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                              SECURITY AGREEMENT

     This Security Agreement (the "AGREEMENT") is dated as of December 12, 
1997, by and among the parties executing this Agreement under the heading 
"Debtors" (such parties, together with any additional parties who execute and 
deliver to the Agent an agreement in the form attached hereto as Schedule D, 
being herein referred to collectively as the "DEBTORS" and individually a 
"DEBTOR"), each with its mailing address at 2001 Butterfield Road, Suite 
1400, Downers Grove, Illinois 60515, and BANK OF MONTREAL ("BOM"), with its 
mailing address at 115 South LaSalle Street, Chicago, Illinois 60603, acting 
as agent hereunder for the Lenders hereinafter identified and defined (BOM 
acting as such agent and any successor or successors to BOM acting in such 
capacity being hereinafter referred to as the "AGENT");

                            PRELIMINARY STATEMENTS

     A.   Platinum Entertainment, Inc., a Delaware corporation (the 
"COMPANY"), Intersound, Inc., a Delaware corporation ("INTERSOUND"), (the 
Company and Intersound being hereinafter referred to collectively as the 
"BORROWERS" and individually as a "BORROWER"), Lexicon Music, Inc., a 
Delaware corporation ("LEXICON"), CGI Records, Inc., a Delaware corporation 
("CGI"), River North Records, Inc., a Delaware corporation ("NORTH RECORDS"), 
Light Records, Inc., a Delaware corporation ("LIGHT"), The Recording 
Experience, Inc., a Delaware corporation ("EXPERIENCE"), Peg Publishing, Inc. 
a Delaware corporation ("PEG"), JustMike Music, Inc., a Delaware corporation 
("JUSTMIKE"), Royce Publishing, Inc., a Delaware corporation ("ROYCE") 
(Lexicon, CGI, North Records, Light, Experience, Peg, JustMike and Royce 
being hereinafter referred to collectively as the "GUARANTORS" and 
individually as a "GUARANTOR"), BOM, individually and as agent, and certain 
lenders have entered into a Credit Agreement dated as of even date herewith 
(such Credit Agreement, as the same may be amended or modified from time to 
time, including amendments and restatements thereof in its entirety, being 
hereinafter referred to as the "CREDIT AGREEMENT"), pursuant to which BOM and 
other lenders from time to time party to the Credit Agreement (BOM and the 
other lenders which are now or from time to time hereafter become party to 
the Credit Agreement, together with any affiliates of such lenders to which 
is owed any Hedging Liability, being hereinafter referred to collectively as 
the "LENDERS" and individually as a "LENDER") have agreed, subject to certain 
terms and conditions, to extend credit and make certain other financial 
accommodations available to the Borrowers.

     B.   Pursuant to the Credit Agreement, the Guarantors guarantee all of 
the indebtedness, obligations, and liabilities of the Borrowers to the Agent 
and the Lenders under the Credit Agreement.

     C.   The Borrowers, or any of them individually, may from time to time 
enter into one or more interest rate exchange, cap, collar, floor or other 
agreements with one or more of the Lenders party to the Credit Agreement or 
their affiliates for the purpose of hedging or otherwise protecting the 
Borrowers, or any of them individually, against changes in 

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interest rates on the Revolving Loans and the Term Loans (the liability of 
the Borrowers, or any of them individually, in respect of such agreements 
with such Lenders or their affiliates being hereinafter referred to as the 
"HEDGING LIABILITY").

     D.   As a condition precedent to extending credit or otherwise making 
financial accommodations available to the Borrowers under the Credit 
Agreement, the Lenders have required, among other things, that each Debtor 
grant to the Agent for the benefit of the Lenders a lien on and security 
interest in certain personal property of such Debtor pursuant to this 
Agreement.

     E.   The Company owns, directly or indirectly, all or substantially all 
of the equity interests in each Guarantor and the Company provides each 
Guarantor with financial, management, administrative, and technical support 
which enables such Guarantor to conduct its business in an orderly and 
efficient manner in the ordinary course.

     F.   Each Guarantor will benefit, directly or indirectly, from credit 
and other financial accommodations extended by the Lenders to the Borrowers.

     NOW, THEREFORE, for and in consideration of the execution and delivery 
by the Lenders of the Credit Agreement, and other good and valuable 
consideration, receipt whereof is hereby acknowledged, the parties hereto 
hereby agree as follows:

     SECTION 1.     TERMS DEFINED IN CREDIT AGREEMENT.  All capitalized terms 
used herein without definition shall have the same meanings herein as such 
terms have in the Credit Agreement.  The term "Debtor" and "Debtors" as used 
herein shall mean and include the Debtors collectively and also each 
individually, with all grants, representations, warranties and covenants of 
and by the Debtors, or any of them, herein contained to constitute joint and 
several grants, representations, warranties and covenants of and by the 
Debtors; PROVIDED, HOWEVER, that unless the context in which the same is used 
shall otherwise require, any grant, representation, warranty or covenant 
contained herein related to the Collateral shall be made by each Debtor only 
with respect to the Collateral owned by it or represented by such Debtor as 
owned by it.

     SECTION 2.     GRANT OF SECURITY INTEREST IN THE COLLATERAL; OBLIGATIONS 
SECURED.  (a)  Each Debtor hereby grants to the Agent for the benefit of the 
Lenders a lien on and security interest in, and right of set-off against, and 
acknowledges and agrees that the Agent has and shall continue to have for the 
benefit of the Lenders a continuing lien on and security interest in, and 
right of set-off against, any and all right, title and interest of each 
Debtor, whether now owned or existing or hereafter created, acquired or 
arising, in and to the following:

          (i)   RECEIVABLES.  Receivables, whether now owned or existing or
     hereafter created, acquired or arising, and however evidenced or acquired,
     or in which such Debtor now has or hereafter acquires any rights (the term
     "RECEIVABLES" means and includes all accounts, accounts receivable,
     contract rights, instruments, notes, drafts, acceptances, documents,
     chattel paper, any right of such Debtor to payment for goods 


                                      -2-

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     sold or leased or for services rendered, whether arising out of the sale 
     of Inventory (as hereinafter defined) or otherwise and whether or not 
     earned by performance, and all other forms of obligations owing to such 
     Debtor, and all of such Debtor's rights to any merchandise and other goods
     (including without limitation any returned or repossessed goods and the 
     right of stoppage in transit) which is represented by, arises from or is 
     related to any of the foregoing);

          (ii)  GENERAL INTANGIBLES.  All general intangibles, whether now owned
     or existing or hereafter created, acquired or arising, or in which such
     Debtor now has or hereafter acquires any rights, including, without
     limitation all patents, patent applications, patent licenses, trademarks,
     trademark registrations, trademark licenses, trade styles, trade names,
     copyrights, copyright registrations, copyright licenses and other licenses
     and similar intangibles and all customer, client and supplier lists (in
     whatever form maintained) and all rights in leases and other agreements
     relating to real or personal property, all causes of action and tax refunds
     of every kind and nature, all privileges, franchises, immunities, licenses,
     permits and similar intangibles, all rights to receive payments in
     connection with the termination of any pension plan or employee stock
     ownership plan or trust established for the benefit of employees of such
     Debtor and all other personal property (including things in action) not
     otherwise covered by this Agreement;

          (iii) INVENTORY.  Inventory, whether now owned or existing or
     hereafter created, acquired or arising, or in which such Debtor now has or
     hereafter acquires any rights and all documents of title at any time
     evidencing or representing any part thereof (the term "INVENTORY" means and
     includes all goods which are held for sale or lease or are to be furnished
     under contracts of service or consumed in such Debtor's business, and all
     goods which are raw materials, work-in-process, finished goods, materials
     and supplies of every kind and nature, in each case used or usable in
     connection with the acquisition, manufacture, processing, supply,
     servicing, storing, packing, shipping, advertising, selling, leasing or
     furnishing of such goods, and any constituents or ingredients thereof, and
     all goods which are returned or repossessed goods) including, without
     limitation, Inventory consisting of records, albums and music videos;

          (iv)  EQUIPMENT.  Equipment, whether now owned or existing or 
     hereafter created, acquired or arising, or in which such Debtor now has 
     or hereafter acquires any rights (the term "EQUIPMENT" means and includes
     all equipment, machinery, tools, trade fixtures, furniture, furnishings, 
     office equipment and vehicles (including vehicles subject to a certificate
     of title law) and all other goods, in each case now or hereafter used or 
     usable in connection with such Debtor's business, together with all parts,
     accessories and attachments relating to any of the foregoing), including, 
     without limitation, Equipment consisting of recording equipment;

          (v)   INVESTMENT PROPERTY.  All Investment Property, whether now owned
     or existing or hereafter created, acquired or arising, or in which such
     Debtor now has or hereafter acquires any rights (the term "INVESTMENT
     PROPERTY" means and includes all 


                                      -3-

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     investment property and any other securities (whether certificated or 
     uncertificated), security entitlements, securities accounts, commodity 
     contracts and commodity accounts, including all substitutions and 
     additions thereto, all dividends, distributions and sums distributable
     or payable from, upon, or in respect of such property, and all rights 
     and privileges incident to such property);

