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                                                  EXECUTION COPY


                                  SECURITY AGREEMENT

          SECURITY AGREEMENT, dated as of July 31, 1998 between PLATINUM
ENTERTAINMENT, INC., a Delaware corporation ("GRANTOR") and FIRST SOURCE
FINANCIAL LLP, an Illinois registered limited liability partnership, as agent,
for its benefit and the benefit of Lenders (in such capacity, "AGENT").

                                 W I T N E S S E T H:

          WHEREAS, Grantor, Agent  and the Persons from time to time designated
as Lenders thereunder ("LENDERS") have entered into that certain Secured Credit
Agreement dated as of the date hereof (including all annexes, exhibits and
schedules thereto, as from time to time amended, restated, supplemented or
otherwise modified, the "CREDIT AGREEMENT"), providing for the extension of
loans and other financial accommodations from Lenders to Grantor;

          WHEREAS, in connection with the making of the loans and other
extensions of credit  under the Credit Agreement and as security for the
obligations of Grantor under the Credit Agreement, Lenders and Agent are
requiring that Grantor shall have executed and delivered this Security Agreement
and granted the security interests contemplated hereby; and 

          NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

          1.   DEFINED TERMS.  All capitalized terms used but not otherwise
defined herein have the meanings given to them in the Credit Agreement.  All
other undefined terms contained in this Security Agreement, unless the context
indicates otherwise, have the meanings provided for by the Code to the extent
the same are used or defined therein.

          2.   GRANT OF LIEN.

          (a)  To secure the prompt and complete payment, performance and
observance of all of the Liabilities, Grantor hereby grants, assigns, conveys,
mortgages, pledges, hypothecates and transfers to Agent, for its benefit and the
benefit of Lenders, a Lien upon all of its right, title and interest in, to and
under the following property, whether now owned by or owing to, or hereafter
acquired by or arising in favor of Grantor (including under any trade names,
styles or derivations thereof), and whether owned or consigned by or to, or
leased from or to, Grantor, and regardless of where located (all of which being
hereinafter collectively referred to as the "COLLATERAL"):

               (i)    all Accounts;


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               (ii)   all Chattel Paper;

               (iii)  all Contracts;

               (iv)   all Documents;

               (v)    all Equipment;

               (vi)   all Fixtures;

               (vii)  all General Intangibles;

               (viii) all Instruments;

               (ix)   all goods;

               (x)    all Inventory;

               (xi)   all Investment Property;

               (xii)  All Bank Accounts, and all other deposit and other bank
                      accounts and all deposits therein;

               (xiii) all money, cash or cash equivalents of Grantor; and

               (xiv)  to the extent not otherwise included, all Proceeds and
products of the foregoing and all accessions to, substitutions and replacements
for, and rents and profits of, each of the foregoing.

          (b)  In addition, to secure the prompt and complete payment,
performance and observance of the Liabilities and in order to induce Lenders  as
aforesaid, Grantor hereby grants to Agent, a right of setoff against the
property of Grantor held by Agent, consisting of property described above in
SECTION 2(a) now or hereafter in the possession or custody of or in transit to
Agent, for any purpose, including safekeeping, collection or pledge, for the
account of Grantor, or as to which such Grantor may have any right or power.

          3.   AGENT'S RIGHTS; LIMITATIONS ON AGENT'S OBLIGATIONS.

          (a)  It is expressly agreed by Grantor that, anything herein to the
contrary notwithstanding, Grantor shall remain liable under each of its
Contracts to observe and perform all the conditions and obligations to be
observed and performed by it  thereunder.  Agent shall not have any obligation
or liability under any  Contract by reason of or arising out of this Security
Agreement or the granting herein of a Lien thereon or the receipt by Agent of
any payment relating to any Contract pursuant hereto.  Agent shall not be
required or obligated in any manner to perform or 


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fulfill any of the obligations of Grantor under or pursuant to any Contract, or
to make any payment, or to make any inquiry as to the nature or the sufficiency
of any payment received by it or the sufficiency of any performance by any party
under any Contract, or to present or file any claims, or to take any action to
collect or enforce any performance or the payment of any amounts which may have
been assigned to it or to which it may be entitled at any time or times.

          (b)  Agent may, in its sole discretion, at any time after an Event of
Default shall have occurred and be continuing, without prior notice to Grantor,
notify Account Debtors, parties to the Contracts and obligors in respect of
Instruments and Chattel Paper, that the Accounts and the right, title and
interest of Grantor in and under such Contracts, Instruments and Chattel Paper
have been assigned to Agent, for the benefit of Lenders, and that payments shall
be made directly to Agent. 

