RIGHT OF FIRST REFUSAL AGREEMENT


AGREEMENT  dated as of August 15, 1996 by and among Alvin N. Teller  ("Teller"),
an individual  residing at 900 Stradella  Road, Los Angeles,  California  90077,
Joseph J. Bianco ("Bianco"),  an individual residing at 23 West 12th Street, New
York,  NY 10012,  and Anil K.  Narang  ("Narang",  and Narang  and Bianco  being
referred  to herein as the  "Stockholders"),  an  individual  residing  at 22575
Esplanada Circle West, Boca Raton, Florida 33433.

WHEREAS,  each of the Stockholders is the owner of substantial blocks of capital
stock (the "Stock") of Alliance Entertainment Corp., a Delaware corporation (the
"Company");

WHEREAS,  Teller is to serve as the Chief  Executive  Officer of the Company and
will be the owner of a significant block of capital stock of the Company;

WHEREAS, Teller wishes to retain shares of capital stock of the
Company in the hands of the Company's management;

WHEREAS,  pursuant to the Restated and Amended Stockholders Agreement,  dated as
of November 30, 1993, as amended (the  "Stockholders  Agreement"),  by and among
the Company,  Bianco, Jerry Bassin, Alan Shapiro, Narang, R. Tobias Knobel, John
H. Friedman, Robert O. Marx, Elliot Newman, Alan Tuchman, Barry Goldin, Lawrence
Burstein,  BT  Capital  Corporation,  BCI  Growth  L.P.,  CIG & Co.,  The  Chase
Manhattan Bank, N.A.,  Tucker Anthony  Incorporated,  PaineWebber  Incorporated,
Bear Stearns & Co., Inc. and the other signatories  thereto  (collectively,  the
"1993  Stockholders"),  each of the  parties  thereto  has the right in  certain
instances,   upon  the  disposition  of  Stock  by  another  party  thereto,  of
transferring a portion of their Stock to the contemplated  transferee  ("Co-Sale
Rights");

WHEREAS,  pursuant to the Inducement Agreement dated July, 1996 among Bianco, BT
Capital Partners,  Inc. ("BTC") and BCI Growth IV, L.P. ("BCI"), each of BTC and
BCI has Co-Sale Rights in certain instances (BTC and BCI, together with the 1993
Stockholders,   being  hereinafter   referred  to  collectively  as  the  "Other
Stockholders"); and



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WHEREAS,  in order to accomplish  the  foregoing,  each of the  Stockholders  is
willing  to  provide  Teller  with a right of  refusal on any bona fide offer to
transfer Stock to a third-party purchaser.

NOW, THEREFORE, the parties hereto hereby agree as follows:

1. Restriction on Transfer of Stock. Except in accordance with Section 3 hereof,
each of the  Stockholders  agrees  that he will not at any time or in any manner
sell,  assign,  convey,  transfer,  donate or  otherwise  dispose of, or pledge,
hypothecate or otherwise  encumber,  any Stock owned by him except in accordance
with this Agreement. As used herein, "Stock" shall include Common Stock issuable
upon the exercise of Options.

2. Right of Refusal on Disposition of Stock.  If a Stockholder  (the  "Offeror")
shall at any time desire to sell,  assign,  transfer or otherwise dispose of any
or all of the Stock owned by him (the "Offered  Stock") pursuant to the terms of
a bona fide cash offer  received in writing  from a third  party (the  "Proposed
Purchaser"):

a. The Offeror shall give written  notice (the "Offer  Notice") to Teller of his
desire to sell, assign, transfer or otherwise dispose of his Stock, which notice
shall (i) state the name and address of the Proposed Purchaser and (ii) the cash
purchase  price and the other terms and conditions (if any) on which the Offeror
proposes to sell the Offered Stock to the Proposed  Purchaser  (the "Third Party
Terms"). The Offer Notice shall constitute an offer to sell to Teller all of the
Offered Stock, at the election of Teller, upon the Third Party Terms.

b.  Teller  shall have a period of ten (10) days after his  receipt of the Offer
Notice  within which to accept such offer by giving notice to such effect to the
Offeror within such period.

c. If Teller shall accept the offer made by the Offer  Notice,  then the Offeror
shall sell to Teller,  and Teller shall  purchase from the Offeror,  the Offered
Stock upon the Third Party Terms.  Upon  purchasing  the Offered  Stock,  Teller
shall  also have the right to  purchase,  in  accordance  with the  Stockholders
Agreement or Inducement Agreement (as applicable), any Stock offered for sale by
the Other  Stockholders (and any other  stockholders  having Co-Sale Rights with
respect to such sale,  transfer or  disposition  of Stock by the Offeror) on the
Third Party Terms.


