SECOND AMENDMENT TO REVOLVING CREDIT AND GUARANTY AGREEMENT

     SECOND  AMENDMENT,  dated as of July 25,  1997  (the  "Amendment"),  to the
REVOLVING CREDIT AND GUARANTY AGREEMENT dated as of July 17, 1997 among ALLIANCE
ENTERTAINMENT  CORP., a Delaware  corporation (the "Borrower"),  as a debtor and
debtor-in-possession  under Chapter 11 of the  Bankruptcy  Code,  the Guarantors
named therein (the  "Guarantors"),  as debtors and  debtors-in-possession  under
Chapter 11 of the Bankruptcy  Code, THE CHASE MANHATTAN BANK, a New York banking
corporation  ("Chase"),  each of the other financial  institutions party thereto
(together  with  Chase,   the  "Banks")  and  THE  CHASE   MANHATTAN   BANK,  as
administrative  and  collateral  agent  for the  Banks  (in such  capacity,  the
"Agent").

                           W I T N E S S E T H:

     WHEREAS, the Borrower,  the Guarantors,  Chase and the Agent are parties to
that certain Revolving Credit and Guaranty Agreement, dated as of July 17, 1996,
as amended by that  certain  Letter  Agreement,  dated July 23, 1997 (and as the
same may be further  amended,  modified or  supplemented  from time to time, the
"Credit Agreement"); and

     WHEREAS,  Section 10.3(b) of the Credit  Agreement  provides that each Bank
may assign to one or more Eligible  Assignees all or a portion of its interests,
rights  and  obligations   under  the  Credit  Agreement   (including,   without
limitation,  all or a portion  of its  Commitment  and the same  portion  of the
related  Loans at the time owing to it) by executing  and  delivering  with such
Eligible  Assignee an Assignment  and  Acceptance in  substantially  the form of
Exhibit D to the Credit Agreement (a copy of which is annexed hereto as Schedule
I); and

     WHEREAS,  Chase  wishes  to assign  to each of the  financial  institutions
(other than Chase) that is named on Annex A hereto (such financial  institutions
other  than  Chase,  collectively  the "New  Banks"),  and each of the New Banks
wishes  to  assume,  a  pro  rata  portion  of  Chase's  interests,  rights  and
obligations under the Credit Agreement; and

     WHEREAS, the Borrower,  the Guarantors,  Chase, the New Banks and the Agent
have  determined that the execution and delivery of this Amendment to effectuate
a  reallocation  of the Total  Commitment  among Chase and the New Banks will be
more expeditious and administratively  efficient than the execution and delivery
of a separate Assignment and Acceptance between Chase and each of the New Banks;
and

     WHEREAS, upon the occurrence of the Effective Date (as hereinafter defined)
of this  Amendment,  each of the New Banks  shall  become a party to the  Credit
Agreement  as a Bank  and  shall  have  the  rights  and  obligations  of a Bank
thereunder  and the  respective  Commitment  of Chase  and each of the New Banks
under the Credit Agreement shall be in the amount set forth opposite its name on
Annex A hereto, as the same may be reduced from time to time pursuant to Section
2.10 of the Credit Agreement; <PAGE>

     NOW, THEREFORE, it is agreed:

     1. As used herein all terms that are defined in the Credit  Agreement shall
have the same meanings herein.

     2. Section 6.12 of the Credit  Agreement is hereby  amended by deleting the
words "in the exercise of its sole discretion" set forth in the last sentence of
the first  paragraph  thereof and  inserting  in lieu  thereof the words ", such
consent not to be unreasonably withheld".

     3. Annex A to the Credit  Agreement  is hereby  replaced in its entirety by
Annex A hereto.

     4. The  signature  pages of the  Credit  Agreement  are  hereby  amended to
conform to the signature pages hereto.

     5. By its execution and delivery hereof, Chase shall be deemed to have made
each of the  statements  set forth in clauses (i) and (ii) of paragraph 2 of the
Assignment and Acceptance as if such  statements  were fully set forth herein at
length.