          (c)  Agent may at any time in the name of Grantor, or during the
pendency of an Event of Default, in Agent's name, communicate with Account
Debtors, parties to Contracts, obligors in respect of Instruments and obligors
in respect of Chattel Paper to verify with such Persons, to Agent's
satisfaction, the existence, amount and terms of any such Accounts, Contracts,
Instruments or Chattel Paper.  If an Event of Default shall have occurred and be
continuing, Grantor, at its own expense, shall cause the independent certified
public accountants then engaged by Grantor to prepare and deliver to Agent at
any time and from time to time promptly upon Agent's request the following
reports with respect to Grantor: (i) a reconciliation of all Accounts; (ii) an
aging of all Accounts; (iii) trial balances; and (iv) a test verification of
such Accounts as Agent may request.  Grantor, at its own expense, shall deliver
to Agent  the results of each physical verification, if any, which Grantor may
in its discretion have made, or caused any other Person to have made on its
behalf, of all or any portion of its Inventory.

          4.   REPRESENTATIONS AND WARRANTIES.  Grantor represents and warrants
that:

          (a)  Grantor is the sole owner of each item of the Collateral upon
which it purports to grant a Lien hereunder, and has good and marketable title
thereto free and clear of any and all Liens other than Permitted Liens.

          (b)  No effective security agreement, financing statement, equivalent
security or Lien instrument or continuation statement covering all or any part
of the Collateral is on file or of record in any public office, except such as
may have been filed (i) by Grantor in favor of Agent pursuant to this Security
Agreement or the other Related Documents, and (ii)  in connection with any other
Permitted Liens.



          (c)  This Security Agreement is effective to create a valid and
continuing Lien on and, upon the filing of the appropriate financing statements
listed on SCHEDULE I hereto, a perfected Lien in favor of Agent, on the
Collateral with respect to which a Lien may be perfected by filing 


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pursuant to the Code.  Such Lien is prior to all other Liens, except Permitted
Liens that would be prior to Liens in favor of Agent as a matter of law, and is
enforceable as such as against any and all creditors of and purchasers from
Grantor (other than purchasers of Inventory in the ordinary course of business).
All action by Grantor necessary or desirable to protect and perfect such Lien on
each item of the Collateral has been duly taken.

          (d)  SCHEDULE II hereto lists all Instruments and Chattel Paper of
Grantor.  All action by Grantor necessary or desirable to protect and perfect
the Lien of Agent on each item set forth on SCHEDULE II (including the delivery
of all originals thereof to Agent and the legending of all Chattel Paper as
required by SECTION 5(b) hereof) has been duly taken.  The Lien of Agent, on the
Collateral listed on SCHEDULE II hereto is prior to all other Liens, except
Permitted Liens that would be prior to the Liens in favor of Agent  as a matter
of law, and is enforceable as such against any and all creditors of and
purchasers from Grantor.

          (e)  Grantor's chief executive office, principal place of business,
corporate offices, all warehouses and premises where Collateral is stored or
located, and the locations of all of its books and records concerning the
Collateral are set forth on SCHEDULE III hereto. 

          (f)  With respect to the Accounts, except as specifically disclosed in
the most recent Borrowing Base Certificate delivered to Agent:  (i) they
represent bona fide sales of Inventory or rendering of services to Account
Debtors in the ordinary course of Grantor's business and are not evidenced by a
judgment, Instrument or Chattel Paper; (ii) there are no setoffs, claims or
disputes existing or asserted with respect thereto and Grantor has not made any
agreement with any Account Debtor for any extension of time for the payment
thereof, any compromise or settlement for less than the full amount thereof, any
release of any Account Debtor from liability therefor, or any deduction
therefrom except a discount or allowance allowed by Grantor in the ordinary
course of its business for prompt payment and disclosed to Agent; (iii) to
Grantor's knowledge, there are no facts, events or occurrences which in any way
impair the validity or enforceability thereof or could reasonably be expected to
reduce the amount payable thereunder as shown on Grantor's books and records and
any invoices, statements and Borrowing Base Certificates delivered to Agent with
respect thereto; (iv)  Grantor has not received any notice of proceedings or
actions which are threatened or pending against any Account Debtor which might
result in any adverse change in such Account Debtor's financial condition; and
(v) Grantor has no knowledge that any Account Debtor is unable generally to pay
its debts as they become due.  Further with respect to the Accounts (x) the
amounts shown on all invoices, statements and Borrowing Base Certificates which
may be delivered to Agent with respect thereto are actually and absolutely owing
to Grantor as indicated thereon and are not in any way contingent; (y) no
payments have been or shall be made thereon except payments immediately
delivered to the applicable Bank Accounts or Agent as required pursuant to the
terms of the Credit Agreement; and (z) to Grantor's knowledge, all Account
Debtors have the capacity to contract.