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d. If Teller  shall not accept the offer made by the Offer  Notice,  then within
the ninety  (90) day period  after the giving of the Offer  Notice,  the Offeror
shall have the right to sell all, but not less than all, of the Offered Stock to
the Proposed Purchaser;  provided,  however,  that any such sale shall be at the
price,  upon the terms and in the manner set forth in the Offer  Notice.  If the
Offeror shall not so sell the Offered Stock to the Proposed Purchaser within the
ninety  (90) day period  specified  in this  Section  2(d),  the  Offeror  shall
continue to hold the Offered Stock subject to all of the terms and conditions of
this Agreement.

3. Permitted  Transfers.  Notwithstanding  anything herein to the contrary,  the
provisions  of  Section 2 hereto  shall not apply to: (a) any sale of Stock by a
Stockholder which represents less than 5% of the Stock owned by such Stockholder
as the date hereof,  which sale is made in a public market transaction;  (b) any
transfer of Stock by a Stockholder by gift or bequest or through inheritance to,
or for the benefit of, any member or members of his  immediate  family;  (c) any
transfer of Stock by a  Stockholder  to a trust in respect of which he serves as
trustee,  provided that the trust instrument  governing said trust shall provide
that such Stockholder,  as trustee, shall retain sole and exclusive control over
the  voting  and  disposition  of  said  Stock  until  the  termination  of this
Agreement;  (d) any sale or  transfer  of Stock to the  Company  pursuant to the
terms of a stock  restriction or stock repurchase  agreement;  (e) the pledge of
Stock pursuant to third party margin  transactions with a bank or broker-dealer;
and (f) any transfer of Stock  pursuant to a court order or marital  settlement.
In the event of any such transfer  under clause (b), (c) or (d), the  transferee
of the  Stock  shall  hold the Stock so  acquired  subject  to the  restrictions
imposed by this Agreement.

4. Stockholders  Agreement.  Teller's prior written consent shall be required to
terminate  or amend  Section 6 of the  Stockholders  Agreement,  and  Bianco and
Narang  shall not take any action to  terminate  or amend said Section 6 without
Teller's prior written consent.

5. Termination.  This Agreement shall terminate at such time as Teller ceases to
serve as the Chief Executive Officer of the Company.

6. Assignments. This Agreement shall be binding upon and inure to the benefit of
Teller, Bianco and Narang and


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their respective heirs, legal representatives, successors and permitted assigns,
and  shall  apply  to  any  Stock  which  may  here  after  be  acquired  by the
Stockholders.

7.  Notices.  All notices and other  communications  provided  for or  permitted
hereunder  shall be made by hand  delivery,  first  class  mail  (registered  or
certified,   return   receipt   requested),   telecopy  or  commercial   courier
guaranteeing  next-day delivery,  to Teller, Bianco or Narang at his address set
forth in the preamble  hereof,  or at such other  address as such party may have
furnished in writing to the other parties.

All such notices and  communications  shall be deemed to have been duly given at
the time  delivered by hand, if personally  delivered;  five business days after
having been  deposited in the mail,  postage  prepaid,  if mailed;  when receipt
acknowledged (verbally or electronically), if telecopied; and the next busi ness
day  after  timely  delivery  to the  courier,  if sent by com  mercial  courier
guaranteeing next-day delivery.

8.  Entire  Agreement;  Amendment  and  Waiver.  All  prior  or  contemporaneous
agreements,  contracts, promises,  representations and statements, if any, among
the parties hereto, or their representatives,  relating to the subject matter of
this  Agreement  are  merged  into  this  Agreement  and  this  Agreement  shall
constitute the entire  agreement  between them.  This Agreement  constitutes the
entire  understanding  among  the  parties.  Any term of this  Agreement  may be
amended  and  the   observance  of  any  term  hereof  may  be  waived   (either
prospectively or retroactively and either generally or in a particular instance)
only with the written consent of each party hereto.

9.  Headings.  The headings in this  Agreement are for  convenience of reference
only and shall not limit or otherwise affect the meaning hereof.

10.  Governing  Law.  This  Agreement  shall be  governed  by and  construed  in
accordance  with the laws of the State of New York applicable to agreements made
and to be performed wholly therein.

11. Severability.  In the event that any one or more of the provisions contained
herein, or the application thereof in any circumstances, are held to be invalid,
illegal or unenforceable in any respect for any reason,  the validity,  legality
and enforceability of any such provision in every other respect and


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of the remaining provisions hereof shall not be in any way
affected thereby.


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IN WITNESS  WHEREOF,  the parties have executed this Agreement on the date first
above written.

                                   /s/Alvin N. Teller
                                   ----------------------------
                                   Alvin N. Teller


                                   /s/Joseph J. Bianco
                                   ----------------------------
                                   Joseph J. Bianco


                                   /s/Anil K. Narang
                                   ----------------------------
                                    Anil K. Narang