          (vi)   RECORDS AND CABINETS.  Supporting evidence and documents 
     relating to any of the above-described property, including without 
     limitation, computer programs, disks, tapes and related electronic 
     data processing media, rights of such Debtor to retrieve the same from 
     third parties, written applications, credit information, account cards, 
     payment records, correspondence, delivery and installation certificates, 
     invoice copies, delivery receipts, notes and other evidences of 
     indebtedness, insurance certificates and the like, together with all 
     books of account, ledgers and cabinets in which the same are reflected or 
     maintained, all whether now existing or hereafter arising;

          (vii)  DEPOSITS AND PROPERTY IN POSSESSION.  All deposit accounts
     (whether general, special or otherwise) maintained with the Agent or any of
     the Lenders and all sums now or hereafter on deposit therein or payable
     thereon, and any and all other property or interests in property which now
     is or may from time to time hereafter come into the possession, custody or
     control of the Agent or any of the Lenders, or any agent or affiliate of
     the Agent or any of the Lenders, in any way and for any purpose (whether
     for safekeeping, custody, pledge, transmission, collection or otherwise);

          (viii) ACCESSIONS AND ADDITIONS.  All accessions and additions to
     and substitutions and replacements of any of the foregoing, whether now
     existing or hereafter arising; and

          (ix)   PROCEEDS AND PRODUCTS.  All proceeds and products of the
     foregoing and all insurance of the foregoing and proceeds thereof, whether
     now existing or hereafter arising; 

all of the foregoing being herein sometimes referred to as the "COLLATERAL."

     (b)  This Agreement is made and given to secure, and shall secure, the
payment and performance of (i) (x) any and all indebtedness, obligations and
liabilities of the Borrowers, or any of them individually, to the Agent, the
Lenders, or any of them individually, evidenced by or otherwise arising out of
or relating to the Credit Agreement or any promissory note of the Borrowers, or
any of them individually, issued at any time under the Credit Agreement
(including all notes issued in extension or renewal thereof or in substitution
or replacement therefor), (y) any and all Hedging Liability of the Borrowers, or
any of them individually, to the Lenders, or any of them individually, and
(z) any liability of the Guarantors, or any of them individually, arising out of
the Credit Agreement, as well as for any and all other indebtedness, obligations
and liabilities of the Debtors, or any of them individually, to the Agent, the
Lenders, or any of them individually, evidenced by 


                                      -4-

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or otherwise arising out of or relating to this Agreement or any other Loan 
Document, in each case, whether now existing or hereafter arising (and 
whether arising before or after the filing of a petition in bankruptcy), due 
or to become due, direct or indirect, absolute or contingent, and howsoever 
evidenced, held or acquired, and (ii) any and all expenses and charges, legal 
or otherwise, suffered or incurred by the Agent, the Lenders, or any of them 
individually, in collecting or enforcing any of such indebtedness, 
obligations or liabilities or in realizing on or protecting or preserving any 
security therefor, including, without limitation, the lien and security 
interest granted hereby (all of the foregoing being hereinafter referred to 
as the "OBLIGATIONS").  Notwithstanding anything in this Agreement to the 
contrary, the right of recovery against any Debtor (other than the Borrowers, 
to which this limitation shall not apply) under this Agreement shall not 
exceed $1 less than the amount which would render such Debtor's obligations 
under this Agreement void or voidable under applicable law, including 
fraudulent conveyance law.

     (c)  Notwithstanding anything herein to the contrary, the lien of this 
Agreement on the Collateral shall be released as and to the extent required 
by Section 8.18 of the Credit Agreement.

     SECTION 3.     COVENANTS, AGREEMENTS, REPRESENTATIONS AND WARRANTIES.  
Each Debtor hereby covenants and agrees with, and represents and warrants to 
the Agent and the Lenders that:

          (a)  Such Debtor is duly organized and existing under the laws of the
     state of its organization, is the sole and lawful owner of its Collateral
     and has full right, power and authority to enter into this Agreement and to
     perform each and all of the matters and things herein provided for; and the
     execution and delivery of this Agreement, and the observance and
     performance of any of the matters and things herein set forth, will not
     violate or contravene any provision of law or of the articles of
     incorporation, by-laws or operating agreement of such Debtor, as
     applicable, or of any indenture where such violation or contravention would
     have a Material Adverse Effect, loan agreement or other agreement of or
     affecting such Debtor or any of its properties, or result in the creation
     or imposition of any liens or encumbrance on any property of such Debtor.

          (b)  The Collateral is in each Debtor's possession at the locations
     listed under Column 1 on Schedule A attached hereto.  Each Debtor's
     respective chief executive office and chief place of business is listed
     opposite its name on Schedule A attached hereto and the Debtors have no
     other places of business other than those listed under Column 4 on
     Schedule A attached hereto.  No Debtor will, without the Agent's prior
     written consent, remove its Collateral from the locations specified in the
     first sentence of this Section 3(b) other than temporarily in the normal
     course of business or to deliver the Collateral to any purchaser thereof in
     connection with any sale or other disposition of such Collateral expressly
     permitted by the Credit Agreement (provided that if for any reason
     Collateral is at any time kept or located at locations other than its
     present location or locations hereafter consented to by the Agent shall
     nevertheless 


                                      -5-

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     have and retain a security interest therein).  The aggregate value of 
     all Debtors' Collateral located in the State of Tennessee shall not at 
     any time exceed $5,000.  

          (c)  The Collateral and every part thereof is and will be free and
     clear of all security interests, liens (including, without limitation,
     mechanic's, laborer's and statutory liens), attachments, levies and
     encumbrances of every kind, nature and description and whether voluntary or
     involuntary except for the security interest of the Agent, the Agent
     therein and as otherwise provided in the Credit Agreement (including
     without limitation, Permitted Liens), and each Debtor will warrant and
     defend its Collateral against any claims and demands of all persons at any
     time claiming the same or any interest therein adverse to the Agent or any
     Lender.

          (d)  Each Debtor will pay promptly when due all taxes, assessments,
     and governmental charges and levies upon or against its Collateral 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 by
     appropriate proceedings.

          (e)  Each Debtor at its own cost and expense will maintain, keep and
     preserve its Collateral in good repair and condition and will not waste or
     destroy such Collateral or any part thereof except as expressly permitted
     by the Credit Agreement and will not be negligent in the care and use of
     any Collateral and will not use or permit to be used any Collateral in
     violation of any statute, ordinance or other governmental requirement. 
     Each Debtor will perform its obligations under any contract or other
     agreement constituting part of the Collateral, it being understood and
     agreed that the Agent and the Lenders have no responsibility to perform
     such obligations.

          (f)  Except for Permitted Liens or as expressly permitted by the
     Credit Agreement, and subject to Sections 5(a), 7(b) and 7(c) hereof, no
     Debtor will, without the Agent's prior written consent, sell, assign,
     mortgage, lease or otherwise dispose of its Collateral or any interest
     therein.

          (g)  Each Debtor will insure its Collateral which is insurable against
     such risks and hazards as other companies similarly situated insure
     against, and including in any event loss or damage by fire, theft,
     burglary, pilferage, loss in transit and such other hazards as the Agent
     may specify, in amounts and under policies containing loss payable clauses
     to the Agent as its interest may appear (and, if the Agent requests, naming
     the Agent and the Lenders as additional insureds therein) by insurers
     acceptable to the Agent.  In case of any material loss, damage to or
     destruction of its Collateral or any part thereof, the appropriate Debtor
     shall promptly give written notice thereof to the Agent generally
     describing the nature and extent of such damage or destruction.  In the
     event any Debtor shall receive any proceeds of such insurance, such Debtor
     will immediately pay over such proceeds to the Agent.  Net insurance
     proceeds received by the Agent under the provisions hereof or under any
     policy or policies of insurance covering the Collateral or any part thereof
     shall be applied to the reduction of the Obligations (whether or not then
     due); as and to the extent provided 


                                      -6-

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     in the Credit Agreement.  All insurance proceeds shall be subject to the 
     lien and security interest of the Agent hereunder.

          UNLESS THE DEBTORS PROVIDE THE AGENT WITH EVIDENCE OF THE INSURANCE
     COVERAGE REQUIRED BY THIS AGREEMENT, THE AGENT MAY PURCHASE INSURANCE AT
     THE DEBTORS' EXPENSE TO PROTECT THE AGENT'S INTERESTS IN THE COLLATERAL. 
     THIS INSURANCE MAY, BUT NEED NOT, PROTECT ANY DEBTOR'S INTERESTS IN THE
     COLLATERAL.  THE COVERAGE PURCHASED BY THE AGENT MAY NOT PAY ANY CLAIMS
     THAT ANY DEBTOR MAKES OR ANY CLAIM THAT IS MADE AGAINST SUCH DEBTOR IN
     CONNECTION WITH THE COLLATERAL.  THE DEBTORS MAY LATER CANCEL ANY SUCH
     INSURANCE PURCHASED BY THE AGENT, BUT ONLY AFTER PROVIDING THE AGENT WITH
     EVIDENCE THAT THE DEBTORS HAVE OBTAINED INSURANCE AS REQUIRED BY THIS
     AGREEMENT.  IF THE AGENT PURCHASES INSURANCE FOR THE COLLATERAL, THE
     DEBTORS WILL BE RESPONSIBLE FOR THE COSTS OF THAT INSURANCE, INCLUDING
     INTEREST AND ANY OTHER CHARGES THAT THE AGENT MAY IMPOSE IN CONNECTION WITH
     THE PLACEMENT OF THE INSURANCE, UNTIL THE EFFECTIVE DATE OF THE
     CANCELLATION OR EXPIRATION OF THE INSURANCE.  THE COSTS OF THE INSURANCE
     MAY BE ADDED TO THE OBLIGATIONS SECURED HEREBY.  THE COSTS OF THE INSURANCE
     MAY BE MORE THAN THE COST OF INSURANCE THE DEBTORS MAY BE ABLE TO OBTAIN ON
     THEIR OWN.