          (g)  With respect to any Inventory scheduled or listed on the most
recent Borrowing Base Certificate delivered to Agent  pursuant to the terms of
this Security Agreement or the Credit Agreement, (i) such Inventory is located
at one of the Grantor's locations set forth on SCHEDULE III  hereto (ii) no
Inventory is now, or shall at any time or times hereafter be stored at any 


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other location without Agent's prior consent, and if Agent gives such consent,
Grantor will concurrently therewith obtain, to the extent required by the Credit
Agreement, bailee, landlord and mortgagee agreements, (iii)  Grantor has good,
indefeasible and merchantable title to such Inventory and such Inventory is not
subject to any Lien or security interest or document whatsoever except for the
Lien granted to Agent, and except for Permitted Liens, (iv) except as
specifically disclosed in the most recent Borrowing Base Certificate delivered
to Agent, such Inventory is Eligible Inventory of good and merchantable quality,
free from any defects, (v) such Inventory is not subject to any licensing,
patent, royalty, trademark, trade name or copyright agreements with any third
parties which would require any consent of any third party upon sale or
disposition of that Inventory or the payment of any monies to any third party as
a precondition of such sale or other disposition, and (vi) the completion of
manufacture, sale or other disposition of such Inventory by Agent following an
Event of Default shall not require the consent of any Person and shall not
constitute a breach or default under any contract or agreement to which Grantor
is a party or to which such property is subject.

          5.   COVENANTS.  Grantor covenants and agrees with Agent that from and
after the date of this Security Agreement and until the Termination Date:

          (a)  FURTHER ASSURANCES; PLEDGE OF INSTRUMENTS.  At any time and from
time to time, upon the written request of Agent and at the sole expense of
Grantor, Grantor shall promptly and duly execute and deliver any and all such
further instruments and documents and take such further actions as Agent may
deem desirable to obtain the full benefits of this Security Agreement and of the
rights and powers herein granted, including (i) using its best efforts to secure
all consents and approvals necessary or appropriate for the assignment to or for
the benefit of Agent of any Contract held by Grantor or in which Grantor has any
rights not heretofore assigned, (ii) filing any financing or continuation
statements under the Code with respect to the Liens granted hereunder or under
any other Related  Document, (iii) transferring Collateral to Agent's possession
(for the benefit of Agent and Lenders) if such Collateral consists of Chattel
Paper, Instruments or if a Lien on such Collateral can be perfected only by
possession, or if requested by Agent, and (iv) obtaining, or using its best
efforts to obtain, waivers of Liens, if any exist, from landlords and mortgagees
in accordance with the Credit Agreement.  Grantor also hereby authorizes Agent
to file any such financing or continuation statements without the signature of
Grantor to the extent permitted by applicable law.  If any amount payable under
or in connection with any of the Collateral is or shall become evidenced by any
Instrument, such Instrument, other than checks and notes received in the
ordinary course of business, shall be duly endorsed in a manner satisfactory to
Agent immediately upon Grantor's receipt thereof.

          (b)  MAINTENANCE OF RECORDS.  Grantor shall keep and maintain, at its
own cost and expense, satisfactory and complete records of the Collateral,
including a record of any and all payments received and any and all credits
granted with respect to the Collateral and all other dealings with the
Collateral.  Grantor shall mark its books and records pertaining to the
Collateral to evidence this Security Agreement and the Liens granted hereby. 
All Chattel Paper shall be marked with the following legend:  "This writing and
the obligations evidenced or secured hereby are subject to the security interest
of First Source Financial LLP, as Agent." 


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          (c)  [Intentionally left blank.]

          (d)  INDEMNIFICATION.  In any suit, proceeding or action brought by
Agent relating to any Account, Chattel Paper, Contract, Document, General
Intangible or Instrument for any sum owing thereunder or to enforce any
provision of any Account, Chattel Paper, Contract, Document, General Intangible
or Instrument, Grantor will save, indemnify and keep agent harmless from and
against all expense (including reasonable attorneys' fees and expenses), loss or
damage suffered by reason of any defense, setoff, counterclaim, recoupment or
reduction of liability whatsoever of the obligor thereunder, arising out of a
breach by Grantor of any obligation thereunder or arising out of any other
agreement, indebtedness or liability at any time owing to, or in favor of, such
obligor or its successors from Grantor, except in the case of Agent, to the
extent such expense, loss, or damage is attributable solely to the gross
negligence or willful misconduct of Agent as finally determined by a court of
competent jurisdiction.   All such obligations of Grantor shall be and remain
enforceable against and only against Grantor and shall not be enforceable
against Agent.

          (e)  COMPLIANCE WITH TERMS OF ACCOUNTS, ETC.  In all material
respects, Grantor will perform and comply with all obligations in respect of its
Accounts, Chattel Paper and Contracts and all other agreements to which it is a
party or by which it is bound relating to the Collateral.

          (f)  LIMITATION ON LIENS ON COLLATERAL.  Grantor will not create,
permit or suffer to exist, and Grantor will defend the Collateral against, and
take such other action as is necessary to remove, any Lien on the Collateral
except Permitted Liens, and will defend the right, title and interest of Agent
in and to any of Grantor's rights under the Collateral against the claims and
demands of all Persons whomsoever.

