles, instruments, investment property, 
documents, contract rights, inventory and equipment of every kind and 
description, whether now owned or hereafter acquired, and all proceeds 
thereof; PROVIDED, HOWEVER, that until an Event of Default has occurred and 
is continuing and thereafter until otherwise required by the Required Lenders 
or the Administrative Agent, (i) liens need not be perfected on copyrights, 
trademarks, patents and licenses thereof that arise subsequent to the most 
recent date on which the relevant Collateral Document requires a lien to be 
granted on Collateral of such type, (ii) liens need not be perfected on notes 
receivable having a fair market value of less than $10,000 in any instance 
and $50,000 in the aggregate, (iii) fixture 

                                    -22-

<PAGE>

financing statements need not be filed, and (iv) liens on vehicles which are 
subject to a certificate of title law need not be noted on the certificate of 
title.  The liens in the Collateral shall be granted to the Administrative 
Agent for the ratable account of the Lenders and shall be valid and perfected 
first liens subject, however, to the proviso appearing at the end of the 
immediately preceding sentence, Permitted Liens and the rights of lessors 
under permitted leases and Purchase Money Liens held by vendors providing 
purchase money financing.  Notwithstanding anything to the contrary contained 
herein, in no event will any of the Collateral described above be deemed to 
include (a) any interest in copyrights, trademarks, patents or similar 
intangibles licensed to any Borrower or any Subsidiary from any third party 
(other than any Borrower or any of its Affiliates) to the extent that the 
granting of a security interest or lien therein is prohibited by the license 
or other agreement(s) pursuant to which such Borrower or Subsidiary holds 
such interest and such prohibition has not been or is not waived or the 
consent of the applicable party has not been or is not obtained, (b) any 
interest in contracts and contracts rights thereunder (other than Accounts 
arising therefrom) to the extent that the granting of a security interest or 
lien therein is prohibited by such contract and such prohibition has not been 
or is not waived or the consent of the applicable party has not been or is 
not obtained, (c) any interests in equipment owned by any Borrower or any 
Subsidiary which is subject to a Purchase Money Lien in favor of any third 
party (other than any Borrower or any of its Affiliates) to the extent the 
granting of a security interest or lien therein is prohibited by the 
agreement(s) pursuant to which such equipment is financed and such 
prohibition has not been or is not waived or the consent of the applicable 
party has not been or is not obtained and (d) any interests in any leases or 
licenses to use property under which any Borrower or any Subsidiary is lessee 
or licensee and a Person other than any Borrower or an Affiliate of such 
Borrower is lessor or licensor to the extent the granting of a security 
interest or lien therein is prohibited by the agreement(s) pursuant to which 
such property is leased and such prohibition has not been or is not waived or 
the consent of the applicable party has not been or is not obtained. 

               SECTION 4.2.   COLLATERAL PROCEEDS.  Each Borrower agrees to 
make such arrangements as shall be necessary or appropriate to assure 
(through the use of a lockbox under the sole control of the Administrative 
Agent) that all proceeds of the Collateral provided by such Borrower, subject 
to Sections 2.7(d) and 8.18 of this Agreement, are deposited (in the same 
form as received) in a separate remittance account maintained by such 
Borrower with and under the control of the Administrative Agent, each such 
account to constitute a special restricted account (each, a "RESTRICTED 
ACCOUNT"); PROVIDED, HOWEVER, that the Company and Intersound may use the 
same lockbox and same Restricted Account for such purposes.  Any proceeds of 
Collateral received by any Borrower shall be held by such Borrower in trust 
for the Administrative Agent and the Lenders in the same form in which 
received, shall not be commingled with any assets of such Borrower, and shall 
be delivered promptly to the Administrative Agent (together with any 
necessary endorsements thereto) for deposit into the Restricted Account of 
such Borrower. The Borrowers acknowledge that the Administrative Agent has 
(and is hereby granted to the extent it does not already have) a lien on each 
Restricted Account and all funds contained therein for the ratable benefit of 
the Lenders to secure the Obligations.  Prior to the Loan Mechanization Date, 
the Lenders agree with the Borrowers that if and so long as no Event of 
Default has occurred and is continuing hereunder, amounts on deposit in each 
Restricted Account will (subject to the rules and 

                                         -23-

<PAGE>

regulations of the relevant depository as from time to time in effect 
applicable to demand deposit accounts) be made available to the Borrowers for 
use in conduct of their respective businesses; PROVIDED, HOWEVER, upon the 
occurrence and during the continuation of any Event of Default hereunder, the 
Administrative Agent may apply the funds on deposit in any one or more of the 
Restricted Accounts as set forth in Section 3.3 hereof, and the 
Administrative Agent shall notify the Company of any such application. On and 
after the Loan Mechanization Date, no amounts deposited in the Restricted 
Accounts shall be released to the Borrowers, but shall instead be applied to, 
or otherwise held as collateral security for, the outstanding Obligations as 
set forth in Section 3 hereof, it being understood and agreed that 
notwithstanding such application, the Borrowers shall have the right to 
obtain additional Loans and Letters of Credit under this Agreement subject to 
the terms and conditions hereof.

               SECTION 4.3.   FURTHER ASSURANCES.  Each Borrower covenants 
and agrees that it shall, and shall cause each Subsidiary to, comply with all 
terms and conditions of each of the Collateral Documents and at any time and 
from time to time at the request of the Administrative Agent or the Required 
Lenders execute and deliver such instruments and documents and do such acts 
and things as the Administrative Agent or the Required Lenders may reasonably 
request in order to provide for or protect or perfect the lien of the 
Administrative Agent in the Collateral, subject to the terms of Section 4.1 
above.

               SECTION 4.4.   GUARANTIES FROM SUBSIDIARIES.  Payment of the 
Notes and the other Obligations, as well as any Hedging Liability, shall at 
all times be jointly and severally guaranteed by each Subsidiary pursuant 
hereto or pursuant to a Guaranty issued by such Subsidiary.  In the event any 
Subsidiary is hereafter acquired or formed, the Company shall also cause such 
Subsidiary to execute such Collateral Documents (having terms and conditions 
substantially similar to those executed by the Company and its Subsidiaries 
in connection with the initial Loans under this Agreement) as the 
Administrative Agent may then require granting the Administrative Agent for 
the benefit of the Lenders a security interest in and lien on the assets of 
such Subsidiary as collateral security for the Notes and the other 
Obligations and any Hedging Liability, together with such other instruments, 
documents, certificates and opinions required by the Administrative Agent in 
connection therewith.

               SECTION 4.5.   COLLATERAL ASSIGNMENT OF LIFE INSURANCE.  
Payment of the Notes and the other Obligations, as well as any Hedging 
Liability, shall also be secured by a collateral assignment of a life 
insurance policy owned and maintained by the Company on the life of Devick in 
an amount of at least $10,000,000 pursuant to a written assignment in form 
and substance satisfactory to the Administrative Agent (the "LIFE INSURANCE 
ASSIGNMENT").

SECTION 5. DEFINITIONS; INTERPRETATION.

               SECTION 5.1.   DEFINITIONS.  The following terms when used 
herein shall have the following meanings:

               "ACCOUNTS" shall mean, with respect to any Person, all present 
and future accounts, contract rights and other rights to payment (i) for 
goods such Person has sold or leased 

                                     -24-

<PAGE>

(whether or not delivered), (ii) for services such Person has rendered, 
whether or not they have been earned by performance or (iii) for such 
Person's license of master recordings and compositions to third parties.

               "ADJUSTED LIBOR" means a rate per annum determined by the 
Administrative Agent in accordance with the following formula:

               Adjusted LIBOR =               LIBOR
                                    -----------------------
                                    100%-Reserve Percentage

"RESERVE PERCENTAGE" means, for the purpose of computing Adjusted LIBOR, the 
maximum rate of all reserve requirements (including, without limitation, any 
marginal, emergency, supplemental or other special reserves) imposed by the 
Board of Governors of the Federal Reserve System (or any successor) under 
Regulation D on Eurocurrency liabilities (as such term is defined in 
Regulation D) for the applicable Interest Period as of the first day of such 
Interest Period, but subject to any amendments to such reserve requirement by 
such Board or its successor, and taking into account any transitional 
adjustments thereto becoming effective during such Interest Period.  For 
purposes of this definition, LIBOR Portions shall be deemed to be 
Eurocurrency liabilities as defined in Regulation D without benefit of or 
credit for prorations, exemptions or offsets under Regulation D.  "LIBOR" 
means, for each Interest Period, (a) the LIBOR Index Rate for such Interest 
Period, if such rate is available, and (b) if the LIBOR Index Rate cannot be 
determined, the arithmetic average of the rates of interest per annum 
(rounded upward, if necessary, to the nearest 1/100th of 1%) at which 
deposits in U.S. Dollars in immediately available funds are offered to the 
Administrative Agent at 11:00 a.m. (London, England time) two Business Days 
before the beginning of such Interest Period by three (3) or more major banks 
in the interbank eurodollar market selected by the Administrative Agent for a 
period equal to such Interest Period and in an amount equal or comparable to 
the applicable LIBOR Portion scheduled to be outstanding from the 
Administrative Agent during such Interest Period.  "LIBOR INDEX RATE" means, 
for any Interest Period, the rate per annum (rounded upwards, if necessary, 
to the next higher one hundred-thousandth of a percentage point) for deposits 
in U.S. Dollars for a period equal to such Interest Period which appears on 
the Telerate Page 3750 as of 11:00 a.m. (London, England time) on the date 
two Business Days before the commencement of such Interest Period.  "TELERATE 
PAGE 3750" means the display  designated as "Page 3750" on the Telerate 
Service (or such other page as may replace Page 3750 on that service or such 
other service as may be nominated by the British Bankers' Association as the 
information vendor for the purpose of displaying British Banker's Association 
Interest Settlement Rates for U.S. Dollar deposits).  Each determination of 
LIBOR made by the Administrative Agent shall be conclusive and binding on the 
Borrowers and the Lenders absent manifest error.

               "ADMINISTRATIVE AGENT" means Bank of Montreal and any 
successor thereto appointed pursuant to Section 10.1 hereof.

               "AFFILIATE" shall mean any Person (i) which directly or 
indirectly through one or more intermediaries controls, or is controlled by, 
or is under common control with, another Person, (ii) which beneficially owns 
or holds 10% or more of any class of the Voting Stock 

                                       -25-

<PAGE>

of another Person, or (iii) more than 10% of the Voting Stock (or in the case 
of a Person which is not a corporation, 10% or more of the equity interest) 
of which is beneficially owned or held by another Person.  The term "CONTROL" 
means the possession, directly or indirectly, of the power to direct or cause 
the direction of the management and policies of a Person, whether through the 
ownership of Voting Stock, by contract or otherwise. Notwithstanding the 
foregoing, (i) no individual shall be deemed to be an Affiliate of the 
Company or any of its Subsidiaries solely by reason of his or her being a 
director, officer or employee of the Company or any of its Subsidiaries, (ii) 
the Company shall not be deemed an Affiliate of any of its Wholly-Owned 
Subsidiaries, (iii) no Wholly-Owned Subsidiary shall be deemed an Affiliate 
of any other Wholly-Owned Subsidiary or the Company and (iv) for purposes of 
computing the eligibility of Accounts, no limited partners, members, 
employees or Affiliates of the Purchasers or their respective portfolio 
companies shall be deemed Affiliates of the Company or any Subsidiary.

               "AFFILIATE PREFERRED STOCK" means an aggregate of 2,500 shares 
of Series C Convertible Preferred Stock of the Company, par value $.001 per 
share, to be purchased by certain officers and directors of the Company and 
their Affiliates, on the closing of the Investment Agreement and any and all 
dividends thereon.

               "AFFILIATE WARRANTS" means the warrants to purchase an 
aggregate of 450,000 shares of common stock of the Company, par value $.001 
per share, to be purchased by certain officers and directors of the Company 
and their Affiliates on the closing of the Investment Agreement.

               "AGREEMENT" means this Credit Agreement, as the same may be 
amended, modified or restated from time to time in accordance with the terms 
hereof.

               "APPLICABLE DOMESTIC RATE MARGIN" means 1/2 of 1% for the 
Revolving Loans and 1.0% for the Term Loan.

               "APPLICABLE LIBOR MARGIN" means 2-1/4% for the Revolving Loans 
and 2-3/4% for the Term Loan.

               "APPLICATION" is defined in Section 1.3(d) hereof.

               "ASSIGNMENT AGREEMENT" means an Assignment and Acceptance 
entered into by a Lender and an assignee in accordance with Section 13.12 
hereof substantially in the form of Exhibit G hereto.

               "AUTHORIZED REPRESENTATIVE" means those persons shown on the 
list of officers provided by the Company pursuant to Section 7.2(a) hereof or 
on any update of any such list provided by the Company to the Administrative 
Agent, or any further or different officer of the Company so named by any 
Authorized Representative of the Company in a written notice to the 
Administrative Agent.

                                        -26-

<PAGE>

               "AVAILABILITY" shall mean, as of any time, the amount (if any) 
by which (x) the Borrowing Base as then determined and computed exceeds (y) 
the aggregate principal amount of Revolving Loans and Letters of Credit then 
outstanding from the Borrowers, taken together.

               "BMO BRIDGE LOANS" means the credit extended of Bank of 
Montreal to the Company under its January 31, 1997 Credit Agreement with such 
Bank as heretofore amended from time to time.

               "BORROWERS" is defined in the introductory paragraph hereof, 
with (i) the term "BORROWERS" to mean the Borrowers, collectively, and, also, 
each individually, and (ii) all promises and covenants (including promises to 
pay) and representations and warranties of and by the Borrowers made in the 
Loan Documents or any instruments or documents delivered pursuant thereto to 
be and constitute the joint and several promises, covenants, representations 
and warranties of and by each and all of such corporations.  The term 
"BORROWER" appearing in such singular form shall be deemed a reference to any 
of the Borrowers unless the context in which such term is used shall 
otherwise require.

               "BORROWING BASE" means, as of any time for which the same is 
to be determined, the amount (if any) by which (x) the sum of the Initial 
Reserves and any additional reserves imposed on availability under the 
Revolving Credit pursuant to Section 1.1 hereof is exceeded by (y) the sum of:

         (i)  85% of the then outstanding unpaid amount of Eligible Accounts;
    plus

         (ii) 50% of the value (computed at the lower of market or cost using
    the first-in/first-out method of inventory valuation applied by the Company
    in accordance with GAAP) of Eligible Inventory; 

PROVIDED that the Borrowing Base shall be computed only as against and on so 
much of the Collateral as is included on the certificates to be furnished 
from time to time by each Borrower pursuant to Section 8.5(a) hereof and, if 
required by the Administrative Agent or the Required Lenders pursuant to any 
of the terms hereof or any Collateral Document, as verified by such other 
evidence required to be furnished to the Administrative Agent pursuant hereto 
or pursuant to any such Collateral Document.

               "BUSINESS DAY" means any day other than a Saturday or Sunday 
on which the Administrative Agent is not authorized or required to close in 
Chicago, Illinois and, when used with respect to LIBOR Portions, a day on 
which the Administrative Agent is also dealing in United States Dollar 
deposits in London, England and Nassau, Bahamas.

               "CAPITAL EXPENDITURES" means for any period capital 
expenditures (as defined and classified in accordance with GAAP) during such 
period by the Company and its Subsidiaries on a consolidated basis, but in 
any event excluding (i) advances to artists, reimbursement of costs incurred 
by artists and any costs incurred by the Company on behalf of artists, in 
each case in the ordinary course of business pursuant to contractual 
obligations, (ii) expenditures 

                                    -27-

<PAGE>

for normal replacement and maintenance programs properly charged to current 
operations in accordance with GAAP and (iii) expenditures to restore, repair 
or replace real estate, furniture, fixtures, equipment or other fixed assets 
lost, damaged or destroyed as a result of a casualty loss.

               "CAPITAL LEASE" means any lease of Property which in 
accordance with GAAP is required to be capitalized on the balance sheet of 
the lessee.

               "CAPITALIZED LEASE OBLIGATION" means the amount of the 
liability shown on the balance sheet of any Person in respect of a Capital 
Lease determined in accordance with GAAP.

               "CASH EQUIVALENTS" means all investments of the type permitted 
by Sections 8.15(a) through 8.15(g) hereof, inclusive.

               "CASH INTEREST EXPENSE" shall mean, with respect to any Person 
for any period, the Interest Expense of such Person for such period less all 
non-cash items constituting Interest Expense during such period (including 
without limitation, amortization of debt discounts and payments of interest 
on indebtedness by issuance of indebtedness, and in any event excluding 
accruals of interest during such period subsequently payable in cash).

               "CHANGE OF CONTROL/MANAGEMENT EVENT" means the occurrence of 
any of the following circumstances:

         (a)  any Person or two or more Persons (other than each of the
    Purchasers or their respective Affiliates, employees, partners or members
    [the Purchasers and such other parties being hereinafter referred to as the
    "PURCHASER GROUP"]) acting in concert acquire beneficial ownership (within
    the meaning of Rule 13d-3 of the SEC under the Securities Exchange Act of
    1934), directly or indirectly, of Securities of any Borrower (or other
    Securities convertible into such Securities) representing 25% or more of
    the combined voting power of all securities of any Borrower entitled to
    vote in the election of directors (except to the extent such acquisition
    results from any Person's conversion of preferred stock acquired by such
    Person prior to the Closing Date in such stock's initial public offering,
    to common stock of the Company having such voting power; or

         (b)  during any period of up to 12 consecutive months, whether
    commencing before or after the date hereof, the membership of the Board of
    Directors of any Borrower changes for any reason (other than by reason of
    death, disability, or scheduled retirement) so that the majority of the
    Board of Directors is made up of Persons who were not directors at the
    beginning of such 12 month period (except to the extent that such change in
    the membership of the Board of Directors is the result of (i) the exercise
    by any of the Purchaser Group of their voting rights pursuant to Section 5
    of the Certificate of the Powers, Designations, Preferences and Rights
    governing the Series B Preferred Stock, (ii) the exercise by any of the
    Purchaser Group of their rights and privileges pursuant to Section 6.2.5 of
    the Investment 

                                     -28-

<PAGE>

    Agreement and (iii) the election or designation by any of the Purchaser 
    Group of any director to the Board of Directors of the Company).

               "CLASS OF NOTES" shall mean the Revolving Credit Notes (taken 
as a group) and the Term Credit Notes (taken as a group).

               "CLOSING DATE" means December 12, 1997.

               "CODE" means the Internal Revenue Code of 1986, as amended, 
and any successor statute thereto.

               "COLLATERAL" means all properties, rights, interests and 
privileges from time to time subject to the Liens granted to the 
Administrative Agent for the benefit of the Lenders by the Collateral 
Documents.

               "COLLATERAL DOCUMENTS" means the Initial Collateral Documents 
and all other mortgages, deeds of trust, security agreements, assignments, 
financing statements and other documents as shall from time to time secure 
the Obligations.

               "COMMITMENTS" shall mean the Revolving Credit Commitments and 
the Term Credit Commitments.

               "COMPANY" is defined in the introductory paragraph hereof.

               "CONSOLIDATED EBITDA" shall mean, with reference to any 
period, (a) Consolidated Net Income for such period PLUS (b) all amounts 
(without duplication) deducted in arriving at such Consolidated Net Income in 
respect of (i) Cash Interest Expense, (ii) taxes imposed on or measured by 
income or excess profits (including reserves for deferred taxes not payable 
currently), (iii) charges for depreciation expense and amortization expense 
(including, but not limited to, amortization of intangibles and goodwill), 
(iv) debt issuance costs in connection with the Loan Documents, (v) 
extraordinary losses, (vi) reserves or charges aggregating not more than 
$1,750,000 taken prior to May 31, 1998 in connection with the dispute 
regarding the funds escrowed by the Company pursuant to the purchase and sale 
agreement between K-tel International, Inc. and River North Studios, Inc. 
(which has since changed its name to Intersound, Inc.) referenced in 
paragraph 10 of Schedule 6.6 hereto and (vii) all other non-recurring, 
non-cash charges LESS (c) all extraordinary gains included in arriving at 
such Consolidated Net Income, all determined in accordance with GAAP.

               "CONSOLIDATED EXCESS CASH FLOW" for any period shall mean the 
amount (if any) by which (x) Consolidated Operating Cash Flow for such period 
exceeds (y) the sum (without duplication) of (i) Debt Service during such 
period plus (ii) Cash Interest Expense during such period plus (iii) accrued 
taxes on or measured by income or excess profits (including reserves for 
deferred taxes not payable currently) of the Company or any Subsidiary 
payable (or, in the case of a reserve, established) by the Company or any 
Subsidiary within twelve months of the close of such period plus (iv) Capital 
Expenditures during such period plus 

                                     -29-

<PAGE>

(v) artist advances made during such period by the Company and its 
Subsidiaries in the ordinary course of business to the extent so deducted as 
an expense or capitalized by such Persons in accordance with GAAP. 

               "CONSOLIDATED FUNDED DEBT" means, at any time the same is to 
be determined, the aggregate of all Indebtedness for Borrowed Money which 
would be listed as a liability on a balance sheet of the Company and its 
Subsidiaries determined on a consolidated basis in accordance with GAAP.

               "CONSOLIDATED NET INCOME" for any period shall mean the gross 
revenues from any source of the Company and its Subsidiaries for such period 
less all expenses and other proper charges (including taxes on income), 
determined for the Company and its Subsidiaries on a consolidated basis in 
accordance with GAAP.

               "CONSOLIDATED NET WORTH" shall mean, as of any date, 
consolidated net worth as computed in accordance with GAAP for the Company 
and its Subsidiaries on a consolidated basis.

               "CONSOLIDATED OPERATING CASH FLOW" for any period shall mean 
the amount (if any) by which (x) the sum (without duplication) of (i) 
Consolidated Net Income for such period plus (ii) all amounts deducted in 
arriving at such Consolidated Net Income in respect of (1) charges during 
such period for depreciation expense and amortization expense (including but 
not limited to amortization of intangibles and goodwill), (2) Cash Interest 
Expense during such period, (3) taxes during such period on or measured by 
income or excess profits (including reserves for deferred taxes not payable 
currently), (4) artist advances made during such period by the Company and 
its Subsidiaries in the ordinary course of business to the extent so deducted 
as an expense, (5) debt issuance costs in connection with the Loan Documents 
to the extent such costs were capitalized by such Persons in accordance with 
GAAP and amortized during such period, (6) losses during such period on the 
sale or other disposition of fixed or capital assets and (7) all other 
non-cash charges during such period exceeds (y) all amounts included in 
arriving at such Consolidated Net Income in respect of (i) profits during 
such period upon the sale of fixed or capital assets or liquidation of 
investments, (ii) proceeds during such period from casualty losses, (iii) any 
other extraordinary gains during such period and (iv) interest income during 
such period.  

               "CONSOLIDATED WORKING CAPITAL" means, at any time the same is 
to be determined, the excess, if any, of current assets of the Company and 
its Subsidiaries minus current liabilities of the Company and its 
Subsidiaries, all as determined on a consolidated basis in accordance with 
GAAP, except that there should be excluded from current liabilities Current 
Maturities on the Notes.

               "CONTROLLED GROUP" means all members of a controlled group of 
corporations, partnerships, and all trades or businesses (whether or not 
incorporated) under common control which, together with any Borrower or any 
Subsidiary, are treated as a single employer under Section 414 of the Code.

                                        -30-

<PAGE>

               "CURRENT ACCOUNT" means an account receivable of a Borrower 
with terms requiring payment within thirty (30) days of the original invoice 
date (which shall not be more than five (5) days subsequent to the shipment 
date or the date services were fully performed by such Borrower) or the 
shipment of the goods or rendition of the services giving rise thereto.

               "CURRENT MATURITIES" means, as at any date of determination, 
all payments of principal due under terms of any Indebtedness for Borrowed 
Money within three calendar months after that date.

               "DATED ACCOUNT" means an account receivable of a Borrower with 
terms requiring payment in more than thirty (30), but not more than ninety 
(90), days from the original invoice date (which shall not be more than five 
(5) days subsequent to the shipment date or the date services were fully 
performed by such Borrower).

               "DEBT SERVICE" means, with reference to any period, the sum of 
the aggregate amount of payments required to be made by the Company and its 
Subsidiaries during such period in respect of principal on all Indebtedness 
for Borrowed Money (whether at maturity, as a result of mandatory sinking 
fund redemption, mandatory prepayment, acceleration or otherwise).

               "DEFAULT" means any event or condition the occurrence of which 
would, with the passage of time or the giving of notice, or both, constitute 
an Event of Default.

               "DEVICK" means Steven Devick, an individual who is as of the 
date hereof the chairman of the Board of Directors and Chief Executive 
Officer of the Company.

               "DOMESTIC RATE" means a fluctuating interest rate per annum 
equal at all times to the greater of:

         (a)  the rate of interest announced by the Administrative Agent from
    time to time as its prime commercial rate as in effect on such day, with
    any change in such rate resulting from a change in said prime commercial
    rate to be effective as to the Borrowers as of the date of the relevant
    change in said prime commercial rate; or

         (b)  the sum of (x) the rate per annum (rounded upward, if necessary,
    to the nearest 1/100th of 1%) equal to the weighted average of the rates on
    overnight Federal funds transactions with member banks of the Federal
    Reserve System arranged by Federal funds brokers on such day, as set forth
    opposite the caption "FEDERAL FUND (EFFECTIVE)" in the daily statistical
    release designated as "COMPOSITE 3:30 P.M. QUOTATIONS FOR U.S. GOVERNMENT
    SECURITIES", or any successor publication, published by the Federal Reserve
    Bank of New York on the Business Day next succeeding such day, PROVIDED
    THAT (i) if such day is not a Business Day, the rate for such day shall be
    such rate on such transactions on the immediately preceding Business Day as
    so published on the next succeeding Business Day, and (ii) if no such rate
    is so published on any such next succeeding Business Day, the rate for such
    day shall be the average of the rates quoted to the Administrative Agent by
    three or more New York or 

                                             -31-

<PAGE>


    Chicago Federal funds brokers on such day for such transactions as 
    determined by the Administrative Agent, and (y) 1/2 of 1% (0.50%).

               "DOMESTIC RATE PORTION" is defined in Section 2.1(a) hereof.

               "ELIGIBLE ACCOUNTS" means the aggregate of all Accounts of 
each Borrower if and so long as: 

         (a)  all representations and warranties set forth in the Collateral
    Documents with respect to such Account are true and correct in all material
    respects;

         (b)  (i) such Account arises out of the sale by such Borrower of
    inventory which has been delivered to or accepted by the account debtor on
    such Account or out of the rendition of services fully performed by such
    Borrower and accepted by such account debtor, and in each case such Account
    otherwise represents a final sale (subject to a right of return granted the
    account debtor in accordance with the then current prevailing industry
    practice) or (ii) such Account (a "LICENSE RECEIVABLE") represents the
    Borrower's claim to royalties earned by virtue of its license in the
    ordinary course of its business of master recordings or compositions to a
    third party pursuant to a binding written contract requiring at least
    semiannual cash royalty payments and such Account represents an amount due
    from such account debtor for a completed semiannual (or shorter) license
    period subject to no future performance from the Borrower and in excess of
    any advance royalty such account debtor may have paid;

         (c)  the account debtor on such Account is (i) located within the
    United States of America or Canada (excluding Quebec) or (ii) located in
    Quebec or otherwise outside of the United States and Canada so long as (x)
    the account debtor with respect to such Account is either EMI, Sony, WEA,
    BMG, UNI, Polygram or another distributor reasonably approved by the
    Administrative Agent (provided that not more than 10% of the Borrowing Base
    is at any time attributable to the Accounts described in this clause (x))
    or (y) the Account is supported by insurance acceptable in form and
    substance to the Administrative Agent, or the account debtor thereon has
    supplied the Company with an irrevocable letter of credit in form and
    substance satisfactory to the Administrative Agent, issued by an insurance
    company or financial institution, as the case may be, satisfactory to the
    Administrative Agent and which has been duly pledged to the Administrative
    Agent;

         (d)  such Account is the valid, binding and legally enforceable
    obligation of the account debtor obligated thereon and such account debtor
    is not (i) a Subsidiary or an Affiliate of such Borrower, (ii) a
    shareholder, director, officer or employee of such Borrower or its
    Subsidiary, (iii) the United States of America, or any state or political
    subdivision thereof, or any department, agency or instrumentality of any of
    the foregoing unless such Borrower has complied with the Assignment of
    Claims Act of 1940, as amended, or any similar state or local statute, as
    the case may be, to the satisfaction of the Administrative Agent, (iv) a
    debtor under any proceeding under the 

                                         -32-

<PAGE>


    United States Bankruptcy Code, as amended, or any other comparable 
    bankruptcy or insolvency law, or (v) an assignor for the benefit of 
    creditors;

         (e)  such Account is not evidenced by an instrument or chattel paper
    unless the same has been endorsed and delivered to the Administrative
    Agent;

         (f)  such Account is owned by such Borrower is freely assignable, is
    subject to a perfected, first priority Lien in favor of the Administrative
    Agent for the benefit of the Lenders, and is free and clear of any other
    Lien other than Liens permitted by Section 8.7(a) hereof;

         (g)  such Account is not owing from an account debtor who is also a
    creditor (other than Polygram) or supplier of such Borrower, is not subject
    to any offset, counterclaim or other defense with respect thereto and, with
    respect to said account receivable or the contract or purchase order out of
    which the same arose, no surety bond was required or given in connection
    therewith;

         (h)  such Account is either a Current Account or a Dated Account or a
    License Receivable; 

         (i)  if such Account is a Current Account, such Account is not unpaid
    more than ninety (90) days after the original invoice date (which must be
    not more than five (5) days subsequent to the shipment date or the date
    services were fully performed by such Borrower), or, if a Dated Account,
    such Account is not more than thirty (30) days past due from the original
    due date of the relevant invoice, or, if such Account is a License
    Receivable, such Account is not unpaid more than ninety (90) days past the
    close of the relevant semiannual (or shorter) license period;

         (j)  such Account is not owed by an account debtor who is obligated on
    Accounts owed to the Borrowers (taken together) more than 25% of the
    aggregate unpaid balance of which has been past due for longer than the
    relevant period specified in subsection (i) above unless the Administrative
    Agent has approved the continued eligibility thereof;

         (k)  such Account would not cause the total Accounts owing from any
    one account debtor and its Affiliate to exceed any credit limit established
    for purposes of determining eligibility hereunder by the Administrative
    Agent in its reasonable judgment for such account debtor and for which the
    Administrative Agent has given the Company at least ten (10) Business Day's
    prior notice of the establishment of any such credit limit; 

         (l)  such Account does not arise from a sale to an account debtor on
    (i) a bill-and-hold basis or (ii) on a consignment basis (except for such
    inventory as is on consignment to Polygram under the terms of its
    distribution arrangements with the Company) or (iii) (except to the extent
    consistent with the then current prevailing 

                                         -33-

<PAGE>



    industry practice) on a guaranteed sale, sale-or-return, sale-on-approval 
    or any other repurchase or return basis; and

         (m)  the Administrative Agent, in the reasonable exercise of its
    discretion (including consideration in good faith of any relevant
    information provided by the Company), does not believe that the prospect
    for payment or performance by the account debtor on such Account, or the
    collateral value of such Account, or the Administrative Agent's ability to
    realize on such value, is or will be impaired in any material respect
    (provided that no Account shall be ineligible solely by virtue of this
    clause (m) unless the Administrative Agent shall have first provided the
    Company at least thirty (30) Business Days' prior notice of its intent to
    classify such Account as ineligible under this clause).