          (h)  Each Debtor will at all times allow the Agent, any Lender or
     their respective representatives free access to and right of inspection of
     the Collateral.  Each Debtor will, to the extent it is within its power so
     to do, authorize and instruct all bailees and other parties at any time
     holding, storing, shipping or transferring all or any part of such Debtor's
     Collateral to permit the Agent, any Lender or their respective or its
     designees to examine and inspect any of such Collateral then in such
     party's possession and to verify from such party's own books and records
     any information concerning such Collateral or any part thereof which the
     Agent or such Lender may seek to verify.  As to any premises not owned by
     any of the Debtors wherein any of the Collateral is located, if any, the
     appropriate Debtor shall, unless the Agent requests otherwise, cause each
     Person having any right, title or interest in, or lien on, any of such
     premises to enter into an agreement (any such agreement to contain a legal
     description of such premises) whereby such party disclaims any right, title
     and interest in, and lien on, the Collateral, allowing the removal of such
     Collateral by the Agent or its designee and otherwise in form and substance
     acceptable to the Agent; 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 Debtors 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.

          (i)  Each Debtor agrees from time to time to deliver to the Agent and
     any Lender such evidence of the existence and identity of such Debtor's
     Collateral and of its availability as collateral security pursuant hereto
     (including, without limitation, schedules describing all Receivables
     created or acquired by such Debtor, copies of customer invoices or the
     equivalent and original shipping or delivery receipts for all 


                                      -7-

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     merchandise and other goods sold or leased or services rendered, together 
     with such Debtor's warranty of the genuineness thereof, and reports stating
     the book value of Inventory and Equipment by major category and location), 
     as the Agent or such Lender may request.  Each Debtor will promptly notify 
     the Agent and each Lender of any Collateral which such Debtor has 
     determined to have been rendered obsolete, stating the prior book value of 
     such Collateral, its type and location.

          (j)  Each Debtor will comply with the terms and conditions of any
     leases, easements, right-of-way agreements or other agreements covering the
     premises wherein its Collateral is located and any orders, ordinances, laws
     or statutes of any city, state or other governmental entity, department or
     agency having jurisdiction with respect to such premises or the conduct of
     business thereon for which any such non-compliance would have a Material
     Adverse Effect.

          (k)  On failure of any Debtor to perform any of the covenants and
     agreements herein contained, the Agent may, at its option, perform the same
     and in so doing may expend such sums as the Agent may deem advisable in the
     performance thereof, including without limitation the payment of any
     insurance premiums, the payment of any taxes, liens and encumbrances,
     expenditures made in defending against any adverse claim and all other
     expenditures which the Agent may be compelled to make by operation of law
     or which the Agent may make by agreement or otherwise for the protection of
     the security hereof.  All such sums and amounts so expended shall be
     repayable by the Debtors immediately without notice or demand, shall
     constitute so much additional Obligations hereby secured and shall bear
     interest from the date said amounts are expended at the rate per annum
     (computed on the basis of a 360-day year for the actual number of days
     elapsed) determined by adding 3% to the Domestic Rate (such rate per annum
     as so determined being hereinafter referred to as the "DEFAULT RATE").  No
     such performance of any covenant or agreement by the Agent on behalf of any
     Debtor and no such advancement or expenditure therefor, shall relieve any
     Debtor of any default under the terms of this Agreement or in any way
     obligate the Agent or any Lender to take any further or future action with
     respect thereto.  The Agent, in making any payment hereby authorized, may
     do so according to any bill, statement or estimate procured from the
     appropriate public office or holder of the claim to be discharged without
     inquiry into the accuracy of such bill, statement or estimate or into the
     validity of any tax assessment, sale, forfeiture, tax lien or title or
     claim.  The Agent, in performing any act hereunder, shall be the sole judge
     of whether the relevant Debtor is required to perform same under the terms
     of this Agreement.  The Agent is authorized to charge any depository
     account of any Debtor maintained with the Agent for the amount of such sums
     and amounts so expended.

          (l)  Each Debtor warrants that such Debtor has not transacted
     business, and does not transact business, under any trade names except as
     set forth on Schedule B.  Each Debtor agrees that it will not change its
     name or transact business under any trade names without first giving the
     Agent 30 days' prior written notice of its intent to do so.


                                      -8-

<PAGE>

          (m)  Each Debtor agrees to execute and deliver to the Agent such
     further agreements and assignments or other instruments and to do all such
     other things as the Agent may deem necessary or appropriate to assure the
     Agent its security interest hereunder, including such financing statement
     or statements or amendments thereof or supplements thereto or other
     instruments as the Agent or the Required Lenders may from time to time
     require in order to comply with the Uniform Commercial Code as enacted in
     the State of Illinois and any successor statute(s) thereto (the "CODE"). 
     Each Debtor hereby agrees that a carbon, photographic or other reproduction
     of this Agreement or any such financing statement is sufficient for filing
     as a financing statement by the Agent without notice thereof to any Debtor
     wherever the Agent in its sole discretion desires to file the same.  In the
     event for any reason the law of any other jurisdiction than Illinois
     becomes or is applicable to the Collateral or any part thereof, or to any
     of the Obligations, each Debtor agrees to execute and deliver all such
     instruments and to do all such other things as the Agent in its sole
     discretion deems necessary or appropriate to preserve, protect and enforce
     the security interests of the Agent under the law of such other
     jurisdiction to at least the same extent as such security interests would
     be protected under the Code.  If any Collateral is in the possession or
     control of any Debtor's agents or processors and unless the Agent requests
     otherwise, such Debtor agrees to notify such agents or processors in
     writing of the Agent's security interests therein, and upon the Agent's
     request instruct them to hold all such Collateral for the Agent's account
     and subject to the Agent's instructions.  The Debtors agree to mark their
     books and records to reflect the security interests of the Agent in the
     Collateral.

     SECTION 4.     SPECIAL PROVISIONS RE:  RECEIVABLES.  (a) As of the time any
Receivable becomes subject to the security interest provided for hereby and at
all times thereafter, each Debtor shall be deemed to have warranted as to each
and all of such Receivables that all warranties of such Debtor set forth in this
Agreement are true and correct with respect to such Receivable constituting an
Eligible Account; that each Receivable and all papers and documents relating
thereto are genuine and in all respects what they purport to be; that each
Receivable is valid and subsisting and, if such Receivable is an account, arises
out of a bona fide sale of goods sold and delivered (or intellectual property
licensed) by such Debtor to, or in the process of being delivered (or, in the
case of intellectual property, licensed) to, or out of and for services
theretofore actually rendered by such Debtor to, the account debtor named
therein; that no such Receivable is evidenced by any instrument or chattel paper
unless such instrument or chattel paper has theretofore been endorsed by such
Debtor and delivered to the Agent (except to the extent the Agent specifically
requests  such Debtor not to do so with respect to any such instrument or
chattel paper); that no surety bond was required or given in connection with
said Receivable or the contracts or purchase orders out of which the same arose;
that the amount of the Receivable represented as owing is the correct amount
actually and unconditionally owing, except for normal cash discounts on normal
trade terms in the ordinary course of business if such Receivable is an account
and that the amount of such Receivable represented as owing is not disputed and
is not subject to any set-offs, credits, deductions or countercharges other than
those arising in the ordinary course of such Debtor's business which are
disclosed to the Agent in writing promptly upon such Debtor becoming aware
thereof.  Without limiting the foregoing, if any Receivable 


                                      -9-

<PAGE>

arises out of a contract with the United States of America or any of its 
departments, agencies or instrumentalities, each Debtor agrees to notify the 
Agent and execute whatever instruments and documents are required by the 
Agent in order that such Receivable shall be assigned to the Agent and that 
proper notice of such assignment shall be given under the federal Assignment 
of Claims Act (or any successor statute).

     (b)  Each Debtor shall keep all of its books and records relating to the 
Receivables only at its chief executive office described in Section 3(b) 
hereof.

