Document:

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                                                                    EXHIBIT 10.1

                            K-TEL INTERNATIONAL, INC.

                             1997 STOCK OPTION PLAN

                                  (AS AMENDED)
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                                     PART I

                  PURPOSES; DEFINITIONS; SHAREHOLDER APPROVAL;
                RESERVATION OF SHARES; AND PARTICIPATION IN PLAN

                                   ARTICLE I.

                                    PURPOSES

         1.1 PURPOSE OF PLAN. The purpose of this K-tel International, Inc. 1997
Stock Option Plan (the "Plan") is to provide incentives to employees, directors,
consultants and independent contractors of the Company and/or any Subsidiary who
contribute, and are expected to contribute, to the success of the Company and
any Subsidiary, to provide a means of rewarding outstanding performance, and to
enhance the interest of such employees in the Company's continued success and
progress by providing them a proprietary interest in the Company. Further, this
Plan is designed to enhance the Company's ability to maintain a competitive
position in attracting and retaining qualified personnel necessary for the
continued success and progress of the Company.

                                  ARTICLE II.

                                   DEFINITIONS

         2.1 Certain terms used herein shall have the meaning below stated,
subject to the provisions of Section 7.1.

      "Board" or "Board of Directors" means the Board of Directors of the
Company.

      "Code" means the Internal Revenue Code of 1986, as amended.

      "Committee" means a committee appointed by the Board, consisting solely of
persons who are Non-Employee Directors within the meaning Rule 16b-3(3)(i), or
if no Committee is appointed by the Board, the Board.

      "Common Stock" means, subject to the provisions of Section 9.3, the Common
Stock of the Company, par value $.01 per share.

      "Company" means K-tel International, Inc., a Minnesota corporation.

      "Disability" means (subject to Section 6.2) a physical or mental
impairment of sufficient severity such that an Employee is permanently unable to
continue his employment with the Company as determined by the Committee.

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      "Employee" means an employee (including an officer) of the Company or of
any Subsidiary of the Company.

      "Fair Market Value" means, with respect to an Incentive Stock Option, the
value of a share of the Company's Common Stock as of any date, determined as
follows:

                  (a) If the Common Stock is quoted on the Nasdaq National
Market, its closing price on the Nasdaq National Market on the date of
determination;

                  (b) If the Common Stock is publicly traded and is then listed
on a national securities exchange, its closing price on the date of
determination on the principal national securities exchange on which the Common
Stock is listed or admitted to trading; or

                  (c) If the Common Stock is publicly traded but is not quoted
on the Nasdaq National Market nor listed or admitted to trading on a national
securities exchange, the average of the closing bid and asked prices on the date
of determination as reported in The Wall Street Journal; or if none of the
foregoing is applicable, by the Board of Directors or Committee in good faith.

         With respect to a Non-Statutory Stock Option, Fair Market Value of a
share of the Company's Common Stock shall be determined in the manner described
in clauses (a) through (c) above, except that the Fair Market Value of a share
of Common Stock shall be the average of the price of the Common Stock for the
five trading days immediately preceding the time of the grant of an option if
the option is granted prior to the close of the market, or ending on the date of
grant if the Non-Statutory Stock Option is granted after the close of the
market.

      "Incentive Stock Option" means an option to purchase common Stock, granted
by the Company to an Employee pursuant to Section 5.1, which is intended to meet
the requirements of Section 422 of the Code and which is designated at the time
of the award of an Incentive Stock Option.

      "Non-Employee Director" shall mean a member of the Board of Directors of
the Company who is a Non-Employee Director as defined by Rule 16 b-3(b)(3)(i)
under the Securities Exchange Act of 1934, as amended.

      "Non-Statutory Option" means an option to purchase Common Stock granted by
the Company to an Optionee pursuant to Section 5.1, which is not an Incentive
Stock Option.

      "Option" means an Incentive Stock Option or a Non-Statutory Option.

      "Optionee" means the holder of an Option granted under the Plan.

      "Plan" means the K-tel International, Inc. 1997 Stock Option Plan, as set
forth herein and as from time to time amended.

      "Subsidiary" means a subsidiary or parent corporation, as defined in
Section 425(e) and (f) of the Code, with respect to the Company.

      "1933 Act" means the Securities Act of 1933, as amended.

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                                   ARTICLE III.

                  SHAREHOLDER APPROVAL; RESERVATIONS OF SHARES

         3.1 SHAREHOLDER APPROVAL. This Plan was approved by the Board of
Directors on February 18, 1997 and by the Company's shareholders on February 4,
1998.