               "ELIGIBLE INVENTORY" means all inventory of the Company and 
its Subsidiaries (other than packaging, crating and supplies inventory) 
constituting finished goods consisting of recorded and packaged CD's, videos, 
DVD's, tapes and blank jewel cases or any other recognized commercially 
available and distributable music media format or configuration (which, in 
the case of such other music media format or configuration, the 
Administrative Agent, in its reasonable judgment, deems to be Eligible 
Inventory) in each case if and so long as:

         (a)  all representations and warranties set forth in the Collateral
    Documents with respect to such inventory are true and correct in all
    material respects;

         (b)  such inventory is an asset of such Borrower which is freely
    assignable, is subject to a perfected, first priority Lien in favor of the
    Administrative Agent for the benefit of the Lenders, and is free and clear
    of any other Liens other than Liens permitted by Section 8.7(a) and (b)
    hereof;

         (c)  such inventory is located at a Permitted Collateral Location for
    such Borrower; 

         (d)  such inventory is not obsolete or slow moving, and is of good and
    merchantable quality free from any defects which might adversely affect the
    market value thereof; and

         (e)  the Administrative Agent, in the reasonable exercise of its
    discretion (including consideration in good faith of any relevant
    information provided by the Company), does not believe that the collateral
    value of such inventory, or the Administrative Agent's ability to realize
    on such value, is or will be impaired in any material respect (provided
    that no inventory shall be ineligible solely by virtue of this clause (e)
    unless the Administrative Agent shall have first provided the Company at
    least thirty (30) Business Days' prior notice of its intent to classify
    such inventory as ineligible under this clause).

                                           -34-

<PAGE>

               "ERISA" means the Employee Retirement Income Security Act of 
1974, as amended, or any successor statute thereto.

               "EVENT OF DEFAULT" means any event or condition identified as 
such in Section 9.1 hereof.

               "EXCLUDED TAXES" means, with respect to the Administrative 
Agent and any Lender, (a) income or franchise taxes imposed on (or measured 
by) its net income, assets or net worth by the United States, by the 
jurisdiction under the laws of which such Lender or Administrative Agent is 
organized or in which its principal office is located or in which its 
applicable lending office is located, or by any political subdivision of any 
of the foregoing, (b) any branch profits tax imposed on such Lender or 
Administrative Agent by the United States or any similar tax imposed on such 
Lender or Administrative Agent by any other jurisdiction in which any of the 
Loan Parties is located and (c) in the case of a Foreign Lender, any 
withholding tax that is imposed on amounts payable to such Foreign Lender at 
the time such Foreign Lender becomes a party to this Agreement (or designates 
a new lending office) or is attributable to such Foreign Lender's failure to 
comply with Sections 13.1(b) and (c), except to the extent that such Foreign 
Lender (or its assignor, if any) was entitled, at the time of designation of 
a new lending office (or assignment), to receive additional amounts from any 
Borrower with respect to such withholding tax pursuant to Section 13.1(a) 
hereof.

               "FINANCIAL COVENANTS means Sections 8.9 through 8.14 hereof, 
inclusive, as any of the foregoing may from time to time be modified or 
amended, and each replacement to any of such Sections.

               "FIXED CHARGE COVERAGE RATIO" is defined in Section 8.13 hereof.

               "FOREIGN LENDER" means any Lender that is not a United States 
person (as such term is defined in Section 7701(a)(30) of the Code).

               "GAAP" means generally accepted accounting principles set 
forth in the opinions and pronouncements of the Accounting Principles Board 
of the American Institute of Certified Public Accountants and statements and 
pronouncements of the Financial Accounting Standards Board that are 
applicable to the circumstances as of the date of determination and 
consistently applied.

               "GOVERNMENTAL BODY" shall mean the United States of America or 
any state or political subdivision thereof, and any other nation or political 
subdivision thereof or any agency, department, commission, board, bureau or 
instrumentality of any of the foregoing which exercises jurisdiction over the 
Company or any of its Subsidiaries or any of their assets or the conduct of 
the business of the Company or any of its Subsidiaries or any of their assets 
in any such jurisdiction.

               "GOVERNMENTAL REQUIREMENTS" shall mean any law, ordinance, 
order, rule or regulation of a Governmental Body.

                                          -35-

<PAGE>

               "GUARANTOR" means each Subsidiary of the Company (other than 
Intersound) that is a signatory hereto or that executes and delivers to the 
Administrative Agent a Guaranty along with the accompanying closing documents 
required by Section 8.23 hereof.

               "GUARANTY" means a letter to the Administrative Agent in the 
form of Exhibit F hereto executed by a Subsidiary (other than Intersound) 
whereby it acknowledges it is party hereto as a Guarantor under Section 11 
hereof and also in the case of any Subsidiary not organized under the laws of 
the United States or any State thereof, such other form of guaranty as shall 
be reasonably acceptable to the Administrative Agent and the Required Lenders.

               "HARNICK WARRANT" means the warrant to purchase 50,000 shares 
of common stock of the Company, par value $.001 per share, to be issued to 
Carl D. Harnick at the closing of the Investment Agreement.

               "HEDGING ARRANGEMENTS" is defined in Section 8.29 hereof.

               "HEDGING LIABILITY" shall mean liabilities of the Company to 
the Lenders or any of them or to any of their Affiliates arising in 
connection with any Hedging Arrangements entered into by the Company or any 
Subsidiary with any Lender or any Affiliate of any Lender.  Unless and until 
the amount of the Hedging Liability is fixed and determined, the Hedging 
Liability shall be deemed to be 4% per annum of the notional amount of the 
hedge from the date of computation to the date the hedge expires.

               "HOUSE OF BLUES VENTURE" means that certain joint venture of 
the Company with subsidiaries of HOB Entertainment, Inc. under a joint 
venture agreement, dated August 26, 1996.

               "IMPERMISSIBLE QUALIFICATION" means, relative to the opinion 
or certification of any independent public accountant as to any financial 
statement of the Company, any qualification or exception to such opinion or 
certification:

         (a)  which is of a "GOING CONCERN" nature; or

         (b)  which relates to the limited scope of examination of matters
    relevant to such financial statement.

               "INDEBTEDNESS FOR BORROWED MONEY" means for any Person 
(without duplication) (i) all indebtedness created, assumed or incurred in 
any manner by such Person representing money borrowed (including by the 
issuance of debt securities), (ii) all indebtedness for the deferred purchase 
price of property or services (other than trade accounts payable arising in 
the ordinary course of business), (iii) all indebtedness secured by any Lien 
upon Property of such Person, whether or not such Person has assumed or 
become liable for the payment of such indebtedness, (iv) all Capitalized 
Lease Obligations of such Person, (v) all obligations of such Person on or 
with respect to letters of credit, bankers' acceptances and other extensions 
of credit whether or not representing obligations for borrowed money and (vi) 

                                      -36-

<PAGE>

Hedging Liability to the extent the same is then due and payable pursuant to 
the terms of the relevant Hedging Arrangements.  The parties to the Agreement 
acknowledge and agree that the following shall not be considered Indebtedness 
for Borrowed Money: (i) any or all shares of outstanding Series B Preferred 
Stock or Affiliate Preferred Stock, (ii) any dividends (whether or not 
declared) payable on Series B Preferred Stock and Affiliate Preferred Stock, 
(iii) any interest payable by the Company to the holders of Series B 
Preferred Stock or Affiliate Preferred Stock due to the Company's failure to 
pay the repurchase price for such preferred stock when such stock is properly 
tendered for redemption, (iv) any interest payable by the Company to the 
holders of the Purchaser Warrants, the Affiliate Warrants or the Harnick 
Warrant due to the Company's failure to pay the put price for such warrant 
when such warrant is properly put to the Company for mandatory purchase 
pursuant to its terms by virtue of such holder's exercise of such put and (v) 
any Hedging Liability to the extent the same is not then due and payable 
pursuant to the terms of the relevant Hedging Arrangements.

               "INDEMNIFIED TAXES" means any and all present or future taxes 
(including, without limitation, any United States interest equalization tax 
or similar tax however named applicable to the acquisition or holding of debt 
obligations and any interest or penalties with respect thereto), levies, 
imposts, duties, fees, charges, stamp taxes, deductions, withholdings, 
restrictions and conditions of any nature imposed by any government or any 
political subdivision or taxing authority thereof (but excluding any Excluded 
Taxes).

               "INITIAL COLLATERAL DOCUMENTS" means the Security Agreement, 
the Stock Pledge Agreement, the Security Agreement Re: Intellectual Property 
and the Life Insurance Assignment.

               "INITIAL RESERVES" means, as of any time, the reserves 
commencing on the Closing Date imposed for returns, discounts and similar 
allowances and aggregating not in excess of 20% of the then unpaid amount of 
the Eligible Accounts.

               "INTEREST COVERAGE RATIO" is defined in Section 8.12 hereof.

               "INTEREST EXPENSE" means the sum of all interest charges 
(including accruals of interest during such period subsequently payable in 
cash and including imputed interest charges with respect to Capitalized Lease 
Obligations and all amortization of debt discount and expense) of the Company 
and its Subsidiaries for such period determined in accordance with GAAP.

               "INTEREST PERIOD" means, with respect to any LIBOR Portion, 
the period commencing on, as the case may be, the creation, continuation or 
conversion date with respect to such LIBOR Portion and ending one (1), two 
(2), three (3) or six (6) months thereafter as selected by the Company in its 
notice as provided herein; provided that all of the foregoing provisions 
relating to Interest Periods are subject to the following:

         (i)  if any Interest Period would otherwise end on a day which is not
    a Business Day, that Interest Period shall be extended to the next
    succeeding Business Day, unless in the case of an Interest Period the
    result of such extension would be to 

                                        -37-

<PAGE>


    carry such Interest Period into another calendar month in which event such 
    Interest Period shall end on the immediately preceding Business Day;

         (ii) no Interest Period may extend beyond the final maturity date of
    the relevant Notes;

         (iii) the interest rate to be applicable to each Portion for each
    Interest Period shall apply from and including the first day of such
    Interest Period to but excluding the last day thereof; and

         (iv) no Interest Period may be selected if after giving effect thereto
    any Borrower will be unable to make a principal payment scheduled to be
    made during such Interest Period without paying part of a LIBOR Portion on
    a date other than the last day of the Interest Period applicable thereto.

For purposes of determining an Interest Period, a month means a period 
starting on one day in a calendar month and ending on a numerically 
corresponding day in the next calendar month, PROVIDED, HOWEVER, if an 
Interest Period begins on the last day of a month or if there is no 
numerically corresponding day in the month in which an Interest Period is to 
end, then such Interest Period shall end on the last Business Day of such 
month.

               "INTERSOUND" is defined in the introductory paragraph hereof.

               "INTERSOUND SUB DEBT" means the $5,000,000 in aggregate 
principal amount of Subordinated Debt evidenced by those two certain 
Convertible Promissory Notes of the Company dated as of January 31, 1997 
payable to the order of Intersound, Inc. in the face principal amounts of 
$3,125,000 and $1,875,000, respectively, and accrued interest thereon.

               "INVESTMENT AGREEMENT" means that certain Investment Agreement 
dated as of October 12, 1997 by and among the Company and the Purchasers, as 
amended by amendments thereto dated October 28, 1997, October 30, 1997 and 
November 25, 1997 and as the same may from time to time be further modified 
or otherwise amended in each case without any adverse effect on the ability 
of the Company or any Subsidiary to perform its obligations under the Loan 
Documents or the rights and benefits of the Administrative Agent or of the 
Lenders under the Loan Documents.

               "LENDER" means Bank of Montreal, the other signatories hereto 
(other than the Loan Parties) and all other lenders becoming parties hereto 
pursuant to Section 13.12 hereof.

               "LEVERAGE RATIO" means, as of any time the same is to be 
determined, the ratio of Consolidated Funded Debt at such time to 
Consolidated EBITDA for the then four most recently completed fiscal quarters 
of the Company; PROVIDED, HOWEVER, that:

         (a)  the Leverage Ratio as of the Closing Date shall mean the ratio of
    (x) Consolidated Funded Debt at such time to (y) the quotient which results
    by dividing (i) 

                                         -38-

<PAGE>

    Consolidated EBITDA for the two fiscal quarters of the Company ended on 
    or about November 30, 1997 by (ii) 0.50;

         (b)  the Leverage Ratio as of the close of the fiscal quarter of the
    Company ending on or about February 28, 1998 shall mean the ratio of (x)
    Consolidated Funded Debt at such time to (y) the quotient which results by
    dividing (i) Consolidated EBITDA for the three fiscal quarters of the
    Company ended on or about such date by (ii) 0.75.

               "LETTERS OF CREDIT" is defined in Section 1.3 hereof.

               "LIBOR CONDITION" shall mean the satisfaction on or at any 
time after the close of the Company's quarterly accounting period ending on 
or about August 31, 1998 of all of the following conditions:

         (a)  the Leverage Ratio for the two most recently completed
    consecutive fiscal quarters of the Company shall be less than 3.00 to 1;

         (b)  the Interest Coverage Ratio shall have been at least 3.00 to 1 as
    of the close of the same two fiscal quarters;

         (c)  no Default or Event of Default shall exist as of the date on
    which the other conditions have been satisfied; and

         (d)  the Administrative Agent and the Lenders shall have received such
    assurances as they may reasonably require to confirm the satisfaction of
    the above conditions (it being understood and agreed that a certificate of
    the chief financial officer of the Company to the effect that the foregoing
    conditions have been satisfied, together with the computations confirming
    such satisfaction, shall be sufficient for the foregoing purposes).

The LIBOR Condition shall be deemed satisfied permanently once the above 
conditions have been met.

               "LIEN" means any mortgage, lien, security interest, pledge, 
charge or encumbrance of any kind in respect of any Property, including the 
interests of a vendor or lessor under any conditional sale, Capital Lease or 
other title retention arrangement.

               "LIFE INSURANCE ASSIGNMENT" is defined in Section 4.5 hereof.

               "LOAN DOCUMENTS" means this Agreement, the Notes, the 
Applications, the Guaranties and the Collateral Documents and each 
contractual agreement purporting to amend or modify any of the foregoing.

               "LOAN PARTIES" means the Borrowers and the Guarantors, unless 
the context in which such term is used shall otherwise require.

                                    -39-

<PAGE>

               "LOANS" means and includes Revolving Loans and the Term Loan, 
unless the context in which such term is used shall otherwise require.

               "MAC MUSIC" means MAC Music LLC, a Delaware limited liability 
company.

               "MATERIAL ADVERSE EFFECT" shall mean a material adverse effect 
on (i) the business, property, condition (financial or otherwise), or results 
of operations, or prospects, of the Company and its Subsidiaries taken as a 
whole, (ii) the ability of the Company or any Subsidiary to perform its 
obligations under the Loan Documents, or (iii) the validity or enforceability 
of any of the Loan Documents or the rights or remedies of the Administrative 
Agent or of the Lenders thereunder. 

               "MUSIC RIGHTS" is defined in Section 8.18 hereof.

               "NOTES" means and includes the Revolving Credit Notes and the 
Term Credit Notes, unless the context in which such term is used shall 
otherwise require.

               "OBLIGATIONS" means all obligations of each Borrower to pay 
principal and interest on the Loans, all reimbursement obligations owing 
under the Applications, all fees and charges payable hereunder, and all other 
payment obligations of each Borrower arising under or in relation to any Loan 
Document, in each case whether now existing or hereafter arising, due or to 
become due, direct or indirect, absolute or contingent, and howsoever 
evidenced, held or acquired.

               "PBGC" means the Pension Benefit Guaranty Corporation or any 
Person succeeding to any or all of its functions under ERISA.

               "PERMITTED COLLATERAL LOCATION" shall mean for each Borrower, 
(i) the locations set forth for such Borrower on Exhibit E hereto, (ii) 
locations in the continental United States and Canada (other than Quebec) 
which the Company notifies the Administrative Agent in writing are locations 
of Collateral and (iii) such other locations as are approved for such 
Borrower by the Administrative Agent and the Required Lenders in their 
discretion; PROVIDED, HOWEVER, that unless and to the extent the 
Administrative Agent and the Required Lenders agree otherwise, such a 
location which is not owned by a Borrower (each, a "LEASED LOCATION"), and 
such a location which is owned by a Borrower but subject to a mortgage or 
similar lien in favor of a third party (each a "MORTGAGED LOCATION"), shall 
in no event constitute a Permitted Collateral Location unless each Person 
owning or controlling such leased location or holding a lien on such 
mortgaged location shall have waived all of its right, title and interest in 
and to any inventory located thereon in writing in form and substance 
reasonably satisfactory to the Administrative Agent and the Required Lenders; 
FURTHER PROVIDED, HOWEVER, that if and so long as no Event of Default has 
occurred and is continuing, no such agreement need be obtained for (i) 
locations owned or leased by Polygram or (ii) leased locations where 
inventory for all the Borrowers aggregating at all such locations (all such 
locations taken together) of not more than $500,000 in value is located in 
the ordinary course of a Borrower's business for delivery to purchasers 
thereof.

                                    -40-

<PAGE>

               "PERMITTED LIENS" is defined in Section 8.7 hereof.

               "PERSON" means an individual, partnership, corporation, 
association, trust, unincorporated organization or any other entity or 
organization, including a government or agency or political subdivision 
thereof.

               "PLAN" means any employee pension benefit plan covered by 
Title IV of ERISA or subject to the minimum funding standards under Section 
412 of the Code that either (i) is maintained by a member of the Controlled 
Group for employees of a member of the Controlled Group, or (ii) is 
maintained pursuant to a collective bargaining agreement or any other 
arrangement under which more than one employer makes contributions and to 
which a member of the Controlled Group is then making or accruing an 
obligation to make contributions or has within the preceding five plan years 
made contributions.

               "POLYGRAM" means Polygram Group Distribution, Inc., a 
corporation.

               "POLYGRAM DISTRIBUTION AGREEMENT" means that certain 
Distribution Agreement dated as of May 14, 1993 by and between Polygram and 
the Company as amended prior to the Closing Date by amendments thereto dated 
November 1, 1995, December 18, 1996 and July 25, 1997 and as the same may 
from time to time be further amended after the Closing Date.

               "PROPERTY" means any interest in any kind of property or 
asset, whether real, personal or mixed, or tangible or intangible.

               "PURCHASE MONEY LIENS" is defined in Section 8.7(c) hereof.

               "PURCHASERS" means SK-Palladin Partners and MAC Music.

               "PURCHASER WARRANTS" means the warrants to purchase an 
aggregate of 3,600,000 shares of common stock of the Company, par value $.001 
per share, to be purchased by the Purchasers on the closing of the Investment 
Agreement.

               "REQUIRED LENDERS" means, as of the date of determination 
thereof, those Lenders (which may include the Lender then acting as the 
Administrative Agent) holding at least 66-2/3% of the Commitments or, in the 
event that no Commitments are outstanding hereunder, the Administrative Agent 
and those Lenders (which may include the Lender then acting as the 
Administrative Agent) holding at least 66-2/3% in aggregate unpaid principal 
amount of the Loans and credit risk on the Letters of Credit outstanding 
hereunder.

               "RESTRICTED ACCOUNT" is defined in Section 4.2 hereof.

               "RESTRICTED PAYMENTS" is defined in Section 8.16(a) hereof.

               "REVOLVING CREDIT" is defined in Section 1.1 hereof.

                                         -41-

<PAGE>

               "REVOLVING CREDIT COMMITMENTS" means the  commitments of the 
Lenders to extend credit under the Revolving Credit in the amounts set forth 
opposite their signatures hereto under the heading "REVOLVING CREDIT 
COMMITMENT" and opposite their signatures on Assignment Agreements delivered 
pursuant to Section 13.12 hereof under the heading "REVOLVING CREDIT 
COMMITMENT", as such amounts may be reduced pursuant hereto.  As of the date 
hereof, the aggregate amount of Revolving Credit Commitments is $10,000,000.

               "REVOLVING LOANS" is defined in Section 1.2 hereof.

               "REVOLVING CREDIT TERMINATION DATE" means December 1, 2000, or 
such earlier date on which the Revolving Credit Commitments are terminated in 
whole pursuant to Section 2.9, 9.2 or 9.3 hereof.

               "SEC" means the federal Securities and Exchange Commission, 
and any successor thereto.

               "SECURITIES ACT" means the federal Securities Act of 1933, as 
amended.

               "SECURITY AGREEMENT" means the Security Agreement dated as of 
even date herewith being executed and delivered by the Company and its 
current Subsidiaries substantially concurrent with the execution hereof.

               "SECURITY AGREEMENT RE: INTELLECTUAL PROPERTY" means the 
Security Agreement Re: Intellectual Property dated as of even date herewith 
being executed by the Company and its Subsidiaries substantially concurrent 
with the execution hereof.

               "SERIES B PREFERRED STOCK" means an aggregate of 20,000 shares 
of Series B Convertible Preferred Stock of the Company, par value $.001 per 
share, to be purchased by SK-Palladin Partners and MAC Music pursuant to the 
Investment Agreement and any and all dividends thereon.

               "S-K PALLADIN PARTNERS" means S-K Palladin Partners LP, a 
Delaware limited partnership.

               "STOCK PLEDGE AGREEMENT" means the Pledge Agreement dated as 
of even date herewith to be executed by the Company and its current 
Subsidiaries substantially concurrent with the execution hereof.

               "SUBORDINATED INDEBTEDNESS" means any Indebtedness for 
Borrowed Money which is subordinated in right of payment to the prior payment 
of the Obligations pursuant to subordination provisions approved in writing 
by the Administrative Agent and Required Lenders, pursuant to documentation, 
containing interest rates, payment terms, maturities, amortization schedules, 
covenants, defaults, remedies, subordination provisions and other material 
terms in each case in form and substance satisfactory to the Administrative 
Agent and Required Lenders in their reasonable discretion.

                                       -42-

<PAGE>


               The term "SUBSIDIARY" shall mean, as to any particular parent 
corporation, any other corporation more than 50% of the outstanding Voting 
Stock of which is at the time directly or indirectly owned by such parent 
corporation or by any one or more other corporations or other entities which 
are themselves subsidiaries of such parent corporation.  The term 
"SUBSIDIARY" shall mean, when used with reference to a Borrower, a subsidiary 
of, respectively, the Company or Intersound.

               "SYNDICATION AGENT" is defined in the introductory paragraph 
hereof.

               "TERM CREDIT" is defined in Section 1.4 hereof.

               "TERM CREDIT COMMITMENTS" means the commitments of the Lenders 
to make loans under the Term Credit in the amounts set forth opposite their 
signatures hereto under the heading "TERM CREDIT COMMITMENT" and opposite 
their signatures on Assignment Agreements delivered pursuant to Section 13.12 
hereof under the heading "TERM CREDIT COMMITMENT", as such amounts may be 
reduced pursuant hereto.  As of the date hereof, the aggregate amount of Term 
Credit Commitments is $20,000,000.

               "TERM LOANS" is defined in Section 1.4 hereof.

               "TERM CREDIT NOTES" is defined in Section 1.4 hereof.

               "TRANSACTION SECURITIES" means the Series B Preferred Stock, 
the Affiliate Preferred Stock, the Purchaser Warrants, the Affiliate Warrants 
and the Harnick Warrant.

               "UNFUNDED VESTED LIABILITIES" means, for any Plan at any time, 
the amount (if any) by which the present value of all vested nonforfeitable 
accrued benefits under such Plan exceeds the fair market value of all Plan 
assets allocable to such benefits, all determined as of the then most recent 
valuation date for such Plan, but only to the extent that such excess 
represents a potential liability of a member of the Controlled Group to the 
PBGC or the Plan under Title IV of ERISA.

               "VOTING STOCK" shall mean securities of any class or classes 
membership interests or other ownership rights of or in a Person, the holders 
of which are ordinarily, in the absence of contingencies, entitled to elect a 
majority of the board of directors or managers of such Person (or Persons 
performing similar functions).

               "WELFARE PLAN" means a "welfare plan" as defined in Section 
3(1) of ERISA.

               "WHOLLY-OWNED SUBSIDIARY" means a Subsidiary of which all of 
the issued and outstanding shares of capital stock (other than directors' 
qualifying shares as required by law) or other equity interests are owned by 
any Borrower and/or one or more Wholly-Owned Subsidiaries within the meaning 
of this definition.

               SECTION 5.2.   INTERPRETATION.  The foregoing definitions are 
equally applicable to both the singular and plural forms of the terms 
defined.  The words "HEREOF", "HEREIN", and "

                                       -43-

<PAGE>

HEREUNDER" and words of like import when used in this Agreement shall refer 
to this Agreement as a whole and not to any particular provision of this 
Agreement.  All references to time of day herein are references to Chicago, 
Illinois time unless otherwise specifically provided. Where the character or 
amount of any asset or liability or item of income or expense is required to 
be determined or any consolidation or other accounting computation is 
required to be made for the purposes of this Agreement, it shall be done in 
accordance with GAAP except where such principles are inconsistent with the 
specific provisions of this Agreement.

     SECTION 5.3.   ACCOUNTING TERMS.  For purposes of this Agreement, all 
accounting terms not otherwise defined herein shall have the meanings 
assigned to such terms in conformity with GAAP.  Financial statements and 
other information furnished to the Administrative Agent pursuant to Section 
8.5 shall be prepared in accordance with GAAP (as in effect at the time of 
such preparation) on a consistent basis.  In the event any "Accounting 
Changes" (as defined below) shall occur and such changes affect financial 
covenants, standards or terms in this Agreement, then the Company, the 
Administrative Agent and the Lenders agree to enter into negotiations in 
order to amend such provisions of this Agreement so as to equitably reflect 
such Accounting Changes with the desired result that the criteria for 
evaluating the financial condition of the Company and its Subsidiaries shall 
be the same after such Accounting Changes as if such Accounting Changes had 
not been made, and until such time as such an amendment shall have been 
executed and delivered by the Borrowers, the Administrative Agent and the 
Required Lenders, (A) all financial covenants, standards and terms in this 
Agreement shall be calculated and/or construed as if such Accounting Changes 
had not been made, and (B) the Company shall prepare footnotes to each 
compliance certificate and the financial statements required to be delivered 
hereunder that show the differences between the financial statements 
delivered (which reflect such Accounting Changes) and the basis for 
calculating financial covenant compliance (without reflecting such Accounting 
Changes).  "ACCOUNTING CHANGES" means: (a) changes in accounting principles 
required by GAAP and implemented by the Company and any of its Subsidiaries; 
(b) changes in accounting principles recommended by certified public 
accountants of the Company or any of its Subsidiaries; or (c) changes in 
carrying value of the Company's (or any of its Subsidiaries') assets, 
liabilities or equity accounts resulting from the application of purchase 
accounting principles. 

SECTION 6.     REPRESENTATIONS AND WARRANTIES.

     Each Borrower represents and warrants to the Administrative Agent and 
the Lenders as follows:

     SECTION 6.1.   ORGANIZATION AND POWER.  Each Borrower is duly organized 
and existing under the laws of the state of its organization, and is duly 
licensed or qualified to do business in each state where the nature of the 
assets owned or leased by it or business conducted by it requires such 
licensing or qualification and in which the failure to be so licensed or 
qualified would have a Material Adverse Effect and has all necessary power to 
carry on its contemplated business.