     (c)  Unless and until an Event of Default occurs, any merchandise which 
is returned by a customer or account debtor or otherwise recovered may be 
resold by the Debtors in the ordinary course of their respective businesses 
in accordance with Section 5(b) hereof; after an Event of Default occurs, 
such merchandise shall be set aside and held by each of the Debtors as 
trustee for the Agent and the Lenders and shall remain part of the Agent's 
Collateral.  Unless and until an Event of Default occurs, each Debtor may 
settle and adjust disputes and claims with its customers and account debtors, 
handle returns and recoveries and grant discounts, credits and allowances in 
the ordinary course of its business and otherwise for amounts and on terms 
which such Debtor considers advisable. However, after an Event of Default has 
occurred and unless the Agent requests otherwise, each Debtor shall notify 
the Agent promptly of all returns and recoveries and on request deliver the 
merchandise to the Agent.  After an Event of Default has occurred and unless 
the Agent requests otherwise, each Debtor shall also notify the Agent 
promptly of all disputes and claims and settle or adjust them at no expense 
to the Agent or the Lenders, but no discount, credit or allowance other than 
on normal trade terms in the ordinary course of business shall be granted to 
any customer or account debtor and no returns of merchandise shall be 
accepted by such Debtor without the Agent's consent.  The Agent may, at all 
times after such an Event of Default has occurred, settle or adjust disputes 
and claims directly with customers or account debtors for amounts and upon 
terms which the Agent considers advisable.

     (d)  From time to time, as the Agent may request of any Debtor, such 
Debtor shall provide the Agent with schedules describing all Receivables 
created or acquired by such Debtor, provided, however, that the failure of 
such Debtor to execute and deliver such schedules shall not affect or limit 
the Agent's security interest or other rights in and to any such Receivables. 
Together with each schedule, each Debtor shall if requested by the Agent, 
furnish copies of customers' invoices or the equivalent, and original 
shipping or delivery receipts, for all merchandise sold, and each Debtor 
warrants the genuineness thereof.

     SECTION 5.     COLLECTION OF RECEIVABLES.  (a)  Except as otherwise 
provided in this Agreement or the Credit Agreement each Debtor shall make 
collection of all of its Receivables and may use the same to carry on its 
business in accordance with sound business practice and otherwise subject to 
the terms hereof.

     (b)  Whether or not the Agent has exercised any or all of its rights 
under other provisions of this Section 5 and whether or not any Event of 
Default has occurred, at the request of the Agent, such Debtor shall instruct 
all account debtors to remit all payments in 


                                      -10-

<PAGE>

respect of its Receivables to a lockbox or lockboxes under the sole custody 
and control of the Agent and which are maintained at post offices in Chicago, 
Illinois selected by the Agent.

     (c)  Whether or not any Event of Default has occurred and whether or not 
the Agent has exercised any or all of its rights under other provisions of 
this Section 5, in the event the Agent requests any Debtor to do so, all 
instruments and chattel paper at any time constituting part of the 
Receivables (including any postdated checks) shall, upon receipt by such 
Debtor, be immediately endorsed to and deposited with the Agent.

     (d)  Upon the occurrence and during the continuance of an Event of 
Default, the Agent or its designee may notify any Debtor's customers or 
account debtors that Receivables have been assigned to the Agent or of the 
Agent's security interest therein and either in its own name, or such 
Debtor's or both, demand, collect (including without limitation through a 
lockbox analogous to that described in Section 5(b) hereof), receive, receipt 
for, sue for, compound and give acquittance for any or all amounts due or to 
become due on Receivables, and in the Agent's discretion file any claim or 
take any other action or proceeding which the Agent may deem necessary or 
appropriate to protect and realize upon the security interest of the Agent in 
the Receivables.

     (e)  Any proceeds of Receivables or other Collateral transmitted to or 
otherwise received by the Agent pursuant to any of the provisions of Sections 
5(b), 5(c) or 5(d) hereof shall be handled and administered by the Agent in 
and through a remittance account maintained at the Agent (such remittance 
account to constitute a special restricted account for purposes of Section 
4.2 of the Credit Agreement), and each Debtor acknowledges that the 
maintenance of such remittance account by the Agent is solely for the Agent's 
own convenience and that such Debtor does not have any right, title or 
interest in such remittance account or any amounts at any time standing to 
the credit thereof.  The Agent may apply all or any part of any proceeds of 
Receivables or other Collateral received by it from any source to the payment 
of the Obligations (whether or not then due and payable), such applications 
to be made in accordance with Section 3 of the Credit Agreement.  Except for 
purposes of computing interest on the Obligations in accordance with Section 
3.7 of the Credit Agreement, the Agent need not apply or give credit for any 
item included in proceeds of Receivables or other Collateral until the Agent 
has received final payment therefor at its office in cash or final solvent 
credits current in Chicago, Illinois, acceptable to the Agent as such.  
However, if the Agent does give credit for any item prior to receiving final 
payment therefor and the Agent fails to receive such final payment or an item 
is charged back to the Agent for any reason, the Agent may at its election in 
either instance charge the amount of such item back against the remittance 
account, together with interest thereon at the Default Rate.  Each Debtor 
shall accompany each transmission of any proceeds of Receivables or other 
Collateral to the Agent with a report in such form as the Agent shall require 
identifying the particular Receivable or other Collateral from which the same 
arises or relates.  The Debtors hereby jointly and severally indemnify the 
Agent and the Lenders from and against all liabilities, damages, losses, 
actions, claims, judgments, costs, expenses, charges and attorney's fees 
suffered or incurred by the Agent or the Lenders because of the maintenance 
of the foregoing arrangements.  The Agent and the Lenders shall have no 
liability or responsibility to any Debtor for accepting any check, draft or 
other order for 


                                      -11-

<PAGE>

payment of money bearing the legend "PAYMENT IN FULL" or words of similar 
import or any other restrictive legend or endorsement whatsoever or be 
responsible for determining the correctness of any remittance.

     SECTION 6.     SPECIAL PROVISIONS RE:  INVESTMENT PROPERTY.  (a)  Unless 
and until an Event of Default has occurred and is continuing and thereafter 
until notified to the contrary by the Agent pursuant to Section 9(e) hereof:

          (i)  Each Debtor shall be entitled to exercise all voting and/or
     consensual powers pertaining to the Investment Property or any part thereof
     owned or held by it, for all purposes not inconsistent with the terms of
     this Agreement, the Credit Agreement or any other document evidencing or
     otherwise relating to any Obligations; and

          (ii) Each Debtor shall be entitled to receive and retain all cash
     dividends paid upon or in respect of the Investment Property owned or held
     by it.

     (b)  Certificates for all securities now or at any time constituting 
Investment Property hereunder shall be promptly delivered by the relevant 
Debtor to the Agent duly endorsed in blank for transfer or accompanied by an 
appropriate assignment or assignments or an appropriate undated stock power 
or powers, in every case sufficient to transfer title thereto, and, with 
respect to any Investment Property held by a securities intermediary, 
commodity intermediary, or other financial intermediary of any kind, the 
relevant Debtor shall execute and deliver, and shall cause any such 
intermediary to execute and deliver, an agreement among such Debtor, the 
Agent, and such intermediary in form and substance satisfactory to the Agent 
which provides, among other things, for the intermediary's agreement that it 
will comply with entitlement orders, and apply any value distributed on 
account of any Investment Property maintained in an account with such 
intermediary, as directed by the Agent without further consent by such Debtor 
at any time after the occurrence of any Event of Default; PROVIDED, HOWEVER, 
that, prior to the existence of an Event of Default and thereafter until 
otherwise required by the Agent or the Required Lenders, a Debtor shall not 
be required to deliver any such certificates or cause any such agreement to 
be entered into with the relevant financial intermediary if and so long as 
(i) the fair market value of any such Investment Property held by such Debtor 
is less than $50,000 and (ii) the aggregate fair market value of all such 
Investment Property held by the Debtors and not subject to the control (as 
such term is defined in the Code) of the Agent under the Collateral Documents 
is less than $250,000 at any one time outstanding.  The Agent may at any time 
after the occurrence of an Event of Default cause to be transferred into its 
name or the name of its nominee or nominees any and all of the Investment 
Property hereunder.

     (c)  Unless and until an Event of Default has occurred and is 
continuing, each Debtor may sell or otherwise dispose of any Investment 
Property to the extent permitted by the Credit Agreement, PROVIDED that no 
Debtor shall sell or otherwise dispose of any capital stock or other equity 
interests in any other Debtor or any direct or indirect Subsidiary of any 
Debtor without the Agent's prior written consent except as expressly 
permitted by the 


                                      -12-

<PAGE>

Credit Agreement. During the existence of any Event of Default, no Debtor 
shall sell or otherwise dispose of all or any part of the Investment Property 
without the prior written consent of the Agent.

     (d)  Each Debtor represents that on the date of this Agreement, none of 
the Investment Property consists of margin stock (as such term is defined in 
Regulation U of the Board of Governors of the Federal Reserve System) except 
to the extent such Debtor has delivered to the Agent a duly executed and 
completed Form U-1 with respect to such stock.  If at any time the Investment 
Property or any part thereof consists of margin stock, the relevant Debtor 
shall promptly so notify the Agent and deliver to the Agent a duly executed 
and completed Form U-1 and such other instruments and documents reasonably 
requested by the Agent in form and substance satisfactory to the Agent.