          (g)  LIMITATIONS ON DISPOSITION.  Grantor will not sell, lease,
transfer or otherwise dispose of any of the Collateral, or attempt or contract
to do so, except as permitted by the Credit Agreement.

          (h)  FURTHER IDENTIFICATION OF COLLATERAL.  Except as otherwise
provided in the Credit Agreement, Grantor will, if so requested by Agent,
furnish to Agent, as often as Agent requests, statements and schedules further
identifying and describing the Collateral and such other reports in connection
with the Collateral as Agent may reasonably request, all in such detail as Agent
may specify.

          (i)  NOTICES.  Grantor  will advise Agent promptly, in reasonable
detail, (i) of any Lien (other than Permitted Liens) or claim made or asserted
against any of the Collateral, and (ii) of the occurrence of any other event
which would have a material adverse effect on the aggregate value of the
Collateral or on the Liens created hereunder or under any other Related
Document.

          6.   AGENT'S APPOINTMENT AS ATTORNEY-IN-FACT.


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          On the Closing Date Grantor shall execute and deliver to Agent a power
of attorney (the "POWER OF ATTORNEY") substantially in the form attached hereto
as EXHIBIT A.  The power of attorney granted pursuant to the Power of Attorney
is a power coupled with an interest and shall be irrevocable until the
Termination Date.  The powers conferred on Agent under the Power of Attorney are
solely to protect Agent's interests in the Collateral and shall not impose any
duty upon Agent to exercise any such powers. Agent  agrees that (a) it shall not
exercise any power or authority granted under the Power of Attorney unless an
Event of Default has occurred and is continuing, and (b) Agent shall account for
any moneys received by Agent in respect of any foreclosure on or disposition of
Collateral pursuant to the Power of Attorney provided that Agent shall not have
any duty as to any Collateral, and Agent shall be accountable only for amounts
that it actually receive as a result of the exercise of such powers.  NEITHER
AGENT NOR ITS RESPECTIVE AFFILIATES, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR
REPRESENTATIVES SHALL BE RESPONSIBLE TO GRANTOR FOR ANY ACT OR FAILURE TO ACT
UNDER ANY POWER OF ATTORNEY OR OTHERWISE, EXCEPT IN RESPECT OF DAMAGES
ATTRIBUTABLE SOLELY TO THEIR OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT AS
FINALLY DETERMINED BY A COURT OF COMPETENT JURISDICTION, NOR FOR ANY PUNITIVE,
EXEMPLARY, INDIRECT OR CONSEQUENTIAL DAMAGES. 

          7.   REMEDIES; RIGHTS UPON DEFAULT.

          (a)  In addition to all other rights and remedies granted to it under
this Security Agreement, the Credit Agreement, the other Related Documents and
under any other instrument or agreement securing, evidencing or relating to any
of the Liabilities, if any Event of Default shall have occurred and be
continuing, Agent may exercise all rights and remedies of a secured party under
the Code.  Without limiting the generality of the foregoing, Grantor expressly
agrees that in any such event Agent, without demand of performance or other
demand, advertisement or notice of any kind (except the notice specified below
of time and place of public or private sale) to or upon Grantor or any other
Person (all and each of which demands, advertisements and notices are hereby
expressly waived to the maximum extent permitted by the Code and other
applicable law), may forthwith enter upon the premises of Grantor where any
Collateral is located through self-help, without judicial process, without first
obtaining a final judgment or giving Grantor or any other Person notice and
opportunity for a hearing on Agent's claim or action and may collect, receive,
assemble, process, appropriate and realize upon the Collateral, or any part
thereof, and may forthwith sell, lease, assign, give an option or options to
purchase, or sell or otherwise dispose of and deliver said Collateral (or
contract to do so), or any part thereof, in one or more parcels at a public or
private sale or sales, at any exchange at such prices as it may deem acceptable,
for cash or on credit or for future delivery without assumption of any credit
risk.  Agent shall have the right upon any such public sale or sales and, to the
extent permitted by law, upon any such private sale or sales, to purchase for
the benefit of Agent, the whole or any part of said Collateral so sold, free of
any right or equity of redemption, which equity of redemption Grantor hereby
releases.  Such sales may be adjourned and continued from time to time with or
without notice.  Agent shall have the right to conduct such sales on Grantor's
premises or elsewhere and shall have the right to use Grantor's premises without
charge for such time or times as Agent deems necessary or advisable.