                                     -44-
<PAGE>

     SECTION 6.2.   CORPORATE AUTHORITY AND VALIDITY OF OBLIGATIONS.  Each 
Borrower has full right, power and authority to enter into this Agreement, to 
make the borrowings herein provided for, to issue the Notes in evidence 
thereof, to execute and deliver the other Loan Documents executed and 
delivered or to be executed and delivered by it, and to perform each and all 
of the matters and things herein and therein provided for.  Each Subsidiary 
has full right, power and authority to enter into the Loan Documents executed 
by it and to perform each and all of the matters and things therein provided 
for.  The Loan Documents do not, nor will the performance or observance by 
the Company or any Subsidiary of any of the matters and things herein or 
therein provided for, contravene any provision of law or any charter, by-law, 
operating agreement or similar agreement of the Company or any such  
Subsidiary or constitute a breach or default under any covenant, indenture or 
agreement of or affecting the Company or any such Subsidiary where such 
breach or default would have a Material Adverse Effect.

     SECTION 6.3.   SUBSIDIARIES.  Each Subsidiary is duly organized and 
existing under the laws of the jurisdiction of its organization, and duly 
licensed or qualified to do business in each state or other jurisdiction 
where the nature of the assets owned or leased by it or business conducted by 
it requires such licensing or qualification and in which the failure to be so 
licensed or qualified would have a Material Adverse Effect and has all 
necessary corporate power to carry on its present business.  Schedule 6.3 
hereto identifies each Subsidiary, the jurisdiction of its organization, the 
percentage of issued and outstanding shares of each class of its capital 
stock or other equity interest owned by the Company and the Subsidiaries and, 
if such percentage is not 100% (excluding directors' qualifying shares as 
required by law), a description of each class of its authorized capital stock 
or other equity interest and the number of shares of each class issued and 
outstanding. All of the outstanding shares of capital stock of or other 
equity interest in each Subsidiary are validly issued and outstanding and 
fully paid and nonassessable, and all shares or other equity interests in 
each Subsidiary indicated on Schedule 6.3 as owned by the Company or a 
Subsidiary are owned, beneficially and of record, by the Company or such 
Subsidiary free and clear of all Liens other than the Lien of the 
Administrative Agent on the shares and other equity interests of each 
Subsidiary.  There are no outstanding commitments or other obligations of any 
Subsidiary to issue, and no options, warrants or other rights of any Person 
to acquire, any shares of any class of capital stock of or other equity 
interest in any Subsidiary.

     SECTION 6.4.   USE OF PROCEEDS; REGULATION U.  The Borrowers shall use 
proceeds of the Loans and other extensions of credit made available hereunder 
solely for the purpose of refinancing the BOM Bridge Loans and repaying 
(prior to May 31, 1998) all or a portion of the Intersound Sub Debt and 
funding their working capital needs.  Neither the Company nor any Subsidiary 
is engaged in the business of extending credit for the purpose of purchasing 
or carrying margin stocks (within the meaning of Regulation U of the Board of 
Governors of the Federal Reserve System), and no part of the proceeds of any 
loan or extension of credit hereunder will be used to purchase or carry any 
margin stock or extend credit to others for the purpose of purchasing or 
carrying any margin stock if as a result thereof such loan or other extension 
of credit would violate Regulation U or any interpretation thereof.


                                     -45-
<PAGE>

     SECTION 6.5.   FINANCIAL STATEMENTS.  (a)  COMPANY.  The consolidated
balance sheet of the Company and its Subsidiaries as at May 31, 1997 and the
related consolidated statements of income and cash flows of the Company and its
Subsidiaries for the fiscal year then ended, and accompanying notes thereto,
which financial statements are accompanied by the audit report of Ernst & Young
LLP, independent public accountants, and the unaudited interim consolidated
balance sheet of the Company and its Subsidiaries as at July 31, 1997 and the
related consolidated statements of income and cash flows of the Company and its
Subsidiaries for the two (2) months then ended, heretofore furnished to the
Administrative Agent, fairly present the consolidated financial condition of the
Company and its Subsidiaries as at said dates and the consolidated results of
their operations and cash flows for the periods then ended in conformity with
generally accepted accounting principles applied on a consistent basis (subject
in the case of such interim statements, to normal year-end audit adjustments). 
Neither the Company nor any Subsidiary has contingent liabilities which are
material to it other than as indicated on such financial statements or, with
respect to future periods, on the financial statements furnished pursuant to
Section 8.5 hereof.  Since July 31, 1997, there has been no change in the
condition (financial or otherwise) or business prospects of any Borrower or the
Company and its Subsidiaries taken as a whole except those occurring in the
ordinary course of business, none of which individually or in the aggregate have
been materially adverse.  

     (b)  GOOD TITLE.  The Company and its Subsidiaries have good and 
defensible title to their assets as reflected on the most recent consolidated 
balance sheet of the Company and its Subsidiaries furnished to the Lenders 
(except for sales of assets by the Company and its Subsidiaries in the 
ordinary course of business), subject to no Liens other than such thereof as 
are permitted by Section 8.7 hereof.

     SECTION 6.6.   LITIGATION, TAXES AND APPROVALS.  Except as set forth in 
Schedule 6.6 hereto, there is no litigation or governmental proceeding 
pending, nor to the knowledge of any Borrower threatened, against the Company 
or any Subsidiary or for which any of them are liable which if adversely 
determined would result in a Material Adverse Effect.  The United States 
federal income tax returns of the Company and its Subsidiaries for the 
taxable year ended May 31, 1996 and for all taxable years ended prior to said 
date have been filed with the Internal Revenue Service, and any additional 
assessments in connection with any such years have been paid or the 
applicable statute of limitations therefor has expired.  No objections to or 
controversies in respect of the United States federal income tax returns of 
the Company or any Subsidiary are pending or threatened which, if adversely 
determined, would have a Material Adverse Effect. No authorization, consent, 
license, or exemption from, or filing or registration with, any court or 
governmental department, agency or instrumentality, is or will be necessary 
to the valid execution, delivery or performance by the Company or any 
Subsidiary of any Loan Document to be executed and delivered by it, except 
for filing of financing statements and other documents evidencing the 
Administrative Agent's lien in the Collateral.

     SECTION 6.7.   BURDENSOME CONTRACTS WITH AFFILIATES.  Except as 
disclosed on Schedule 6.7 hereto, as the same may be updated from time to 
time with the consent of the Agent and Required Lenders, all material 
contracts and agreements between the Company or 


                                     -46-
<PAGE>

any of its Subsidiaries and their Affiliates are on terms and conditions 
which are no less favorable to the Company or such Subsidiary than would be 
usual and customary in similar contracts or agreements between Persons not 
affiliated with each other.

     SECTION 6.8.   ERISA.  The Company and each Subsidiary are each in 
compliance in all material respects with the Employee Retirement Income 
Security Act of 1974 ("ERISA") to the extent applicable to it and has 
received no notice to the contrary from the Pension Benefit Guaranty 
Corporation ("PBGC"), and, in the event of the Company's or any Subsidiary's 
partial or total withdrawal from any pension plans, multi-employer pension 
plans or non-payment by other employer participants therein, the liability of 
the Company and its Subsidiaries for any unfunded vested benefits thereunder 
would not result in a Material Adverse Effect.

     SECTION 6.9.   FULL DISCLOSURE.  The statements and information 
furnished in writing by the Borrowers to either the Administrative Agent or 
the Lenders in connection with the negotiation of this Agreement and the 
commitments by the Lenders to provide all or part of the financing 
contemplated hereby do not, taken as a whole, contain any untrue statement of 
a material fact or omit to state a material fact necessary to make the 
material statements contained therein or herein not misleading, except for 
such thereof as were corrected in subsequent written statements furnished the 
Lenders prior to the initial extension of credit hereunder (the Lenders 
acknowledging that as to any projections furnished to the Lenders, the 
Company only represents that the same were prepared on the basis of 
information and estimates it believes to be reasonable).  There is no fact 
peculiar to the Company or any Subsidiary which the Company has not disclosed 
to the Lenders in writing which materially adversely affects nor, so far as 
the Borrowers now can reasonably foresee, is reasonably likely to have a 
Material Adverse Effect.

      SECTION 6.10.  COMPLIANCE WITH LAW.  (a) Neither the Company nor any 
Subsidiary is (i) in default with respect to any order, writ, injunction or 
decree or (ii) in default in any material respect under any Governmental 
Requirement (including ERISA, the Occupational Safety and Health Act of 1970 
and laws and regulations establishing quality criteria and standards for air, 
water, land and toxic waste) of any Governmental Body default with respect to 
or under which is reasonably likely to result in a Material Adverse Effect; 
and (b) without limiting the generality of the foregoing, the Company and 
each Subsidiary are each in compliance with all applicable state and federal 
environmental, health and safety statutes and regulations, including, without 
limitation, regulations promulgated under the Resource Conservation and 
Recovery Act of 1976, 42 U.S.C. Sections 6901 ET SEQ., except where failure 
to be in compliance is reasonably likely not to have a Material Adverse 
Effect, and, to the Borrowers' knowledge, neither the Company nor any 
Subsidiary will have acquired, incurred or assumed, directly or indirectly, 
any contingent liability in connection with the release of any toxic or 
hazardous waste or substance into the environment which is reasonably likely 
to have a Material Adverse Effect. Insofar as known to the responsible 
officers of each Borrower, neither the Company nor any Subsidiary is liable, 
in whole or in part, for, nor are any of the assets or property of the 
Company or any Subsidiary subject to a lien in favor of any Governmental Body 
for any material liability arising from or in any way relating to, the costs 
of cleaning up, remediating or responding to a release of hazardous 


                                     -47-
<PAGE>

substances (including, without limitation, petroleum, its by-products or 
derivatives, or other hydrocarbons).

     SECTION 6.11.  SOLVENCY, ETC.  (a) On the date of the initial Loan 
hereunder, after giving effect to the credit extended hereunder on such date, 
(i) the assets of each Borrower, at a fair valuation, will exceed its 
liabilities, including contingent liabilities, (ii) the remaining capital of 
the each Borrower will not be unreasonably small to conduct or in relation to 
its business or any transaction in which it intends to engage, and (iii) each 
Borrower will not have incurred debts, and does not intend to incur debts, 
beyond its ability to pay such debts as they mature. 

     (b)  On the date of the initial Loan hereunder, after giving effect to 
the credit extended hereunder on such date, (i) the assets of the Company and 
its Subsidiaries, taken as a whole, at a fair valuation, will exceed their 
liabilities, including contingent liabilities, (ii) the remaining capital of 
the Company and its Subsidiaries, taken as a whole, will not be unreasonably 
small to conduct or in relation to its business or any transaction in which 
they intend to engage, and (iii) the Company and its Subsidiaries, taken as a 
whole, will not have incurred debts, and do not intend to incur debts, beyond 
their ability to pay such debts as they mature.  

     (c)  For purposes of this Section, "DEBT" means any liability on a 
claim, and "CLAIM" means (i) right to payment, whether or not such right is 
reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, 
unmatured, disputed, undisputed, legal, equitable, secured, or unsecured, or 
(ii) right to an equitable remedy for breach of performance if such breach 
gives rise to a payment, whether or not such right to an equitable remedy is 
reduced to judgment, fixed, contingent, matured, unmatured, disputed, 
undisputed, secured, or unsecured.

SECTION 7.     CONDITIONS PRECEDENT.

     SECTION 7.1.   ALL ADVANCES.  The obligation of the Lenders to make any 
Revolving Loan or issue any Letter of Credit under the Revolving Credit or 
make the Term Loan under the Term Credit (including the first such extension 
of credit) shall be subject to the satisfaction of the following conditions 
precedent at the time of the extension of such credit:

          (a)  each of the representations and warranties set forth herein 
     and in the other Loan Documents shall be true and correct in all 
     material respects as of the date of such advance or issuance (except 
     (i) in the case of the initial credit extension, the representations 
     and warranties made in Section 6.5 hereof shall be deemed to refer to 
     the most recent financial statements delivered to the Lenders pursuant 
     to Section 8.5 hereof and (ii) to the extent that such representations 
     and warranties expressly relate to an earlier date (in which case such 
     representations and warranties shall have been true and accurate on and 
     as of such earlier date));

          (b)  no material adverse change shall have occurred in the 
     condition (financial or otherwise) of the Company and its Subsidiaries 
     taken as a whole since the date of 


                                     -48-
<PAGE>

     the most recent monthly financial statements furnished to the Lenders 
     pursuant to Sections 8.5(b) hereof; 

          (c)  no Default or Event of Default shall have occurred and be
     continuing;

          (d)  in the case of each request for a Revolving Loan or Letter of 
     Credit, after giving effect to such extension of credit, the aggregate 
     principal amount of all Revolving Loans and Letters of Credit 
     outstanding under this Agreement shall not exceed the lesser of (1) the 
     Revolving Credit Commitments or (2)  the Borrowing Base; and

          (e)  in the case of the issuance of each Letter of Credit, the 
     Administrative Agent shall have received a properly completed 
     Application therefor and, in the case of an extension or increase in 
     the amount of the Letter of Credit, the Administrative Agent shall have 
     received a written request therefor, in a form acceptable to the 
     Administrative Agent, with such Application or written request, in each 
     case to be accompanied by the fees called for hereby.

Any request made by any Borrower to the Administrative Agent for a Loan or
Letter of Credit hereunder shall be deemed to constitute a representation and
warranty that the applicable conditions specified above exist as of such date. 
Upon the request of the Administrative Agent, each Borrower so requested shall
furnish a certificate executed by its chief financial officer to confirm the
foregoing. 

     SECTION 7.2.   INITIAL ADVANCE.  At or prior to the time of the initial 
Loan under the Revolving Credit or Term Credit, the following conditions 
precedent shall also have been satisfied:

          (a)  The Administrative Agent shall have received the following for
     the account of the Lenders (each to be properly executed and completed) 
     and the same shall have been approved as to form and substance by the
     Administrative Agent:

               (i)   this Agreement and the Notes;

               (ii)  a Guaranty from each Subsidiary not a party hereto;

               (iii) the Initial Collateral Documents and any documentation 
          necessary to perfect the liens thereby created (including, without 
          limitation, all certificates of capital stock of the Subsidiaries 
          which are corporations together with executed blank stock powers 
          therefor, and all financing statements requested by the 
          Administrative Agent in connection with the Initial Collateral 
          Documents) to the extent required by Section 4.1 hereof; 

               (iv) (x) certified copies of resolutions of the board of 
          directors of each Borrower authorizing the execution, delivery and 
          performance of this Agreement and such Borrower's Notes, 
          indicating the authorized signers of this 


                                     -49-
<PAGE>

          Agreement and the Borrower's Notes and all other documents 
          relating thereto and the specimen signatures of such signers and 
          (y) copies of such Borrower's certificate or articles of 
          incorporation and by-laws certified by the secretary or other 
          appropriate officer of such Borrower together with a certificate 
          of good standing certified by the appropriate governmental officer 
          in the jurisdiction of such Borrower's incorporation;

               (v)  (x) certified copies of resolutions of the board of 
          directors of each Guarantor authorizing the execution, delivery 
          and performance of this Agreement, indicating the authorized 
          signers of this Agreement and all other documents relating thereto 
          and the specimen signatures of such signers and (y) copies of such 
          Guarantor's certificate or articles of incorporation and by-laws 
          certified by the Secretary or other appropriate officer of such 
          Guarantor together with a certificate of good standing certified 
          by the appropriate governmental officer in the jurisdiction of 
          such Guarantor's incorporation;

               (vi)   evidence of the maintenance of insurance as required 
          hereby or by the Initial Collateral Documents; 

               (vii)  copies of all instruments evidencing or setting 
          forth terms and conditions applicable to the Intersound Sub Debt; 
          and

               (viii) a written consent from the venture partner of the 
          Company in the House of Blues Venture to the collateral assignment 
          of the Company's equity interest in the House of Blues Venture 
          pursuant to the Stock Pledge Agreement as security for the 
          Obligations; 

          (b)  The Administrative Agent shall have received evidence 
     reasonably satisfactory to it that the Company shall have received on 
     at any time after November 20, 1997 net cash proceeds of at least 
     $20,700,000 as a result of (i) capital contributions from existing 
     shareholders in the Company or (ii) from the Company's issuance and 
     sale, whether by public offering or private placement, of equity 
     securities (in the case of any such public offering or private 
     placement, net only of reasonable underwriting discounts and 
     commissions and other ordinary out-of-pocket expenses incurred by the 
     Company directly incurred and payable as a result of such issuance) or 
     (iii) a combination of the foregoing;

          (c)  All reasonable legal fees charged, and reasonable costs and 
     expenses incurred, by counsel to the Administrative Agent prior to the 
     Closing Date in connection with the preparation of the Loan Documents 
     shall have been paid;

          (d)  The Administrative Agent shall have received for its own 
     account the fees to be received by it at such time by agreement with 
     the Company; and


                                     -50-
<PAGE>

          (e)  The Administrative Agent shall have received for the account 
     of the Lenders such other agreements, instruments, documents and 
     certificates as the Administrative Agent may reasonably request.

     SECTION 7.3.   LEGAL MATTERS.  The Lenders shall have received the 
written opinions of acceptable counsel for the Company and each Subsidiary 
party to the Loan Documents, in form and substance satisfactory to the 
Administrative Agent and its counsel, with respect to:

          (a)  the due organization and existence of the Company and each 
     such Subsidiary and the due licensing or qualification of the Company 
     and each such Subsidiary in all jurisdictions where the nature of the 
     assets owned or leased by them or business conducted by them requires 
     such licensing or qualification and in which the failure to be so 
     licensed or qualified would materially and adversely affect the 
     business, properties or operations of the Company and its Subsidiaries 
     taken as a whole;

          (b)  the power and authority of each Loan Party, to enter into the 
     Loan Documents and to perform and observe all the matters and things 
     therein provided for and the fact that the execution and delivery of 
     the Loan Documents will not, nor will the observance or performance of 
     any of the matters or things therein or herein provided for, contravene 
     any provision of law (including federal securities laws) or of the 
     charter or by-laws, operating agreement or management agreement of the 
     Company or any such Subsidiary or constitute a material breach of or 
     default under any provision of any material covenant, indenture or 
     agreement binding upon the Company or any such Subsidiary or affecting 
     any of their properties or assets;

          (c)  the due authorization for and the validity and enforceability 
     of the Loan Documents; 

          (d)  the fact that no governmental authorization, consent, 
     exemption or withholding of objection is required with respect to the 
     lawful execution, delivery and performance of the Loan Documents other 
     than such thereof as have been obtained and are in full force and 
     effect;

          (e)  the lack, to the knowledge of such counsel, of any legal or 
     administrative proceedings pending or threatened against the Company or 
     any Subsidiary which, if adversely determined, would result in a 
     Material Adverse Effect; and 

          (f)  such other matters as the Administrative Agent or its counsel 
     may reasonably require.

               SECTION 7.4.   INITIAL LOANS; AMENDMENT AND RESTATEMENT.  The 
Term Loan, together with the proceeds received by the Company on the Closing 
Date upon the closing of the Investment Agreement, shall be in an amount 
sufficient to, and the Borrowers shall (on the Closing Date) apply such Loans 
to, repay the BMO Bridge Loans, all of which will then be held by BMO.  
Simultaneously with and effective immediately upon the disbursement of such 

                                     -51-
<PAGE>

initial Loans, (i) the loan agreement under which the BMO Bridge Loans were 
originally extended (the "PRIOR LOAN AGREEMENT") shall terminate and be 
superseded by this Agreement, (ii) this Agreement shall be deemed to amend 
and restate the Prior Loan Agreement in its entirety, with the Notes issued 
hereunder to be issued in substitution and replacement for the notes 
previously evidencing the BMO Bridge Loans and (iii) the security agreements 
entered into in connection with the Prior Loan Agreement to secure the BMO 
Bridge Loans shall terminate and be superseded by the Initial Collateral 
Documents.

SECTION 8.     COVENANTS.

     Each Borrower agrees that, so long as any credit is available to or in 
use by any Borrower hereunder, except to the extent compliance in any case or 
cases is waived in writing by the Required Lenders (except that each Borrower 
other than the Company is making such agreements only as to itself and its 
subsidiaries):

     SECTION 8.1.   MAINTENANCE OF BUSINESS.  The Company will, and will 
cause each Subsidiary to, preserve and keep in force and effect all licenses 
and permits necessary to the proper conduct of their respective businesses 
except where the failure to do so would not result in a Material Adverse 
Effect.  

     SECTION 8.2.   MAINTENANCE.  The Company will, and will cause each 
Subsidiary to, maintain, preserve and keep their plant, properties and 
equipment (other than obsolete or worn out equipment held for sale or 
disposition) in good repair, working order and condition (ordinary wear and 
tear excepted) and the Company will, and will cause each Subsidiary to, from 
time to time make all needful and proper repairs, renewals, replacements, 
additions and betterments thereto so that at all times the efficiency thereof 
shall be substantially preserved and maintained, in each case where the 
failure to do so is reasonably likely to have a Material Adverse Effect.

     SECTION 8.3.   TAXES.  The Company will, and will cause each Subsidiary 
to, duly pay and discharge all taxes, rates, assessments, fees and 
governmental charges upon or against any of them or against their respective 
properties, in each case before the same become delinquent and before 
penalties accrue thereon, unless and to the extent that the same are being 
contested in good faith and by appropriate proceedings, in each case where 
the failure to do so is reasonably likely to have a Material Adverse Effect.

     SECTION 8.4.   INSURANCE.  The Company will, and will cause each 
Subsidiary to, insure and keep insured, with good and responsible insurance 
companies, all insurable property owned by them which is of a character 
usually insured by companies similarly situated and operating like 
properties; and the Company will, and will cause each Subsidiary to, insure 
such other hazards and risks (including employers' and public liability 
risks) with good and responsible insurance companies as and to the extent 
usually insured by companies similarly situated and conducting similar 
businesses. The Company shall in any event maintain insurance on the 
Collateral to the extent required by the Collateral Documents.  The Company 
will upon request of the Administrative Agent furnish a certificate setting 
forth in summary form the nature and extent of the insurance maintained 
pursuant to this Section.


                                     -52-
<PAGE>

     SECTION 8.5.   FINANCIAL REPORTS.  The Company will, and will cause each 
Subsidiary to, maintain a standard and modern system of accounting in 
accordance with sound accounting practice and will furnish to the Lenders and 
their duly authorized representatives such information respecting the 
business and financial condition of the Company and its Subsidiaries as any 
Lender or the Administrative Agent may reasonably request; and without any 
request, will furnish to the Lenders:

          (a)  as soon as available, and in any event no later than thirty 
     (30) days after the close of each monthly accounting period of the 
     Company, a Borrowing Base certificate for the Borrowers in the form 
     attached hereto as Exhibit C showing a separate computation of each 
     Borrower's Borrowing Base in reasonable detail as of the close of 
     business on the last day of the immediately preceding month, together 
     with such other information as is therein required, each prepared by 
     the Company and certified to by the President or chief financial 
     officer of the Company (it being understood and agreed that absent any 
     Event of Default, the information on such certificate regarding 
     inventory need only be updated for the certificate most closely 
     corresponding to the close of a monthly accounting period of such 
     Borrower);

          (b)  as soon as available, and in any event within thirty (30) 
     days after the close of each monthly accounting period of the Company, 
     a copy of the consolidated balance sheet of the Company and its 
     Subsidiaries as of the last day of such period and the consolidated 
     statements of income, retained earnings and cash flows of the Company 
     and its Subsidiaries for the month and for the fiscal year-to-date 
     period then ended, each in reasonable detail showing in comparative 
     form the figures for the corresponding date and period in the previous 
     fiscal year, prepared by the Company in accordance with GAAP (subject 
     to year end audit adjustments, none of which are material) and 
     certified to by the President or chief financial officer of the Company;

          (c)  as soon as available, and in any event within thirty (30) 
     days after the close of each monthly accounting period of the Company, 
     an accounts receivable and accounts payable aging, an accounts 
     receivable concentration and reconciliation report and an inventory 
     report (broken down by category), one for each Borrower separately and 
     each as of the close of such period and in reasonable detail prepared 
     by the Company and certified to by the President or chief financial 
     officer of the Company;

          (d)  as soon as available, and in any event within ninety (90) 
     days after the close of each annual accounting period of the Company, a 
     copy of the consolidated  balance sheet of the Company and its 
     Subsidiaries as of the last day of the period then ended and the 
     consolidated statements of income, retained earnings and cash flows of 
     the Company and its Subsidiaries for the period then ended, and 
     accompanying notes thereto, each in reasonable detail showing in 
     comparative form the figures for the previous fiscal year, accompanied 
     by an opinion without any Impermissible Qualifications thereon of Ernst 
     & Young LLP or another firm of independent public accountants of 
     recognized national standing, selected by the Company and satisfactory 
     to the Required Lenders, to the effect that the financial statements 
     have been prepared 


                                     -53-
<PAGE>

     in accordance with GAAP and present fairly in accordance with GAAP the 
     consolidated financial condition of the Company and its Subsidiaries as 
     of the close of such fiscal year and the results of their operations 
     and cash flows for the fiscal year then ended and that an examination 
     of such accounts in connection with such financial statements has been 
     made in accordance with generally accepted auditing standards; 

          (e)  within the period provided in subsection (d) above, the 
     written statement of the accountants who certified the audit report 
     thereby required that in the course of their audit they have obtained 
     no knowledge of any Default or Event of Default with respect to any of 
     the Financial Covenants, or, if such accountants have obtained 
     knowledge of any such Default or Event of Default, they shall disclose 
     in such statement the nature and period of the existence thereof;

          (f)  as soon as available, and in any event within forty-five (45) 
     days after the close of each quarterly accounting period of the 
     Company, a certificate of an authorized financial officer of the 
     Company stating that such officer has reviewed the provisions of this 
     Agreement and setting forth: (aa) the information and computations (in 
     sufficient detail) required in order to establish whether the Company 
     was in compliance with the Financial Covenants at the end of the period 
     covered by the financial statements then being furnished, and (ab) to 
     the best such officer's knowledge, whether there exists on the date of 
     the certificate or existed at any time during the period covered by 
     such financial statement any Default or Event of Default and, if any 
     such condition or event exists on the date of the certificate or 
     existed during such period, specifying the nature and period of 
     existence thereof and the action the Borrowers are taking, have taken 
     or propose to take with respect thereto;

          (g)  promptly after the sending or filing thereof, copies of all 
     proxy statements, financial statements and reports any Borrower sends 
     generally to its shareholders, and copies of all other regular, 
     periodic and special reports and all registration statements any 
     Borrower files with the SEC or any successor thereto (including without 
     limitation Forms 10-Q and 10-K), or with any national securities 
     exchanges;

          (h)  as soon as available, and in any event within sixty (60) days 
     after the close of each fiscal year of the Company, a copy of each 
     Borrower's and its subsidiaries' consolidated business plan for the 
     following fiscal year, such business plan to show each Borrower's and 
     its subsidiaries' projected consolidated revenues, expenses, and 
     balance sheet on month-by-month basis, such business plan to be in 
     reasonable detail prepared by the Company and in form reasonably 
     satisfactory to Administrative Agent and the Required Lenders; and

          (i)  promptly after knowledge thereof shall have come to the 
     attention of any responsible officer of any Borrower, written notice of 
     (i) any threatened or pending litigation or governmental proceeding or 
     assessment against the Company or any Subsidiary which if adversely 
     determined would result in a Material Adverse Effect, 


                                     -54-
<PAGE>

     (ii) any Default or Event of Default and (iii) any pending or actual 
     Change of Control/Management Event.

     The Company shall, and shall cause each Subsidiary to, permit the 
Administrative Agent and (if accompanying the Administrative Agent) each 
Lender and each of their duly authorized representatives and agents, upon 
reasonable prior notice, to visit and inspect any of the Properties, 
corporate books and financial records of the Company and its Subsidiaries, to 
examine and make copies of the books of accounts and other financial records 
of the Company and its Subsidiaries, and to discuss the affairs, finances and 
accounts of the Company and its Subsidiaries, with, and to be advised as to 
the same by, its officers, employees and (if and so long as a representative 
of the Company is present) independent public accountants (and by this 
provision each Borrower hereby authorizes such accountants to discuss with 
the Administrative Agent and such Lenders the finances and affairs of such 
Borrower and its Subsidiaries if and so long as such a representative is 
present) at such reasonable times and reasonable intervals as the 
Administrative Agent may designate; PROVIDED, HOWEVER, that so long as no 
Event of Default has occurred and is continuing, the Borrowers shall only be 
liable for the expenses of the Administrative Agent (and any Lenders 
accompanying it) of two (2) such visits each calendar year.  Unless any 
Default or Event of Default has occurred and is continuing or the 
Administrative Agent or the Required Lenders in good faith believe such is 
the case, then neither the Administrative Agent nor any Lender may exercise 
its rights under this Section to gain access to a Borrower's premises outside 
of normal business hours or to gain such access or to engage in such 
discussion without first giving any Borrower at least three (3) days' advance 
notice (which may be written or oral) of its intent to take such action.

     The Administrative Agent and each Lender agree to maintain in confidence 
and not disclose to any Person any non-public information relating to the 
Company or its Subsidiaries made available to the Administrative Agent or 
such Lender pursuant to this Section 8.5; PROVIDED, HOWEVER, that the 
Administrative Agent and each Lender may make such disclosures as are 
permitted by Section 13.16 hereof.

     SECTION 8.6.   COMPLIANCE WITH LAWS.  The Company will, and will cause 
each Subsidiary to, comply with all Governmental Requirements to which they 
are subject, including, without limitation, the Occupational Safety and 
Health Act of 1970, as amended, ERISA, and all laws, ordinances, governmental 
rules and regulations relating to environmental protection in all applicable 
jurisdictions, the violation of which is reasonably likely to have a Material 
Adverse Effect.