         3.2 SHARES RESERVED UNDER PLAN. Subject to adjustment under the
provisions of Section 9.3 hereof, the maximum number of shares of Common Stock
which may be issued and sold under this Plan is 3,500,000 shares. Such shares
may be either authorized and unissued shares or shares issued and thereafter
acquired by the Company. Shares issued pursuant to this Plan shall be subject to
all applicable provisions of the Articles of Incorporation and Bylaws of the
Company in existence at the time of issuance of such shares and at all times
thereafter. If Options granted under this Plan shall terminate or cease to be
exercisable by reason of expiration, surrender for cancellation or otherwise
without having been wholly exercised, new Options may be granted under this Plan
covering the number of shares to which such termination or cessation relates. At
no time may the sum of the maximum number of shares issuable under outstanding
Options granted under this Plan and the number of shares previously issued under
Options granted under this Plan exceed the maximum number of shares that may be
issued and sold under this Plan, as above stated.

                                  ARTICLE IV.

                              PARTICIPATION IN PLAN

         4.1 ELIGIBILITY TO RECEIVE OPTIONS. Options under this Plan may be
granted only to Employees of the Company or a Subsidiary (including prospective
employees), directors, consultants, advisors and independent contractors of the
Company who render bona fide services to the Company not in connection with the
offer and sale of the Company's securities in a capital-raising transaction.

         4.2 PARTICIPATION NOT GUARANTEE OF EMPLOYMENT. Nothing in this Plan or
in the instrument evidencing the grant of an Option shall in any manner be
construed to limit in any way the right of the Company or a Subsidiary to
terminate an Employee's employment at any time without regard to the effect of
such termination on any rights such Employee would otherwise have under this
Plan, or give any right to such an Employee to remain employed by the Company or
a Subsidiary in any particular position or at any particular rate of
compensation.

         4.3 GRANTS OF OPTIONS TO NON-EMPLOYEE DIRECTORS. Non-Employee Directors
of the Corporation shall be entitled to receive stock options for the purchase
of 5,000 shares of Common Stock at an option price equal to the Fair Market
Value of the Common Stock on the date of initial election commencing on and
after the annual meeting of the shareholders of the Company in 2000, and upon
each re-election to the Board by the shareholders at an annual or special
meeting of the shareholders of the Company thereafter. Each such option shall
constitute a Non-Statutory Stock Option. Options granted pursuant to this
Subsection 4.3 shall be exercisable as provided in Section 5.2(a). The form of
an option granted to a non-employee director shall be approved by the Board of
Directors or the Committee.

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                                     PART II

                                    OPTIONS;
                       TERMINATION OF EMPLOYMENT AND DEATH

                                   ARTICLE V.

                                     OPTIONS

         5.1 GRANTS OF OPTIONS.

             (a) GRANT. The Committee may grant Incentive Stock Options and/or
Non-Statutory Options to persons eligible to receive options pursuant to Section
4.1, subject to the limitations provided in Section 5.1(f) and Section 7.1. All
Options under this Plan shall be granted within ten years of February 18, 1997,
the date on which this Plan was adopted by the Board of Directors subject to
approval of the Plan by shareholders.

             (b) OPTION PRICE. The purchase price per share of Common Stock
under each Incentive Stock Option and Non-Statutory Option shall be
determined by the Committee but shall be not less than 100% of the Fair
Market Value per share of such Common Stock on the date the Option is granted
for Incentive Stock Options and no less than 85% of the Fair Market Value per
share of such Common Stock on the date the Option is granted for
Non-Statutory Options. The purchase price per share may be subject to
adjustment in accordance with the provisions of Section 9.3 hereof.

             (c) OPTIONS AGREEMENTS. Options shall be evidenced by option
agreements in such form and containing such terms and conditions as the
committee shall approve, which terms and conditions need not be the same for
all Options.

             (d) OPTIONS NONTRANSFERABLE. Except with the prior written
consent of the Committee, an Option granted under this Plan shall by its
terms be nontransferable by the Optionee other than by will or the laws of
descent and distribution, and, during the lifetime of the Optionee, shall be
exercisable only by such Optionee. No transfer of an Option by an Optionee by
will or by the laws of descent and distribution shall be effective to bind
the Company unless the Company shall have been furnished with written notice
thereof and a copy of the will and/or such other evidence as the Committee
may determine necessary to establish the validity of the transfer.

