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                            EARNEST MONEY ESCROW AGREEMENT


    EARNEST MONEY ESCROW AGREEMENT (this "Agreement") is made and entered into
as of March 3, 1997, by and among PLATINUM ENTERTAINMENT, INC., a Delaware
corporation ("Buyer"), K-TEL INTERNATIONAL, INC., a Minnesota corporation
("Seller") and MIDWEST TRUST SERVICES, INC., as Escrow Agent ("Escrow Agent").

    The parties hereto are entering into this Agreement pursuant to the terms
of that Asset Purchase and Sale Agreement dated as of March 3, 1997 (the
"Purchase Agreement"), by and among Buyer and Seller.  Accordingly, the parties
hereto agree as follows:

    1.   DEFINITION OF TERMS.  Terms not otherwise defined herein shall have
the meaning ascribed to such terms in the Purchase Agreement.  The Escrow Agent
shall not be responsible for any other provisions of the Purchase Agreement.

    2.   APPOINTMENT AND ACCEPTANCE.  Buyer and Seller hereby appoint Escrow
Agent as escrow agent for the purposes and upon the terms and conditions
hereinafter set forth.  Escrow Agent hereby accepts such appointment and agrees
to act as escrow agent hereunder and to hold, invest and dispose of any funds
received by it hereunder in accordance with the terms and conditions hereinafter
set forth.

    3.   DEPOSIT OF ESCROWED FUNDS.  On the date hereof, Buyer shall, as
partial payment of the Purchase Price, deliver to Escrow Agent for deposit in
escrow pursuant to the provisions hereof, a wire transfer of immediately
available funds in the amount of $1,750,000 (the "Escrowed Funds") into an
interest bearing account.

    4.   PURPOSE OF AGREEMENT.  Seller and Buyer represent that this Agreement
has been executed pursuant to SECTION 2.2(a) of the Purchase Agreement.  Buyer
represents that it will make the deposit of the Escrowed Funds pursuant to
SECTION 2.2(a) of the Purchase Agreement on Tuesday, March 4, 1997.

    5.   DELIVERY OF ESCROWED FUNDS.  Subject to the terms set forth in ARTICLE
XII of the Purchase Agreement, if at any time Seller or Buyer shall claim that
it is entitled to payment of all or a portion of the Escrowed Funds pursuant to
the terms set forth in the Purchase Agreement (a "Right of Payment"), such party
shall give notice of such Right of Payment (the "Notice of Payment") to the
other party and the Escrow Agent.  The Notice of Payment shall be an affidavit
describing the event or circumstances giving rise to the Right of Payment,
specifying the amount of the Escrowed Funds requested and certifying that the
Notice of Payment is being submitted in good faith.

    If Escrow Agent shall have received a Notice of Payment, Escrow Agent shall
promptly deliver a copy thereof to the other party hereto.  Within fifteen (15)
business days ("Dispute Period") after delivery by Escrow Agent of a copy of
such Notice of Payment to such other


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party, such other party may deliver to Escrow Agent a written notice (the 
"Notice of Dispute") disputing the request for payment of Escrowed Funds 
stated in the Notice of Payment.  The Notice of Dispute shall be an affidavit 
specifying the amount being disputed (the "Disputed Amount"), describing in 
reasonable detail the reasons for such dispute and certifying that the Notice 
of Dispute is being submitted in good faith.  If Escrow Agent has not 
received a Notice of Dispute prior to the expiration of Dispute Period 
referred to above, then Escrow Agent shall immediately pay to such requesting 
party, by check or wire transfer of immediately available funds, the full 
amount of the Escrowed Funds requested in the Notice of Payment. If Escrow 
Agent has received a Notice of Payment during the Dispute Period which 
disputes in part the request for payment of Escrowed Funds stated in the 
Notice of Payment, then Escrow Agent shall, following receipt of such notice 
of claim, immediately pay to such requesting party, by check or wire transfer 
of immediately available funds, the amount, if any, of Escrowed Funds 
requested in the Notice of Payment which is in excess of the Disputed Amount. 

    If Escrow Agent receives a Notice of Dispute, Escrow Agent shall promptly
deliver a copy of the Notice of Dispute to the other party hereto, and shall not
deliver all or the portion of the requested amount of Escrowed Funds set forth
in the Notice of Payment constituting the Disputed Amount until Escrow Agent
shall have received one of the following:

         (a)  A certified copy of an order, decree or judgment issued or
    rendered by a court of competent jurisdiction, which order, decree or
    judgment has been finally affirmed on appeal or which by lapse of time or
    otherwise is no longer subject to appeal (a "Final Decision") directing the
    distribution of the Escrow Funds; or

         (b)  A joint written direction executed by Buyer and Seller directing
    the distribution of the Escrowed Funds.