     SECTION 8.7.   LIENS.  The Company will not, nor will it permit any 
Subsidiary to, pledge, mortgage or otherwise encumber or subject to, or 
permit to exist upon or be subjected to, any lien, security interest or 
charge upon, any assets or any Subsidiary; PROVIDED, HOWEVER, that nothing in 
this Section contained shall operate to prevent any of the following 
(collectively, "PERMITTED LIENS"):

          (a)  liens, pledges or deposits in connection with workmen's 
     compensation, unemployment insurance, social security obligations, 
     taxes, assessments, statutory 


                                     -55-
<PAGE>

     obligations or other similar charges, good faith deposits in connection 
     with tenders, bids, contracts (other than contracts for the payment of 
     money) or leases to which the Company or any of its Subsidiaries is a 
     party or other deposits required to be made in the ordinary course of 
     business and not in connection with borrowing money or obtaining 
     advances or credit, provided in each case that the obligation or 
     liability arises in the ordinary course of business and is not overdue, 
     or if overdue, is being contested in good faith by appropriate 
     proceedings which prevent enforcement of the matter under contest and 
     adequate reserves have been established therefor to the extent required 
     by GAAP;

          (b)  inchoate statutory, construction, common carrier's, 
     materialmen's, landlord's, warehousemen's, mechanics' or other similar 
     liens in each case arising in the ordinary course of business and 
     securing obligations not overdue, or if overdue, being contested in 
     good faith by appropriate proceedings which prevent enforcement of the 
     matter under contest and adequate reserves have been established 
     therefor to the extent required by GAAP;

          (c)  liens given to secure the payment of the purchase price or 
     the financing thereof incurred in connection with the acquisition of 
     equipment, including liens of such type existing on such assets at the 
     time of acquisition thereof by the Company or any Subsidiary, provided 
     that (i) the lien shall attach solely to the property acquired or 
     purchased (ii) the indebtedness secured by such lien does not exceed 
     100% of the lesser of the cost or fair value of the property financed 
     and (iii) the indebtedness secured thereby is permitted by Section 
     8.8(b) hereof (collectively, "PURCHASE MONEY LIENS");

          (d)   Liens arising from Capital Leases permitted by Section 
     8.8(b) hereof;

          (e)  the liens created by the Collateral  Documents;

          (f)  attachment or judgment liens individually or in the aggregate 
     not in excess of $500,000 (exclusive of (i) any amounts that are duly 
     bonded to the reasonable satisfaction of the Administrative Agent, (ii) 
     any amount adequately covered by insurance as to which the insurance 
     company has not disclaimed or disputed in writing its obligations for 
     coverage or has not otherwise failed to pay when due, and (iii) the 
     judgment rendered on April 23, 1997 in favor of Dan Finley and Rick Eby 
     against River North Records, Inc. and Entertainment Artists, Inc. by 
     the United States District Court, Western District of Arkansas, 
     Fayetteville Division, in the amount of $95,182);

          (g)  liens for taxes, assessments or other governmental charges 
     not yet due and payable or which are being diligently contested in good 
     faith by the Company or its applicable Subsidiary by appropriate 
     proceedings, provided that in any such case an adequate reserve is 
     being maintained by the Company or such Subsidiary for the payment of 
     same;


                                     -56-
<PAGE>

          (h)  the pledge of assets for the purpose of securing an appeal, 
     stay or discharge in the course of any legal proceeding, provided that 
     the aggregate amount of liabilities of the Company and its Subsidiaries 
     secured by a pledge of assets permitted under this subsection, 
     including interest and penalties thereon, if any, shall not be in 
     excess of $500,000 at any one time outstanding; 

          (i)  easements, licenses, permits, rights-of-way, rights of entry 
     or passage, rights of lessees, restrictions and other similar 
     encumbrances incurred in the ordinary course of business of the type 
     generally applicable to leased property which do not secure debt for 
     money borrowed or its equivalent, and which do not materially detract 
     from the value of the property subject thereto or materially interfere 
     with the ordinary conduct of the business of the Company or any 
     Subsidiary or use of the assets in question for purposes producing and 
     distributing recorded music;

          (j)  the lien granted in favor of Polygram prior to the Closing 
     Date on inventory from time to time in Polygram's possession to secure 
     amounts due and to become due from the Company to Polygram under the 
     distribution arrangements between the Company and Polygram, provided 
     such arrangements are not modified after the Closing Date to encumber 
     any other inventory or secure any other obligations;
     
          (k)  liens in existence on the date hereof and set forth on 
     Schedule 8.7 hereto;
     
          (l)  liens existing on specific assets at the time acquired by the 
     Company or any Subsidiary or on assets of a Person at the time such 
     Person first becomes a Subsidiary or was merged into the Company or any 
     Subsidiary provided that (i) any such liens were not created at the 
     time of or in contemplation of the acquisition of such assets or Person 
     by the Company or such Subsidiary, (ii) in the case of any such 
     acquisition of a Person, any such lien attaches only to specific assets 
     of such Person and not assets of such Person generally and (iii) such 
     lien is not (x) a lien on shares of stock in any Subsidiary, (y) a 
     blanket lien on receivables, inventory or similar working capital 
     assets or (z) a blanket lien on patents, trademarks or similar 
     intangibles; 
     
          (m)  liens securing any Hedging Arrangements with the Lenders or 
     their Affiliates; and
     
          (n)  extensions and renewals of the foregoing Permitted Liens, 
     provided that the aggregate amount of such liabilities secured by such 
     extended or renewed lien is not increased and such extended or renewed 
     liabilities secured by such lien are on terms and conditions no more 
     restrictive than the terms and conditions of the same being extended or 
     renewed.

     SECTION 8.8.   INDEBTEDNESS.  The Company will not, nor will it permit 
any Subsidiary to, issue, incur, assume, create, or have outstanding any 
Indebtedness for Borrowed Money; PROVIDED, HOWEVER, that the foregoing 
provisions shall not restrict nor operate to prevent:


                                     -57-
<PAGE>

          (a)  the Obligations;

          (b)  Capitalized Leases and purchase money indebtedness secured by
     Purchase Money Liens permitted by Sections 8.7(c) and (d) hereof and
     aggregating not more than $1,000,000 at any one time outstanding;

          (c)  obligations on leases which are not Capitalized Leases;

          (d)  guaranties permitted by Section 8.15 hereof;

          (e)  indebtedness of (x) any Wholly-Owned Subsidiary owing to the 
     Company or any other Wholly-Owned Subsidiary as a result of loans and 
     advances by the Company or such Wholly-Owned Subsidiary to such 
     Subsidiary permitted by Section 8.15 hereof and (y) the Company owing 
     to any Wholly-Owned Subsidiary as a result of loans and advances made 
     by such Wholly-Owned Subsidiary to the Company permitted by Section 
     8.15 hereof;

          (f)  Indebtedness existing on the date hereof and set forth on
     Schedule 8.8 hereto;

          (g)  unsecured Subordinated Indebtedness incurred and used to (i) 
     purchase, redeem or otherwise acquire any outstanding Series B 
     Preferred Stock or Affiliate Preferred Stock or (ii) purchase any 
     Purchaser Warrants, Affiliate Warrants or the Harnick Warrant to the 
     extent such warrant has been properly put to the issuer for mandatory 
     purchase pursuant to its terms by virtue of the holder's exercise of 
     such put, provided in each case that the Company can demonstrate that 
     on a PRO FORMA basis after giving effect to the incurrence of such 
     Subordinated Indebtedness, the Company will be in compliance with all 
     the Financial Covenants as of (and after giving effect to) the 
     incurrence in question (compliance to be determined on a PRO FORMA 
     basis as if the incurrence in question took place on the first day of 
     any accounting period with reference to which compliance is being 
     determined);

          (h)  the Intersound Sub Debt if and so long as the same 
     constitutes Subordinated Indebtedness; 

          (i)  liabilities in respect of Hedging Arrangements; and

          (j)  indebtedness not otherwise permitted by this Section 8.8
     aggregating not more than $1,000,000 at any one time outstanding.

     SECTION 8.9.   CONSOLIDATED NET WORTH.  The Company will, as of the 
close of each semiannual accounting period of the Company ending in May and 
November of each year, maintain Consolidated Net Worth of not less than the 
Minimum Required Amount.  For purposes thereof, the term "MINIMUM REQUIRED 
AMOUNT" shall mean (a) $22,000,000 through the close of the monthly 
accounting period of the Company ending on or about January 31, 1998, and (b) 
shall increase (but never decrease) as of the close of the monthly 


                                     -58-
<PAGE>

accounting period of the Company ending on or about February 28, 1998 and as 
of the close of each monthly accounting period of the Company occurring 
thereafter, in each case by an amount equal to 50% of Net Income (if 
positive) for the monthly accounting period then ended.

     SECTION 8.10.  LEVERAGE RATIO.  The Company shall, as of the Closing 
Date and the close of each subsequent fiscal quarter of the Company specified 
below, maintain the Leverage Ratio so as not to be more than the amount set 
forth below:

  FROM AND INCLUDING:          TO AND INCLUDING:                 LEVERAGE
                                                            RATIO SHALL NOT BE
                                                                 MORE THAN:

 Closing Date and 3rd fiscal    4th fiscal quarter of fiscal      4.50 to 1
quarter of fiscal year ending       year ending in 1998
in 1998

1st fiscal quarter of fiscal    4th fiscal quarter of fiscal      3.50 to 1
  year ending in 1999               year ending in 1999 

1st fiscal quarter of fiscal    Each fiscal quarter thereafter    2.75 to 1
  year ending in 2000


     SECTION 8.11.  CONSOLIDATED WORKING CAPITAL.  The Company shall not at 
any time permit Consolidated Working Capital to be less than $1,000,000.

     SECTION 8.12.  INTEREST COVERAGE RATIO.  The Company shall, as of the 
close of each fiscal quarter of the Company specified below, maintain the 
ratio of Consolidated EBITDA for the fiscal quarter of the Company then ended 
to Cash Interest Expense for the same fiscal quarter then ended (the 
"INTEREST COVERAGE RATIO") so as not to be less than the amount set forth 
below:

       FROM AND                            TO AND            INTEREST COVERAGE
       INCLUDING                          INCLUDING          RATIO SHALL NOT BE
                                                                 LESS THAN:

2nd fiscal quarter of fiscal    4th fiscal quarter of fiscal    2.00 to 1.00
   year ending in 1998              year ending in 1998 

1st fiscal quarter of fiscal    4th fiscal quarter of fiscal    2.25 to 1
   year ending in 1999              year ending in 1999 

1st fiscal quarter of fiscal    Each fiscal quarter thereafter  2.50 to 1.00
   year ending in 2000


     SECTION 8.13.  FIXED CHARGE COVERAGE RATIO.  The Company shall, as of 
the close of each fiscal quarter of the Company specified below, maintain the 
ratio (the "FIXED CHARGE 

                                     -59-

<PAGE>

COVERAGE RATIO") of (x) Consolidated EBITDA for the fiscal quarter ended such 
date to (y) the sum of (i) Cash Interest Expense for such fiscal quarter, 
(ii) Current Maturities as of the close of such fiscal quarter but excluding, 
however, to the extent otherwise included, the final installment on the Term 
Notes, (iii) Capital Expenditures during the same such fiscal quarter and 
(iv) taxes on or measured by income or excess profits payable in cash during 
the same fiscal quarter by the Company and its Subsidiaries so as not to be 
less than the amount set forth below:

<TABLE>
<CAPTION>

                                                                     FIXED CHARGE COVERAGE
       FROM AND                              TO AND                    RATIO SHALL NOT BE
       INCLUDING                            INCLUDING                      LESS THAN:
<S>                               <C>                                    <C>
2nd fiscal quarter of fiscal       2nd fiscal quarter of fiscal           1.05 to 1.00
   year ending in 1998                 year ending in 1999


3rd fiscal quarter of fiscal       Each fiscal quarter thereafter         1.25 to 1.00
year ending in 1999                                          
</TABLE>


         SECTION 8.14.  CAPITAL EXPENDITURES.  The Company shall not and 
shall not permit its Subsidiaries to expend or become obligated for Capital 
Expenditures during any fiscal year of the Company for the Company and its 
Subsidiaries taken together in excess of the amount set forth for such fiscal 
year below:  


       DURING FISCAL YEAR                   CAPITAL EXPENDITURES SHALL NOT 
                                                         EXCEED:

   Ending on or about May 31, 1998                      $1,250,000

    Each fiscal year thereafter                Maximum Permitted Amount


For purposes thereof, the term "MAXIMUM PERMITTED AMOUNT" shall mean (i) for 
the fiscal year of the Company ending on or about May 31, 1999, the sum of 
(x) $500,000 plus (y) the amount (if any) by which the actual Capital 
Expenditures for the immediately preceding fiscal year of the Company were 
less than $1,250,000; (ii) for the fiscal year of the Company ending on or 
about May 31, 2000, the sum of (x) $500,000 plus (y) the amount (if any) by 
which the actual Capital Expenditures for the immediately preceding two 
fiscal years of the Company, taken together, were less than $1,750,000; (iii) 
for the fiscal year of the Company ending on or about May 31, 2001, the sum 
of (x) $500,000 plus (y) the lesser of $500,000 or the amount (if any) by 
which the actual Capital Expenditures for the fiscal year of the Company 
ending on or about May 31, 2000 were less than the Maximum Permitted Amount 
for such fiscal year ending in 2000; and (iv) for each fiscal year 
thereafter, the sum of (x) $500,000 plus (y) the amount (if any) by which the 
actual Capital Expenditures for the immediately preceding fiscal year of the 
Company were less than $500,000.

         SECTION 8.15.  ACQUISITIONS, INVESTMENTS, LOANS, ADVANCES AND 
GUARANTIES. The Company will not, nor will it permit any Subsidiary to, 
directly or indirectly, make, retain 


                                     -60-
<PAGE>

or have outstanding any interest or investments (whether through purchase of 
stock or obligations or otherwise) in, or loans or advances to, any other 
Person, or acquire all or any substantial part of the assets or business of 
any other Person, or guarantee any indebtedness, obligation or liability of 
any other Person or otherwise enter into any arrangement designed to assure 
another Person against loss; PROVIDED, HOWEVER, that the foregoing provisions 
shall not apply to nor operate to prevent:

          (a)  investments by the Company or any Subsidiary in direct 
     obligations of the United States of America or of any agency or 
     instrumentality thereof whose obligations constitute full faith and 
     credit obligations of the United States of America, provided that any 
     such obligations shall mature within fifteen months from the date the 
     same are acquired by the Company or such Subsidiary;

          (b)  investments by the Company or any Subsidiary in certificates of 
     deposit or time deposits issued by any Lender, or by any United States 
     commercial bank having capital and surplus of not less than $100,000,000 
     and having a maturity of fifteen months or less; 

          (c)  investments by the Company or any Subsidiary in commercial 
     paper maturing 270 days or less from the date of issuance which at the 
     time of acquisition is rated A-2 or better by Standard & Poor's Ratings 
     Services Group, a division of the McGraw-Hill Companies and P-2 or 
     better by Moody's Investors Service, Inc.;

          (d)  investments by the Company or any Subsidiary in debt 
     securities issued by U.S. corporations or states of the United States 
     maturing within fifteen months from the date of acquisition thereof if 
     at the time of acquisition the investment in question has a rating of 
     not less than BBB from Standard & Poor's Ratings Services Group, a 
     division of The McGraw-Hill Companies, Inc. and/or Baa2 from Moody's 
     Investors Services, Inc.;

          (e)  investments by the Company or any Subsidiary in preferred 
     stock of any corporation organized under the laws of any state of the 
     United States which is subject to a remarketing undertaking at intervals 
     not exceeding fifteen months issued by any substantial broker and which 
     is rated BBB or better by Standard & Poor's Ratings Services Group, a 
     division of The McGraw-Hill Companies, Inc. and/or Baa2 or better by 
     Moody's Investors Services, Inc.;

          (f)  investments in repurchase agreements with respect to, and 
     which are fully secured by a perfected security interest in, government 
     obligations of a type described in clause (a) or (c) above and are with 
     any commercial bank described in clause (b) above;

          (g)  investments in any mutual fund that has its assets invested 
     continuously in the types of investments referred to in clauses (a)-(f) 
     above and has net assets of not less than $500,000,000;

                                     -61-
<PAGE>

          (h)  loans, advances and capital contributions by the Company to 
     Wholly-Owned Subsidiaries, and by Wholly-Owned Subsidiaries to the 
     Company, in each case to fund their ordinary working capital needs 
     arising in the ordinary course of business;

          (i)  loans and royalty advances to recording artists in the 
     ordinary course of business provided that the aggregate amount of such 
     loans and advances made during each quarterly accounting period of the 
     Company ending does not exceed $3,000,000 on a cumulative basis for such 
     quarterly period;

          (j)  the Company's equity investment in the House of Blues Venture; 

          (k)  the Guaranties; 

          (l)  loans and advances to employees, officers and directors in the 
     ordinary course of business and in aggregate principal amount not to 
     exceed $500,000 at any time outstanding;

          (m)  investments, loans, advances and guaranties existing on the 
     Closing Date and listed on Schedule 8.15 hereto without giving effect to 
     any additions thereto or replacements thereof;

          (n)  acquisitions of all or any substantial part of the assets or 
     business of any other Person or division thereof engaged in the music or 
     related entertainment business, or of a majority of the voting stock of 
     such a Person, or of equity interests in any Person which does not 
     become a Subsidiary as a result of such acquisition but is engaged (or 
     promptly after such acquisition will be engaged) in the music or related 
     entertainment business, provided that (i) no Default or Event of Default 
     exists or would exist after giving effect to such acquisition, (ii) the 
     board of directors or other governing body of such Person whose 
     Property, or voting stock or other interests in which, are being so 
     acquired has approved the terms of such acquisition, (iii) the Borrower 
     shall have delivered to the Lenders an updated Schedule 6.3 hereof to 
     reflect any new Subsidiary resulting from such acquisition, (iv) the sum 
     of (1) the aggregate amount expended by the Borrower and its 
     Subsidiaries as consideration for such acquisition (and in any event (x) 
     including as such consideration, any Indebtedness for Borrowed Money 
     assumed or incurred as a result of such acquisition, and (y) excluding 
     as such consideration, any equity securities issued by the Company as 
     consideration for such acquisition) and (2) the aggregate amount 
     expended as consideration (including Indebtedness for Borrowed Money and 
     excluding equity securities as aforesaid) for all other acquisitions 
     permitted under this Section 8.15(n) after the Closing Date on a 
     cumulative basis does not exceed $10,000,000, (v) the sum of (1) the 
     aggregate amount expended by the Borrower and its Subsidiaries as 
     consideration for such acquisition (and in any event including 
     Indebtedness for Borrowed Money and excluding equity securities as 
     aforesaid) and (2) the aggregate amount expended as consideration 
     (including Indebtedness for Borrowed Money and excluding equity 
     securities as aforesaid) for all acquisitions permitted under this 


                                     -62-
<PAGE>

     Section 8.15(n) within the immediately preceding twelve calendar months 
     does not exceed $5,000,000 and (vi) the Company can demonstrate that on 
     a PRO FORMA basis after giving effect to the subject acquisition, the 
     Company will be in compliance with all the Financial Covenants as of 
     (and after giving effect to) the acquisition in question (compliance to 
     be determined on a PRO FORMA basis as if the acquisition in question 
     took place on the first day of any accounting period with reference to 
     which such compliance is being determined);

          (o)  investments (including debt obligations) received by the 
     Borrower or any Subsidiary in connection with the bankruptcy or 
     reorganization of suppliers and customers and in settlement of 
     delinquent obligations of, and other disputes with, customers and 
     suppliers arising in the ordinary course of business; and

          (p)  investments in, loans and advances to, and guaranties of the 
     obligations of Persons, in each case not otherwise permitted by this 
     Section, provided (1) the aggregate amount of such investments, loans, 
     advances and guaranties on a cumulative basis during each period of 
     twelve (12) consecutive calendar months, when taken together with the 
     aggregate amount of investments, loans and advances permitted by 
     subsections (h), (i) and (l) above on a cumulative basis during the same 
     such period, does not exceed $5,000,000 and (2) no such investment, 
     loan, advance or guaranty is made if at the time thereof or immediately 
     after giving effect thereto, any Default or Event of Default would occur 
     or be continuing.

In determining the amount of investments, loans and advances permitted under 
this Section, investments shall always be taken at the original cost thereof, 
regardless of any subsequent appreciation (including retained earnings) or 
depreciation therein, loans and advances shall be taken at the principal 
amount thereof then remaining unpaid and guaranties shall be taken at the 
amount of the obligation guaranteed.  

               SECTION 8.16.  DIVIDENDS AND CERTAIN OTHER RESTRICTED 
PAYMENTS.  (a) BY THE COMPANY.  The Company will not (i) declare or pay any 
dividends on or make any other distributions in respect of any class of its 
capital stock or any warrant to acquire any such capital stock (other than 
dividends payable solely in its capital stock and other than dividends paid 
directly out of the proceeds of a substantially concurrent issue and sale of 
its capital stock) or (ii) directly or indirectly or through any Subsidiary 
purchase, redeem or otherwise acquire or retire any of its capital stock or 
any warrant to acquire any such capital stock (except out of the proceeds of, 
or in exchange for, a substantially concurrent issue and sale of its capital 
stock) (such non-excepted dividends, distributions, purchases, redemptions, 
acquisitions or retirements being herein collectively called "RESTRICTED 
PAYMENTS"); PROVIDED, HOWEVER, this Section shall not prevent the Company 
from: 

          (1)  repurchasing common capital stock of the Company from officers 
     and employees of the Company if, at the time of and immediately after 
     giving effect to each such repurchase, (i) the aggregate amount expended 
     for such repurchases does not exceed $100,000 in any given fiscal year 
     of the Company and (ii) no Default or Event of Default shall occur or be 
     continuing; or 

                                     -63-
<PAGE>

          (2)  repurchasing any or all outstanding Transaction Securities out 
     of the proceeds of unsecured Subordinated Indebtedness of the Company 
     incurred in compliance with Section 8.8(g) hereof and the Financial 
     Covenants if, at the time of and immediately after giving effect to each 
     such repurchase, no Default or Event of Default shall occur or be 
     continuing; or 

          (3)  repurchasing any Transaction Securities properly tendered by 
     the holders thereof to the Company for mandatory purchase pursuant to 
     the terms of such securities if, at the time of and immediately after 
     giving effect to each such purchase, no Default or Event of Default 
     shall occur or be continuing.

               (b)  NO RESTRICTION ON SUBSIDIARY DIVIDENDS.  Neither the 
Company nor any Subsidiary is a party to, nor will the Company or any 
Subsidiary become a party to, any agreement prohibiting or otherwise 
restricting the declaration or payment of any dividends or equity 
distributions by any such Subsidiary.

               SECTION 8.17.  MERGERS.  (a) GENERALLY.  The Company will not, 
nor will it permit any Subsidiary to, consolidate or be a party to a merger 
or consolidation with any other Person, except that so long as no Default or 
Event of Default has occurred and is continuing or would arise as a result 
thereof any Subsidiary of the Company may merge with and into the Company or 
any Wholly-Owned Subsidiary if the Company or such Wholly-Owned Subsidiary is 
the surviving corporation.

               (b)  INTERSOUND.  No later than February 28, 1998, Intersound 
shall merge with and into the Company, with the Company being the corporation 
surviving such merger.

               SECTION 8.18.  SALE OF ASSETS.  The Company will not, nor will 
it permit any Subsidiary to, sell, lease or otherwise dispose of all or any 
Collateral or any substantial part of its other Property, or in any event 
sell or discount (with or without recourse) any of its notes or accounts 
receivable; PROVIDED, HOWEVER, that nothing contained herein or any 
Collateral Document shall prohibit: 

          (i)     sales, leases and other dispositions of inventory in the 
     ordinary course of business; 

          (ii)    licenses (or similar arrangements) of inventory and 
     intellectual property (including without limitation, master recordings and
     compositions) in the ordinary course of business;

          (iii)   sales or other dispositions for fair value, or abandonment,
     of obsolete, excess or worn out Property consisting of fixed or capital
     assets or inventory in the ordinary course of business; 

          (iv)    leases, sales transfers or other disposition of all or any 
     part of the business or Property of any Subsidiary to the Borrower or any
     Wholly-Owned Subsidiary, whether effected by merger or otherwise; 

                                     -64-
<PAGE>

          (v)     the abandonment or disposition for fair value of Property 
     that is, in the reasonable judgment of the Company, no longer economically
     practicable to maintain or no longer useful in the conduct of the business 
     of the Company; 

          (vi)    the loss or destruction of Property as a result of a 
     casualty loss (whether or not insured); 

          (vii)   the bona fide sale by the Company or any Subsidiary at fair 
     value of any part of the Company's (or any Subsidiary's) master catalogs of
     music rights consisting of, without limitation, master recordings, 
     compositions, recording agreements, publishing agreements and underlying 
     copyrights and trademarks (collectively, "MUSIC RIGHTS") of the Company or
     such Subsidiary if, in the reasonable judgment of the Company, the 
     exploitation of such Music Rights so sold is no longer profitable to the 
     Company or any Subsidiary in the ordinary course of its business and such 
     sale is advantageous to the Company; 

          (viii)  sales, subleases or other dispositions for fair value of 
     rights of the Company or any Subsidiary as lessee under operating leases 
     of Property in the ordinary course of business;

          (ix)    the sale or return of tangible assets which the Company and 
     its Subsidiaries customarily replace periodically with substitute 
     tangible assets of at least equal value (including, without limitation, 
     vehicles) in the ordinary course of business;

          (x)     the sale or other transfer of the capital stock of any 
     Subsidiary of the Borrowers as permitted by Section 8.17 hereof;

          (xi)    the sale or other disposition of the Company's interest, in 
     whole or in part, as a joint venturer in the House of Blues Venture to 
     the extent permitted by Section 8.24(b) hereof; and

          (xii)   the sale or other disposition for fair value of any 
     Property (other than Music Rights), whether now owned or hereafter 
     acquired, provided that the aggregate value of all such Property so sold 
     or disposed of shall not exceed $1,000,000 on a cumulative basis after 
     the Closing Date.

Any sale, lease or other disposition of Property (other than Music Rights and 
other intellectual property) constituting five percent (5%) or more of the 
total assets of the Company and its Subsidiaries on a consolidated basis 
shall be deemed "SUBSTANTIAL" for the foregoing purposes.  Any sale, lease or 
other disposition of Music Rights and other intellectual property to which is 
attributable five percent (5%) or more of the total annual gross revenues of 
the Company and its Subsidiaries on a consolidated basis for the then most 
recently completed fiscal year of the Company shall be deemed "SUBSTANTIAL" 
for the foregoing purposes.  Notwithstanding anything herein or in the 
Collateral Documents to the contrary, the lien of the Administrative Agent 
pursuant to the Collateral Documents on any Property sold or otherwise 
disposed of in accordance with this Section 8.18 (other than 


                                     -65-
<PAGE>

clauses (ii), (iv), (vi) and (x) above) shall be automatically released; 
PROVIDED, HOWEVER, that: (A) at the time of such sale or other disposition 
and immediately after giving effect thereto, no Default or Event of Default 
shall occur or be continuing and (B) in the case of each sale or other 
disposition permitted exclusively by any of clauses (iii), (v), (vi) through 
(ix) inclusive, (xi) or (xii) above, the net proceeds of such sale or other 
disposition are paid to the Administrative Agent for application in reduction 
of the Obligations if and to the extent required by Section 2.7(d) hereof.  
The Administrative Agent shall, at the Company's expense, execute and deliver 
such instruments (including UCC termination statements) as the Company may 
from time to time reasonably request to confirm such release made pursuant to 
the immediately preceding sentence.

               SECTION 8.19.  SALES AND LEASEBACKS.  The Company will not, 
nor will it permit any Subsidiary to, enter into any arrangement with any 
bank, insurance company or other lender or investor providing for the leasing 
by the Company or any Subsidiary of any real or personal property theretofore 
owned by it and which has been or is to be sold or transferred by such owner 
to such lender or investor.

               SECTION 8.20.  OPERATING LEASES.  The Company shall not, nor 
shall it permit any Subsidiary to, acquire the use or possession of any real 
or personal property under a lease or similar arrangement, whether or not the 
Company or any Subsidiary has the express or implied right to acquire title 
to or purchase such property, at any time if, after giving effect thereto, 
the aggregate amount of fixed rentals and other consideration payable by the 
Company and its Subsidiaries under all such leases and similar arrangements 
would exceed $1,250,000 during any fiscal year of the Company.  Capital 
Leases shall not be included in computing compliance with this Section to the 
extent the Company's and its Subsidiaries' liability in respect of the same 
is permitted by Section 8.8(b) hereof.

               SECTION 8.21.  BURDENSOME CONTRACTS WITH AFFILIATES.  Except 
as set forth on Schedule 6.7, as the same may from time to time be updated 
with the consent of the Agent and Required Lenders, the Company will not, nor 
will it permit any Subsidiary to, enter into or be a party to any contract or 
agreement with an Affiliate on terms and conditions materially less favorable 
to the Company or such Subsidiary than would be usual and customary in 
similar contracts or agreements between Persons not affiliated with each 
other.

               SECTION 8.22.  NO CHANGE IN FISCAL YEAR.  The Company will 
not, nor will it permit any Subsidiary to, change its fiscal year from a year 
ended May 31.