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          Grantor further agrees, at Agent's request, to assemble the Collateral
and make it available to Agent at places which Agent shall select, whether at
Grantor's premises or elsewhere.  Until Agent is able to effect a sale, lease,
or other disposition of Collateral, Agent shall have the right to hold or use
Collateral, or any part thereof, to the extent that it deems appropriate for the
purpose of preserving Collateral or its value or for any other purpose deemed
appropriate by Agent.  Agent shall have no obligation to Grantor to maintain or
preserve the rights of Grantor as against third parties with respect to
Collateral while Collateral is in the possession of Agent.  Agent may, if it so
elects, seek the appointment of a receiver or keeper to take possession of
Collateral and to enforce any of Agent's remedies, with respect to such
appointment without prior notice or hearing as to such appointment.  Agent shall
apply the net proceeds of any such collection, recovery, receipt, appropriation,
realization or sale to the Liabilities as provided in the Credit Agreement, and
only after so paying over such net proceeds, and after the payment by Agent of
any other amount required by any provision of law, need Agent account for the
surplus, if any, to Grantor.  To the maximum extent permitted by applicable law,
Grantor waives all claims, damages, and demands against Agent arising out of the
repossession, retention or sale of the Collateral except such as arise solely
out of the gross negligence or willful misconduct of Agent as finally determined
by a court of competent jurisdiction.  Grantor agrees that ten (10) days prior
notice by Agent of the time and place of any public sale or of the time after
which a private sale may take place is reasonable notification of such matters. 
Grantor shall remain liable for any deficiency if the proceeds of any sale or
disposition of the Collateral are insufficient to pay all Liabilities, including
any attorneys' fees and other expenses incurred by Agent to collect such
deficiency.

          (b)  Except as otherwise specifically provided herein, Grantor hereby
waives presentment, demand, protest or any notice (to the maximum extent
permitted by applicable law) of any kind in connection with this Security
Agreement or any Collateral.

          8.   GRANT OF LICENSE TO USE INTELLECTUAL PROPERTY  COLLATERAL.  For
the purpose of enabling Agent to exercise rights and remedies under SECTION 7 
hereof (including, without limiting the terms of SECTION 7 hereof, in order to
take possession of, hold, preserve, process, assemble, prepare for sale, market
for sale, sell or otherwise dispose of Collateral) at such time as Agent shall
be lawfully entitled to exercise such rights and remedies, Grantor hereby grants
to Agent, an irrevocable, non-exclusive license (exercisable without payment of
royalty or other compensation to Grantor) to use, license or sublicense any
Intellectual Property now owned or hereafter acquired by Grantor, and wherever
the same may be located, and including in such license access to all media in
which any of the licensed items may be recorded or stored and to all computer
software and programs used for the compilation or printout thereof.

          9.   LIMITATION ON AGENT'S DUTY IN RESPECT OF COLLATERAL.  Agent shall
use reasonable care with respect to the Collateral in its possession or under
its control.  Agent shall not have any other duty as to any Collateral in its
possession or control or in the possession or control of any agent or nominee of
Agent, or any income thereon or as to the preservation of rights against prior
parties or any other rights pertaining thereto.


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          10.  REINSTATEMENT.  This Security Agreement shall remain in full
force and effect and continue to be effective should any petition be filed by or
against Grantor for liquidation or reorganization, should Grantor become
insolvent or make an assignment for the benefit of any creditor or creditors or
should a receiver or trustee be appointed for all or any significant part of
Grantor's assets, and shall continue to be effective or be reinstated, as the
case may be, if at any time payment and performance of the Liabilities, or any
part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or
must otherwise be restored or returned by any obligee of the Liabilities,
whether as a "voidable preference," "fraudulent conveyance," or otherwise, all
as though such payment or performance had not been made.  In the event that any
payment, or any part thereof, is rescinded, reduced, restored or returned, the
Liabilities shall be reinstated and deemed reduced only by such amount paid and
not so rescinded, reduced, restored or returned.

          11.  NOTICES.  Except as otherwise provided herein, whenever it is
provided herein that any notice, demand, request, consent, approval, declaration
or other communication shall or may be given to or served upon any of the
parties by any other party, or whenever any of the parties desires to give and
serve upon any other party any communication with respect to this Security
Agreement, each such notice, demand, request, consent, approval, declaration or
other communication shall be in writing and shall be given in the manner, and
deemed received, as provided for in the Credit Agreement.

          12.  SEVERABILITY.  Whenever possible, each provision of this Security
Agreement shall be interpreted in a manner as to be effective and valid under
applicable law, but if any provision of this Security Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity without invalidating
the remainder of such provision or the remaining provisions of this Security
Agreement.  This Security Agreement is to be read, construed and applied
together with the Credit Agreement and the other Related  Documents which, taken
together, set forth the complete understanding and agreement of Agent, Lenders
and Grantor with respect to the matters referred to herein and therein.