    Upon receipt of either (a) or (b) above, Escrow Agent shall immediately
deliver the Escrowed Funds to the proper party(ies) in accordance therewith.

    6.   INVESTMENT OF ESCROWED FUNDS.  Escrow Agent shall invest the Escrowed
Funds, from time to time, in 30-day United States Treasury obligations or
certificates of deposit having a maturity not to exceed 30 days, any
governmental mutual funds, or such other investments jointly designated in
writing by Buyer and Seller.  The proceeds of all investments made hereunder
shall be distributed in accordance with this Agreement.  Escrow Agent shall
deliver monthly statements to Buyer and Seller in accordance with Escrow Agent's
regular practice; the parties hereby agree that, except for the foregoing,
Escrow Agent shall have no obligations to monitor, or advise the parties with
respect to, such investments.  All interest or other income earned on the Escrow
Funds shall be paid to Buyer on a monthly basis.

    7.   RELEASE DATE AND TERMINATION OF ESCROW.

         (a)  On the Closing Date or the effective date of an earlier
    termination of the Purchase Agreement in accordance with the terms thereof
    (the "Release Date"), Escrow


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    Agent shall ascertain the amount of the escrow balance (the "Escrow 
    Balance"), which amount shall equal the amount of Escrowed Funds (including
    all interest or other income attributable thereto and not previously 
    distributed) then held hereunder LESS the amount of Escrowed Funds, if any,
    then (i) covered by a pending Notice of Payment which is subject to a Notice
    of Dispute as provided in SECTION 5 hereof, (ii) covered by a pending Notice
    of Payment which was delivered by Escrow Agent to a party hereto at any time
    prior to the Release Date and which either has not been paid or is subject
    to the ability of a party hereto to provide a Notice of Dispute with respect
    thereto in accordance with the terms hereof, or (iii) covered by a Notice
    of Payment to the extent determined to be valid and no longer subject to a
    Notice of Dispute, but not yet paid.  On the Release Date (i), if such date
    is the Closing Date, Escrow Agent shall deliver to Seller (or its designee)
    the Escrow Balance or (ii) if such date is the effective date of an earlier
    termination of the Purchase Agreement in accordance with the terms thereof,
    the provisions of SECTION 5 above shall apply to any release of the 
    Escrow Balance. 

         (b)  Notwithstanding the foregoing, this Agreement may be terminated
    at any time by and upon the receipt by Escrow Agent of written notice of
    termination executed by both Buyer and Seller directing the distribution of
    all property then held by Escrow Agent under and pursuant to this
    Agreement, and this Agreement shall automatically terminate if and when all
    the Escrowed Funds (and all the securities in which any of the Escrowed
    Funds shall have been invested) shall have been distributed by Escrow Agent
    in accordance with the terms of this Agreement.

         (c)  Escrow Agent is authorized to liquidate the securities held
    hereunder (unless directed in writing by Seller to distribute such
    securities in some other specified manner) to the extent necessary to
    distribute to Seller (or its designee) the Escrowed Funds as provided in
    SECTION 7(a) above and shall have no liability for any loss arising out of
    any such liquidation.

    8.   LIENS ON ESCROWED FUNDS.  During the term of this Escrow Agreement,
each of Buyer and Seller agree to keep the Escrowed Funds free and clear of all
liens, claims, encumbrances, levies, garnishments or other attachments arising
with respect to it.

    9.   NOTICES.  Any notices or other communication required to be sent or
given hereunder by any of the parties shall in every case be in writing and
shall be deemed properly served if (a) delivered personally, (b) sent by
registered or certified mail, in all such cases with first class postage
prepaid, return receipt requested, (c) delivered by a recognized overnight
courier service, or (d) sent by facsimile transmission to the parties at the
addresses as set forth below or at such other addresses as may be furnished in
writing.