               SECTION 8.23.  FORMATION OF SUBSIDIARIES.  In the event any 
Subsidiary is formed or acquired after the date hereof, the Company shall 
within thirty (30) Business Days thereof (x) furnish an update to Schedule 
6.3 hereof to reflect such new Subsidiary and (y) cause such newly-form or 
acquired Subsidiary to execute a Guaranty and execute such Collateral 
Documents to the extent required by Section 4 hereof (on terms substantially 
similar to those executed in connection with this Agreement) as the 
Administrative Agent may then require granting the Administrative Agent for 
the benefit of the Lenders a security interest in and lien on the personal 
property of such Subsidiary as collateral security for the Notes and the 
other Obligations, together with documentation (including a legal opinion) 
similar to 

                                     -66-
<PAGE>

that described in Section 7.3 hereof relating to the authorization for, 
execution and delivery of, and validity of such Subsidiary's obligations as a 
Guarantor hereunder and under its Guaranty in form and substance satisfactory 
to the Administrative Agent and such other instruments, documents, 
certificates and opinions as are reasonably required by the Administrative 
Agent in connection therewith.

               SECTION 8.24.  MAINTENANCE OF SUBSIDIARIES.  (A)  GENERALLY.  
The Company shall not assign, sell or transfer, or permit any Subsidiary to 
issue, assign, sell or transfer, any shares of capital stock of a Subsidiary; 
PROVIDED, HOWEVER, that the foregoing shall not operate to prevent:

          (i)     the merger of any Subsidiary into the Company or another 
     Wholly-Owned Subsidiary in each case as permitted by Section 8.17 
     hereof; and

          (ii)    the issuance, sale and transfer to any Person of any shares of
     capital stock of a Subsidiary solely for the purpose of qualifying, and 
     to the extent legally necessary to qualify, such Person as a director of 
     such Subsidiary.

               (b)  HOUSE OF BLUES.  The Company shall not consent to any 
termination of its interest as a joint venturer in the House of Blues Venture 
and shall not reduce its equity interest in the House of Blues Venture below 
50%; PROVIDED, HOWEVER, that nothing herein nor in any Collateral Document 
shall operate to prevent: 

          (i)     termination of the Company's interest as a joint venturer in
     the House of Blues Venture as the result of the exercise by the 
     Company's joint venture partner of such partner's purchase option in 
     accordance with the terms of the agreement governing the House of Blues 
     Venture; or 

          (ii)    reduction or termination of the Company's interest as a joint
     venturer in the House of Blues Venture if and to the extent that such 
     reduction or termination will not have any Material Adverse Effect and, 
     in the reasonable judgment of the Company, is advantageous to the 
     Company; or

          (iii)   reduction of the Company's interest as a joint venturer 
     in the House of Blues Venture as the result of the admission of a new 
     joint venturer to the House of Blues Joint Venture who succeeds to the 
     Company's former interest as a joint venturer therein if and to the 
     extent that such reduction will not have any Material Adverse Effect 
     and, in the reasonable judgment of the Company, the admission of such 
     new venturer will be advantageous to the Company.

               SECTION 8.25.  NATURE OF BUSINESS.  The Company will not, nor 
will it permit any Subsidiary to, engage in any business or activity if, as a 
result, the business which would then be engaged in by the Company and its 
Subsidiaries taken as a whole would be materially different from the business 
in which they are engaged as of the date hereof.

               SECTION 8.26.  SUBORDINATED DEBT.  The Company will not, and 
will not permit any Subsidiary to, amend or modify the terms and conditions 
applicable to any Subordinated 


                                     -67-
<PAGE>

Debt, except that the Company may agree to a decrease in the interest rate or 
premium applicable thereto or to a deferral of repayment of any of principal 
of or interest or premium on any Subordinated Debt beyond the due date 
applicable thereto as of the date such indebtedness is initially approved by 
the Administrative Agent and Required Lenders.  The Company will not, and 
will not permit any Subsidiary to, make any payment of principal, interest or 
premium, if any, on or in respect of any Subordinated Debt or otherwise 
acquire, prepay or retire any such Subordinated Debt prior to the maturities 
thereof or prior to any other times required for payment thereof as are in 
force and effect as of the date such indebtedness is initially approved by 
the Administrative Agent and Required Lenders; PROVIDED, HOWEVER, that (i) 
the Company may prepay the Intersound Sub Debt in whole or part at any time 
prior to May 31, 1998 if at the time of each such prepayment and immediately 
after giving effect thereto, no Default or Event of Default shall occur or be 
continuing and (ii) the Company may make such payment as will settle (with 
prejudice) litigation by the holder of the Intersound Sub Debt to enforce its 
collection if at the time of each such payment and immediately after giving 
effect thereto, (1) no Default or Event of Default shall occur or be 
continuing and (2) the Company can demonstrate that on a PRO FORMA basis 
after giving effect to the subject payment, (x) the Company will be in 
compliance with all the Financial Covenants as of (and after giving effect 
to) the payment in question (compliance to be determined on a PRO FORMA basis 
as if the payment in question took place on the first day of any accounting 
period with reference to which such compliance is being determined) and (y) 
Availability will be positive at all times during the twelve (12) calendar 
months following such payment.

               SECTION 8.27.  DOUBLE NEGATIVE PLEDGE.  The Company will not, 
and will not permit any Subsidiary to, agree (other than in the Loan 
Documents) with another party not to pledge, mortgage or otherwise encumber 
or subject to, or not to permit to exist upon or be subjected to, any lien, 
security interest or charge upon, any assets or property of any kind or 
character at any time owned by the Company (including its stock in the 
Subsidiaries) or any Subsidiary, other than (i) customary provisions 
restricting subletting or assignment of any lease governing a leasehold 
interest of the Borrower or any of its Subsidiaries, (ii) customary 
provisions in contracts (including without limitation the licenses, leases 
and agreements described in the last sentence of Section 4.1 hereof) 
restricting the assignment of, or granting of a lien or security interest in, 
such contracts, the rights therein or in the interest or Property conveyed 
thereby, (iii) restrictions on a Subsidiary's Property imposed under 
agreements relating to indebtedness incurred by such Subsidiary prior to the 
date on which such Subsidiary was acquired by a Borrower and outstanding on 
such acquisition date but not incurred in contemplation of such acquisition, 
(iv) restrictions in the agreement creating the House of Blues Venture 
restricting the Company's disposition of its equity interest therein and (v) 
agreements governing purchase money indebtedness and Capitalized Lease 
Obligations permitted by Section 8.8 hereof not to take any such action with 
respect to the Property to such purchase money lien or Capitalized Lease.

               SECTION 8.28.  INTERSOUND.  Intersound shall take such action 
as the Company is required by this Agreement to cause Intersound to take, and 
shall refrain from taking such action as the Company is required by this 
Agreement to prohibit Intersound from taking.


                                     -68-
<PAGE>

               SECTION 8.29.  INTEREST RATE PROTECTION.  On or before 
February 28, 1998, the Borrowers will hedge their interest rate risk on at 
least $10,000,000 in principal amount of the Term Loan, or if less, the 
principal amount outstanding on the Term Loan, through the use of one or more 
interest rate swaps, interest rate caps, interest rate collars or other 
recognized interest rate hedging arrangements (collectively, "HEDGING 
ARRANGEMENTS"), with all of the foregoing to effectively limit the amount of 
interest that the Borrowers must pay on notional amounts of not less than 
such portion of the Term Loan to not more than the rate of 11% per annum for 
a period ending no earlier than June 30, 1999 and to be with the Lenders, 
their respective Affiliates or with other parties reasonably acceptable to 
the Required Lenders.  If the Company enters into any Hedging Arrangements 
with any Lender, the Company's obligations to such Lender in connection with 
such Hedging Arrangements do not constitute usage of the Commitments of such 
Lender.

SECTION 9.     EVENTS OF DEFAULT AND REMEDIES.

               SECTION 9.1.   EVENTS OF DEFAULT.  Any one or more of the 
following shall constitute an "EVENT OF DEFAULT" hereunder:

          (a)  default in the payment of any amount of the principal of or 
     interest on any Note or any reimbursement obligation owing under any 
     Application in each case when due, whether at the stated maturity 
     thereof or at any other time provided for in this Agreement and the 
     continuance of such default for two (2) Business Days in the case of 
     principal and five (5) Business Days in the case of interest, or default 
     in the payment when due of any fee, charge or other amount payable by 
     any Borrower hereunder or under any other Loan Document and the 
     continuance of such default for five (5) Business Days, in each case, 
     after notice thereof to any Borrower from the Administrative Agent or 
     any Lender; or

          (b)  default in the observance or performance of any covenant set 
     forth in Sections 2.7, 8.7, 8.8, 8.9, 8.10, 8.11, 8.12, 8.13, 8.14, 
     8.15, 8.16, 8.17, 8.18, 8.19, 8.20, 8.23, 8.24, 8.26 or 8.27 hereof or 
     of any Collateral Document dealing with the use, disposition or 
     remittance of the proceeds of Collateral or the maintenance of insurance 
     thereon or default after notice to any Borrower in the observance or 
     performance of any covenant set forth in Section 8.5(i) hereof; or

          (c)  default in the observance or performance of any other 
     provision hereof or any of the other Loan Documents which is not 
     remedied within thirty (30) days after written notice thereof to any 
     Borrower by any Lender or by the holder of any Note; or

          (d)  any representation or warranty made herein or in any of the 
     other Loan Documents or in any statement or certificate furnished 
     pursuant hereto or thereto, or in connection with any advance or 
     issuance made hereunder or by any person in connection with the 
     transactions contemplated hereby, proves untrue in any material respect 
     as of the date of the issuance or making thereof, and shall not be made 
     good 

                                     -69-
<PAGE>

     within thirty (30) days after notice thereof to any Borrower by any 
     Lender or by the holder of any Note; or

          (e)  any event occurs or condition exists (other than those 
     described in subsections (a) through (d) above) which is specified as an 
     event of default under any of the other Loan Documents (with any grace 
     period applicable to such event having expired), or any of the Loan 
     Documents shall for any reason not be or shall cease to be in full force 
     and effect, or any of the Loan Documents is declared to be null and 
     void, or any of the Collateral Documents shall for any reason fail to 
     create a valid and perfected first priority Lien in favor of the 
     Administrative Agent in any Collateral purported to be covered thereby 
     aggregating in excess of $250,000 except as expressly permitted by the 
     terms thereof, or any Borrower or Guarantor takes any action for the 
     purpose of repudiating or rescinding any Loan Document executed by it; 
     or 

          (f)  default shall occur in the payment when due (whether by lapse 
     of time, acceleration or otherwise) of any Indebtedness for Borrowed 
     Money aggregating in excess of $500,000 issued, assumed or guaranteed by 
     the Company or any Subsidiary or any other event of default shall occur 
     with respect to any such Indebtedness for Borrowed Money beyond any 
     period of grace provided therefor if the effect thereof (in each case) 
     is to permit the maturity of such Indebtedness for Borrowed Money to be 
     accelerated or to permit the holders thereof to elect a majority of the 
     Board of Directors of the Company (provided that any such default in 
     respect of the Intersound Sub Debt shall not constitute an Event of 
     Default under this subsection (f) if and so long as (i) no judgment has 
     been rendered against the Company or any Subsidiary for an amount more 
     than $1,000,000 in excess of the principal of and accrued interest owing 
     on the Intersound Sub Debt, (ii) no action has been taken by the 
     judgment creditor to execute upon or similarly enforce such judgment and 
     within ten (10) calendar days after its entry, action to enforce such 
     judgment has been lawfully stayed and (iii) at all times after the tenth 
     calendar day following the entry of such judgment, the sum of (A) 
     Availability under the Revolving Credit and (B) the cash and Cash 
     Equivalents of the Company and its Subsidiaries taken as a whole exceeds 
     the amount of such judgment, both for principal and interest thereon by 
     at least $50,000); or

          (g)  any judgment or judgments, writ or writs or warrant or 
     warrants or attachment, or any similar process or processes in an 
     aggregate amount in excess of $500,000 more than the amount, if any, 
     covered by insurance (as to which the insurer has not disclaimed or 
     disputed in writing its obligations for coverage or otherwise failed to 
     pay when due) shall be entered or filed against the Company or any 
     Subsidiary or against any of the property or assets of any of them and 
     remains undischarged, unvacated, unbonded or unstayed for a period of 
     sixty (60) days; or

          (h)  any event occurs or condition exists which is specified as an 
     event of default under any of the other Loan Documents after the 
     expiration of any applicable notice or grace periods; or


                                     -70-
<PAGE>

          (i)  any agreement purporting to subordinate payment of any 
     Subordinated Debt to the prior payment of any Loan or any other 
     Obligations shall purport to be terminated or shall cease to have any 
     force or effect; or

          (j)  the Company or any Subsidiary makes any payment or other 
     distribution on account of the principal of or interest on any 
     Subordinated Debt or any other indebtedness, which payment or 
     distribution is prohibited under the terms of any instrument 
     subordinating such indebtedness to the prior payment of the Loans or any 
     of the other Obligations (provided that the payment permitted by this 
     Agreement of the Intersound Sub Debt shall not constitute an Event of 
     Default under this subsection (j)); or

          (k)  Intersound shall cease at any time and for any reason to be a 
     Wholly-Owned Subsidiary of the Company (except as the result of its 
     merger into the Company as permitted or required by Section 8.17 
     hereof); or

          (l)  the Polygram Distribution Agreement shall be terminated prior 
     to December 31, 2002 and shall have not been replaced by a binding 
     written contract with Polygram or any other similarly situated 
     distribution company (it being understood and agreed that EMI, Sony, 
     WEA, BMG and UNI are each such a company as of the Closing Date) on 
     substantially similar terms and conditions for substantially similar 
     services (except that such replacement contract shall not prohibit 
     blanket liens on assets to secure credit extended to the Company and its 
     Subsidiaries for general corporate purposes); or

          (m)  any Borrower or any Subsidiary shall (i) have entered 
     involuntarily against it an order for relief under the United States 
     Bankruptcy Code, as amended, (ii) not pay, or admit in writing its 
     inability to pay, its debts generally as they become due, (iii) make an 
     assignment for the benefit of creditors, (iv) apply for, seek, consent 
     to, or acquiesce in, the appointment of a receiver, custodian, trustee, 
     examiner, liquidator or similar official for it or any substantial part 
     of its Property, (v) institute any proceeding seeking to have entered 
     against it an order for relief under the United States Bankruptcy Code, 
     as amended, to adjudicate it insolvent, or seeking dissolution, winding 
     up, liquidation, reorganization, arrangement, adjustment or composition 
     of it or its debts under any law relating to bankruptcy, insolvency or 
     reorganization or relief of debtors or fail to file an answer or other 
     pleading denying the material allegations of any such proceeding filed 
     against it, (vi) take any corporate action in furtherance of any matter 
     described in parts (i) through (v) above, or (vii) fail to contest in 
     good faith any appointment or proceeding described in Section 9.1(n) 
     hereof; or

          (n)  a custodian, receiver, trustee, examiner, liquidator or 
     similar official shall be appointed for any Borrower or any Subsidiary 
     or any substantial part of any of their Property, or a proceeding 
     described in Section 9.1(m)(v) shall be instituted against any Borrower 
     or any Subsidiary, and such appointment continues undischarged or such 
     proceeding continues undismissed or unstayed for a period of sixty (60) 
     days.


                                     -71-
<PAGE>

               SECTION 9.2.   REMEDIES GENERALLY.  When any Event of Default 
described in subsections 9.1(a) to 9.1(l), both inclusive, has occurred and 
is continuing, the Administrative Agent may (and shall, upon request of the 
Required Lenders), by notice to any Borrower, take any or all of the 
following actions:

          (a)  terminate the obligation of the Lenders to extend any further 
     credit hereunder on the date (which may be the date thereof) stated in 
     such notice (such termination shall be effective upon verbal 
     notification, the Administrative Agent hereby agreeing to provide 
     written notification thereof to any Borrower as soon as practical 
     thereafter);

          (b)  declare the principal of and the accrued interest on the Notes 
     to be forthwith due and payable and thereupon the Notes, including both 
     principal and interest, and all fees, charges and commissions payable 
     hereunder, shall be and become immediately due and payable without 
     further demand, presentment, protest or notice of any kind; and

          (c)  enforce any and all rights and remedies available under the 
     Loan Documents or applicable law.

               SECTION 9.3.   REMEDIES UPON INSOLVENCY.  When any Event of 
Default described in subsections 9.1(m) or (n) has occurred and is 
continuing, then (a) the then unpaid balance of the Notes, including both 
principal and interest, and all fees, charges and commissions and other 
Obligations payable hereunder, shall immediately become due and payable 
without presentment, demand, protest or notice of any kind, (b) the 
obligation of the Lenders to extend further credit pursuant to any of the 
terms hereof shall immediately and automatically terminate, and (c) the 
Administrative Agent may exercise all remedies available to it under the Loan 
Documents or applicable law.

               SECTION 9.4.   COLLATERAL FOR UNDRAWN LETTERS OF CREDIT.  When 
any Event of Default, other than an Event of Default described in subsection 
(m) or (n) of Section 9.1, has occurred and is continuing, the Borrowers 
shall, upon demand of the Administrative Agent (which demand shall be made 
upon the request of the Required Lenders), and when any Event of Default 
described in subsection (m) or (n) of Section 9.1 has occurred the Borrowers 
shall, without notice or demand from the Administrative Agent, immediately 
pay to the Administrative Agent the full amount of each Letter of Credit then 
outstanding, the Borrowers agreeing to immediately make such payment and 
acknowledging and agreeing that the Administrative Agent and the Lenders 
would not have an adequate remedy at law for failure of the Borrowers to 
honor any such demand and that the Administrative Agent and the Lenders shall 
have the right to require the Borrowers to specifically perform such 
undertaking whether or not any draws have been made under any such Letters of 
Credit.

SECTION 10.    THE ADMINISTRATIVE AGENT.

               SECTION 10.1.  APPOINTMENT AND AUTHORIZATION.  Each Lender 
hereby appoints and authorizes the Administrative Agent to take such action 
as Administrative Agent on its behalf 


                                     -72-
<PAGE>

and to exercise such powers hereunder and under the Loan Documents as are 
designated to the Administrative Agent by the terms hereof and thereof 
together with such powers as are reasonably incidental thereto.  The Lenders 
acknowledge and agree that the Administrative Agent is not a trustee or other 
fiduciary for them.  The Administrative Agent may resign at any time by 
sending twenty (20) days' prior written notice to the Company and the Lenders 
and may be removed by the Required Lenders upon twenty (20) days' prior 
written notice to the Company and the Lenders.  In the event of any such 
resignation or removal the Required Lenders may, with written consent by the 
Company (which consent shall not be unreasonably withheld), appoint a new 
agent, which shall succeed to all the rights, powers and duties of the 
Administrative Agent hereunder and under the Loan Documents; PROVIDED, 
HOWEVER, that no such consent from the Company shall be required for any such 
resignation or removal made during the continuance of any Event of Default.  
Any resigning or removed Administrative Agent shall be entitled to the 
benefit of all the protective provisions hereof with respect to its acts as 
an agent hereunder, but no successor Administrative Agent shall in any event 
be liable or responsible for any actions of its predecessor.  If the 
Administrative Agent resigns or is removed and no successor is appointed, the 
rights and obligations of such Administrative Agent shall be automatically 
assumed by the Required Lenders and (i) the Borrowers shall be directed to 
make all payments due each Lender hereunder directly to such Lender and (ii) 
the Administrative Agent's rights in the Loan Documents shall be assigned 
without representation, recourse or warranty to the Lenders as their 
interests may appear.

               SECTION 10.2.  RIGHTS AS A LENDER.  The Administrative Agent 
has and reserves all of the rights, powers and duties hereunder and under the 
other Loan Documents as any Lender may have and may exercise the same as 
though it were not the Administrative Agent and the terms "LENDER" or 
"LENDERS" as used herein and in all of such documents shall, unless the 
context otherwise expressly indicates, include the Administrative Agent in 
its individual capacity as a Lender.  The Administrative Agent reserves the 
right to engage in other business transactions with the Borrowers, the 
Subsidiaries and their Affiliates.

               SECTION 10.3.  STANDARD OF CARE.  The Lenders acknowledge that 
they have received and approved copies of the Loan Documents, and such other 
information and documents concerning the transactions contemplated and 
financed hereby as they have requested to receive and/or review.  The 
Administrative Agent makes no representations or warranties of any kind or 
character to the Lenders with respect to the validity, enforceability, 
genuineness, perfection, value, worth or collectibility hereof or of the 
other Loan Documents or of the liens provided for thereby or of any other 
documents called for hereby or thereby or of the Collateral.  The 
Administrative Agent need not verify the worth or existence of the Collateral 
and may rely exclusively on reports of any Borrower in computing the 
Borrowing Base, provided that the Administrative Agent agrees to furnish the 
Lenders with copies of any field audit reports made in connection with 
inspections which it may make pursuant to Sections 2.5 or 8.5 hereof but the 
Administrative Agent makes no representations or warranties of any kind in 
connection therewith nor shall the Administrative Agent have any liability in 
connection therewith except for its own gross negligence or willful 
misconduct. The Lenders agree that neither the Administrative Agent nor any 
director, officer employee, agent or representative thereof (including any 
security trustee therefor) shall in any event be liable for any clerical 
errors or errors in judgment, 


                                     -73-
<PAGE>

inadvertence or oversight, or for action taken or omitted to be taken by it 
or them hereunder or under the Loan Documents or in connection herewith or 
therewith except for its or their own gross negligence or willful misconduct. 
 The Administrative Agent shall incur no liability under or in respect of 
this Agreement or the other Loan Documents by acting upon any notice, 
certificate, warranty, instruction or statement (oral or written) of anyone 
(including anyone in good faith believed by it to be authorized to act on 
behalf of any Borrower), unless it has actual knowledge of the untruthfulness 
of same. The Administrative Agent shall be entitled to assume that no Default 
or Event of Default exists, absent actual knowledge thereof, unless notified 
to the contrary by a Lender.  The Administrative Agent shall in all events be 
fully protected in acting or failing to act in accord with the instructions 
of the Required Lenders.  Upon the occurrence of an Event of Default 
hereunder, the Administrative Agent shall take such action with respect to 
the enforcement of its liens on the Collateral and the preservation and 
protection thereof as it shall be directed to take by the Required Lenders 
but unless and until the Required Lenders have given such direction the 
Administrative Agent shall take or refrain from taking such actions as it 
deems appropriate and in the best of interest of all Lenders.  The 
Administrative Agent shall in all cases be fully justified in failing or 
refusing to act hereunder unless it shall be indemnified to its reasonable 
satisfaction by the Lenders against any and all liability and expense which 
may be incurred by it by reason of taking or continuing to take any such 
action.  The Administrative Agent may treat the owner of any Note as the 
holder thereof until written notice of transfer shall have been furnished to 
it as contemplated by Section 13.12 hereof.  Each Lender acknowledges that it 
has independently and without reliance on the Administrative Agent or any 
other Lender and based upon such information, investigations and inquiries as 
it deems appropriate made its own credit analysis and decision to extend 
credit to the Borrowers.  It shall be the responsibility of each Lender to 
keep itself informed as to the creditworthiness of the Borrowers and each 
Subsidiary and the Administrative Agent shall have no liability to any Lender 
with respect thereto. 

               SECTION 10.4.  COSTS AND EXPENSES.  Each Lender agrees to 
reimburse the Administrative Agent for all out-of-pocket costs and expenses 
suffered or incurred by the Administrative Agent or any security trustee in 
performing its duties hereunder and under the other Loan Documents or in the 
exercise of any right or power imposed or conferred upon the Administrative 
Agent hereby or thereby, to the extent that the Administrative Agent is not 
promptly reimbursed for same by the Borrowers or out of the Collateral, all 
such costs and expenses to be borne by the Lenders ratably in accordance with 
the amounts of their respective Commitments. 

               SECTION 10.5.  INDEMNITY.  The Lenders shall ratably indemnify 
and hold the Administrative Agent, and its directors, officers, employees, 
agents or representatives (including as such any security trustee therefor) 
harmless from and against any liabilities, losses, costs or expenses suffered 
or incurred by them under this Agreement or any of the other Loan Documents 
or in connection with the transactions contemplated hereby or thereby, 
regardless of when asserted or arising, except to the extent they are 
promptly reimbursed for the same by the Borrowers or out of the Collateral 
and except to the extent that any event giving rise to a claim was caused by 
the gross negligence or willful misconduct of the party seeking to be 
indemnified.  

                                     -74-
<PAGE>

               SECTION 10.6.  SYNDICATION AGENT.  Nothing in this Agreement 
shall impose any obligation on  Bank of Montreal in its capacity as 
Syndication Agent.  The Administrative Agent hereby irrevocably appoints Bank 
of Montreal as the Syndication Agent for the Lenders under the Loan Documents 
and hereby authorizes the Syndication Agent to take such action as the 
Syndication Agent on its behalf and to exercise such powers under the Loan 
Documents as are delegated to the Syndication Agent by the terms thereof, 
together with such powers as are reasonably incidental thereto.

SECTION 11.    JOINT AND SEVERAL LIABILITY AND GUARANTEES.

               SECTION 11.1.  JOINT AND SEVERAL LIABILITY AND GUARANTEES.  To 
induce the Lenders to provide the credits described herein and in 
consideration of benefits expected to accrue to each Guarantor by reason of 
the Commitments and for other good and valuable consideration, receipt of 
which is hereby acknowledged, each Subsidiary party hereto or to a Guaranty 
(together with the Borrowers, individually a "GUARANTOR" and collectively the 
"GUARANTORS") hereby unconditionally and irrevocably guarantees jointly and 
severally to the Administrative Agent, the Lenders and each other holder of 
any of the Obligations, and each Borrower hereby unconditionally and 
irrevocably agrees to be jointly and severally liable to the Administrative 
Agent, the Lenders and such holders for, the due and punctual payment of all 
present and future indebtedness of the Borrowers evidenced by or arising out 
of the Loan Documents, including, but not limited to, the due and punctual 
payment of principal of and interest on the Notes and the due and punctual 
payment of all other Obligations now or hereafter owed by the Borrowers under 
the Loan Documents as and when the same shall become due and payable, whether 
at stated maturity, by acceleration or otherwise, according to the terms 
hereof and thereof.  In case of failure by the Borrowers punctually to pay 
any indebtedness or other Obligations guaranteed hereby or for which the 
Borrowers agree hereby to be jointly and severally liable, each Guarantor 
hereby unconditionally agrees jointly and severally to make such payment or 
to cause such payment to be made punctually as and when the same shall become 
due and payable, whether at stated maturity, by acceleration or otherwise, 
and as if such payment were made by the Borrowers.

               SECTION 11.2.  GUARANTEE UNCONDITIONAL.  The obligations of 
each Guarantor as a guarantor or joint and several obligor under the Loan 
Documents, including this Section 11, shall be unconditional and absolute 
and, without limiting the generality of the foregoing, shall not be released, 
discharged or otherwise affected by:

          (a)  any extension, renewal, settlement, compromise, waiver or 
     release in respect of any obligation of any Borrower or of any other 
     Guarantor under this Agreement or any other Loan Document or by 
     operation of law or otherwise;

          (b)  any modification or amendment of or supplement to this 
     Agreement or any other Loan Document;

          (c)  any change in the corporate existence, structure or ownership 
     of, or any insolvency, bankruptcy, reorganization or other similar 
     proceeding affecting, the Borrowers, any other Guarantor, or any of 
     their respective assets, or any resulting 


                                     -75-


<PAGE>

    release or discharge of any obligation of any Borrower or of any other 
    Guarantor contained in any Loan Document;

         (d)  the existence of any claim, set-off or other rights which the
    Guarantor may have at any time against the Administrative Agent, any Lender
    or any other Person, whether or not arising in connection herewith;

         (e)  any failure to assert, or any assertion of, any claim or demand
    or any exercise of, or failure to exercise, any rights or remedies against
    any Borrower, any other Guarantor or any other Person or Property;

         (f)  any application of any sums by whomsoever paid or howsoever
    realized to any obligation of any Borrower, regardless of what obligations
    of the Borrowers remain unpaid;

         (g)  any invalidity or unenforceability relating to or against any
    Borrower or any other Guarantor for any reason of this Agreement or of any
    other Loan Document or any provision of applicable law or regulation
    purporting to prohibit the payment by the Borrowers or any other Guarantor
    of the principal of or interest on any Note or any other amount payable by
    them under the Loan Documents; or

         (h)  any other act or omission to act or delay of any kind by the
    Administrative Agent, any Lender or any other Person or any other
    circumstance whatsoever that might, but for the provisions of this
    paragraph, constitute a legal or equitable discharge of the obligations of
    the Guarantors under the Loan Documents.

               SECTION 11.3. DISCHARGE ONLY UPON PAYMENT IN FULL; 
REINSTATEMENT IN CERTAIN CIRCUMSTANCES.  Each Guarantor's obligations under 
this Section 11 shall remain in full force and effect until the Commitments 
are terminated and the principal of and interest on the Notes and all other 
amounts payable by the Borrowers under this Agreement and all other Loan 
Documents shall have been paid in full at which time the Guarantors' 
obligations hereunder shall, subject to the following sentence, terminate.  
If at any time any payment of the principal of or interest on any Note or any 
other amount payable by the Borrowers under the Loan Documents is rescinded 
or must be otherwise restored or returned upon the insolvency, bankruptcy or 
reorganization of any Borrower or of any Guarantor, or otherwise, each 
Guarantor's obligations under this Section 11 with respect to such payment 
shall be reinstated at such time as though such payment had become due but 
had not been made at such time.

               SECTION 11.4.  WAIVERS.  (a)  GENERAL.  Each Guarantor 
irrevocably waives acceptance hereof, presentment, demand, protest and any 
notice not provided for herein, as well as any requirement that at any time 
any action be taken by the Administrative Agent, any Lender or any other 
Person against the Borrowers, another Guarantor or any other Person.