          13.  NO WAIVER; CUMULATIVE REMEDIES. Agent shall not by any act,
delay, omission or otherwise be deemed to have waived any of its rights or
remedies hereunder, and no waiver shall be valid unless in writing, signed by
Agent and then only to the extent therein set forth.  A waiver by Agent of any
right or remedy hereunder on any one occasion shall not be construed as a bar to
any right or remedy which Agent would otherwise have had on any future occasion.
No failure to exercise nor any delay in exercising on the part of Agent, any
right, power or privilege hereunder, shall operate as a waiver thereof, nor
shall any single or partial exercise of any right, power or privilege hereunder
preclude any other or future exercise thereof or the exercise of any other
right, power or privilege.  The rights and remedies hereunder provided are
cumulative and may be exercised singly or concurrently, and are not exclusive of
any rights and remedies provided by law.  None of the terms or provisions of
this Security Agreement may be waived, altered, modified or amended except by an
instrument in writing, duly executed by Agent and Grantor.


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          14.  LIMITATION BY LAW.  All rights, remedies and powers provided in
this Security Agreement may be exercised only to the extent that the exercise
thereof does not violate any applicable provision of law, and all the provisions
of this Security Agreement are intended to be subject to all applicable
mandatory provisions of law that may be controlling and to be limited to the
extent necessary so that they shall not render this Security Agreement invalid,
unenforceable, in whole or in part, or not entitled to be recorded, registered
or filed under the provisions of any applicable law.

          15.  TERMINATION OF THIS SECURITY AGREEMENT.  Subject to SECTION 10
hereof, this Security Agreement shall terminate on the date (the "TERMINATION
DATE") of the expiration or termination of the Commitments and the payment and
performance in full of the Notes and all other Liabilities (other than unmatured
Liabilities for which no claim has been asserted).

          16.  SUCCESSORS AND ASSIGNS.  This Security Agreement and all
obligations of Grantor hereunder shall be binding upon the successors and
assigns of Grantor (including any debtor-in-possession on behalf of Grantor) and
shall, together with the rights and remedies of Agent, hereunder, inure to the
benefit of Agent, all future holders of any instrument evidencing any of the
Liabilities and their respective successors and assigns.  No sales of
participations, other sales, assignments, transfers or other dispositions of any
agreement governing or instrument evidencing the Liabilities or any portion
thereof or interest therein shall in any manner affect the Lien granted to Agent
hereunder.   Grantor may not assign, sell, hypothecate or otherwise transfer any
interest in or obligation under this Security Agreement.

          17.  COUNTERPARTS.  This Security Agreement may be executed in any
number of separate counterparts, each of which shall collectively and separately
constitute one  agreement.


          18.  GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY OF
THE RELATED DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION,
VALIDITY AND PERFORMANCE, THIS SECURITY AGREEMENT AND THE OBLIGATIONS ARISING
HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF ILLINOIS APPLICABLE TO CONTRACTS MADE AND PERFORMED IN
THAT STATE, AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.   GRANTOR
HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN COOK
COUNTY, CITY OF CHICAGO, ILLINOIS, SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND
DETERMINE ANY CLAIMS OR DISPUTES BETWEEN GRANTOR AND AGENT PERTAINING TO THIS
SECURITY AGREEMENT OR ANY OF THE OTHER RELATED DOCUMENTS OR TO ANY MATTER
ARISING OUT OF OR RELATING TO THIS SECURITY AGREEMENT OR ANY OF THE OTHER
RELATED DOCUMENTS, PROVIDED, THAT AGENT AND GRANTOR ACKNOWLEDGE THAT ANY APPEALS


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FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF COOK
COUNTY, CITY OF CHICAGO, ILLINOIS, AND, PROVIDED, FURTHER, NOTHING IN THIS
AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE AGENT  FROM BRINGING SUIT OR
TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO REALIZE ON THE COLLATERAL
OR ANY OTHER SECURITY FOR THE LIABILITIES, OR TO ENFORCE A JUDGMENT OR OTHER
COURT ORDER IN FAVOR OF AGENT.  GRANTOR EXPRESSLY SUBMITS AND CONSENTS IN
ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT,
AND GRANTOR HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF
PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY
CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY SUCH COURT.  GRANTOR HEREBY WAIVES PERSONAL SERVICE OF THE
SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND
AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY
REGISTERED OR CERTIFIED MAIL ADDRESSED TO GRANTOR AT THE ADDRESS SET FORTH BELOW
ITS SIGNATURE TO THE CREDIT AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED
COMPLETED UPON THE EARLIER OF ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER
DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID.

          19.  WAIVER OF JURY TRIAL.  BECAUSE DISPUTES ARISING IN CONNECTION
WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED
BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND
FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT
DISPUTES ARISING HEREUNDER OR RELATING HERETO BE RESOLVED BY A JUDGE APPLYING
SUCH APPLICABLE LAWS.  THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE
BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL
RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO RESOLVE ANY
DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, BETWEEN AGENT AND
GRANTOR ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED IN CONNECTION WITH, THIS SECURITY AGREEMENT OR ANY OF
THE OTHER RELATED  DOCUMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO.

          20.  SECTION TITLES.  The Section titles contained in this Security
Agreement are and shall be without substantive meaning or content of any kind
whatsoever and are not a part of the agreement between the parties hereto.