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         (a)  If to Seller:

              K-tel International, Inc.
              2605 Fernbrook Lane North
              Minneapolis, Minnesota  55447
              Attention:     David Weiner
              Telecopy No.: (612) 509-9409

              with copies to:

              Kaplan Strangis & Kaplan, P.A.
              5500 Norwest Center
              90 South Seventh Street
              Minneapolis, Minnesota  55402
              Attention:     Bruce J. Parker, Esq.
              Telecopy No.: (612) 375-1143

              and

              Philip Kives
              K-5 Leisure Products, Inc.
              220 Saulteaux Crescent
              Winnipeg, Manitoba, Canada R3J 3W2
              Telecopy No.: (204) 832-7782
    
         (b)  If to Buyer:

              Platinum Entertainment, Inc.
              2001 Butterfield Road
              Downers Grove, Illinois  60515
              Attention:     Steven Devick
              Telecopy No.: (630) 769-0049

              with a copy to:

              Katten Muchin & Zavis
              525 West Monroe Street
              Suite 1600
              Chicago, Illinois  60661-3693
              Attention:     Matthew S. Brown, Esq.
                        Adam H. Schecter, Esq.
              Telecopy No.: (312) 902-1061


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         (c)  If to Escrow Agent:
              Midwest Trust Services, Inc.
              500 West Chestnut Street
              Hinsdale, Illinois  60521
              Attention:     Mary Henthorn
              Telecopy No.: (630) 323-0531

Date of service of such notice shall be (w) the date such notice is personally
delivered, (x) three days after the date of mailing if sent by certified or
registered mail, (y) the next succeeding business day after date of delivery to
the overnight courier if sent by overnight courier or (z) the next succeeding
business day after transmission by facsimile.

    10.  ESCROW AGENT'S LIABILITY.  Escrow Agent undertakes to perform such
duties and only such duties as are specifically set forth in this Agreement, and
no implied covenants or obligations shall be read into this Agreement against
Escrow Agent.  In the absence of bad faith, gross negligence or wilful
misconduct on its part, Escrow Agent may conclusively rely, as to the truth of
the statements and the correctness of the opinions expressed therein, upon
certificates or opinions furnished to Escrow Agent.  Escrow Agent may act upon
any instrument, certificate, opinion or other writing believed by it in good
faith and without gross negligence to be genuine, and shall not be liable in
connection with the performance by it of its duties pursuant to the provisions
of the Agreement, except for its own bad faith, gross negligence or wilful
misconduct.  Escrow Agent may consult with counsel of its own choice and shall
have full and complete authorization and protection for any action taken,
suffered or omitted by it hereunder in good faith and in accordance with the
opinion of such counsel. Escrow Agent may execute powers hereunder or perform
any duties hereunder either directly or by or through agents or attorneys.

    11.  INDEMNIFICATION OF ESCROW AGENT.  Buyer and Seller hereby agree
severally and not jointly (one-half to be borne by Buyer and one-half to be
borne by Seller) to indemnify Escrow Agent for, and to hold it harmless against,
any loss, liability or expense incurred without gross negligence, wilful
misconduct or bad faith on the part of Escrow Agent, arising out of or in
connection with its entering into the Agreement, carrying out its duties
hereunder and accepting the Escrowed Funds, including the costs and expenses of
defending itself against any claim of liability in connection with the exercise
or performance of any of its powers or duties hereunder (including reasonable
fees, expenses and disbursements of its counsel).

    12.  ESCROW AGENT TO FOLLOW INSTRUCTIONS OF BUYER AND SELLER. 
Notwithstanding any provision contained herein to the contrary, Escrow Agent
shall at any time and from time to time take such action hereunder with respect
to the Escrowed Funds (and the securities in which any of the Escrowed Funds
shall have been invested) as shall be directed in writing by both Buyer and
Seller, provided that Escrow Agent shall first be indemnified to its
satisfaction with respect to any of its costs or expenses which might be
involved.


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    13.  RESIGNATION OF ESCROW AGENT.  Escrow Agent, or any successor, may
resign at any time upon giving written notice, thirty (30) days before such
resignation shall take effect, to Buyer and Seller.  In the event Escrow Agent
shall resign or be unable to serve, it shall be succeeded by such bank or trust
company as Buyer and Seller shall appoint, or if no appointment is made, by a
bank or trust company appointed by a court of competent jurisdiction.  In the
absence of a successor so appointed by Buyer and Seller, Escrow Agent may
petition such a court to appoint a successor escrow agent.  The resigning escrow
agent shall transfer to its successor all monies, securities and investments
then held subject to this escrow and all pending notices, instructions and
directions then in its possession, and shall thereupon be discharged, and the
successor shall thereupon succeed to all the rights, powers and duties and shall
assume all of the obligations of the resigning escrow agent.

    14.  ESCROW AGENT'S FEE AND EXPENSES, ETC.

         (a)  Escrow Agent shall be entitled to (i) a $50 annual fee, which
    annual fee shall be prorated to the date of termination of this Agreement,
    for services rendered and for reimbursement of extraordinary expenses
    incurred in performance of its duties which expenses are not included in
    said fee, plus (ii) out of pocket expenses which expenses shall be charged
    as incurred.  Such annual fees shall be paid by Buyer and such out-of-pocket
    expenses shall be divided equally between the Buyer, on one hand and 
    Seller, on the other hand.