     (e)  Notwithstanding anything to the contrary contained herein, in the 
event any Investment Property is subject to the terms of a separate security 
agreement (including, without limitation, the Pledge Agreement bearing even 
date herewith relating to the equity interests issued by certain of the 
Debtors hereunder) in favor of the Agent, the terms of such separate security 
agreement shall govern and control unless otherwise expressly stated therein 
or agreed to in writing by the Agent and the Lenders.

     (f)  In the event of any irreconcilable inconsistencies between this 
Agreement and the Credit Agreement regarding the administration of 
collections on Receivables, the provisions of the Credit Agreement shall 
govern.

     SECTION 7.  SPECIAL PROVISIONS RE:  INVENTORY AND EQUIPMENT. (a)  Except 
as expressly permitted by the Credit Agreement, each Debtor will at its own 
cost and expense maintain, keep and preserve its Inventory in good and 
merchantable condition and keep and preserve its Equipment in good repair, 
working order and condition, ordinary wear and tear excepted, and without 
limiting the foregoing make all necessary and proper repairs, replacements 
and additions to the Equipment so that the efficiency thereof shall be fully 
preserved and maintained.

     (b)  Each Debtor may, until an Event of Default has occurred and is 
continuing and thereafter until otherwise notified by the Agent, use, consume 
and sell its Inventory in the ordinary course of its business as presently 
conducted, but a sale in the ordinary course of business shall not under any 
circumstance include any transfer or sale in satisfaction, partial or 
complete, of a debt owing by any Debtor.

     (c)  Each Debtor may, until an Event of Default has occurred and is 
continuing and thereafter until otherwise notified by the Agent, sell or 
otherwise dispose of Equipment as and to the extent permitted by Section 8.18 
of the Credit Agreement.

     (d)  As of the time any Inventory or Equipment becomes subject to the 
security interest provided for hereby and at all times thereafter, each 
Debtor shall be deemed to have warranted as to any and all of its Inventory 
and Equipment that all warranties of such Debtor set forth in this Agreement 
are true and correct with respect to such Inventory and 


                                      -13-

<PAGE>

Equipment and that all of such Inventory and Equipment is located at a 
location set forth pursuant to Section 3(b) hereof.  Each Debtor warrants and 
agrees that no Inventory is or will be consigned to any other person without 
the Agent's prior written consent.

     (e)  Each Debtor shall at its own cost and expense cause the lien of the 
Agent in and to any portion of its Collateral subject to a certificate of 
title law to be duly noted on such certificate of title or to be otherwise 
filed in such manner as is prescribed by law in order to perfect such lien 
and shall cause all such certificates of title and evidences of lien to be 
deposited with the Agent unless otherwise permitted by the Required Lenders 
in their sole discretion; PROVIDED THAT no Debtor shall be obligated to cause 
the Agent's lien to be so noted or to deliver any such certificate of title 
to the Agent to the extent such certificate is held by another Lender with a 
purchase money security interest permitted by the Credit Agreement on the 
Collateral represented by such certificate.

     (f)  Each Debtor shall at its own cost and expense cause any certificate 
of title evidencing any of the Collateral to be amended to reflect the 
current and correct name of such Debtor as and when required by applicable 
law, but in any event no later than such date on which such Debtor must renew 
its registration of such Collateral under applicable law.  Each Debtor shall 
cause the lien of the Agent in such Collateral to continue to be duly noted 
on such amended or reissued certificate of title.

     (g)  Except for Equipment from time to time located on the real estate 
described on Schedule C attached hereto and as otherwise disclosed to the 
Agent in writing, none of the Equipment is or will be attached to real estate 
in such a manner that the same may become a fixture.

     (h)  If any of its Inventory is at any time evidenced by a document of 
title, such document shall be promptly delivered by the appropriate Debtor to 
the Agent.

     SECTION 8.     POWER OF ATTORNEY.  In addition to any other powers of 
attorney contained herein, each Debtor appoints the Agent, its nominee, or 
any other person whom the Agent may designate as such Debtor's attorney in 
fact, with full power to endorse such Debtor's names on any checks, notes, 
acceptances, money orders, drafts or other forms of payment or security that 
may come into the Agent's possession, to sign such Debtor's names on any 
invoice or bill of lading relating to any Receivables, on drafts against 
customers, on schedules and assignments of Receivables, on notices of 
assignment, on public records, on verifications of accounts and on notices to 
customers, to send requests for verification of Receivables to customers or 
account debtors, to notify the post office authorities to change the address 
for delivery of such Debtor's mail to an address designated by the Agent and 
to receive, open and dispose of all mail addressed to such Debtor and to do 
all other things necessary to carry out this Agreement.  Each Debtor hereby 
ratifies and approves all acts of any such attorney and agree that neither 
the Agent nor any such attorney nor any Lender will be liable for any acts or 
omissions nor for any error of judgment or mistake of fact or law other than 
their own gross negligence or willful misconduct.  The foregoing power of 
attorney, being coupled with an interest, is irrevocable until the 
Obligations have been fully satisfied and any commitment of the Lenders to 
extend credit constituting Obligations has 


                                      -14-

<PAGE>

terminated.  The Agent may file one or more financing statements disclosing 
its security interest in any or all of the Collateral without any Debtor's 
signature appearing thereon.  Each Debtor also hereby grants the Agent a 
power of attorney to execute any such financing statement, or amendments and 
supplements to financing statements, on behalf of such Debtor without notice 
thereof to any Debtor, which power of attorney is coupled with an interest 
and is irrevocable until the Obligations have been fully satisfied and any 
commitment of the Lenders to extend credit constituting Obligations to the 
Borrowers, or any of them individually, has terminated.  Agent agrees that it 
will not exercise the power of attorney hereby granted in a manner 
inconsistent with the provisions of the Credit Agreement.

     SECTION 9.     DEFAULTS AND REMEDIES.  (a)  The occurrence of any event 
or the existence of any condition which is specified as an Event of Default 
under the Credit Agreement shall constitute an "EVENT OF DEFAULT" hereunder.

     (b)  Upon the occurrence of any Event of Default, the Agent shall have, 
in addition to all other rights provided herein or by law, the rights and 
remedies of a secured party under the Code (regardless of whether the Code is 
the law of the jurisdiction where the rights or remedies are asserted and 
regardless of whether the Code applies to the affected Collateral), and 
further the Agent may, without demand and without advertisement, notice, 
hearing or process of law, all of which each Debtor hereby waives to the 
extent permitted by law, at any time or times, sell and deliver any or all 
Collateral held by or for it at public or private sale, for cash, upon credit 
or otherwise, at such prices and upon such terms as the Agent deems 
advisable, in its sole discretion.  In addition to all other sums due the 
Agent and the Lenders hereunder, the Debtors jointly and severally agree to 
pay to the Agent and the Lenders all costs and expenses incurred by the Agent 
and the Lenders, including reasonable attorneys' fees and court costs, in 
obtaining, liquidating or enforcing payment of Collateral or Obligations or 
in the prosecution or defense of any action or proceeding by or against the 
Agent or such Lender or the Debtors or any of them concerning any matter 
arising out of or connected with this Agreement or the Collateral or 
Obligations, including without limitation any of the foregoing arising in, 
arising under or related to a case under the Bankruptcy Code.  Any 
requirement of reasonable notice to any Debtor shall be met if such notice 
made to the Company in accordance with Section 13.8 of the Credit Agreement.  
The Agent shall not be obligated to make any sale or other disposition of the 
Collateral regardless of notice having been given.  The Agent or any Lender 
may be the purchaser at any such sale.  Each Debtor hereby waives all of its 
rights of redemption from any such sale.  Subject to the provisions of 
applicable law, the Agent may postpone or cause the postponement of the sale 
of all or any portion of the Collateral by announcement at the time and place 
of such sale, and such sale may, without further notice, be made at the time 
and place to which the sale was postponed or the Agent may further postpone 
such sale by announcement made at such time and place.

     (c)  Without in any way limiting the foregoing, during the existence of 
any Event of Default, the Agent shall have the right, in addition to all 
other rights provided herein or by law, to take physical possession of any 
and all of the Collateral and anything found therein, the right for that 
purpose to enter without legal process any premises where the Collateral may 
be found (provided such entry be done lawfully), and the right to maintain 
such 


                                      -15-

<PAGE>

possession on each Debtor's premises (each Debtor hereby agreeing to lease 
warehouses without cost or expense to the Agent or its designee if the Agent 
so requests) or to remove its Collateral or any part thereof to such other 
places as the Agent may desire. During the existence of any Event of Default, 
the Agent shall have the right to exercise any and all rights with respect to 
deposit accounts of any Debtor maintained with the Agent or any Lender, 
including, without limitation, the right to collect, withdraw and receive all 
amounts due or to become due or payable under each such deposit account.  
During the existence of any Event of Default, each Debtor shall, upon the 
Agent's demand, assemble its Collateral and make it available to the Agent at 
a place designated by the Agent.  If the Agent exercises its right to take 
possession of the Collateral, each Debtor shall also at its expense perform 
any and all other steps requested by the Agent to preserve and protect the 
security interest hereby granted in the Collateral, such as placing and 
maintaining signs indicating the security interest of the Agent, appointing 
overseers for the Collateral and maintaining stock records.