          21.  NO STRICT CONSTRUCTION.  The parties hereto have participated
jointly in the negotiation and drafting of this Security Agreement.  In the
event an ambiguity or question of intent


                                         -11-
<PAGE>

or interpretation arises, this Security Agreement shall be construed as if
drafted jointly by the parties hereto and no presumption or burden of proof
shall arise favoring or disfavoring any party by virtue of the authorship of any
provisions of this Security Agreement.

          22.  ADVICE OF COUNSEL.  Each of the parties represents to each other
party hereto that it has discussed this Security Agreement and, specifically,
the provisions of SECTION 18 and SECTION 19, with its counsel.

          23.  BENEFIT OF AGENT AND LENDERS.  All Liens granted or contemplated
hereby shall be for the benefit of Agent and Lenders, and all proceeds or
payments realized from Collateral in accordance herewith shall be applied to the
Liabilities in accordance with the terms of the Credit Agreement.

                               [signature page follows]


                                         -12-
<PAGE>

          IN WITNESS WHEREOF, each of the parties hereto has caused this
Security Agreement to be executed and delivered by its duly authorized officer
as of the date first set forth above. 

                                        GRANTOR

                                        PLATINUM ENTERTAINMENT, INC.,
                                        a Delaware corporation


                                        By: /s/ Douglas C. Laux
                                           -------------------------------------
                                        Name:   Douglas C. Laux
                                             -----------------------------------
                                        Title: Chief Financial Officer
                                              ----------------------------------

                                        AGENT:

                                        FIRST SOURCE FINANCIAL LLP,  as Agent

                                        By: First Source Financial, Inc.
                                        Its: Manager


                                        By: /s/ Gregory R. Cooper
                                           -------------------------------------
                                        Name: Gregory R. Cooper
                                             -----------------------------------
                                        Title: Senior Vice President
                                              ----------------------------------

<PAGE>

                                      SCHEDULE I
                                          to
                                  SECURITY AGREEMENT


                                 FILING JURISDICTIONS



               STATE OF ILLINOIS
               STATE OF MASSACHUSETTS
               STATE OF MINNESOTA
               STATE OF TEXAS
               STATE OF TENNESSEE
               FULTON COUNTY, GEORGIA 

<PAGE>

                                     SCHEDULE II
                                          to
                                  SECURITY AGREEMENT


                                     INSTRUMENTS

                                        None.



<PAGE>

                                    SCHEDULE III
                                         TO
                                 SECURITY AGREEMENT
                                          
                    SCHEDULE OF OFFICES, LOCATIONS OF COLLATERAL
                     AND RECORDS CONCERNING GRANTOR'S COLLATERAL


I.   Chief Executive Office and Principal Place of Business:

                  NAME                     CHIEF EXECUTIVE OFFICE & PRINCIPAL
                                                    PLACE OF BUSINESS
 Platinum Entertainment, Inc.            2001 Butterfield Rd., Suite 1400
                                         Downers Grove, IL 60515
 Peg Publishing, Inc.                    2001 Butterfield Rd., Suite 1400
                                         Downers Grove, IL 60515
 Royce Publishing, Inc.                  2001 Butterfield Rd., Suite 1400
                                         Downers Grove, IL 60515
 JustMike Music, Inc.                    2001 Butterfield Rd., Suite 1400
                                         Downers Grove, IL 60515
 Corporate Offices:

                  NAME                              CORPORATE OFFICE

 Platinum Entertainment, Inc.            2001 Butterfield Rd., Suite 1400
                                         Downers Grove, IL 60515
                                         1222 16th Ave. South
                                         Nashville, TN 37212
                                         1 Select Ave., Unit 10
                                         Scarborough, Ontario Canada MIV 5J3
                                         11810 Wills Rd., Suite 110
                                         Alpharetta, GA 30201
                                         333 Washington Ave., No. 306 &308
                                         Minneapolis, MN 55401
                                         4100 Spring Valley Rd.
                                         Dallas, TX 75244
                                         70 Walnut Street
                                         Wellesley, MA 02181
 Peg Publishing, Inc.                    2001 Butterfield Rd., Suite 1400
                                         Downers Grove, IL 60515
 Royce Publishing, Inc.                  2001 Butterfield Rd., Suite 1400
                                         Downers Grove, IL 60515
 JustMike Music, Inc.                    2001 Butterfield Rd., Suite 1400
                                         Downers Grove, IL 60515
<PAGE>

 Warehouses:  


                  NAME                                  WAREHOUSE

 Platinum Entertainment, Inc.            11810 Wills Rd, Suite 110
                                         Alpharetta, GA 30201

 Other Premises at which Collateral is Stored or Located:  NONE.