                (b)  SUBROGATION AND CONTRIBUTION.  Each Guarantor hereby 
agrees not to exercise or enforce any right of exoneration, contribution, 
reimbursement, recourse or subrogation 

                                       -76-

<PAGE>

available to such Guarantor against any Person liable for payment of the 
Obligations, or as to any security therefor, unless and until the full amount 
owing on the Obligations has been paid and the Commitments have terminated; 
and the payment by such Guarantor of any amount pursuant to any of the Loan 
Documents on account of credit extended to any other Borrower shall not in 
any way entitle such Guarantor to any right, title or interest (whether by 
way of subrogation or otherwise) in and to any of the Obligations or any 
proceeds thereof or any security therefor unless and until the full amount 
owing on the Obligations has been paid and the Commitments have terminated.

               SECTION 11.5.  LIMIT ON RECOVERY.  Notwithstanding any other 
provision hereof or of the Notes, the right of recovery against each 
Guarantor under this Section 11 or against a Borrower on the Notes issued by 
it shall not (to the extent required by or as may be necessary or desirable 
to ensure the enforceability against such Guarantor of its obligations 
hereunder or thereunder in accordance with the laws of the jurisdiction of 
its incorporation or where it carries on business) exceed $1.00 less than the 
amount which would render such Guarantor's obligations under this Section 11 
and the Notes void or voidable under applicable law, including without 
limitation fraudulent conveyance law.

               SECTION 11.6.  STAY OF ACCELERATION.  If acceleration of the 
time for payment of any amount payable by the Borrowers under this Agreement 
or any other Loan Document is stayed upon the insolvency, bankruptcy or 
reorganization of any of the Borrowers, all such amounts otherwise subject to 
acceleration under the terms of this Agreement or the other Loan Documents 
shall nonetheless be payable jointly and severally by the Guarantors 
hereunder forthwith on demand by the Administrative Agent made at the request 
of the Required Lenders.

               SECTION 11.7.  BENEFIT TO GUARANTORS.  All of the Guarantors 
are engaged in related businesses and integrated to such an extent that the 
financial strength and flexibility of each Guarantor has a direct impact on 
the success of each other Guarantor.  Each Guarantor will derive substantial 
direct and indirect benefit from the extension of credit hereunder.

               SECTION 11.8.  GUARANTOR COVENANTS.  Each Guarantor shall take 
such action as the Company is required by this Agreement to cause such 
Guarantor to take, and shall refrain from taking such action as the Company 
is required by this Agreement to prohibit such Guarantor from taking.

SECTION 12.    CHANGE IN CIRCUMSTANCE.

               SECTION 12.1.  CHANGE OF LAW.  Notwithstanding any other 
provisions of this Agreement or any Note, if at any time any Lender shall 
determine in good faith that any change in applicable laws, treaties or 
regulations or in the interpretation thereof makes it unlawful for such 
Lender to create or continue to maintain any LIBOR Portion, it shall promptly 
so notify the Administrative Agent (which shall in turn promptly notify the 
Company and the other Lenders) and the obligation of such Lender to create, 
continue or maintain any such LIBOR Portion under this Agreement shall 
terminate until it is no longer unlawful for such Lender to create, continue 
or maintain such LIBOR Portion.  The 

                                   -77-

<PAGE>


Borrowers, on demand, shall, if the continued maintenance of any such LIBOR 
Portion is unlawful, thereupon prepay the outstanding principal amount of the 
affected LIBOR Portion, together with all interest accrued thereon and all 
other amounts payable to such affected Lender with respect thereto under this 
Agreement; PROVIDED, HOWEVER, that the Company (which is acting on behalf of 
the Borrowers pursuant to Section 1.7 hereof) may elect to convert the 
principal amount of the affected Portion into the Domestic Rate Portion, 
subject to the terms and conditions of this Agreement.  Such payment or 
conversion of a LIBOR Portion shall be effective, if lawful, on the last day 
of the Interest Period then applicable thereto; otherwise, such payment or 
conversion must be made on the date of such demand.

               SECTION 12.2.  UNAVAILABILITY OF DEPOSITS OR INABILITY TO 
ASCERTAIN ADJUSTED LIBOR.  Notwithstanding any other provision of this 
Agreement or any Note, if prior to the commencement of any Interest Period, 
the Required Lenders shall determine in good faith that deposits in the 
amount of any LIBOR Portion of a Loan requested to be made, continued or 
effected by conversion for such Interest Period are not readily available to 
such Lenders in the relevant market or, by reason of circumstances affecting 
the relevant market, adequate and reasonable means do not exist for 
ascertaining Adjusted LIBOR, then such Lenders shall promptly give notice 
thereof to the Administrative Agent (which shall in turn promptly notify the 
Company and the other Lenders) and the obligations of the Lenders to create, 
continue or effect by conversion any such LIBOR Portion in such amount and 
for such Interest Period shall terminate until deposits in such amount and 
for the Interest Period selected by the Company (which is acting on behalf of 
the Borrowers pursuant to Section 1.7 hereof) shall again be readily 
available in the relevant market and adequate and reasonable means exist for 
ascertaining Adjusted LIBOR.

               SECTION 12.3.  TAXES AND INCREASED COSTS.  With respect to any 
LIBOR Portion, if any Lender shall reasonably determine that any change after 
the Closing Date in any applicable law, treaty, regulation or guideline 
(including, without limitation, Regulation D of the Board of Governors of the 
Federal Reserve System) or any new law, treaty, regulation or guideline 
adopted after the Closing Date, or any interpretation of any of the foregoing 
by any governmental authority charged with the administration thereof or any 
central bank or other fiscal, monetary or other authority having jurisdiction 
over such Lender or its lending branch or the LIBOR Portions contemplated by 
this Agreement (whether or not having the force of law), shall:

         (i)  impose, increase, or deem applicable any reserve, special deposit
    or similar requirement against assets held by, or deposits in or for the
    account of, or loans by, or any other acquisition of funds or disbursements
    by, such Lender which is not in any instance already accounted for in
    computing the interest rate applicable to such LIBOR Portion;

         (ii) subject such Lender, any LIBOR Portion or a Note to the extent it
    evidences such a Portion to any Indemnified Taxes;

                                        -78-

<PAGE>

         (iii)     change the basis of taxation of payments of principal and
    interest due from any Borrower to such Lender hereunder or under a Note to
    the extent it evidences any LIBOR Portion (other than by a change in
    Excluded Taxes); or

         (iv) impose on such Lender any penalty with respect to the foregoing
    or any other condition regarding this Agreement, any LIBOR Portion, or its
    disbursement, or a Note to the extent it evidences any LIBOR Portion;

and such Lender shall determine in good faith that the result of any of the 
foregoing is to increase in any material respect the cost (whether by 
incurring a cost or adding to a cost) to such Lender of creating or 
maintaining any LIBOR Portion hereunder or to reduce the amount of principal 
or interest received or receivable by such Lender (without benefit of, or 
credit for, any prorations, exemption, credits or other offsets available 
under any such laws, treaties, regulations, guidelines or interpretations 
thereof), then within fifteen (15) days of demand by such Lender the 
Borrowers shall pay to the Administrative Agent for the account of such 
Lender such additional amounts as such Lender shall reasonably determine are 
sufficient to compensate and indemnify it for such increased cost or reduced 
amount.  If a Lender makes such a claim for compensation, it shall provide to 
the Company (with a copy to the Administrative Agent) a certificate setting 
forth the computation of the increased cost or reduced amount as a result of 
any event mentioned herein in reasonable detail and such certificate shall be 
deemed prima facie correct if reasonably determined. 

               SECTION 12.4.  CAPITAL ADEQUACY.  If any Lender shall 
reasonably determine that the adoption, after the Closing Date, of any 
applicable law, rule or regulation regarding capital adequacy, or any change 
therein, or any change in the interpretation or administration thereof by any 
governmental authority, central bank or comparable agency charged with the 
interpretation or administration thereof or compliance by such Lender (or its 
lending office) with any request or directive regarding capital adequacy 
(whether or not having the force of law) of any such authority, central bank 
or comparable agency, has or would have the effect of reducing the rate of 
return on such Lender's capital as a consequence of its obligations hereunder 
or credit extended by it hereunder to a level below that which such Lender 
could have achieved but for such law, rule, regulation, change or compliance 
(taking into consideration such Lender's policies with respect to capital 
adequacy) by an amount deemed by such Lender to be material, then, within 15 
days after demand by such Lender, the Borrowers shall pay such additional 
amount or amounts as will compensate such Lender for such reduction in rate 
of return.  A certificate of any Lender claiming compensation under this 
Section and setting forth the additional amount or amounts to be paid to it 
hereunder in reasonable detail shall be deemed PRIMA FACIE correct if 
reasonably determined.  In determining such amount, such Lender may use any 
reasonable averaging and attribution methods.  A Lender shall not be entitled 
to compensation under this Section with respect to any change, adoption or 
interpretation (a "CHANGE") for any period prior to the earlier of (i) the 
date it notifies any Borrower of the Change or (ii) the date which is thirty 
(30) days prior to the date such Lender obtains actual knowledge of the 
Change giving rise to the request for compensation if any Borrower is 
notified of the Change prior to the lapse of such 30-day period.  Each Lender 
and the Administrative Agent shall use reasonable efforts to minimize the 
cost imposed on any Borrower in respect of any such 

                                    -79-

<PAGE>

increased capital requirement and shall compute the assessment of any such 
cost related to such increased capital on a nondiscriminatory basis among the 
Borrowers, on the one hand, and other borrowers to which it applies, on the 
other hand, and neither such Lender nor any corporation controlling such 
Lender nor the Administrative Agent shall be entitled to demand compensation 
or be compensated for any increased capital requirement from the Borrowers 
hereunder in excess of the amount so computed.

               SECTION 12.5.  FUNDING INDEMNITY.  In the event any Lender 
shall incur any loss, cost or expense (including, without limitation, any 
loss (including loss of profit), cost or expense incurred by reason of the 
liquidation or reemployment of deposits or other funds acquired or contracted 
to be acquired by such Lender to fund or maintain its part of any LIBOR 
Portion or the relending or reinvesting of such deposits or other funds or 
amounts paid or prepaid to such Lender) as a result of:

         (i)  any payment of a LIBOR Portion on a date other than the last day
    of the then applicable Interest Period for any reason, whether before or
    after default, and whether or not such payment is required by any
    provisions of this Agreement; or

         (ii) any failure by any Borrower to create, borrow, continue or effect
    by conversion a LIBOR Portion on the date specified in a notice given
    pursuant to this Agreement;

then, upon the demand of such Lender, the Borrowers shall pay to the 
Administrative Agent for the account of such Lender such amount as will 
reimburse such Lender for such loss, cost or expense.  If a Lender requests 
such a reimbursement, it shall provide to any of the Borrowers (with a copy 
to the Administrative Agent) a certificate setting forth the computation of 
the loss, cost or expense giving rise to the request for reimbursement in 
reasonable detail and such certificate shall be deemed prima facie correct if 
reasonably determined.

               SECTION 12.6.  LENDING BRANCH.  Each Lender may, at its 
option, elect to make, fund or maintain its pro rata share of the Loans 
hereunder at the branches or offices specified on the signature pages hereof 
or on any Assignment Agreement executed and delivered pursuant to Section 
13.12 hereof or at such of its branches or offices as such Lender may from 
time to time elect. To the extent reasonably possible, a Lender shall 
designate an alternate branch or funding office with respect to its pro rata 
share of the LIBOR Portions to reduce any liability of any of the Borrowers 
to such Lender under Section 12.3 hereof or to avoid the unavailability of an 
interest rate option under Section 12.2 hereof, so long as such designation 
is not otherwise disadvantageous to the Lender.  To the event reasonably 
possible, a Lender shall designate an alternate branch or funding office with 
respect to its pro rata share of any Revolving Loans or Letters of Credit 
affected by the occurrence of any event giving rise to the operations of 
Sections 1.3(e) or 12.4 hereof, provided that such designation is made on 
such terms that such Lender and its lending office suffer no economic, legal 
or regulatory disadvantage, with the object of avoiding the consequence of 
the event giving rise to the operation of such Sections.

                                    -80-

<PAGE>

               SECTION 12.7.  DISCRETION OF LENDERS AS TO MANNER OF FUNDING. 
Notwithstanding any provision of this Agreement to the contrary, each Lender 
shall be entitled to fund and maintain its funding of all or any part of its 
Note in any manner it sees fit, it being understood, however, that for the 
purposes of this Agreement all determinations hereunder (including, without 
limitation, determinations under Sections 12.3, 12.4 and 12.5 hereof) shall 
be made as if each Lender had actually funded and maintained each LIBOR 
Portion during each Interest Period applicable thereto through the purchase 
of deposits in the relevant market in the amount of its pro rata share of 
such LIBOR Portion, having a maturity corresponding to such Interest Period, 
and bearing an interest rate equal to the LIBOR for such Interest Period.

               SECTION 12.8.  REPLACEMENT OF LENDER.  (a) In the event that 
the Company receives from a Lender a certificate requesting an amount be paid 
to such Lender under Section 12.3, 12.4 or 12.5 hereof and the Required 
Lenders have not similarly made requests for payment arising out of the same 
circumstances, then the Company may request other Lenders hereunder to assume 
in full the Revolving Credit Commitment and Term Credit Commitment then in 
effect of the Lender requesting such amount be paid (such Lender in each case 
being herein referred to as the "REPLACEABLE LENDER"), and to purchase the 
Notes issued to the Replaceable Lender and its participation in the L/C 
Obligations at a price equal to the outstanding principal amount of such 
Notes and such participation and the Replaceable Lender's share of any 
accrued and unpaid interest on such Notes and participation plus accrued and 
unpaid commitment fees owed to the Replaceable Lender, and if any Lender or 
Lenders in their sole discretion agree so to assume in full the Revolving 
Credit Commitment and Term Credit Commitment of the Replaceable Lender (each 
an "ASSUMING LENDER"), and after payment by the Borrowers to the Replaceable 
Lender of all amounts due under this Agreement to such Lender (including any 
amount specified as due in a certificate submitted under Section 12.3, 12.4 
or 12.5 hereof) not so paid by the Assuming Lender, then such assumption 
shall take place in the manner set forth in subsection (b) below.  In the 
event no Lender or Lenders agrees to assume in full the Revolving Credit 
Commitment and Term Credit Commitment of the Replaceable Lender, then the 
Company (which is acting on behalf of the Borrowers pursuant to Section 1.7 
hereof) may nominate one or more banks or other financial institutions not 
then party to this Agreement so to assume in full the Revolving Credit 
Commitment and Term Credit Commitment of the Replaceable Lender, and if such 
nominated banks or other financial institutions are acceptable to the 
Administrative Agent and the Required Lenders in their sole discretion 
(excluding the Replaceable Lender), such assumption shall take place in the 
manner set forth in subsection (b) below and each such bank or other 
financial institution shall become a Lender hereunder (each a "NEW LENDER") 
and the Replaceable Lender shall no longer be a party hereto or have any 
rights hereunder.

               (b)  In the event a Replaceable Lender's Revolving Credit 
Commitment is to be assumed in full by an Assuming Lender or a New Lender, 
then such assumption shall take place on a date acceptable to the Company 
(which is acting on behalf of the Borrowers pursuant to Section 1.7 hereof), 
the Replaceable Lender and the Assuming Lender or New Lender, as the case may 
be, and such assumption shall take place through the payment of all amounts 
due under this Agreement to the Replaceable Lender and the execution of such 

                                           -81-

<PAGE>

instruments and documents as shall, in the reasonable opinion of the 
Administrative Agent, be reasonably necessary or appropriate for the Assuming 
Lender or New Lender to assume in full the Revolving Credit Commitment and 
Term Credit Commitment of the Replaceable Lender (including, without 
limitation, the issuance of a new Note and the execution of an appropriate 
Assignment Agreement making any New Lender a party hereto) and for the 
Borrower's obligations to such Assuming or New Lender to be secured with the 
Collateral.  In the event no Assuming Lender or New Lender agrees to assume 
in full the Revolving Credit Commitment of the Replaceable Lender, then such 
Replaceable Lender shall remain a Lender party hereto and its Revolving 
Credit Commitment and Term Credit Commitment shall remain in effect.

SECTION 13.    MISCELLANEOUS.

               SECTION 13.1.  WITHHOLDING TAXES.  (a) PAYMENTS FREE OF 
WITHHOLDING. Except as otherwise required by law and subject to Section 
13.1(b) hereof, each payment by each Borrower and each Guarantor under this 
Agreement or the other Loan Documents shall be made without withholding for 
or on account of any present or future Indemnified Taxes.  If any such 
withholding is so required, the relevant Borrower or  Guarantor shall make 
the withholding, pay the amount withheld to the appropriate governmental 
authority before penalties attach thereto or interest accrues thereon and 
forthwith pay such additional amount as may be necessary to ensure that the 
net amount actually received by each Lender and the Administrative Agent free 
and clear of such Indemnified Taxes (including any Indemnified Taxes on such 
additional amount) is equal to the amount which that Lender or the 
Administrative Agent (as the case may be) would have received had such 
withholding not been made.  If the Administrative Agent or any Lender pays 
any amount in respect of any such Indemnified Taxes, penalties or interest, 
the Borrowers shall reimburse the Administrative Agent or that Lender for 
that payment on demand in the currency in which such payment was made.  If 
any Borrower or any Guarantor pays any such Indemnified Taxes, penalties or 
interest, it shall deliver official tax receipts evidencing that payment or 
certified copies thereof to the Lender or Administrative Agent on whose 
account such withholding was made (with a copy to the Administrative Agent if 
not the recipient of the original) on or before the thirtieth day after 
payment.  If any Lender or the Administrative Agent determines it has 
received or been granted a credit against or relief or remission for, or 
repayment of, any Indemnified Taxes paid or payable by it because of any 
Indemnified Taxes, penalties or interest paid by any Borrower or any 
Guarantor and evidenced by such a tax receipt, such Lender or Administrative 
Agent shall, to the extent it can do so without prejudice to the retention of 
the amount of such credit, relief, remission or repayment, pay to such 
Borrower or Guarantor, as applicable, such amount as such Lender or 
Administrative Agent determines is attributable to such deduction or 
withholding and which will leave such Lender or Administrative Agent (after 
such payment) in no better or worse position than it would have been in if 
the Borrower or Guarantor had not been required to make such deduction or 
withholding.  Nothing in this Agreement shall interfere with the right of 
each Lender and the Administrative Agent to arrange its tax affairs in 
whatever manner it thinks fit nor oblige any Lender or the Administrative 
Agent to disclose any information relating to its tax affairs or any 
computations in connection with such taxes.

                                          -82-

<PAGE>

               (b)  U.S. WITHHOLDING TAX EXEMPTIONS.  Each Foreign Lender 
shall submit to the Company and the Administrative Agent on or before the 
earlier of the date the initial Loan is made hereunder and thirty (30) days 
after the date hereof, two duly completed and signed copies of either Form 
1001 (relating to such Lender and entitling it to a complete exemption from 
withholding under the Code on all amounts to be received by such Lender, 
including fees, pursuant to the Loan Documents and the Loans) or Form 4224 
(relating to all amounts to be received by such Lender, including fees, 
pursuant to the Loan Documents and the Loans) of the United States Internal 
Revenue Service.  Thereafter and from time to time, each Lender shall submit 
to the Company and the Administrative Agent such additional duly completed 
and signed copies of one or the other of such Forms (or such successor forms 
as shall be adopted from time to time by the relevant United States taxing 
authorities) as may be (i) requested by the Company in a written notice, 
directly or through the Administrative Agent, to such Lender and (ii) 
required under then-current United States law or regulations to avoid or 
reduce United States withholding taxes on payments in respect of all amounts 
to be received by such Lender, including fees, pursuant to the Loan Documents 
or the Loans.

               (c)  INABILITY OF LENDER TO SUBMIT FORMS.  If any Lender 
determines, as a result of any change in applicable law, regulation or 
treaty, or in any official application or interpretation thereof, that it is 
unable to submit to the Company or Administrative Agent any form or 
certificate that such Lender is obligated to submit pursuant to subsection 
(b) of this Section 13.1, or that such Lender is required to withdraw or 
cancel any such form or certificate previously submitted or any such form or 
certificate otherwise becomes ineffective or inaccurate, such Lender shall 
promptly notify the Company and the Administrative Agent of such fact and the 
Lender shall to that extent not be obligated to provide any such form or 
certificate and will be entitled to withdraw or cancel any affected form or 
certificate, as applicable.

               (d)  LENDER REPLACEMENT.  (i) If any Borrower or Guarantor is 
required to make any reduction or withholding with respect to any payment due 
any Lender under this Section 13.1, then such Lender shall use reasonable 
efforts to designate a different lending office for funding or booking its 
Loans hereunder or to assign its rights and obligations hereunder to another 
of its offices, branches or affiliates, if, in the judgment of such Lender, 
such designation or assignment (x) would eliminate or reduce amounts payable 
pursuant to Section 13.1(a) in the future and (y) would not subject such 
Lender to any unreimbursed cost or expense and would not otherwise be 
disadvantageous to such Lender.

               (ii) If any Borrower or Guarantor is required to make any 
reduction or withholding with respect to any payment due any Lender under 
this Section 13.1 (in any such case a "REPLACEABLE LENDER"), the Company may 
require that another bank (a "REPLACEMENT LENDER"), which bank may be an 
existing Lender, be substituted for and replace the Replaceable Lender for 
purposes of this Agreement.  If a Replacement Lender is so substituted for 
the Replaceable Lender, the Replaceable Lender shall enter into an Assignment 
Agreement with the Replacement Lender, the Borrowers and the Administrative 
Agent to assign and transfer to the Replacement Lender the Replaceable 
Lender's Commitments, Loans and participations in the credit risk with 
respect to the Letters of Credit hereunder pursuant to and in accordance with 
the provisions and requirements of

                                    -83-

<PAGE>

Section 13.12 hereof and, as a condition to its execution thereof, the 
Replaceable Lender shall concurrently receive the full amount of its Loans, 
interest thereon, and all accrued fees and other amounts to which it is 
entitled under the Loan Documents. 

               SECTION 13.2.  DOCUMENTARY TAXES.  The Borrowers agree to pay 
any documentary, stamp or similar taxes payable in respect to this Agreement 
or any other Loan Document, including interest and penalties, in the event 
any such taxes are assessed irrespective of when such assessment is made and 
whether or not any credit is then in use or available hereunder.

               SECTION 13.3.  WAIVERS, MODIFICATIONS AND AMENDMENTS.  Any 
provision hereof or of any of the other Loan Documents may be amended, 
modified, waived or released upon the written consent of the Borrower and the 
Required Lenders and any Default or Event of Default and its consequences may 
be rescinded and annulled upon the written consent of the Required Lenders; 
PROVIDED, HOWEVER, that without the consent of each Lender no such amendment, 
modification or waiver shall increase the amount or extend the term of any 
Commitment of such Lender or increase the dollar limit on Letters of Credit 
available hereunder or reduce the interest rate applicable to or extend the 
maturity (including any scheduled installment of a specified amount) of any 
principal, interest or fees owed to such Lender or reduce the amount of any 
principal, interest or fees to which such Lender is entitled hereunder or 
advance rate used in determining the Borrowing Base or release any 
substantial (in value) part of the collateral security afforded by the 
Collateral Documents (except in connection with a sale or other disposition 
required or permitted to be effected by the provisions hereof or of the 
Collateral Documents) or release any Guarantor or change this Section 13.3 or 
change the definition of "REQUIRED LENDERS" or change the number of Lenders 
required to take any action hereunder or under any of the other Loan 
Documents, it being understood that waivers or modifications of covenants, 
Defaults or Events of Default (other than those set forth in Section 9.1(m) 
and (n) hereof) or of a mandatory prepayment may be made at the discretion of 
the Required Lenders and shall not constitute an increase of a Commitment of 
any Lender.  No amendment, modification or waiver of the Administrative 
Agent's protective provisions shall be effective without the prior written 
consent of the Administrative Agent.  

               SECTION 13.4.  COSTS AND EXPENSES.  The Borrowers agree to pay 
within ten (10) days of demand therefor the reasonable costs and expenses of 
the Administrative Agent in connection with the negotiation, preparation, 
execution and delivery of this Agreement, the other Loan Documents and the 
other instruments and documents to be delivered hereunder or thereunder, and 
the reasonable costs and expenses of the Administrative Agent and the Lenders 
in connection with the recording or filing of any of the foregoing, and in 
connection with the transactions contemplated hereby or thereby, and the 
reasonable costs and expenses of the Administrative Agent and the Lenders in 
connection with any consents hereunder or waivers or amendments hereto or 
thereto, including in each case the reasonable fees and expenses of Chapman 
and Cutler, counsel for the Administrative Agent, with respect to all of the 
foregoing (whether or not the transactions contemplated hereby are 
consummated). The Borrowers further agree to pay to Administrative Agent and 
the Lenders and any other holders of the Obligations all reasonable costs and 
expenses (including court costs and reasonable attorneys' fees, but excluding 
the allocated costs of inhouse 

                                    -84-

<PAGE>

counsel), if any, incurred or paid by the Administrative Agent, the Lenders 
or any other holders of the Obligations in connection with any Default or 
Event of Default or in connection with the enforcement of this Agreement or 
any of the other Loan Documents or any other instrument or document delivered 
hereunder or thereunder.  The Borrowers further agree to indemnify and save 
the Lenders, the Administrative Agent and any security trustee for the 
Lenders harmless from any and all liabilities, losses, costs and expenses 
incurred by the Lenders or the Administrative Agent in connection with any 
action, suit or proceeding brought against the Administrative Agent, or any 
security trustee or any Lender by any Person (but excluding attorneys' fees 
for litigation solely between the Lenders to which no Borrower is a party) 
which arises out of the transactions contemplated or financed hereby or by 
any of the other Loan Documents or out of any action or inaction by the 
Administrative Agent, any security trustee or any Lender hereunder or 
thereunder or in connection with the Collateral, except for such thereof as 
is caused by the negligence or willful misconduct of the party seeking to be 
indemnified.  The provisions of this Section 13.4 and the protective 
provisions of Section 2 and Section 12 hereof shall survive payment of the 
Obligations.

               SECTION 13.5.  SURVIVAL OF REPRESENTATIONS AND INDEMNITIES.  
All representations and warranties made in the Loan Documents or pursuant 
thereto or in certificates given pursuant hereto or thereto shall survive the 
execution and delivery of this Agreement and of the other Loan Documents, and 
shall continue in full force and effect with respect to the date as of which 
they were made as long as any credit is in use or available hereunder.  All 
indemnities and other provisions relative to reimbursement to any Lender of 
amounts sufficient to protect the yield of such Lender with respect to the 
Loans, including, but not limited to, Sections 12.3 and 12.4 hereof, shall 
survive the termination of this Agreement and the payment of the Notes.

               SECTION 13.6.  WAIVER OF RIGHTS.  No delay or failure on the 
part of any Lender or the holder or holders of any Note in the exercise of 
any power or right shall operate as a waiver thereof or as an acquiescence in 
any default, nor shall any single or partial exercise thereof, or the 
exercise of any other power or right, preclude any other right or the further 
exercise of any other rights.  The rights and remedies hereunder of the 
Borrowers, the Administrative Agent, the Lenders and of the holder or holders 
of any Note are cumulative to, and not exclusive of, any rights or remedies 
which any of them would otherwise have.

               SECTION 13.7   NON-BUSINESS DAY.  If any payment of principal 
shall fall due on a day which is not a Business Day, interest at the rate 
such principal bears for the period prior to maturity shall continue to 
accrue on such principal from the stated due date thereof to and including 
the next succeeding Business Day on which the same is payable.

               SECTION 13.8.  NOTICES.  All communications provided for 
herein shall be in writing or by telex or by telegraph, except as otherwise 
specifically provided for hereinabove, addressed, if to any Borrower at:

                                  -85-

<PAGE>

                         Platinum Entertainment, Inc.
                         2001 Butterfield Road, Suite 1400
                         Downers Grove, Illinois 60515
                         Attention: Chief Financial Officer 
                         Telecopy:  630-769-0049
                         Telephone:  630-769-0033
                         
                         with a copy (in case of notices of default) to:
                         
                         SK-Palladin Partners, LP
                         c/o Alpine Capital Group
                         1285 Avenue of the Americas
                         New York, New York  10019-6064
                         Telecopy:  (212) 641-5065
                         Attention:  Mark J. Schwartz
                         
                         and
                         
                         MAC Music LLC
                         c/o Alpine Capital Group
                         1285 Avenue of the Americas
                         New York, New York  10019-6064
                         Telecopy:  (212) 641-5148
                         Attention:  Lorraine Jackson

or if to the Administrative Agent or Lenders at their respective addresses 
set forth opposite their respective signatures hereto, or at such other 
address as shall be designated by any party hereto in a written notice to 
each other party pursuant to this Section 13.8.  Any notice in writing shall 
be deemed to have been given or made when served personally or when received 
if sent by United States mail, and any notice given by telex, or telegraphic 
or means shall be deemed given when transmitted (answer back confirmed); 
provided that any notice to the Administrative Agent or any Lender under 
Section 1 or Section 2 hereof shall only be effective upon receipt.

               SECTION 13.9.  COUNTERPARTS.  This Agreement may be executed 
in any number of counterparts, and by the different parties on different 
counterparts, each of which when executed shall be deemed an original, but 
all such counterparts taken together shall constitute one and the same 
instrument.

               SECTION 13.10. SUCCESSORS AND ASSIGNS.  This Agreement shall 
be binding upon the Borrowers and their successors and assigns, and shall be 
binding upon and inure to the benefit of the Administrative Agent and the 
Lenders and their successors and assigns, including any subsequent holder of 
any Note.  No Borrower may assign its rights or obligations hereunder without 
the prior written consent of the Lenders.