     6. By its  execution  and delivery  hereof,  each of the New Banks shall be
deemed to have made each of the  statements  set  forth in  clauses  (i),  (ii),
(iii),  (iv) and (v) of paragraph 3 of the  Assignment and Acceptance as if such
statements were fully set forth herein at length.

     7. On the Effective  Date, (i) each New Bank will pay to the Agent (for the
account of Chase) such amount as represents  such New Bank's pro rata portion of
the aggregate principal amount of the Loans, if any, that are outstanding on the
Effective  Date and such New Bank's pro rata portion of the aggregate  amount of
the then unreimbursed  drafts, if any, that were theretofore drawn under Letters
of  Credit,  and (ii) the Agent  shall pay to each of the New Banks such fees as
have been previously agreed to between the Agent and such New Bank.

     8. By its execution and delivery  hereof,  each of the New Banks (i) agrees
that any  interest,  Commitment  Fees and  Letter of Credit  Fees  (pursuant  to
Sections 2.8, 2.20 and 2.21 of the Credit  Agreement)  that accrued prior to the
Effective  Date shall not be payable to such New Bank and authorizes and directs
the Agent to deduct such amounts from any interest, Commitment Fees or Letter of
Credit  Fees paid  after the date  hereof  and to pay such  amounts to Chase (it
being  understood  that  interest,  Commitment  Fees and  Letter of Credit  Fees
respecting  the  Commitment  of Chase and each New Bank which accrue on or after
the  Effective  Date  shall  be  payable  to such  Bank in  accordance  with its
Commitment), (ii) acknowledges that if such New Bank is organized under the laws
of a  jurisdiction  outside of the United  States,  such New Bank has heretofore
furnished to the Agent the forms  prescribed by the Internal  Revenue Service of
the United States  certifying as to such New Bank's exemption from United States
withholding taxes with respect to any payments to be made to such New Bank under
the Credit  Agreement (or such other documents as are necessary to indicate that
all such payments are subject to such tax at a rate reduced by an applicable tax
treaty) and (iii) acknowledges that such New Bank has heretofore supplied to the
Agent the information  requested on the  administrative  questionnaire  which is
attached to the Assignment and Acceptance as Exhibit A. <PAGE>

                  9. This Amendment  shall not become  effective (the "Effective
Date") until (i) the date on which this  Amendment  shall have been  executed by
the Borrower, the Guarantors,  Chase, the New Banks and the Agent, and the Agent
shall have received  evidence  satisfactory to it of such execution and (ii) the
payments  provided  for in clauses (i) and (ii) of paragraph 6 hereof shall have
been made.

                  10. The  Borrower  agrees  that its  obligations  set forth in
Section 10.5 of the Credit Agreement shall extend to the preparation,  execution
and delivery of this Amendment.

                  11. This Amendment  shall be limited  precisely as written and
shall not be  deemed  (a) to be a consent  granted  pursuant  to, or a waiver or
modification  of, any other term or condition of the Credit  Agreement or any of
the instruments or agreements  referred to therein or (b) to prejudice any right
or rights  which the Agent or the Banks may now have or have in the future under
or in  connection  with  the  Credit  Agreement  or any of  the  instruments  or
agreements referred to therein.  Whenever the Credit Agreement is referred to in
the Credit Agreement or any of the instruments, agreements or other documents or
papers  executed or delivered in connection  therewith,  such reference shall be
deemed to mean the Credit Agreement as modified by this Amendment.

                  12.  This   Amendment   may  be  executed  in  any  number  of
counterparts and by the different parties hereto in separate counterparts,  each
of which when so executed  and  delivered  shall be deemed to be an original and
all of which taken together shall constitute but one and the same instrument.

                  13.  This  Amendment  shall in all  respects be  construed  in
accordance  with and governed by the laws of the State of New York applicable to
contracts made and to be performed wholly within such State.