     (d)  Without in any way limiting the foregoing, each Debtor hereby 
grants to the Agent and the Lenders a royalty-free irrevocable license and 
right to use all of such Debtor's patents, patent applications, patent 
licenses, trademarks, trademark registrations, trademark licenses, trade 
names, trade styles, and similar intangibles in connection with any 
foreclosure or other realization by the Agent or the Lenders on all or any 
part of the Collateral, provided that the license granted hereunder shall not 
include any rights in any license agreement under which the relevant Debtor 
is licensee which, by its terms, prohibits the license contemplated by this 
Section.  The license and right granted the Agent and the Lenders hereby 
shall be without any royalty or fee or charge whatsoever.

     (e)  Without in any way limiting the foregoing, during the existence of 
any Event of Default, all rights of a Debtor to exercise the voting and/or 
consensual powers which it is entitled to exercise pursuant to Section 
6(a)(i) hereof and/or to receive and retain the distributions which it is 
entitled to receive and retain pursuant to Section 6(a)(ii) hereof, shall, at 
the option of the Agent, cease and thereupon become vested in the Agent, 
which, in addition to all other rights provided herein or by law, shall then 
be entitled solely and exclusively to exercise all voting and other 
consensual powers pertaining to the Investment Property and/or to receive and 
retain the distributions which such Debtor would otherwise have been 
authorized to retain pursuant to Section 6(a)(ii) hereof and shall then be 
entitled solely and exclusively to exercise any and all rights of conversion, 
exchange or subscription or any other rights, privileges or options 
pertaining to any Investment Property as if the Agent were the absolute owner 
thereof including, without limitation, the rights to exchange, at its 
discretion, any and all of the Investment Property upon the merger, 
consolidation, reorganization, recapitalization or other readjustment of the 
respective issuer thereof or upon the exercise by or on behalf of any such 
issuer or the Agent of any right, privilege or option pertaining to any 
Investment Property and, in connection therewith, to deposit and deliver any 
and all of the Investment Property with any committee, depositary, transfer 
Agent, registrar or other designated agency upon such terms and conditions as 
the Agent may determine.  Without limiting the foregoing, during the 
existence of any Event of Default, the Agent may, by written demand, direct 
any securities intermediary, commodities intermediary, or other financial 
intermediary at any time holding any Investment Property, or any issuer 
thereof, to deliver such Collateral, or any part thereof, and/or liquidate 
such 


                                      -16-

<PAGE>

Collateral, or any party thereof, and deliver the proceeds therefrom to the 
Agent.  In the event the Agent in good faith believes any of the Collateral 
constitutes restricted securities within the meaning of any applicable 
securities laws, any disposition thereof in compliance with such laws shall 
not render the disposition commercially unreasonable.

     (f)  The powers conferred upon the Agent hereunder are solely to protect 
its interest in the Collateral and shall not impose on it any duty to 
exercise such powers.  The Agent shall be deemed to have exercised reasonable 
care in the custody and preservation of Investment Property in its possession 
if such Collateral is accorded treatment substantially equivalent to that 
which the Agent accords its own property consisting of similar type assets, 
it being understood, however, that the Agent shall have no responsibility for 
ascertaining or taking any action with respect to calls, conversions, 
exchanges, maturities, tenders, or other matters relating to any such 
Collateral, whether or not the Agent has or is deemed to have knowledge of 
such matters.  This Agreement constitutes an assignment of rights only and 
not an assignment of any duties or obligations of any Debtor in any way 
related to the Collateral, and the Agent shall have no duty or obligation to 
discharge any such duty or obligation.  The Agent shall have no 
responsibility for taking any necessary steps to preserve rights against any 
parties with respect to any Collateral or initiating any action to protect 
the Collateral against the possibility of a decline in market value.  Neither 
the Agent or any Lender, nor any party acting as attorney for the Agent or 
any Lender, shall be liable for any acts or omissions or for any error of 
judgment or mistake of fact or law other than such person's gross negligence 
or willful misconduct.

     (g)  Failure by the Agent or any Lender to exercise any right, remedy or 
option under this Agreement or any other agreement between the Debtors or any 
of them and the Agent or any Lender or Lenders or provided by law, or delay 
by the Agent or any Lender in exercising the same, shall not operate as a 
waiver; no waiver shall be effective unless it is in writing, signed by the 
party against whom enforcement of the waiver is sought and then only to the 
extent specifically stated.  Neither the Agent, any Lender nor any party 
acting as attorney for the Agent or such Lender, shall be liable for any acts 
or omissions or for any error of judgment or mistake of fact or law other 
than their gross negligence or willful misconduct.  The rights and remedies 
of the Agent and the Lenders under this Agreement shall be cumulative and not 
exclusive of any other right or remedy which the Agent or any Lender may 
have.  For purposes of this Agreement, an Event of Default shall be construed 
as continuing after its occurrence until the same is waived in writing by the 
Lenders or the Required Lenders, as the case may be, in accordance with the 
Credit Agreement.

     SECTION 10.    APPLICATION OF PROCEEDS.  The proceeds and avails of the 
Collateral at any time received by the Agent upon the occurrence and during 
the continuation of any Event of Default shall, when received by the Agent in 
cash or its equivalent, be applied by the Agent in reduction of the 
Obligations in accordance with the terms of the Credit Agreement.  The 
Debtors shall remain liable to the Agent and the Lenders for any deficiency.  
Any surplus remaining after the full payment and satisfaction of the 
Obligations shall be returned to the Debtors or to whomsoever the Agent 
reasonably determines is lawfully entitled thereto.


                                      -17-

<PAGE>

     SECTION 11.    CONTINUING AGREEMENT.  This Agreement shall be a 
continuing agreement in every respect and shall remain in full force and 
effect until all of the Obligations, both for principal and interest, have 
been fully paid and satisfied and any commitment to extend any credit 
constituting Obligations to the Borrowers, or any of them individually, shall 
have terminated.  Upon such termination of this Agreement, the Agent shall, 
upon the request of the Debtors, execute and deliver to such Debtors a proper 
instrument or instruments (including Uniform Commercial Code termination 
statements on form UCC-3) acknowledging the satisfaction and termination of 
this Agreement, and will duly assign, transfer and deliver to such Debtors, 
against receipt and without recourse to the Agent, such of the Collateral as 
may be in the possession of the Agent and as has not theretofore been sold or 
otherwise applied or released pursuant to this Agreement or the Credit 
Agreement.

     SECTION 12.    PRIMARY SECURITY; OBLIGATIONS ABSOLUTE.  The lien and 
security herein created and provided for stand as direct and primary security 
for the Obligations.  No application of any sums received by the Agent in 
respect of the Collateral or any disposition thereof to the reduction of the 
Obligations or any portion thereof shall in any manner entitle any Debtor to 
any right, title or interest in or to the Obligations or any collateral 
security therefor, whether by subrogation or otherwise, unless and until all 
Obligations have been fully paid and satisfied and any commitment to extend 
credit constituting Obligations to the Borrowers, or any of them 
individually, shall have terminated.  Each Debtor acknowledges and agrees 
that the lien and security hereby created and provided for are absolute and 
unconditional and shall not in any manner be affected or impaired by any acts 
or omissions whatsoever of the Agent, any Lender or any other holder of any 
of the Obligations, and without limiting the generality of the foregoing, the 
lien and security hereof shall not be impaired by any acceptance by the 
Agent, any Lender or any holder of any of the Obligations of any other 
security for or guarantors upon any of the Obligations or by any failure, 
neglect or omission on the part of the Agent, any Lender or any other holder 
of any of the Obligations to realize upon or protect any of the Obligations 
or any collateral security therefor.  The lien and security hereof shall not 
in any manner be impaired or affected by (and the Agent and the Lenders, 
without notice to anyone, are hereby authorized to make from time to time) 
any sale, pledge, surrender, compromise, settlement, release, renewal, 
extension, indulgence, alteration, substitution, exchange, change in, 
modification or disposition of any of the Obligations, or of any collateral 
security therefor, or of any guaranty thereof or of any obligor thereon.  The 
Lenders may at their discretion at any time grant credit to the Borrowers, or 
any of them individually, without notice to any Debtor in such amounts and on 
such terms as the Lenders may elect (all of such to constitute additional 
Obligations) without in any manner impairing the lien and security hereby 
created and provided for.  No release, compromise or discharge of any Debtor 
hereunder or with respect to any of the Obligations or any Collateral 
provided by such Debtor shall release or discharge, or impair the agreements 
of, any other Debtor hereunder or in any manner impair the liens and security 
interests granted by any other Debtor hereunder; and the Agent may proceed 
against the Collateral provided hereunder by any one or more of the Debtors 
without proceeding against any or all of the other Debtors, their respective 
properties or any other security or guaranty whatsoever.  Without limiting 
the generality of the foregoing, the Agent (acting at the direction of the 
Lenders) may at any time or from time to time release 


                                      -18-

<PAGE>

any Debtor from its obligations hereunder or release any Collateral or effect 
any compromise with any Debtor, and no such release or compromise shall in 
any manner impair or otherwise effect the liens granted by, or the 
obligations of, the other Debtors hereunder.  In order to foreclose or 
otherwise realize hereon and to exercise the rights granted the Agent 
hereunder and under applicable law as against any Debtor or any Collateral in 
which such Debtor has rights, there shall be no obligation on the part of the 
Agent, any Lender or any other holder of any of the Obligations at any time 
to first resort for payment to the Borrowers, or any of them individually, or 
any other Debtor or any other Person, its property or estate or to any 
guaranty of the Obligations or any portion thereof or to resort to any other 
collateral security, property, liens or any other rights or remedies 
whatsoever, and the Agent shall have the right to enforce this instrument as 
against any Debtor or any Collateral in which such Debtor has rights, 
irrespective of whether or not other proceedings or steps are pending seeking 
resort to or realization upon or from any of the foregoing.