                                     -86-

<PAGE>

               SECTION 13.11. PARTICIPATIONS.  Any Lender may grant 
participations in its extensions of credit hereunder to any other Lender or 
other lending institution (a "PARTICIPANT"), provided that (i) no Participant 
shall thereby acquire any direct rights under this Agreement, (ii) the 
Administrative Agent must consent, which consent shall not be unreasonably 
withheld, to a Participant which is neither an original signatory of this 
Agreement nor an Affiliate of such a signatory, (iii) no Lender shall agree 
with a Participant that such Lender will not exercise any of its rights 
hereunder without the consent of such Participant except for rights which 
under the terms hereof may only be exercised by all Lenders, (iv) no sale of 
a participation in extensions of credit shall in any manner relieve the 
selling Lender of its obligations hereunder and such Lender shall remain a 
"LENDER" for all purposes of this Agreement and (v) no Participant may be a 
competitor or customer of the Company or any of its Affiliates unless the 
Company consents in writing to such participation.

               SECTION 13.12. ASSIGNMENT AGREEMENTS.  Each Lender may, from 
time to time upon at least five (5) Business Days' prior written notice to 
the Administrative Agent and the Company, assign to other commercial lenders 
all or part of its rights and obligations under this Agreement (including 
without limitation the indebtedness evidenced by the Notes then owned by such 
assigning Lender, together with an equivalent proportion of its Commitments 
to make Loans or participate in the credit risk on Letters of Credit 
hereunder) pursuant to an Assignment Agreement; PROVIDED, HOWEVER, that (i) 
each such assignment shall be of a constant, and not a varying, percentage of 
the assigning Lender's rights and obligations under this Agreement and the 
assignment shall cover the same percentage of such Lender's Commitments, 
Loans, Notes and credit risk with respect to Letters of Credit; (ii) unless 
the Administrative Agent otherwise consents, the aggregate amount of the 
Revolving Credit Commitment Term Loan of the assigning Lender being assigned 
pursuant to each such assignment (determined as of the effective date of the 
relevant Assignment Agreement) (x) in the case of assignments to Lender or an 
Affiliate of a Lender, shall in no event be less than $1,000,000 and shall be 
an integral multiple of $1,000,000 and (y) in the case of an assignment to 
any other Person, shall in no event be less than $5,000,000 and shall be an 
integral multiple of $1,000,000; (iii) the Administrative Agent and (except 
if made during the continuance of any Event of Default hereunder) the Company 
must each consent, which consent shall not be unreasonably withheld, to each 
such assignment to a party which was neither an original signatory of this 
Agreement nor an Affiliate of such a signatory (it being understood and 
agreed that the Company's decision to withhold its consent to an assignee 
which is a customer or competitor of a Borrower or an Affiliate thereof is 
reasonable); and (iv) the assigning Lender must pay to the Administrative 
Agent a processing and recordation fee of $3,500 and any out-of-pocket 
attorneys' fees and expenses incurred by the Administrative Agent in 
connection with such Assignment Agreement.  Upon the execution of each 
Assignment Agreement by the assigning Lender thereunder, the assignee lender 
thereunder, the Company and the Administrative Agent and payment to such 
assigning Lender by such assignee lender of the purchase price for the 
portion of the indebtedness of the Borrowers being acquired by it, (i) such 
assignee lender shall thereupon become a "LENDER" for all purposes of this 
Agreement with Commitments in the amounts set forth in such Assignment 
Agreement and with all the rights, powers and obligations afforded a Lender 
hereunder, (ii) such assigning Lender shall have no further liability for 
funding the portion of its Commitments assumed by such other Lender and (iii) 
the address for notices to

                                         -87-

<PAGE>

such assignee Lender shall be as specified in the Assignment Agreement 
executed by it.  Concurrently with the execution and delivery of such 
Assignment Agreement, the Borrowers shall execute and deliver new Notes to 
the assignee Lender in the respective amounts of its Revolving Credit 
Commitment and its share of the Term Loan and new Notes to the assigning 
Lender in the respective amount of its Revolving Credit Commitment and its 
share of the Term Loan after giving effect to the reduction occasioned by 
such assignment, all such Notes to constitute "NOTES" for all purposes of 
this Agreement and of the other Loan Documents.  Upon its receipt of such new 
Notes, the assigning Lender shall return to the Company the old Notes so 
replaced.

               SECTION 13.13. CONSTRUCTION.  The parties hereto acknowledge 
and agree that this Agreement shall not be construed more favorably in favor 
of one than the other based upon which party drafted the same, it being 
acknowledged that all parties hereto contributed substantially to the 
negotiation of this Agreement.

               SECTION 13.14. ENTIRE AGREEMENT.  This Agreement and the Loan 
Documents and any separate agreement concerning fees constitutes the entire 
understanding of the parties with respect to the subject matter hereof and 
any prior agreements, whether written or oral, with respect thereto are 
superseded hereby.

               SECTION 13.15. HEADINGS.  Section headings used in this 
Agreement are for reference only and shall not affect the construction of 
this Agreement.

               SECTION 13.16. CONFIDENTIALITY.  Any information disclosed by 
the Company or any of its Subsidiaries to the Administrative Agent or any of 
the Lenders shall be used solely for purposes of this Agreement and for the 
purpose of determining whether or not to extend other credit or financial 
accommodations to the Company or its Subsidiaries and, if such information is 
not otherwise in the public domain, shall not be disclosed by the 
Administrative Agent or such Lender to any other Person except (i) to its 
independent accountants and legal counsel (it being understood that the 
Persons to whom such disclosure is made will be informed of the confidential 
nature of such information and instructed to keep such information 
confidential), (ii) pursuant to statutory and regulatory requirements, (iii) 
pursuant to any mandatory court order, subpoena or other legal process, (iv) 
to the Administrative Agent or any other Lender, (v) pursuant to any 
agreement heretofore or hereafter made between such Lender and the Company 
which permits such disclosure, (vi) in connection with the exercise of any 
right or remedy under the Loan Documents, provided that such Lender or the 
Administrative Agent, as applicable, shall give a Borrower prior written 
notice of any such disclosure if lawful or (vii) subject to an agreement 
containing provisions substantially the same as those of this Section, to any 
participant in or assignee of, or prospective participant in or assignee of, 
any obligation or Commitment.

               SECTION 13.17. EXCLUSIVE JURISDICTION.  (A)  EXCEPT AS 
PROVIDED IN SUBSECTION (B), THE LOAN PARTIES, THE LENDERS AND THE 
ADMINISTRATIVE AGENT AGREE THAT ALL DISPUTES BETWEEN OR AMONG THEM ARISING 
OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP 
ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN 
DOCUMENTS, AND WHETHER 

                                      -88-

<PAGE>

ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED ONLY BY 
STATE OR FEDERAL COURTS LOCATED IN COOK COUNTY, ILLINOIS, BUT EACH OF THE 
LOAN PARTIES, THE LENDERS AND THE ADMINISTRATIVE AGENT ACKNOWLEDGE THAT ANY 
APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF 
COOK COUNTY, ILLINOIS.  EACH LOAN PARTY WAIVES IN ALL DISPUTES ANY OBJECTION 
THAT IT MAY HAVE TO THE LOCATION OF THE COURT CONSIDERING THE DISPUTE.

               (B)  OTHER JURISDICTIONS.  EACH LOAN PARTY AGREES THAT THE 
ADMINISTRATIVE AGENT AND THE LENDERS SHALL EACH HAVE THE RIGHT TO PROCEED 
AGAINST ANY LOAN PARTY OR ITS PROPERTY IN A COURT IN ANY LOCATION TO ENABLE 
THE ADMINISTRATIVE AGENT OR ANY LENDER TO REALIZE ON SUCH PROPERTY, OR TO 
ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF THE 
ADMINISTRATIVE AGENT OR ANY LENDER. EACH LOAN PARTY WAIVES ANY OBJECTION THAT 
IT MAY HAVE TO THE LOCATION OF THE COURT IN WHICH THE ADMINISTRATIVE AGENT OR 
ANY LENDER HAS COMMENCED A PROCEEDING DESCRIBED IN THIS SUBSECTION.

               SECTION 13.18. WAIVER OF JURY TRIAL.  THE LOAN PARTIES, THE 
ADMINISTRATIVE AGENT AND THE LENDERS EACH WAIVE ANY RIGHT TO HAVE A JURY 
PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR 
OTHERWISE, BETWEEN THE AGENTS OR EITHER OF THEM OR ANY LENDER AND ANY LOAN 
PARTY ARISING OUT OF, CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE 
RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT OR ANY 
OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION 
THEREWITH OR THE TRANSACTIONS RELATED THERETO.  THE LOAN PARTIES, THE 
ADMINISTRATIVE AGENT AND THE LENDERS EACH HEREBY AGREE AND CONSENT THAT ANY 
SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL 
WITHOUT A JURY AND THAT ANY OF THEM MAY FILE AN ORIGINAL COUNTERPART OR A 
COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF 
THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.

               SECTION 13.19. GOVERNING LAW.  This Agreement and the Notes, 
and the rights and duties of the parties hereto, shall be construed and 
determined in accordance with the laws of the State of Illinois.

                          [SIGNATURE PAGES TO FOLLOW]

                                       -89-

<PAGE>

               Upon your acceptance hereof in the manner hereinafter set 
forth, this Agreement shall be a contract between us for the purposes 
hereinabove set forth.

               Executed and delivered as of this 12th day of December, 1997.

                                   PLATINUM ENTERTAINMENT, INC.


                                   By:  /s/ Steven Devick
                                      --------------------------------
                                      Name:  Steven Devick
                                      Title: President


                                   INTERSOUND, INC.


                                   By:  /s/ Steven Devick
                                      --------------------------------
                                      Name:  Steven Devick
                                      Title: President


                                   RIVER NORTH RECORDS, INC.


                                   By:  /s/ Steven Devick
                                      --------------------------------
                                      Name:  Steven Devick
                                      Title: President


                                   CGI RECORDS, INC.


                                   By:  /s/ Steven Devick
                                      --------------------------------
                                      Name:  Steven Devick
                                      Title: President


                                   LEXICON MUSIC, INC.


                                   By:  /s/ Steven Devick
                                      --------------------------------
                                      Name:  Steven Devick
                                      Title: President


                                   LIGHT RECORDS, INC.


                                   By:  /s/ Steven Devick
                                      --------------------------------
                                      Name:  Steven Devick
                                      Title: President

                                      -90-

<PAGE>

                                   THE RECORDING EXPERIENCE, INC.


                                   By:  /s/ Steven Devick
                                      --------------------------------
                                      Name:  Steven Devick
                                      Title: President


                                   JUSTMIKE MUSIC, INC.


                                   By:  /s/ Steven Devick
                                      --------------------------------
                                      Name:  Steven Devick
                                      Title: President


                                   PEG PUBLISHING, INC.


                                   By:  /s/ Steven Devick
                                      --------------------------------
                                      Name:  Steven Devick
                                      Title: President


                                   ROYCE PUBLISHING, INC.


                                   By:  /s/ Steven Devick
                                      --------------------------------
                                      Name:  Steven Devick
                                      Title: President

                                        -91-

<PAGE>               

               Accepted and agreed to in Chicago, Illinois as of the day and 
year last above written.

               Each of the Lenders hereby agrees with each other Lender that 
if it should receive or obtain any payment (whether by voluntary payment, by 
realization upon collateral, by the exercise of rights of set-off or banker's 
lien, by counterclaim or cross action, or by the enforcement of any rights 
under this Agreement, any of the other Loan Documents or otherwise) in 
respect of the Obligations in a greater amount than such Lender would have 
received had such payment been made to the Administrative Agent and been 
distributed among the Lenders as contemplated by Section 3.2 or 3.3 hereof, 
as applicable, then in that event the Lender receiving such disproportionate 
payment shall purchase for cash without recourse from the other Lenders an 
interest in the Obligations of the Borrowers to such Lenders in such amount 
as shall result in a distribution of such payment as contemplated by Section 
3.2 or 3.3 hereof, as applicable.  In the event any payment made to a Lender 
and shared with the other Lenders pursuant to the provisions hereof is ever 
recovered from such Lender, the Lenders receiving a portion of such payment 
hereunder shall restore the same to the payor Lender, but without interest.

Amount and Percentage of Commitments:

Revolving Credit Commitment:
$10,000,000 (100.0%)

Term Credit Commitment:
$20,000000 (100.0%)


                                   BANK OF MONTREAL, individually and as 
                                     Administrative Agent


                                   By:  /s/ Jeffrey Titus
                                       --------------------------------
                                       Name: Jeffrey Titus
                                            ---------------------------
                                        Title:    Director
                                              -------------------------

                                     Mailing Address:
                                     115 South LaSalle Street
                                     Chicago, Illinois  60603
                                     Attention:  Global Distribution
                                     Telephone:  312-750-6046
                                     Telecopy:  312-750-3834


                                    -92-

<PAGE>

                                 EXHIBIT A

                         PLATINUM ENTERTAINMENT, INC.
                             REVOLVING CREDIT NOTE

$______________                                            ______________, 1997

               For value received on the Revolving Credit Termination Date, 
the undersigned, Platinum Entertainment, Inc., a Delaware corporation (the 
"COMPANY"), and Intersound, Inc., a Delaware corporation ("INTERSOUND") (the 
Company and Intersound being hereinafter referred to collectively as the 
"BORROWERS"), hereby jointly and severally promise to pay to the order of 
____________________________ (the "LENDER"), at the principal office of Bank 
of Montreal in Chicago, Illinois (i) the principal sum of 
____________________________ Dollars ($_________), or (ii) such lesser amount 
as may at the time of the maturity hereof, whether by acceleration or 
otherwise, be the aggregate unpaid principal amount of all Revolving Loans 
owing from the Borrowers to the Lender under the Revolving Credit provided 
for in the Credit Agreement hereinafter mentioned.  

               This Note evidences indebtedness constituting the "DOMESTIC 
RATE PORTION" and "LIBOR PORTIONS" as such terms are defined in that certain 
Credit Agreement dated as of December 12, 1997, by and among the Borrowers, 
certain Subsidiaries of the Company, Bank of Montreal individually and as 
Administrative Agent and certain lenders which are or may from time to time 
become parties thereto (the "CREDIT AGREEMENT") made and to be made to the 
Borrowers by the Lender under the Revolving Credit provided for under the 
Credit Agreement and the Borrowers hereby jointly and severally promise to 
pay interest at the office specified above on each loan evidenced hereby at 
the rates and times specified therefor in the Credit Agreement.  Capitalized 
terms used herein without definition shall have the meanings ascribed to them 
in the Credit Agreement, and this Note is subject to the terms of the Credit 
Agreement.

               Each loan made under the Revolving Credit provided for in the 
Credit Agreement by the Lender to a Borrower against this Note, any repayment 
of principal hereon, the status of each such loan from time to time as part 
of the Domestic Rate Portion or a LIBOR Portion and the interest rates and 
interest periods applicable thereto shall be endorsed by the holder hereof on 
the reverse side of this Note or recorded on the books and records of the 
holder hereof (provided that such entries shall be endorsed on the reverse 
side hereof prior to any negotiation hereof) and the Borrowers agree that in 
any action or proceeding instituted to collect or enforce collection of this 
Note, the entries so endorsed on the reverse side hereof or recorded on the 
books and records of the Lender shall be PRIMA FACIE evidence of the unpaid 
balance of this Note and the status of each such loan from time to time as 
part of the Domestic Rate Portion or a LIBOR Portion and the interest rates 
and interest periods applicable thereto.

<PAGE>

               This Note is issued by the Borrowers under the terms and 
provisions of the Credit Agreement and is secured, inter alia, by certain 
security agreements and other instruments and documents from the Company and 
certain of its Subsidiaries, and this Note and the holder hereof are entitled 
to all of the benefits and security provided for thereby or referred to 
therein, equally and ratably with all other indebtedness thereby secured, to 
which reference is hereby made for a statement thereof.  This Note may be 
declared to be, or be and become, due prior to its expressed maturity upon 
the occurrence of an Event of Default specified in the Credit Agreement, 
voluntary prepayments may be made hereon, and certain prepayments are 
required to be made hereon, all in the events, on the terms and with the 
effects provided in the Credit Agreement.

               THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH, AND GOVERNED 
BY, THE INTERNAL LAWS OF THE STATE OF ILLINOIS WITHOUT REGARD TO PRINCIPLES 
OF CONFLICT OF LAW.

               The Borrowers hereby waive presentment for payment.

                                   PLATINUM ENTERTAINMENT, INC.



                                   By   
                                     ___________________________
                                     Name:  Steven Devick
                                     Title: President


                                   INTERSOUND, INC.



                                   By
                                     ___________________________
                                     Name:  Steven Devick
                                     Title: President


                                     -2-
<PAGE>

                                  EXHIBIT B

                         PLATINUM ENTERTAINMENT, INC.
                               TERM CREDIT NOTE
                                                                          

$______________                                             _____________, 1997

               For value received, the undersigned, Platinum Entertainment, 
Inc., a Delaware corporation (the "COMPANY") and Intersound, Inc., a Delaware 
corporation ("INTERSOUND"; the Company and Intersound being hereinafter 
referred to collectively as the "BORROWERS"), hereby jointly and severally 
promise to pay to the order of __________________________ (the "LENDER"), at 
the principal office of Bank of Montreal in Chicago, Illinois the principal 
sum of _______________________________ Dollars ($_________), in installments 
as follows:  eleven (11) consecutive quarterly installments (commencing on 
June 1, 1998 and continuing on the first day of each September, December, 
March and June occurring thereafter to and including December 1, 2000) with 
all such installments (except the last such installment) to be in an amount 
equal to $_____________ per installment and the last such installment to be 
in an amount equal to $______________ which shall be the full amount of the 
then unpaid principal balance of this Note.

               This Note evidences indebtedness constituting the "DOMESTIC 
RATE PORTION" and "LIBOR PORTIONS" as such terms are defined in that certain 
Credit Agreement dated as of December 12, 1997, by and among the Borrowers, 
certain Subsidiaries of the Company, Bank of Montreal individually and as 
Administrative Agent and certain lenders which are or may from time to time 
become parties thereto (the "CREDIT AGREEMENT") made or to be made to the 
Borrowers by the Lender under the Term Credit provided for under the Credit 
Agreement and the Borrowers hereby jointly and severally promise to pay 
interest at the office specified above on the loan evidenced hereby at the 
rates and times specified therefor in the Credit Agreement.  Capitalized 
terms used herein without definition shall have the meanings ascribed to them 
in the Credit Agreement, and this Note is subject to the terms of the Credit 
Agreement.

               Any repayment of principal hereon, the status of indebtedness 
evidenced hereby from time to time as part of the Domestic Rate Portion or a 
LIBOR Portion and the interest rates and interest periods applicable thereto 
shall be endorsed by the holder hereof on the reverse side of this Note or 
recorded on the books and records of the holder hereof (provided that such 
entries shall be endorsed on the reverse side hereof prior to any negotiation 
hereof) and the Borrowers agree that in any action or proceeding instituted 
to collect or enforce collection of this Note, the entries so endorsed on the 
reverse side hereof or recorded on the books and records of the Lender shall 
be PRIMA FACIE evidence of the unpaid balance of this Note and the status of 
indebtedness evidenced hereby from time to time as part of the 


<PAGE>

Domestic Rate Portion or a LIBOR Portion and the interest rates and interest 
periods applicable thereto.

               This Note is issued by the Borrowers under the terms and 
provisions of the Credit Agreement and is secured, inter alia, by certain 
security agreements and other instruments and documents from the Company and 
certain of its Subsidiaries, and this Note and the holder hereof are entitled 
to all of the benefits and security provided for thereby or referred to 
therein, equally and ratably with all other indebtedness thereby secured, to 
which reference is hereby made for a statement thereof.  This Note may be 
declared to be, or be and become, due prior to its expressed maturity upon 
the occurrence of an Event of Default specified in the Credit Agreement, 
voluntary prepayments may be made hereon, and certain prepayments are 
required to be made hereon, all in the events, on the terms and with the 
effects provided in the Credit Agreement.

               THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH, AND GOVERNED 
BY, THE INTERNAL LAWS OF THE STATE OF ILLINOIS WITHOUT REGARD TO PRINCIPLES 
OF CONFLICT OF LAW.

               The Borrowers hereby waive presentment for payment.


                                       PLATINUM ENTERTAINMENT, INC.


                                       By   
                                         ---------------------------------
                                         Name:  Steven Devick
                                         Title: President


                                       INTERSOUND, INC.


                                       By   
                                         ---------------------------------
                                         Name:  Steven Devick
                                         Title: President












                                      -2-

<PAGE>

                                  EXHIBIT C

                          BORROWING BASE CERTIFICATE

TO:            Bank of Montreal as Administrative Agent under, and the Lenders 
               party to, the Credit Agreement described below

               Pursuant to the terms of the Credit Agreement dated as of 
December 12, 1997 among the undersigned and you (the "CREDIT AGREEMENT"), we 
submit this Borrowing Base Certificate to you and certify that the 
information set forth below and on any attachments to this Certificate is 
true, correct and complete as of the date of this Certificate.  Any 
capitalized terms used herein without definition shall have the same meanings 
as such terms have in the Credit Agreement.

I.  BORROWING BASE CALCULATIONS FOR PLATINUM ENTERTAINMENT, INC. 
    (THE "COMPANY")

               A.   ACCOUNTS OF COMPANY IN BORROWING BASE

                    1.   Gross Accounts of Company                 _____________
                                                                        IA1
                    2.   Less:

                         (a)  Ineligible sales        _____________
                              (I.E., foreign 
                              accounts unless exempted) 

                         (b)  Owed by an account      _____________
                              debtor who is an Affiliate or Subsidiary

                         (c)  Owed by an account      _____________
                              debtor who is in an 
                              insolvency or reorganization 
                              proceeding

                         (d)  Unpaid more than        _____________
                              (i) 90 days past invoice date 
                              for a Current Account or
                              (ii) 30 days past due date for 
                              a Dated Account or (iii) 90 days
                              past relevant period for a
                              License Receivable

<PAGE>

                         (e)  Ineligible because of   _____________
                              25% taint factor


                         (f)  Otherwise ineligible    _____________

                         Total Deductions                          _____________
                         (sum of lines IA2a - IA2f)                     IA2


                    3.   Eligible Accounts                         _____________
                         (line A1 minus line IA2)                       IA3

                    4.   Accounts in Borrowing Base                _____________
                         (line IA3 x .85)                          _____________
                                                                        IA4
               B.   FINISHED GOODS INVENTORY OF COMPANY IN
                    BORROWING BASE

                    1.   Gross inventory of Finished Goods         _____________
                         of Company                                     IB1

                    2.   Less:

                         (a)  Finished goods of       _____________
                              Company not located 
                              at approved locations

                         (b)  Obsolete, slow moving,  _____________
                              not merchantable

                         (c)  Subject to Polygram
                              lien                    _____________

                         (d)  Otherwise ineligible    _____________

                         Total Deductions (sum of lines IB2a - IB2d)____________
                                                                        IB2

                    3.   Eligible Inventory of Finished            _____________
                         Goods (line IB1 minus line IB2)                IB3

                    4.   Eligible Inventory of Finished Goods      _____________
                         included in Borrowing Base determination  _____________
                         (line IB3 x .50)                               IB4    



                                     -2-
<PAGE>

               
               C.   RAW MATERIALS INVENTORY OF COMPANY IN
                    BORROWING BASE

                    1.   Gross inventory of raw materials of Company____________
                                                                        IC1

                    2.   Less:

                         (a)  Raw materials of        _____________
                              Company not located 
                              at approved locations

                         (b)  Obsolete, not           _____________
                              merchantable

                         (c)  Subject to Polygram
                              lien                    _____________

                         (d)  Otherwise ineligible    _____________

                         Total Deductions (sum of lines             ____________
                         IC2a - IC2d)                                   IC2

                    3.   Eligible Inventory of raw materials        ____________
                         (line IC1 minus line IC2)                      IC3

                    4.   Eligible Inventory of raw materials        ____________
                         included in Borrowing Base determination   ____________
                         (line IC3 x .50)                               IC4

               D.   INVENTORY OF COMPANY IN BORROWING BASE

                    1.   Eligible Inventory of Company in Borrowing ____________
                         Base (sum of Lines IB4 and IC4)                ID1

II.  BORROWING BASE CALCULATIONS FOR INTERSOUND, INC. 
     ("INTERSOUND")

               A.   ACCOUNTS OF INTERSOUND IN BORROWING BASE

                    1.   Gross Accounts of Intersound               ____________
                                                                       IIA1
                    2.   Less:

                         (a)  Ineligible sales        _____________
                              (I.E., foreign accounts
                              unless exempted)



                                     -3-
<PAGE>


                         (b)  Owed by an account      _____________
                              debtor who is an Affiliate or Subsidiary

                         (c)  Owed by an account      _____________
                              debtor who is in an 
                              insolvency or reorganization 
                              proceeding

                         (d)  Unpaid more than        _____________
                              (i) 90 days past invoice date 
                              for a Current Account or (ii) 30 
                              days past due date for a Dated 
                              Account or (iii) 90 days past relevant
                              period for a License Receivable

                         (e)  Ineligible because of   _____________
                              25% taint factor

                         (f)  Otherwise ineligible    _____________

                         Total Deductions                          _____________
                         (sum of lines IIA2a - IIA2f)                   IIA2


                    3.   Eligible Accounts of Intersound           _____________
                         (line IIA1 minus line IIA2)                    IIA3

                    4.   Accounts in Borrowing Base                _____________
                         (line IIA3 x .85)                         _____________
                                                                        IIA4
               B.   FINISHED GOODS INVENTORY OF INTERSOUND IN 
                    BORROWING BASE

                    1.   Gross inventory of finished goods         _____________
                         of Intersound                                  IIB1

                    2.   Less:

                         (a)  Finished goods of       _____________
                              Intersound not located 
                              at approved locations

                         (b)  Obsolete, slow moving,  _____________
                              not merchantable


                                     -4-
<PAGE>

                         (c)  Subject to Polygram
                              lien                    _____________

                         (d)  Otherwise ineligible    _____________

                         Total Deductions (sum of lines            _____________
                         IIB2a - IIB2d)                                 IIB2


                    3.   Eligible Inventory of finished            _____________
                         goods of Intersound (line II B1                IIB3
                         minus line II B2)

                    4.   Eligible Inventory of finished goods of   _____________
                         Intersound included in Borrowing Base     _____________
                         determination (line IIB3 x .50)                IIB4
               
               C.   RAW MATERIALS INVENTORY OF INTERSOUND IN 
                    BORROWING BASE

                    1.   Gross inventory of raw materials          _____________
                         of Intersound                                  IIC1

                    2.   Less:

                         (a)  Raw materials of        _____________
                              Intersound not located 
                              at approved locations

                         (b)  Obsolete, not           _____________
                              merchantable

                         (c)  Otherwise ineligible    _____________

                         (d)  Subject to Polygram
                              lien                    _____________

                         Total Deductions (sum of lines            _____________
                         IIC2a - IIC2d)                                 IIC2

                    3.   Eligible Inventory of Raw Materials of    _____________
                         Intersound (line IIC1 minus line IIC2)         IIC3

                    4.   Eligible Inventory of raw materials of    _____________
                         Intersound included in Borrowing Base     _____________
                         determination (line IIC3 x .50)                IIC4


                                     -5-
<PAGE>

               D.   INVENTORY OF INTERSOUND IN BORROWING BASE

                    1.   Eligible Inventory of Intersound in       _____________
                         Borrowing Base (sum of Lines IIB4 and IIC4)    IID1

III.  BORROWING BASE                              

                    1.   Gross Borrowing Base

                         (the sum of lines IA4, ID1, IIA4          _____________
                         and IID1)                                 _____________
                                                                        III
                    2.   Initial Reserves             _____________

                    3.   Additional Reserves          _____________

                    4.   Total Reserves (line III2 plus line III3) _____________
                                                                        III4

                    5.   Borrowing Base (line III1 less line III4) _____________
                                                                   _____________
                                                                        III

IV.  REVOLVING CREDIT OUTSTANDING TO THE COMPANY AND INTERSOUND

               A.   Loans to the Company              _____________
                    and Intersound

               B.   Letters of Credit for benefit 
                    of the Company and Intersound     _____________

               Total Revolving Credit Outstanding                  _____________
                    (line IV A plus IV B)                          _____________
                                                                         IV

V.  UNUSED AVAILABILITY                                            _____________
                                                                   _____________
               (line III minus line IV)
               

                                     -6-
<PAGE>


               Dated as of this ___________ day of __________________, 19____.

                                       PLATINUM ENTERTAINMENT, INC.

                                       By________________________________
                                         
                                       Its_______________________________












                                     -7-

<PAGE>

                                   EXHIBIT D

                           COMPLIANCE CERTIFICATE

               This Compliance Certificate is furnished to Bank of Montreal, 
as Administrative Agent (the "ADMINISTRATIVE AGENT") pursuant to that certain 
Credit Agreement dated as of December 12, 1997, by and between Platinum 
Entertainment, Inc. (the "BORROWER"), certain of its Subsidiaries, the 
Administrative Agent and the Lenders party thereto (the "CREDIT AGREEMENT"). 
Unless otherwise defined herein, the terms used in this Compliance 
Certificate have the meanings ascribed thereto in the Credit Agreement.