                  IN WITNESS  WHEREOF,  the  parties  hereto  have  caused  this
Amendment to be duly executed as of the day and the year first above written.

                          ALLIANCE ENTERTAINMENT CORP.


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

                                         GUARANTORS:

                                         CONCORD RECORDS, INC.
                                         INDEPENDENT NATIONAL DISTRIBUTORS, INC.
                                         AEC ONE STOP GROUP, INC.
                                         PASSPORT MUSIC DISTRIBUTION, INC.
                                         FL ACQUISITION CORP.
                                         ALLIANCE VENTURES, INC.
                                         EXECUSOFT, INC.
                                         AEC ACQUISITION CORP.
                                         CASTLE COMMUNICATIONS (U.S.), INC.
                                         PASSPORT MUSIC WORLDWIDE, INC.
                                         AEC AMERICAS, INC.
                                         AE LAND CORP.
                                         ONE WAY RECORDS, INC.
                                         MATRIX SOFTWARE, INC.


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


                                         RED ANT BOX, INC.
                                         RED ANT HOLDINGS, INC.
                                         BLACK ANT MUSIC, INC.
                                         ARMY ANT MUSIC, INC.
                                         VELVET ANT MUSIC, INC.


                         By:
                            ----------------------------
                                    Title:
<PAGE>
                                RED ANT LLC


                         By:
                             ---------------------------
                             Red Ant Box, Inc., its managing member


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

                            THE CHASE MANHATTAN BANK,
                            Individually and as Agent


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

                            270 Park Avenue
                            New York, New York 10017
                            Attn:  Agnes Levy

                            NEW BANKS:

                            BANK OF AMERICA NATIONAL TRUST AND
                                  SAVINGS ASSOCIATION

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

                            335 Madison Avenue, Fifth Floor
                            New York, New York 10017
                            Attn:  Fred Zagar

                            THE FIRST NATIONAL BANK OF CHICAGO

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

                             One First National Plaza, Suite 0173
                             Chicago, Illinois 60607
                             Attn:  Phil Martin

                             CARGILL FINANCIAL SERVICES CORP.

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

                             6000 Clearwater Drive
                             Minnetonka, Minnesota 55343
                             Attn:  John Foley
<PAGE>

                             MERRILL LYNCH, PIERCE, FENNER & SMITH,
                                     INCORPORATED

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

                             250 Vesey Street, 7th Floor
                             World Financial Center. North Tower
                             North Tower
                             New York, New York 10281
                             Attn:  John Humphrey

                             FIRST SOURCE FINANCIAL, LLP

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

                             c/o First Source Financial
                             2858 West Golf Road, 5th Floor
                             Rolling Meadows, Illinois 60008
                             Attn:  Maureen Ault


                             NATIONAL BANK OF CANADA

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

                             125 West 55th Street, 23rd Floor
                             New York, New York 10019
                             Attn:  Gaetan Frosina




<PAGE>





                                   ANNEX A TO
                                SECOND AMENDMENT

                                     ANNEX A
                                       to
                     REVOLVING CREDIT AND GUARANTY AGREEMENT

                      Dated as of July 17, 1996, as amended

                                              Commitment           Commitment
Bank                                            Amount             Percentage

The Chase Manhattan Bank                     $12,375,000             24.75%
Bank of America National Trust               $12,125,000             24.25%
 and Savings Association
The First National Bank of Chicago           $ 7,500,000             15.00%
Cargill Financial Services Corp.             $ 7,250,000             14.50%
Merrill Lynch, Pierce, Fenner &              $ 4,000,000              8.00%
 Smith Incorporated
National Bank of Canada                      $ 3,750,000              7.50%
First Source Financial LLP                   $ 3,000,000              6.00%
--------------------------                   -----------             -----


Total                                        $50,000,000            100.00%
                                             ===========            =======