     SECTION 13.    THE AGENT.  In acting under or by virtue of this 
Agreement, the Agent shall be entitled to all the rights, authority, 
privileges and immunities provided in Section 10 of the Credit Agreement, all 
of which provisions of said Section 10 are incorporated by reference herein 
with the same force and effect as if set forth herein in their entirety.  The 
Agent hereby disclaims any representation or warranty to the Lenders 
concerning the perfection of the security interest granted hereunder or in 
the value of any of the Collateral.

     SECTION 14.    MISCELLANEOUS.  (a)  This Agreement cannot be changed or 
terminated orally.  All of the rights, privileges, remedies and options given 
to the Agent and the Lenders hereunder shall inure to the benefit of their 
respective successors and assigns, and all the terms, conditions, promises, 
covenants, representations and warranties of and in this Agreement shall bind 
each Debtor and its legal representatives, successors and assigns, provided 
that no Debtor may assign its rights or delegate its duties hereunder without 
the Agent's prior written consent.  Without limiting the generality of the 
foregoing, and subject to the provisions of Sections 13.11 and 13.12 of the 
Credit Agreement, any Lender may assign or otherwise transfer any 
indebtedness held by it secured by this Agreement to any other person or 
entity, and such other person or entity shall thereupon become vested with 
all the benefits in respect thereof granted to such Lender herein or 
otherwise, subject, however, to the provisions of the Credit Agreement.  Each 
Debtor hereby releases the Agent and each Lender from any liability for any 
act or omission relating to its Collateral or this Agreement, except the 
Agent's or such Lender's gross negligence or willful misconduct.

     (b)  All communications provided for herein shall be in writing, except 
as otherwise specifically provided for hereinabove, and shall be deemed to 
have been given or made, if to any Debtor when given to the Borrowers in 
accordance with Section 13.8 of the Credit Agreement, or if to the Agent or 
any Lender, when given to such party in accordance with Section 13.8 of the 
Credit Agreement.

     (c)  No Lender shall have the right to institute any suit, action or 
proceeding in equity or at law for the foreclosure against any Collateral 
subject to this Agreement or for the execution of any trust or power hereof 
or for the appointment of a receiver, or for the 


                                      -19-

<PAGE>

enforcement of any other remedy under or upon this Agreement; it being 
understood and intended that no one or more of the Lenders shall have any 
right in any manner whatsoever to affect, disturb or prejudice the lien and 
security interest of this Agreement by its or their action or to enforce any 
right hereunder, and that all proceedings at law or in equity shall be 
instituted, had and maintained by the Agent in the manner herein provided for 
the ratable benefit of the Lenders.

     (d)  In the event that any provision hereof shall be deemed to be 
invalid by reason of the operation of any law or by reason of the 
interpretation placed thereon by any court, this Agreement shall be construed 
as not containing such provision, but only as to such locations where such 
law or interpretation is operative, and the invalidity of such provision 
shall not affect the validity of any remaining provision hereof, and any and 
all other provisions hereof which are otherwise lawful and valid shall remain 
in full force and effect.  Without limiting the generality of the foregoing, 
in the event that this Agreement shall be deemed to be invalid or otherwise 
unenforceable with respect to any Debtor, such invalidity or unenforceability 
shall not affect the validity of this Agreement with respect to the other 
Debtors.

     (e)  This Agreement shall be deemed to have been made in the State of 
Illinois and shall be governed by the internal laws of the State of Illinois 
(without regard to the principles of conflicts of law).  All terms which are 
used in this Agreement which are defined in the Code shall have the same 
meanings herein as said terms do in the Code unless this Agreement shall 
otherwise specifically provide.  The headings in this instrument are for 
convenience of reference only and shall not limit or otherwise affect the 
meaning of any provision hereof.

     (f)  This Agreement may be executed in any number of counterparts, each 
constituting an original, but all together one and the same instrument.  Each 
Debtor acknowledges that this Agreement is and shall be effective upon its 
execution and delivery by such Debtor to the Agent, and it shall not be 
necessary for the Agent to execute this Agreement or any other acceptance 
hereof or otherwise to signify or express its acceptance hereof.

     (g)  THE AGENT AND THE DEBTORS AGREE THAT ALL DISPUTES AMONG THEM 
ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP 
ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT, AND WHETHER 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 AGENT AND 
THE DEBTORS ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE 
HEARD BY A COURT LOCATED OUTSIDE OF COOK COUNTY, ILLINOIS.  EACH OF THE 
DEBTORS WAIVES IN ALL DISPUTES ANY OBJECTION THAT SUCH DEBTOR MAY HAVE TO THE 
LOCATION OF THE COURT CONSIDERING THE DISPUTE OR ANY OBJECTION THAT SUCH 
DEBTOR MAY HAVE THAT ANY OTHER PARTY HAS NOT BEEN JOINED IN SUCH PROCEEDING.  
EACH OF THE DEBTORS AGREES THAT THE AGENT SHALL HAVE THE RIGHT TO PROCEED 
AGAINST EACH AND ANY OF THE DEBTORS OR THEIR COLLATERAL IN A COURT IN ANY 
LOCATION TO ENABLE THE AGENT TO REALIZE ON THE COLLATERAL, OR TO ENFORCE A 


                                      -20-

<PAGE>

JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF THE AGENT, WHETHER OR NOT 
PROCEEDING SEPARATELY AGAINST ANY DEBTOR AND ITS PROPERTY OR JOINTLY AGAINST 
THE BORROWER AND ANY ONE OR MORE OF THE DEBTORS AND THEIR PROPERTY.  EACH OF 
THE DEBTORS WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE 
COURT IN WHICH THE AGENT HAS COMMENCED A PROCEEDING DESCRIBED IN THIS 
PARAGRAPH.

                             [SIGNATURE PAGES TO FOLLOW]









                                      -21-

<PAGE>

     IN WITNESS WHEREOF, the Debtors have caused this Agreement to be duly
executed as of the date first above written.


                                    DEBTORS:
     
                                    PLATINUM ENTERTAINMENT, INC.
     
                                    By   /s/ Steven Devick
                                      ------------------------------------
                                      Its:  President


                                    INTERSOUND, INC.

                                    By   /s/ Steven Devick
                                      ------------------------------------
                                      Its:  President


                                    LEXICON MUSIC, INC.

                                    By   /s/ Steven Devick
                                      ------------------------------------
                                      Its:  President


                                    CGI RECORDS, INC.

                                    By   /s/ Steven Devick
                                      ------------------------------------
                                      Its:  President


                                    RIVER NORTH RECORDS, INC.

                                    By   /s/ Steven Devick
                                      ------------------------------------
                                      Its:  President


                                    LIGHT RECORDS, INC.

                                    By   /s/ Steven Devick
                                      ------------------------------------
                                      Its:  President
     

                                      -22-

<PAGE>

                                    THE RECORDING EXPERIENCE, INC.

                                    By   /s/ Steven Devick
                                      ------------------------------------
                                      Its:  President

     
                                    PEG PUBLISHING, INC.

                                    By   /s/ Steven Devick
                                      ------------------------------------
                                      Its:  President

     
                                    JUSTMIKE MUSIC, INC.

                                    By   /s/ Steven Devick
                                      ------------------------------------
                                      Its:  President


                                    ROYCE PUBLISHING, INC.

                                    By   /s/ Steven Devick
                                      ------------------------------------
                                      Its:  President


                                      -23-

<PAGE>

     Accepted and agreed to as of the date first above written.
     