     THE UNDERSIGNED ON BEHALF OF THE COMPANY HEREBY CERTIFIES THAT:

          1.   I am the duly elected _____________________________________ of
     the Company;

          2.   I have reviewed the terms of the Credit Agreement and I have
     made, or have caused to be made under my supervision, a detailed review of
     the transactions and conditions of the Company and its Subsidiaries during
     the accounting period covered by the attached financial statements;

          3.   The examinations described in paragraph 2 did not disclose, and I
     have no knowledge of, the existence of any condition or the occurrence of
     any event which constitutes a Default or Event of Default during or at the
     end of the accounting period covered by the attached financial statements
     or as of the date of this Certificate, except as set forth below; 

          4.   The financial statements required by Section 8.5 of the Credit
     Agreement and being furnished to you concurrently with this certificate
     are, to the best of my knowledge, true, correct and complete as of the
     dates and for the periods covered thereby; and

          5.   The Attachment hereto sets forth financial data and computations
     evidencing the Borrower's compliance with certain covenants of the Credit
     Agreement, all of which data and computations are, to the best of my
     knowledge, true, complete and correct and have been made in accordance with
     the relevant Sections of the Credit Agreement.

               Described below are the exceptions, if any, to paragraph 3 by 
listing, in detail, the nature of the condition or event, the period during 
which it has existed and the action which the Borrowers have taken, are 
taking, or propose to take with respect to each such condition or event:

     ______________________________________________________________________
     ______________________________________________________________________

<PAGE>

     ______________________________________________________________________
     ______________________________________________________________________

               The foregoing certifications, together with the computations 
set forth in the Attachment hereto and the financial statements delivered 
with this Certificate in support hereof, are made and delivered this 
_________ day of __________________ 19___.

                                       PLATINUM ENTERTAINMENT, INC.

                                       By
                                         -------------------------------------
                                       Name:
                                            ----------------------------------
                                       Title:
                                             ---------------------------------


                                      -2-

<PAGE>

                    ATTACHMENT TO COMPLIANCE CERTIFICATE
                        PLATINUM ENTERTAINMENT, INC.
                             INTERSOUND, INC.

               Compliance Calculations for Credit Agreement
                      Dated as of December 12, 1997 
                  Calculations as of _____________, 19___
___________________________________________________________________________

A. CONSOLIDATED NET WORTH (SECTION 8.9)

   1.   Consolidated Net Worth (as defined) for         __________
        Company and Subsidiaries

   2.   As listed in Section 8.9, Consolidated Net
        Worth must be in an amount not less than        $_________

   3.   Company is in compliance?
        (Circle yes or no)                                Yes/No
                                                        __________
                                                        __________

B. LEVERAGE RATIO (SECTION 8.10)

   1.   Total Debt, as defined                          __________

   2.   Consolidated Net Income, as defined,
        for relevant period                __________

   3.   Amounts deducted in arriving at
        Consolidated Net Income from 
        Line B2 in respect of
        (a)  Cash Interest Expense, 
             as defined                    __________
        (b)  Taxes imposed on or 
             measured by income on 
             excess profits                __________
        (c)  Depreciation of fixed assets  __________
        (d)  Amortization of intangibles   __________
        (e)  Debt issuance costs           __________
        (f)  K-tel reserve                 __________
        (g)  Other non-cash charges        __________

<PAGE>

   4.   Sum of Lines 2, 3(a), (b), (c), (d),
        (e), (f) and (g) ("CONSOLIDATED 
        EBITDA")                           __________

   5.   Ratio of Total Debt (Line 1)
        to Consolidated EBITDA (Line 4)
        ("LEVERAGE RATIO")                                      :1
                                                        __________
                                                        __________

   6.   As listed in Section 8.10 as of the 
        date of this Certificate, the Leverage 
        Ratio shall not be greater than                         :1
                                                        __________
                                                        __________

   7.   Company is in compliance?
        (Circle yes or no)                                Yes/No
                                                        __________
                                                        __________

C. CONSOLIDATED WORKING CAPITAL (SECTION 8.11)

   1.   Consolidated current assets ("CURRENT ASSETS")  __________

   2.   Consolidated current liabilities 
        ("CURRENT LIABILITIES")            __________

   3.   Current Maturities, as defined,
        on the Notes                       __________

   4.   Current Assets (Line 1) minus
        Current Liabilities (Line 2)
        plus Line 3 ("CONSOLIDATED WORKING
        CAPITAL")                                       $
                                                        __________

   5.   As listed in Section 8.11, Consolidated
        Working Capital must not be less than           $1,000,000
                                                        __________
                                                        __________

   6.   Company is in compliance?
        (Circle yes or no)                                Yes/No
                                                        __________
                                                        __________

D. INTEREST COVERAGE (SECTION 8.12)

   1.   Consolidated EBITDA for most
        recent quarter (from
        Line B4 above)                     __________

   2.   Cash Interest Expense for 
        same quarter (from Line B3a)                    __________

                                     -2-

<PAGE>

   3.   Ratio of Consolidated EBITDA (Line 1)
        to Cash Interest Expense (Line 2)
        ("INTEREST COVERAGE RATIO")                             :1
                                                        __________
                                                        __________

   4.   As listed in Section 8.12, for
        the date of this Certificate,
        the Interest Coverage Ratio must
        be in an amount not less than                           :1
                                                        __________
                                                        __________

   5.   Company is in compliance?
        (Circle yes or no)                                Yes/No
                                                        __________
                                                        __________

E. FIXED CHARGE RATIO (SECTION 8.13)

   1.   Consolidated EBIDTA (from 
        Line D1 above)                                  __________

   2.   Cash Interest Expense (from 
        Line D2 above                      __________

   3.   Current Maturities, (from
        Line C3 above)                     __________

   4.   Capital Expenditures, as defined   __________

   5.   Taxes on or measured by income
        payable in cash                    __________

   6.   Restricted Payments, as defined    __________

   7.   Sum of Lines 2, 3, 4, 5 and 6
        ("FIXED CHARGES")                               __________

   8.   Ratio of Consolidated EBITDA
        (Line 1) to Fixed Charges
        (Line 7) ("FIXED CHARGE 
        COVERAGE RATIO")                                        :1
                                                        __________
                                                        __________

   9.   As of the date of this Certificate, 
        as listed in Section 8.13, Fixed 
        Charge Coverage Ratio must not
        be less than                                            :1
                                                        __________
                                                        __________

  10.  Company is in compliance?
       (Circle yes or no)                                Yes/No
                                                        __________
                                                        __________

                                     -3-

<PAGE>

                                   EXHIBIT E

                        APPROVED COLLATERAL LOCATIONS

                                  FOR COMPANY

1.             2001 Butterfield Road
               Downers Grove, Illinois  60515

2.             5020 Chase Street
               Downers Grove, Illinois  60515

3.             1227 16th Avenue South
               Nashville, TN  37212

4.             Federal Whalen Moving & Storage
               920 Larch Avenue
               Elmhurst, Illinois  60126

                               FOR INTERSOUND

       (For Company as well after merger of Intersound into Company)

1.             2001 Butterfield Road
               Downers Grove, Illinois  60575

2.             11810 Wills Road
               Suite 110
               Alpharetta, GA  30201

3.             4100 Spring Valley Road
               Suite 800
               Dallas, Texas  75244

4.             10 Columbus Blvd.
               Suite 219
               Hartford, CT  06106

5.             333 Washington Ave. No.
               Suite 306 & 308
               Minneapolis, MN  55401

6.             Polygram Group Distribution, Inc.
               9999 E. 121st Street
               Fishers, IN  46038

<PAGE>

                                   EXHIBIT F

                              GUARANTY AGREEMENT

                                                            _____________, 19___

Bank of Montreal,
 as Administrative Agent for the Lenders party
 to the Credit Agreement referred to below
115 South LaSalle Street
Chicago, Illinois  60603

Dear Sirs:

               Reference is made to the Credit Agreement, dated as of 
December 12, 1997 (the "CREDIT AGREEMENT") among Platinum Entertainment, 
Inc., certain of its Subsidiaries, the Lenders named therein, Bank of 
Montreal as Administrative Agent for the Lenders.  Capitalized terms used and 
not defined herein have the meanings assigned to them in the Credit Agreement.

               The undersigned, [name of Guarantor], a [jurisdiction of 
incorporation] corporation, hereby elects to be a "GUARANTOR" for all purposes 
of the Credit Agreement, effective from the date hereof and the undersigned 
hereby agrees to perform all the obligations of a Guarantor under, and to be 
bound in all respects by the terms of, the Credit Agreement, including without
limitation Sections 2.7, 11, 13.17 and 13.18 thereof, as if the undersigned 
were a direct signatory party thereto.

               The undersigned confirms that (i) it is a Subsidiary of the 
Company, (ii) the execution, delivery and performance by it of this Guaranty 
is within its corporate powers, have been duly authorized by all necessary 
corporate action, requires no action by or in respect of, or filing with, any 
governmental body, agency or official and do not contravene, or constitute a 
default under, any provision of applicable law or regulation or of its 
charter or by-laws or of any agreement or instrument to which the Company or 
the undersigned is a party or is subject, or by which the Company or the 
undersigned, or the Company's or the undersigned's property, is bound, or of 
any judgment, injunction, order, decree or other instrument binding upon it 
or result in the creation or imposition of any lien on any asset of the 
Company or any of its Subsidiaries and (iii) the representations and 
warranties set forth in Section 6 of the Credit Agreement are true and 
correct as to the undersigned and its subsidiaries as of the date hereof.

<PAGE>

               This Agreement shall be construed in accordance with and 
governed by the internal laws of the State of Illinois.

                                       Very truly yours,

                                       [NAME OF GUARANTOR]

                                       By
                                         -------------------------------------
                                       Name:
                                            ----------------------------------
                                       Title:
                                             ---------------------------------


                                      -2-

<PAGE>

                                  EXHIBIT G

                         ASSIGNMENT AND ACCEPTANCE

                        Dated _____________, 19_____

               Reference is made to the Credit Agreement dated as of December 
12, 1997 (the "CREDIT AGREEMENT") among Platinum Entertainment, Inc. 
("PLATINUM") and Intersound, Inc.("INTERSOUND"; Platinum and Intersound 
collectively referred to herein as the "BORROWERS" and individually as a 
"BORROWER") the Lenders (as defined in the Credit Agreement) and Bank of 
Montreal, as Administrative and Syndication Agent for the Lenders (the 
"AGENT").  Terms defined in the Credit Agreement are used herein with the 
same meaning.

               _____________________________________________________ (the 
"ASSIGNOR") and _________________________ (the "ASSIGNEE") agree as follows:

               1.   The Assignor hereby sells and assigns to the Assignee, 
and the Assignee hereby purchases and assumes from the Assignor, a _______% 
interest in and to all of the Assignor's rights and obligations under the 
Credit Agreement as of the Effective Date (as defined below), including, 
without limitation, such percentage interest in the Assignor's Revolving 
Credit Commitment as in effect on the Effective Date and the Revolving and 
Term Loans, if any, owing to the Assignor on the Effective Date and the 
Assignor's Percentage of any outstanding L/C Commitments, if any.

               2.   The Assignor (i) represents and warrants that as of the 
date hereof (A) its Revolving Credit Commitment is $____________, (B) the 
aggregate outstanding principal amount of Assignor's Revolving Loans under 
the Credit Agreement that have not been repaid is $____________ and a 
description of the interest rates and interest periods for such Revolving 
Loans is attached as Schedule 1 hereto, (C) the aggregate principal amount of 
Assignor's outstanding L/C Commitment is $___________, and (D) the 
outstanding principal amount of Assignor's Term Loan is $__________; (ii) 
represents and warrants that it is the legal and beneficial owner of the 
interest being assigned by it hereunder and that such interest is free and 
clear of any adverse claim, lien, or encumbrance of any kind; (iii) makes no 
representation or warranty and assumes no responsibility with respect to any 
statements, warranties or representations made in or in connection with the 
Credit Agreement or the execution, legality, validity, enforceability, 
genuineness, sufficiency or value of the Credit Agreement or any other 
instrument or document furnished pursuant thereto; and (iv) makes no 
representation or warranty and assumes no responsibility with respect to the 
financial condition of any Borrower, or any Guarantor or the performance or 
observance by any Borrower, or any Guarantor of any of their respective 
obligations under the Credit Agreement or any other instrument or document 
furnished pursuant thereto.

               3.   The Assignee (i) confirms that it has received a copy of 
the Credit Agreement, together with copies of the most recent financial 
statements delivered to the Lenders 

<PAGE>

pursuant to in Sections 8.5(b) and 8.5(c) thereof and such other documents 
and information as it has deemed appropriate to make its own credit analysis 
and decision to enter into this Assignment and Acceptance; (ii) agrees that 
it will, independently and without reliance upon the Administrative Agent, 
the Assignor or any other Lender and based on such documents and information 
as it shall deem appropriate at the time, continue to make its own credit 
decisions in taking or not taking action under the Credit Agreement; (iii) 
appoints and authorizes the Administrative Agent to take such action as 
Administrative Agent on its behalf and to exercise such powers under the 
Credit Agreement as are delegated to the Administrative Agent by the terms 
thereof, together with such powers as are reasonably incidental thereto; (iv) 
agrees that it will perform in accordance with their terms all of the 
obligations which by the terms of the Credit Agreement are required to be 
performed by it as a Lender; and (v) specifies as its lending offices (and 
address for notices) the offices set forth beneath its name on the signature 
pages hereof.

               4.   As consideration for the assignment and sale contemplated 
in Section 1 hereof, the Assignee shall pay to the Assignor on the date 
hereof in Federal funds an amount equal to $________________*.  It is 
understood that commitment and/or Letter of Credit fees accrued to the date 
hereof with respect to the interest assigned hereby are for the account of 
the Assignor and such fees accruing from and including the date hereof are 
for the account of the Assignee. Each of the Assignor and the Assignee hereby 
agrees that if it receives any amount under the Credit Agreement which is for 
the account of the other party hereto, it shall receive the same for the 
account of such other party to the extent of such other party's interest 
therein and shall promptly pay the same to such other party.

               5.  The effective date for this Assignment and Acceptance 
shall be _____________, ______ (the "EFFECTIVE DATE").  Following the 
execution of this Assignment and Acceptance, it will be delivered to the 
Company for its acceptance and to the Administrative Agent for acceptance and 
recording by the Administrative Agent.

               6.  Upon such acceptance and recording, as of the Effective 
Date, (i) the Assignee shall be a party to the Credit Agreement and, to the 
extent provided in this Assignment and Acceptance, have the rights and 
obligations of a Lender thereunder and (ii) the Assignor shall, to the extent 
provided in this Assignment and Acceptance, relinquish its rights and be 
released from its obligations under the Credit Agreement.

               7.  Upon such acceptance and recording, from and after the 
Effective Date, the Agent shall make all payments under the Credit Agreement 
in respect of the interest assigned hereby (including, without limitation, 
all payments of principal, interest and commitment fees with respect thereto) 
to the Assignee. The Assignor and Assignee shall make all appropriate 
adjustments in payments under the Credit Agreement for periods prior to the 
Effective Date directly between themselves.

-------------------
* Amount should combine principal together with accrued interest and breakage 
compensation, if any, to be paid by the Assignee, net of any portion of any 
upfront fee to be paid by the Assignor to the Assignee. It may be preferable 
in an appropriate case to specify these amounts generically or by formula 
rather than as a fixed sum.

                                      -2-

<PAGE>

               8.  In accordance with Section 13.12 of the Credit Agreement, 
the Assignor and the Assignee request and direct that the Administrative 
Agent prepare and cause the Borrowers to execute and deliver to the Assignee 
a Revolving Credit Note payable to the Assignee in the amount of its 
Revolving Credit Commitment and a Term Credit Note in the amount of its share 
of the Term Loan and to the Assignor a new Revolving Credit Note payable to 
the Assignor in the amount of its Commitment after giving effect to the 
assignment hereunder, a new Term Credit Note in the amount of its share of 
the Term Loan.

               9.  This Assignment and Acceptance shall be governed by, and 
construed in accordance with, the laws of the State of Illinois.

                                      -3-

<PAGE>

                                       [ASSIGNOR LENDER]


                                       By:
                                         -------------------------------------
                                       Title:


                                       [ASSIGNEE LENDER]


                                       By:
                                         -------------------------------------
                                          Title:

                                       Lending Office (and
                                          address for notices):


                                       LIBOR Funding Office:


Accepted and consented this
____ day of ___________, 19__

PLATINUM ENTERTAINMENT, INC.


By:
   -------------------------------------
Title:
      ----------------------------------


Accepted and consented to by the Agent this 
_______ day of ___________, 19__

[AGENT]


By
  -------------------------------------
Title:
      ---------------------------------


                                      -4-

<PAGE>

                                  SCHEDULE 6.3

                                  SUBSIDIARIES

<TABLE>
<CAPTION>

                            JURISDICTION OF INCORPORATION
                                  OR ORGANIZATION               PERCENTAGE 
        NAME                                                    OWNERSHIP
<S>                         <C>                                 <C>
River North Records, Inc.             Delaware                     100%
CGI Records, Inc.                     Delaware                     100%
Lexicon Music, Inc.                   Delaware                     100%
Light Records, Inc.                   Delaware                     100%
The Recording Experience, Inc.        Delaware                     100%
JustMike Music, Inc.                  Delaware                     100%
Peg Publishing, Inc.                  Delaware                     100%
Royce Publishing, Inc.                Delaware                     100%
Intersound, Inc.                      Delaware                     100%

</TABLE>

<PAGE>

                                  SCHEDULE 6.6

                                   LITIGATION

1.   FINLEY -V- ENTERTAINMENT ARTISTS, INC. AND RIVER NORTH RECORDS, INC., Civil
     Action No. 95-5258 (United States District Court, Western District of
     Arkansas, Fayetteville Division).

     On April 23, 1997 judgment was entered against River North Records, Inc. in
     the amount of $95,182.00 in this matter.  Enforcement of this judgment was
     stayed by order of the court entered July 9, 1997, upon approval of River
     North's appeal bond.  The judgment is on appeal to the United States Court
     of Appeals for the Eighth Circuit, Case No. 97-298WAF.  The plaintiff's
     original claims sought recovery for damages sustained on account of alleged
     misrepresentations concerning the appearance of Crystal Bernard at a Peter
     Cetera concert in Fayetteville, Arkansas.  The Company believes it will be
     successful on appeal or, if unsuccessful, that the matter can be
     successfully compromised, with some recovery obtained from the Company's
     co-defendant in a contribution action.  The Company is being defended in
     the appeal by William Putman of Mashburn & Taylor, Fayetteville, Arkansas.

2.   GLAD, INC. DON NALLE, AND ED NALLE -V- LIGHT RECORDS, INC. CGI RECORDS,
     INC., RIVER NORTH RECORDS, INC., PLATINUM ENTERTAINMENT, INC., JUSTMIKE
     MUSIC, INC., AND JOSTE PUBLISHING, Civil Action No. 97 C 5721 (Northern
     District of Illinois, Eastern Division).

     The plaintiffs allege breach of contract, unjust enrichment, breach of
     implied covenant of good faith and fair dealing, conversion, and for
     declaratory relief and an accounting.  The claims essentially arise out of
     recording and producing agreements with the group Glad, which the Company
     has sought to terminate on the grounds that recordings by the group lack
     commercial potential.  The company believes most of the claims made in the
     complaint are without merit and believes its overall exposure in this
     matter lies in the range of $0 to $200,000.  The company further believes a
     successful settlement may be obtained in this matter that does not involve
     significant cash payment.  The Company is being defended in this action by
     Katten, Muchin & Zavis, Chicago, Illinois.

3.   CRT CUSTOM PRODUCTS, INC. -V- R.E.X. MUSIC, INC. AND PLATINUM
     ENTERTAINMENT, INC. (Chancery Court, Williamson County, Tennessee, Case 
     No. 24035).

     The claims made by the plaintiff seek recovery from the Company of an
     indebtedness incurred by R.E.X. Music, Inc. on the grounds that the Company
     caused R.E.X. to fail as a business for the purpose of acquiring its assets
     at foreclosure.  R.E.X. has filed a cross-complaint against the Company
     asserting essentially the same claims.  The Company has filed a counter-
     claim against CRT seeking recovery of certain artwork and film materials,
     together with damages for the loss of such materials.  The 

<PAGE>

     Company believes the claims of CRT and R.E.X. are without merit and that 
     the matter will be successfully resolved without exposure.  The Company is 
     being defended in this action by Grant Glassford.

4.   PLATINUM ENTERTAINMENT, INC. -V- TODD THOMAS OLSEN, BRAD CURTIS OLSEN, AND
     EMI CHRISTIAN MUSIC GROUP, INC. (Chancery Court, Davidson County,
     Tennessee, Case No. 97-602-I).

     The claims made by the Company seek enforcement of a distribution agreement
     entered with Messrs. Olsen and damages for the breach of that agreement
     arising out of the distribution of recordings by EMI.  EMI has filed a
     counter-claim against the Company seeking damages for the Company's
     distribution of a recording by Messrs. Olsen that EMI claims it now
     controls.  The Company believes the matter will be settled with a cash
     payment made to the Company.  The Company is being represented in this
     matter by Grant Glassford.

5.   WELLS -V- SCOTT ENTERTAINMENT, INC. (Chancery Court, Davidson County,
     Tennessee, Case No. 96-1326-I).

     The plaintiff is seeking a recision of a songwriting agreement between him
     and Scott Entertainment, Inc. and for the return of his interests in all
     songs previously conveyed to Scott Entertainment, Inc. under the agreement,
     including the song "Check Yes Or No."  The assets of Scott Entertainment,
     Inc. were acquired in 1996 by the Company.  The plaintiff has sought to
     join the Company as a defendant in the lawsuit but to date has been
     unsuccessful.  The Company is indemnified by Scott Entertainment, Inc.
     under the terms of the asset purchase agreement against all costs incurred
     in this matter.  The Company does not believe there is any risk of recision
     of the songwriting agreement.  The Company is being defended by Grant
     Glassford.

6.   POINT CLASSICS -V- DISKY.

     Intersound has received notice of, and assisted in the defense of, a claim
     in Germany against Intersound's European distributor, Disky, that three of
     its classical titles do not have clear title.  The claim is the result of a
     breakup of the partnership which created the original masters.  Management
     does not believe there is any significant liability.

7.   TUPAC SHUKUR -V- INTERSOUND.

     Intersound has received several demand letters from the estate of Tupac
     Shukur disputing Intersound's right to market and promote the album "Stop
     the Gunfight" by Trapp featuring Tupac Shukur and Notorious B.I.G. 
     Intersound believes the claim will be settled by paying a pro rata share of
     royalties to the estate of Mr. Shakur.  Additionally, Intersound is fully
     indemnified by John Parker aka "Trapp."  Intersound is being represented in
     this matter by Katten, Muchin & Zavis, Chicago, Illinois.

                                      -2-

<PAGE>

8.   CHRISTOPHER WALLACE AKA "NOTORIOUS B.I.G." -V- INTERSOUND.

     Intersound has received several demand letters from the estate of
     Christopher Wallace aka "Notorious B.I.G."  Intersound believes the claim
     will be settled by paying a pro rata share of royalties to the estate of
     Mr. Wallace.  Additionally, Intersound is fully indemnified by John Parker
     aka "Trapp."  Intersound is being represented in this matter by Katten,
     Muchin & Zavis, Chicago, Illinois.

9.   BOB CARLISLE PACKAGING.

     The Company has received correspondence from counsel for Benson Records,
     Inc. d/b/a Diadem Records complaining of the use of a photograph of a
     butterfly on the packaging used in connection with a recent album featuring
     performances of the artist Bob Carlisle as a member of the group The Allies
     that was released and distributed by the Company through the Intersound
     distribution system.  The Company has replied to the effect that the
     packaging is proper, but that we will change the packaging of the album in
     various ways to meet their concerns.  The Company has not received a
     response from Diadem to date.

10.  K-TEL LITIGATION.

     On October 3, 1997, the Company filed suit against K-tel International,
     Inc. ("K-TEL") in the United States District Court for the Northern
     District of Illinois, alleging that K-tel (a) materially failed to comply
     with its covenant to conduct business in the ordinary course when it
     deviated from the release schedule provided to the company; (b) neglected
     its business, shifted its focus to its successor business and failed to
     maintain the assets of its subsidiaries; and (c) breached its
     representation and warranty that there was no material adverse change in
     the business and operations of its subsidiaries.  In addition to the
     escrowed funds, the Company is seeking a buyer's reimbursement under the
     purchase and sale agreement between K-tel International, Inc. and River
     North Studios, Inc. (which has since changed its name to Intersound, Inc.)
     dated as of March 3, 1997 of $1,750,000.  On September 12, 1997, K-tel
     filed suit against the Company in the United States District Court for the
     District of Minnesota, claiming that it is entitled to the escrowed funds
     because it terminated the K-tel Agreement when the transaction was not
     consummated within the agreed time limits, asserting that the Company
     committed fraud when it represented to K-tel it had the financial ability
     to complete the transaction.  K-tel has also asserted a claim for
     promissory estoppel on the grounds that it incurred expenses in connection
     with the transaction in reliance on the Company's assurances it had the
     financial ability to close the transaction.  Further, K-tel seeks damages
     for defamation and alleges that the Company breached a confidentiality and
     non-solicitation agreement between the parties.  The outcome of such claims
     is uncertain.  The Company intends to prosecute vigorously its action
     against K-tel and defend vigorously K-tel's action.

                                      -3-

<PAGE>

11.  INTERSOUND LITIGATION.

     On November 7, 1997, JCSHO, Inc., a Minnesota corporation, formerly known
     as Intersound, Inc. ("JCSHO") whose assets were purchased by the Company,
     filed a complaint against the Company in the District Court of Minnesota,
     Fourth Division.  The case is captioned JCSHO, INC. F/K/A INTERSOUND, INC.
     -V- PLATINUM ENTERTAINMENT, INC., Case No. 97-2479 MJD/AJB.  JCSHO alleges
     breach of contract by the Company with regard to the convertible
     subordinated debentures in the aggregate principal amount of $5,000,000
     (the "CONVERTIBLE SUBORDINATED DEBENTURES") issued to JCSHO under the
     purchase and sale agreement.  JCSHO alleges that the Company is in default
     on its obligations under the Convertible Subordinated Debentures due to
     failure to make certain payments under such debentures at a defined default
     interest rate.  JCSHO is seeking damages in the amount of $5,000,000 and
     costs, disbursements and attorneys' fees.  The Company believes that
     JCSHO's allegations are without merit and intends to vigorously defend this
     litigation.

12.  On November 12, 1997, Donald Johnson, the former president of Intersound,
     Inc., sued Intersound, Inc. in the Superior Court of Fulton County, State
     of Georgia.  The case is captioned DONALD R. JOHNSON -V- INTERSOUND, INC.,
     Case No. E-64885.  Johnson alleges that he was wrongfully terminated from
     his employment as president of Intersound, Inc. and seeks damages and
     attorneys' fees.  The Company intends to defend this suit on the grounds
     that Johnson was terminated for cause and that no additional compensation
     is owed to him.

                                      -4-

<PAGE>

                                 SCHEDULE 6.7

                            AFFILIATE TRANSACTIONS

     1.   The transactions contemplated by the Investment Agreement, 
including, without limitation, (i) the issuance and sale by the Company of 
the Series B Preferred Stock, the Affiliate Preferred Stock, the Purchaser 
Warrants and the Affiliate Warrants, (ii) the rights and privileges granted 
to the Purchasers pursuant to the Investment Agreement in connection with 
their purchase of Series B Preferred Stock and Purchaser Warrants, (iii) the 
rights and privileges granted to the holders of the Series B Preferred Stock, 
the Affiliate Preferred Stock, the Purchaser Warrants and the Affiliate 
Warrants in accordance with the terms of such securities, (iv) the Consulting 
Agreements to be entered into between SK-Palladin Partners, LP and the 
Company and between MAC Music LLC and the Company (substantially in the form 
of Exhibit D to the Investment Agreement) and any fees payable thereunder to 
the Purchasers and their respective Affiliates, (v) the side letter agreement 
between MAC Music LLC and the Company relating to certain foreign licensing 
rights (substantially in the form of Exhibit E to the Investment Agreement) 
and (vi) the transaction fees and expenses to be paid to the Purchasers and 
their respective Affiliates by the Company pursuant to Section 2.3 of the 
Investment Agreement.

     2.   The employment agreement between Steven Devick and the Company, 
dated as of June 1, 1997, as amended.

     3.   The employment agreement between Douglas Laux and the Company, 
dated as of June 1, 1997, as amended.

     4.   The employment agreement between Thomas Leavens and the Company, 
dated as of June 1, 1997, as amended.

     5.   Outstanding stock options, whether or not vested, granted to any 
current or former officers or directors of the Company, including, without 
limitation, stock options granted to Steven Devick, Douglas Laux or Thomas 
Leavens.

     6.   The House of Blues Venture.

<PAGE>

                                 SCHEDULE 8.7

                               PERMITTED LIENS


                                     None
<PAGE>

                                 SCHEDULE 8.8

                            EXISTING INDEBTEDNESS

1.   $910,000 plus accrued interest payable to Steven Devick pursuant to a loan
     made by Mr. Devick to Platinum Entertainment, Inc.

2.   $900,000 plus accrued interest payable to William Ellis pursuant to a loan
     made by Mr. Ellis to Platinum Entertainment, Inc.

3.   Capitalized Leases:

<TABLE>
<CAPTION>

     <S>                                                     <C>
     Harmony/Counterpoint Systems (royalty software)         $ 3,050.66
     Dana Commercial Credit (computer hardware)              $ 2,258.54
     Steelcase Financial                                     $ 1,202.42
     Bellsouth                                               $ 7,311.68
     GE Capital                                              $    55.63
                                                             ----------
                                                             $13,878.93
</TABLE>