             (e) SUBSTITUTION AND CANCELLATION. The Committee may, in its
sole discretion, grant to an Optionee who has been granted an Option under
this Plan, in exchange for the surrender and cancellation of such Option, a
new Option having a purchase price lower (or higher) than the purchase price
provided in the Option so surrendered and cancelled and containing such other
terms as the Committee may deem appropriate, subject to Section 5.1(b) and
such other limitations or restrictions with respect to an Incentive Stock
Option as may be imposed by the Code.

             (f) ANNUAL PER-EMPLOYEE LIMITATION. The number of shares of
Common Stock subject to all Options granted to an optionee during any
calendar year shall not exceed 1,000,000 shares.

         5.2 EXERCISE.

             (a) TERM OF OPTIONS; VESTING; AND EXERCISE. The term of each
Option granted under this Plan shall not exceed ten (10) years from the date
of grant; provided that the duration of an Option granted to a Non-Employee
Director pursuant Section 4.3 shall be a term commencing on the date of

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grant and ending on the earlier of (a) ten (10) years after the date of grant
or (b) the date an optionee ceases to be a director, plus a time period equal
to the number of complete months the optionee continuously served as a member
of the Board. An Option granted under this Plan shall become vested and
exercisable at such rate and on such conditions as the Committee shall
determine at the time such Option is granted.

             (b) EXERCISE; PAYMENT ON EXERCISE. Options shall be exercised by
delivering to the Company an exercise notice in the form prescribed by the
Committee. No shares of Common Stock shall be issued on the exercise of an
Option unless paid for in full at the time of purchase as provided in the
next sentence and until the provisions of 9.4 shall have been satisfied.
Payment for shares of Common Stock purchased upon the exercise of an Option
shall be made (i) in cash, or (ii) the following alternative forms of
payment: (A) in whole or in part in shares of Common Stock held by the
Optionee for at least six months and valued at the then Fair Market Value
thereof, or (B) by delivery to the Company of irrevocable instructions to the
Optionee's broker, which instructions and broker shall be satisfactory to the
Company, to promptly deliver to the Company the total purchase price for the
shares of the Option being exercised from the sale proceeds for such shares
or the loan proceeds for such shares or any other securities which the
Optionee may have in his account with such broker, and the Company will
deliver such shares directly to such broker in accordance with such
procedures as the Committee may establish, which alternative forms of payment
may be permitted by the Committee at the time the Option is granted or at any
time thereafter during the term of the Option. Stock certificates for the
shares of Common Stock so paid for will be issued and delivered to the person
entitled thereto only at the Company's office in Minneapolis, Minnesota. No
Optionee shall have any rights as a shareholder with respect to any share of
Common Stock covered by an Option unless and until such Optionee shall have
become the holder of record of such share and, except as otherwise permitted
in Section 9.3 hereof, no adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property or distributions
or other rights) in respect of such share for which the record date is prior
to the date on which such Optionee shall have become the holder of record
thereof.

             (c) DISSOLUTION, LIQUIDATION, ETC. If at any time after an
Option has become exercisable and prior to its exercise and expiration, a
voluntary dissolution, liquidation (other than a liquidation into another
corporation which agrees to continue this Plan) or winding up of the affairs
of the Company shall be proposed, the Company shall cause notice in writing
to be mailed to each person holding an Option under this Plan, which notice
shall be mailed not less than twenty days prior to the closing of the
transfer books of the Company or the record date for determination of the
holders of common Stock of the Company entitled to participate in such
dissolution, liquidation or winding up, as the case may be, to the end that
during such notice period the holder of any Option, to the extent that the
same is then exercisable by such holder, subject to the terms of Article V
hereof, may purchase Common Stock in accordance with the terms of the Option
and be entitled, in respect of the number of shares so purchased, to all the
rights of the other holders of Common Stock of the Company with respect to
such proposed dissolution, liquidation or winding up of the affairs of the
Company. Each Option at the time outstanding and all rights thereunder shall
terminate at the close of business on the twentieth day after mailing of such
notice to the holder of such Option or on the record date for determination
of holders of Common Stock entitled to participate in such dissolution,
liquidation or winding up, whichever date is later.

             (d) EXERCISE OF OPTIONS. In the event that an Optionee exercises
an Option, such Optionee shall comply with all requirements set forth in the
option agreement for such Options in connection with the purchase of shares
of Common Stock under this Plan.

