ALLIANCE ENTERTAINMENT CORP.

                     Stock Option Agreement


No. of shares subject to option:    5,000,000

THIS AGREEMENT,  dated as of the fifteenth day of August, 1996, between Alliance
Entertainment  Corp., a Delaware corporation (the "Company") and Alvin N. Teller
("Optionee")

1. Grant of Option.  The  Company,  as of the date  written  above (the "Date of
Grant"),  hereby grants to Optionee,  subject to the terms and conditions herein
set forth,  the right and option (the "Option") to purchase from the Company all
or any part of an  aggregate  of  5,000,000  shares of Common Stock (the "Option
Shares") at the option price of $6 per share.  This Option is to be  exercisable
as hereinafter provided.  This Option shall not be treated as an incentive stock
option under Section 422 of the Internal Revenue Code of 1986, as amended.

2. Terms and  Conditions.  This  Option is subject  to the  following  terms and
conditions:

a.  Exercise of Option.  Except as  otherwise  provided  herein,  this Option is
exercisable as follows:  This Option shall be exercisable for one-fifth (1/5) of
the  Option  Shares  on the  Date of  Grant  and  shall  be  exercisable  for an
additional  one-fifth (1/5) of the shares on each of August 15, 1997, August 15,
1998,   August  15,  1999  and  August  15,  2000.  After  this  Option  becomes
exercisable,  this Option shall continue to be exercisable  until the earlier of
the termination of Optionee's  rights hereunder or until the Expiration Date (as
defined below). This Option may be exercised with respect to any number of whole
shares  less than the full number for which this Option  could be  exercised.  A
partial  exercise of this Option shall not affect  Optionee's  right to exercise
this Option again for the balance  thereof,  subject to the  conditions  of this
Agreement.

b.  Expiration  Date.  The portion of the Option  exercisable on the date hereof
shall  expire  six (6) years  from the date  hereof.  The  portion of the Option
exercisable  on the first  anniversary  hereof shall expire seven (7) years from
the date hereof. The portion of the Option exercisable on the second,  third and
fourth


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anniversaries  hereof shall expire seven (7),  eight (8),  nine (9) and ten (10)
years, respectively, from the date hereof.

c. Method of Exercising  and Payment for Shares.  This Option is  exercisable by
written  notice,  accompanied  by payment of the Option Price,  delivered to the
attention of the  Company's  Secretary at either the  Company's  office in Coral
Springs,  Florida or the Company's office in New York City. The Date of Exercise
shall be the date the payment of the option  price is  received by the  Company.
The option price may be paid in cash,  certified or bank cashiers check or other
consideration acceptable to the Compensation Committee of the Board of Directors
(provided that such other consideration has an aggregate Fair Market Value which
is not less than the option price).

d. Nontransferability.  This Option is nontransferable, except by will or by the
laws of descent and distribution. In the event of any such transfer, this Option
is to be exercised only by such transferee.  During Optionee's,  lifetime,  this
option is to be exercised only by Optionee.

e. No Additional Right. This Option does not confer upon Optionee any right with
respect to continuance of employment by the Company or any Affiliate.

3.  Fractional  Share. A fractional  share of Common Stock is not to be issuable
hereunder,  and when any provision  hereof may entitle  Optionee to a fractional
share, such fraction is to be disregarded.

4.  Exercise Rights upon Certain Events.

a.  Termination  by  Death  or  Disability.  If  the  Optionee's  employment  is
terminated  by death or  Disability  (as  defined in the  Optionee's  Employment
Agreement with the Company dated August 15, 1996 (the  "Employment  Agreement"))
50% of the not yet exercisable  Option shall become  exercisable by the Optionee
or the persons to whom the Optionee's rights hereunder shall pass by will or the
laws of  descent  and  distribution  and shall be  exercisable  until the Option
expires by its terms hereunder.

b. Termination for Cause or Other than Good Reason. If the Optionee's employment
is terminated by the Company for Cause or voluntarily by the Optionee other than
for Good Reason (as


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defined in the Employment  Agreement) any portion of the Option not  exercisable
at the time of such termination shall be canceled.

c. Good Reason or Other Than Cause.  If the Optionee's  employment is terminated
by the  Optionee  for Good  Reason or by the  Company  for other  than Cause (as
defined in the Optionee's Employment Agreement),  the entire Option shall become
immediately exercisable and shall be exercisable until the Option expires by its
terms hereunder.

d. Additional  Events.  In the event that there shall occur (i) any sale, lease,
exchange or other  transfer of all, or  substantially  all, of the assets of the
Company, or (ii) the acquisition by any party (or group, as such term is defined
in Section  13(d)(3) of the  Securities  Exchange  Act of 1934,  as amended) not
currently  a holder of more than 5% of the Common  Stock of the  Company of more
than 50% of the  Common  Stock of the  Company,  or (iii)  any  merger,  sale of
capital  stock,  exchange,  combination,   consolidation  or  other  transaction
involving the Company following which the holders of Common Stock of the Company
immediately  prior to such  transaction will not own more than 50% of the Common
Stock  of the  Company,  then  the  Option  shall  become  exercisable  in  full
immediately  prior  to the  consummation  of any of  the  foregoing  events.  In
connection  therewith,  the  Company  shall  notify the  Optionee  not less than
fifteen days prior to the intended  consummation  date of any such  transaction,
and the Optionee may exercise the Option  contingent upon the occurrence of such
transaction  and at any time after the  occurrence of such  transaction.  In the
event that any such  proposed  transaction  does not occur,  the Option shall no
longer be deemed  currently  exercisable  pursuant  to this  clause  (d) and the
exercisability  of the  Option  shall be  governed  by the  other  terms of this
Agreement.

5. Adjustments  Based on Change in Capital  Structure.  The terms of this Option
are to be adjusted by way of increase or decrease, as the Compensation Committee
of the Board of Directors  determines in the exercise of its reasonable judgment
to be  equitably  appropriate,  in the event that the Company (a) effects one or
more  stock  dividends,  stock  splits,  reverse  stock  splits,   subdivisions,
consolidations  or other similar  events,  (b) engages in a transaction to which
section 424 of the Code applies,  or (c) there occurs any other events which, in
the exercise of its reasonable judgment, the Compensation Committee believes


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necessitates  such action.  In the event of a merger in which the Company is not
the  surviving  corporation,  upon  becoming  exercisable  this Option  shall be
exercisable  for the amount of Common Stock or other property as would have been
received had this Option been fully  exercised  prior to the  effective  date of
such merger. The aggregate exercise price to the Option shall not change.

6.  Governing  Law. This Agreement is to be governed by the laws of the State of
Delaware.

7. Binding Effect. This Agreement is to be binding upon and inure to the benefit
of the legatees,  distributees and personal  representatives of Optionee and the
successors of the Company.

8. Registration  Rights.  The Company agrees to use its best efforts to maintain
with respect to the Option Shares an effective  registration statement under the
Securities Act and a current  prospectus  relating  thereto for a period of five
years after the expiration date of the Option.

IN WITNESS WHEREOF, the Company has caused this Agreement to be signed by a duly
authorized officer, and Optionee has affixed his signature hereto.


                                   ALLIANCE ENTERTAINMENT CORP.


                                   By: /s/Anil K. Narang
                                      -------------------------
                                      Anil K. Narang


                                      /s/Alvin Teller
                                      --------------------------
                                      Alvin Teller