         (b)  In case said property shall be attached, garnished, or levied
    upon any court order, or the delivery thereof shall be stayed or enjoined
    by an order of court, or any order, judgement or decree shall be made or
    entered by any court order affecting the property deposited under this
    Agreement, or any part thereof, Escrow Agent is hereby expressly authorized
    in its sole direction, to obey and comply with all writs, orders or decrees
    so entered or issued, which it is advised by legal counsel of its own
    choosing is binding upon it, whether with or without jurisdiction, and in
    case Escrow Agent obeys or complies with any such writ, order or decree it
    shall not be liable to any of the parties hereto or to any other person,
    firm or corporation, by reason of such compliance notwithstanding such
    writ, order or decree be subsequently reversed, modified, annulled, set
    aside or vacated.

         (c)  In case said Escrow Agent becomes involved in litigation on
    account of this deposit or of this Agreement, it shall have the right to
    retain counsel and shall have a lien on the property deposited hereunder
    for any and all costs, attorneys' fees, charges, disbursements, and
    expenses in connection with such litigation; and shall be entitled to
    reimburse itself therefor out of the property deposited hereunder, and if
    it shall be unable to reimburse itself from the property deposited
    hereunder, the parties hereto jointly and severally agree to pay to said
    Escrow Agent on demand, its reasonable charges, counsel and attorneys'
    fees, disbursements, and expenses in connection with such litigation.


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         (d)  In case conflicting demands are made upon it for any situation
    not addressed in this Agreement, Escrow Agent may withhold performance of
    this escrow until such time as said conflicting demands shall have been
    withdrawn or the rights of the respective parties shall have been settled
    by court adjudication, arbitration, joint order or otherwise.

         (e)  The parties acknowledge that Escrow Agent will have no
    obligations or responsibilities with respect to tax reporting of the
    parties.

    15.  SUCCESSORS.  The obligations imposed and the rights conferred by this
Escrow Agreement shall be binding upon and inure to the benefit of the
respective heirs (including estates), successors and permitted assigns of the
parties hereto, but will not be assignable or delegable by any party without the
prior written consent of the other parties.

    16.  GOVERNING LAW.  This Escrow Agreement shall be governed by and
construed in accordance with the laws of the State of Illinois, without giving
effect to principles of conflicts of law.

    17.  ENTIRE AGREEMENT.  This Agreement contains the entire agreement
between the parties hereto with respect to the transactions contemplated herein.

    18.  AMENDMENT.  This Agreement cannot be terminated, altered or amended
except pursuant to an instrument in writing signed by Buyer, Seller and Escrow
Agent.

    19.  ENFORCEABILITY.  If any provision of the Agreement shall be held
invalid or unenforceable, such invalidity or unenforceability shall attach only
to such provision and shall not in any manner affect or render invalid or
unenforceable any other provision of this Escrow Agreement, and the Agreement
shall be carried out as if any such invalid or unenforceable provision were not
contained herein.

    20.  COUNTERPARTS.  This Agreement may be executed in any number of
counterparts, each of which shall be deemed on original and all of which
together shall constitute one and the same instrument.

    21.  NO STRICT CONSTRUCTION.  The language used in this Agreement will be
deemed to be the language chosen by the parties hereto to express their mutual
intent, and no rule of strict construction will be applied against any party
hereto.

    22.  ATTORNEYS' FEES.  In the event of a dispute between Buyer and Seller 
regarding the distribution of the Escrowed Funds, upon the issuance of a 
final, non-appealable order or judgment by a court of competent jurisdiction, 
the prevailing party's legal fees and related expenses shall be paid by the 
non-prevailing party.  The determination of which party is the "prevailing" 
party shall be made by the court issuing such final, non-appealable order or 
judgment.

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    IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed as of the date first above written.

                   K-TEL INTERNATIONAL, INC.,
                   a Minnesota corporation


                   By: /s/ P. Kives
                       ----------------------------------------------
                        Its: Chairman and Chief Executive Officer 


                   PLATINUM ENTERTAINMENT, INC.,
                   a Delaware corporation


                   By: /s/ Thomas Leavens
                       ------------------------------------------------
                        Its: COO 


                   MIDWEST TRUST SERVICES, INC., AS ESCROW AGENT



                   By: /s/ David M. Augusten
                       -----------------------------------------------
                        Its: President