                                    BANK OF MONTREAL, as Agent as aforesaid 
                                      for the Lenders


                                    By   /s/ Jeffrey Titus
                                      ------------------------------------
                                      Its  /s/ Director
                                         ---------------------------------


                                      -24-

<PAGE>

                                      SCHEDULE A

<TABLE>
<CAPTION>

     COLUMN 1                    COLUMN 2                  COLUMN 3                 COLUMN 4


  NAME OF DEBTOR                  CHIEF                ADDITIONAL PLACES           LOCATION OF
 (AND FEDERAL TAX               EXECUTIVE                OF BUSINESS               COLLATERAL
  I.D. NUMBER)                   OFFICE                                             OR DEBTOR

<S>                       <C>                          <C>                   <C>
Platinum Entertainment,   2001 Butterfield Road             None             2001 Butterfield Road
  Inc.                    Suite 1400                                         Suite 1400
Tax ID #36-3802328        Downers Grove, IL 60515                            Downers Grove, IL 60515


                                                                             5020 Chase Street
                                                                             Downers Grove, IL 60515


                                                                             Federal Whalen Moving 
                                                                             and Storage
                                                                             920 Larch Avenue
                                                                             Elmhurst, IL 60126


                                                                             1227 16th Avenue South
                                                                             Nashville, TN  37212


Lexicon Music, Inc.       2001 Butterfield Road             None             2001 Butterfield Road
Tax ID #36-3883507        Suite 1400                                         Suite 1400
                          Downers Grove, IL 60515                            Downers Grove, IL 60515


Intersound, Inc.          2001 Butterfield Road             None             2001 Butterfield Road
Tax ID #36-3811050        Suite 1400                                         Suite 1400
                          Downers Grove, IL 60515                            Downers Grove, IL 60515


                                                                             4100 Spring Valley Road
                                                                             Suite 800
                                                                             Dallas, TX 75244


                                                                             1 Select Avenue, Unit 10
                                                                             Scarborough, Ontario 
                                                                             M1V 5J3


                                                                             11810 Wills Road
                                                                             Suite 110
                                                                             Alpharetta, GA 30201


                                                                             10 Columbus Blvd.
                                                                             Suite 219
                                                                             Hartford, CT 06106

<PAGE>

     COLUMN 1                    COLUMN 2                  COLUMN 3                 COLUMN 4


  NAME OF DEBTOR                  CHIEF                ADDITIONAL PLACES           LOCATION OF
 (AND FEDERAL TAX               EXECUTIVE                OF BUSINESS               COLLATERAL
  I.D. NUMBER)                   OFFICE                                             OR DEBTOR


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


CGI Records, Inc.         2001 Butterfield Road             None             2001 Butterfield Road
Tax ID #36-3811049        Suite 1400                                         Suite 1400
                          Downers Grove, IL 60515                            Downers Grove, IL 60515


River North Records,      2001 Butterfield Road             None             2001 Butterfield Road
  Inc.                    Suite 1400                                         Suite 1400
Tax ID #36-3812687        Downers Grove, IL 60515                            Downers Grove, IL 60515


Light Records, Inc.       2001 Butterfield Road             None             2001 Butterfield Road
Tax ID #36-3811041        Suite 1400                                         Suite 1400
                          Downers Grove, IL 60515                            Downers Grove, IL 60515


The Recording             2001 Butterfield Road             None             2001 Butterfield Road
  Experience, Inc.        Suite 1400                                         Suite 1400
Tax ID #36-3811040        Downers Grove, IL 60515                            Downers Grove, IL 60515


Peg Publishing, Inc.      2001 Butterfield Road             None             2001 Butterfield Road
Tax ID #36-3811043        Suite 1400                                         Suite 1400
                          Downers Grove, IL 60515                            Downers Grove, IL 60515


JustMike Music, Inc.      2001 Butterfield Road             None             2001 Butterfield Road
Tax ID #36-3811046        Suite 1400                                         Suite 1400
                          Downers Grove, IL 60515                            Downers Grove, IL 60515


Royce Publishing, Inc.    2001 Butterfield Road             None             2001 Butterfield Road
Tax ID #36-3811044        Suite 1400                                         Suite 1400
                          Downers Grove, IL 60515                            Downers Grove, IL 60515

</TABLE>


                                      -2-

<PAGE>

                                  SCHEDULE B

                                  TRADENAMES



         DEBTOR                              TRADENAMES
         
         Platinum Entertainment, Inc.        none

         Intersound, Inc.                    none

         Lexicon Music, Inc.                 none

         CGI Records, Inc.                   none

         River North Records, Inc.           none

         Light Records, Inc.                 none

         The Recording Experience, Inc.      none

         Peg Publishing, Inc.                none

         JustMike Music, Inc.                none

         Royce Publishing, Inc.              none

<PAGE>

                                  SCHEDULE C

                       REAL ESTATE LEGAL DESCRIPTIONS


                                    NONE


<PAGE>

                                 SCHEDULE D

                ASSUMPTION AND SUPPLEMENTAL SECURITY AGREEMENT

     This Agreement dated as of this 12th day of December, 1997 from 
[NEW DEBTOR], a ______________ corporation (the "NEW DEBTOR"), to Bank of 
Montreal ("BMO"), a chartered bank of Canada, as Agent for the Lenders 
(defined in the Security Agreement hereinafter identified and defined) (BMO 
acting as such Agent and any successor or successors to BMO in such capacity 
being hereinafter referred to as the "AGENT"); 

                             WITNESSETH THAT:

     WHEREAS, certain parties have executed and delivered to the Agent that 
certain Security Agreement dated as of December 12, 1997 or supplements 
thereto (such Security Agreement, as the same may from time to time be 
modified or amended, including supplements thereto which add additional 
parties as Debtors thereunder, being hereinafter referred to as the "SECURITY 
AGREEMENT") pursuant to which such parties (the "EXISTING DEBTORS") have 
granted to the Agent for the ratable benefit of the Lenders a security 
interest in such Existing Debtor's accounts, inventory, general intangibles, 
equipment and certain other properties, rights, interests and privileges to 
secure, among other things, any and all indebtedness, obligations and 
liabilities of Platinum Entertainment, Inc. (the "COMPANY") and Intersound, 
Inc. ("INTERSOUND"; the Company and Intersound collectively referred to 
herein as the "BORROWERS") to the Agent and the Lenders; and

     WHEREAS, the Company provides the New Debtor with substantial financial, 
managerial, administrative, technical and design support and the New Debtor 
will directly and substantially benefit from credit and other financial 
accommodations extended and to be extended by the Lenders to the Borrowers;

     NOW, THEREFORE, FOR VALUE RECEIVED, and in consideration of advances 
made or to be made, or credit accommodations given or to be given, to the 
Borrowers by the Lenders from time to time, the New Debtor hereby agrees as 
follows:

     1.   The New Debtor acknowledges and agrees that it shall become a 
"Debtor" party to the Security Agreement effective upon the New Debtors' 
execution of this Agreement and the delivery of this Agreement to the Agent, 
and that upon such execution and delivery, all references in the Security 
Agreement to the terms "Debtor" or "Debtors" shall be deemed to include the 
New Debtor.  Without limiting the generality of the foregoing, the New Debtor 
hereby repeats and reaffirms all grants (including the grant of a security 
interest), covenants, agreements, representations and warranties contained in 
the Security Agreement as amended hereby, each and all of which are and shall 
remain applicable to the Collateral from time to time owned by the New Debtor 
or in which the New Debtor from time to time has any rights.  Without 
limiting the foregoing, in order to secure payment of the Obligations, the 
New Debtor does hereby grant to the Agent for the ratable benefit of the 
Lenders, and hereby agrees that the Agent has and shall continue to have for 
the ratable benefit of the 

<PAGE>

Lenders a continuing security interest in, among other things, all of the New 
Debtor's Receivables, general intangibles, Inventory, Equipment and all of 
the other Collateral described in the granting clauses of Section 1 of the 
Security Agreement, each and all of such granting clauses being incorporated 
herein by reference with the same force and effect as if set forth in their 
entirety except that all references in such clauses to the Existing Debtors 
or any of them shall be deemed references to the New Debtor.  Nothing 
contained herein shall in any manner impair the priority of the liens and 
security interests heretofore granted in favor of the Agent under the 
Security Agreement.

     2.   Schedule A of the Security Agreement shall be amended by adding the
following information thereto:


                                                                    ADDITIONAL
                LOCATIONS OF    CHIEF EXECUTIVE   CHIEF PLACE OF    PLACES OF
DEBTOR          COLLATERAL      OFFICE            BUSINESS          BUSINESS

[NEW DEBTOR].
               -------------    ---------------   --------------   ------------


     3.   The New Debtor hereby acknowledges and agrees that the Obligations 
are secured by all of the Collateral according to, and otherwise on and 
subject to, the terms and conditions of the Security Agreement to the same 
extent and with the same force and effect as if the New Debtor had originally 
been one of the Existing Debtors under the Security Agreement and had 
originally executed the same as such an Existing Debtor.

     4.   All capitalized terms used in this Agreement without definition 
shall have the same meaning herein as such terms have in the Security 
Agreement, except that any reference to the term "Debtor" or "Debtors" and 
any provision of the Security Agreement providing meaning to such term shall 
be deemed a reference to the Existing Debtors and the New Debtor.  Except as 
specifically modified hereby, all of the terms and conditions of the Security 
Agreement shall stand and remain unchanged and in full force and effect.

     5.   The New Debtor agrees to execute and deliver such further 
instruments and documents and do such further acts and things as the Agent 
may deem necessary or proper to carry out more effectively the purposes of 
this Agreement.

     6.   No reference to this Agreement need be made in the Security 
Agreement or in any other document or instrument making reference to the 
Security Agreement, any reference to the Security Agreement in any of such to 
be deemed a reference to the Security Agreement as modified hereby.     


                                      -2-

<PAGE>

     7.   This Agreement shall be governed by and construed in accordance 
with the State of Illinois (without regard to principles of conflicts of law) 
in which state it shall performed by the New Debtor.


                                     [NEW DEBTOR]


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


                                      -3-