 Locations of Records Concerning Collateral:

                  NAME                               RECORDS OFFICE

 Platinum Entertainment, Inc.            2001 Butterfield Rd., Suite 1400
                                         Downers Grove, IL 60515
                                         1222 16th Ave. South
                                         Nashville, TN 37212
                                         11810 Wills Rd., Suite 110
                                         Alpharetta, GA 30201
 Peg Publishing, Inc.                    2001 Butterfield Rd., Suite 1400
                                         Downers Grove, IL 60515
 Royce Publishing, Inc.                  2001 Butterfield Rd., Suite 1400
                                         Downers Grove, IL 60515
 JustMike Music, Inc.                    2001 Butterfield Rd., Suite 1400
                                         Downers Grove, IL 60515

<PAGE>
                                    SCHEDULE IV
                                         TO
                                 SECURITY AGREEMENT
                                          
                         PATENTS, TRADEMARKS AND COPYRIGHTS
                                          
                                          
SEE Schedule B-1, Schedule B-2 and Schedule C-1 and C-2 to the Intellectual
Property Security Agreement

<PAGE>

                                      EXHIBIT A
                                          to
                                  SECURITY AGREEMENT

                                  POWER OF ATTORNEY


          This Power of Attorney is executed and delivered by Platinum
Entertainment, Inc., a Delaware corporation ("GRANTOR") to First Source
Financial LLP, an Illinois registered limited liability partnership 
(hereinafter referred to as "ATTORNEY"), as Agent, under a Secured Credit
Agreement and a Security Agreement, both dated as of July 31, 1998, and other
related documents (the "LOAN DOCUMENTS").  No person to whom this Power of
Attorney is presented, as authority for Attorney to take any action or actions
contemplated hereby, shall be required to inquire into or seek confirmation from
Grantor as to the authority of Attorney to take any action described below, or
as to the existence of or fulfillment of any condition to this Power of
Attorney, which is intended to grant to Attorney unconditionally the authority
to take and perform the actions contemplated herein, and Grantor irrevocable
waives any right to commence any suit or action, in law or equity, against any
person or entity which acts in reliance upon or acknowledges the authority
granted under this Power of Attorney.  The power of attorney granted hereby is
coupled with an interest, and may not be revoked or canceled by Grantor without
Attorney's written consent.

          Grantor hereby irrevocably constitutes and appoints Attorney (and all
officers, employees or agents designated by Attorney), with full power of
substitution, as Grantor's true and lawful attorney-in-fact with full
irrevocable power and authority in the place and stead of Grantor and in the
name of Grantor or in its own name, from time to time in Attorney's discretion,
to take any and all appropriate action and to execute and deliver any and all
documents and instruments which may be necessary or desirable to accomplish the
purposes of the Loan Documents and, without limiting the generality of the
foregoing, Grantor hereby grants to Attorney the power and right, on behalf of
Grantor, without notice to or assent by Grantor, and at any time, to do the
following:  (a) change the mailing address of Grantor, open a post office box on
behalf of Grantor, open mail for Grantor, and ask, demand, collect, give
acquittances and receipts for, take possession of, endorse any invoices, freight
or express bills, bills of lading, storage or warehouse receipts, drafts against
debtors, assignments, verifications, and notices in connection with any property
of Grantor; (b) effect any repairs to any asset of Grantor, or continue or
obtain any insurance and pay all or any part of the premiums therefor and costs
thereof, and make, settle and adjust all claims under such policies of
insurance, and make all determinations and decisions with respect to such
policies;  pay or discharge any taxes, liens, security interests, or other
encumbrances levied or placed on or threatened against Grantor or its property;
(c) file or prosecute any claim, litigation, suit or proceeding in any court of
competent jurisdiction or before any arbitrator, or take any other action
otherwise deemed appropriate by Attorney for the purpose of collecting any and
all such moneys due to Grantor whenever payable and to enforce any other right
in respect of Grantor's property; (d) communicate in its own name with any party
to any Contract with regard to the assignment of the right, title and interest
of such Grantor in and under the Contracts and other matters relating thereto;
and (e) execute, in connection with any sale provided for in any Loan Document,
any endorsements, 

<PAGE>

assignments or other instruments of conveyance or transfer with respect to the
Collateral and to otherwise direct such sale or resale, all as though Attorney
were the absolute owner of the property of Grantor for all purposes, and to do,
at Attorney's option and Grantor's expense, at any time or from time to time,
all acts and other things that Attorney reasonably deems necessary to perfect,
preserve, or realize upon Grantor's property or assets and Attorney's Liens
thereon, all as fully and effectively as Grantor might do.  Grantor hereby
ratifies, to the extent permitted by law, all that said Attorney shall lawfully
do or cause to be done by virtue hereof.

               IN WITNESS WHEREOF, this Power of Attorney is executed by
Grantor, and Grantor has caused its seal to be affixed pursuant to the authority
of its board of directors this 31st day of July, 1998.


ATTEST:

By: /s/ Douglas C. Laux             (SEAL)
   ---------------------------------
Title:  Douglas C. Laux
      ------------------------------