         5.3 INCENTIVE STOCK OPTIONS.

             (a) ANNUAL LIMITATION. In no event shall any Optionee be granted
an Incentive Stock Option under this Plan or any other plan of the Company or
any Subsidiary if such option would, during the calendar year in which the
option first becomes exercisable when combined with other Incentive Stock
Options which first become exercisable in such calendar year, entitle such
Optionee, to purchase shares of Common Stock or shares of any Subsidiary
having an aggregate fair market value (determined as of the time

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such option or options were granted) in excess of $100,000. In the event an
option granted hereunder is designated an Incentive Stock Option ad exceeds
the limitations set forth in this Section 5.3(a), whether at the time of
grant or thereafter, such option shall be an Incentive Stock Option only to
the extent permitted hereby and the balance thereof shall be a Non-Statutory
Option for the purposes of this Plan.

             (b) INCENTIVE STOCK OPTIONS GRANTED TO TEN PERCENT SHAREHOLDERS.
No Incentive Stock Option shall be granted to any Employee who owns, directly
or indirectly pursuant to Section 425(d) of the Code, stock possessing more
than ten percent (10%) of the total combined voting power of all classes of
stock of the Company or any Subsidiary, unless at the time such Incentive
Stock Option is granted, the price of the Incentive Stock Option is at least
110% of the Fair Market Value of the Common Stock subject to the Incentive
Stock Option and such Incentive Stock Option, by its terms, is not
exercisable after the expiration of five (5) years from the date such
Incentive Stock Option is granted.

             (c) NOTICE. Each Optionee shall give prompt notice to the
Company of any disposition of shares acquired upon exercise of an Incentive
Stock Option if such disposition occurs within either two years after the
date of grant or one year after the date of transfer of such shares to the
Optionee upon the exercise of such Incentive Stock Option.

             (d) CONSENT. To the extent appropriate to avoid a "modification"
or other event described in Section 425(h) of the Code, an Optionee's rights
under an Incentive Stock Option (including the rights to pay the exercise
price in Common Stock) shall be set forth in the option agreement for such
Option entered into at the date of grant, so as to preclude any requirement
that further Committee consent be given after the date of grant.

                                  ARTICLE VI.

                            TERMINATION OF EMPLOYMENT

         6.1 TERMINATION OF EMPLOYMENT. Unless earlier terminated in accordance
with its terms, an Option granted to an employee shall terminate thirty (30)
days after any termination of the Optionee's employment with the Company or any
Subsidiary for any reason other than as a result of the death or disability of
the Optionee or, in the case of death or disability of any Optionee, 120 days
after the death or the termination of the Optionee's employment due to
disability.

         6.2 EMPLOYMENT. For all purposes of this Plan, and any Option granted
hereunder, "employment" of an employee shall be defined in accordance with the
provisions of Section 1.421-7(h) of the Income Tax Regulations (or any successor
regulations).

                                    PART III

                    ADMINISTRATION, AMENDMENT AND TERMINATION
                             OF PLAN; MISCELLANEOUS

                                  ARTICLE VII.

                             ADMINISTRATION OF PLAN

         7.1 THE COMMITTEE. This Plan shall be administered by the Board or a
Committee of the Board consisting of two or more directors, each of whom shall
be a "Non-Employee Director" within the meaning of Rule 16b-3(b)(3)(i) of the
Securities and Exchange Commission and shall be appointed by, and serve a the
pleasure of, the Board. A majority of the Committee shall constitute a quorum
thereof and the actions of a majority of the Committee at a meeting at which a
quorum is present, or actions unanimously

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approved in writing by all members of the Committee, shall be the actions of
the Committee. Vacancies occurring on the Committee shall be filled by the
Board. The Committee shall have full and final authority to interpret this
Plan and the agreements evidencing Options granted hereunder (which
agreements need not be identical), to prescribe, amend and rescind rules and
regulations, if any, relating to this Plan and to make all determinations
necessary or advisable for the administration of this Plan. The Committee's
determination in all matters referred to herein shall be conclusive and
binding for all purposes and upon all persons including, but without
limitation, the company, the shareholders of the Company, the Committee and
each of the members thereof, and the Employees and the Optionees, and their
respective personal representatives, heirs and assigns.

         7.2 LIABILITY OF COMMITTEE. No member of the Committee shall be liable
for anything done or omitted to be done by such member or by any other member of
the Committee in connection with this Plan, except for the willful misconduct or
gross negligence of such member. The Committee shall have power to engage
outside consultants, auditors or other professional help to assist in the
fulfillment of the Committee's duties under this Plan at the Company's expense.

         7.3 DETERMINATIONS OF THE COMMITTEE. In making its determinations
concerning the Employees, who shall receive Options as well as the number of
shares to be covered thereby and time or times at which they shall be granted,
the Committee shall take into account the nature of the services rendered by the
respective Employees and their past, present, and potential contribution to the
Company's success and such other factors as the Committee may deem relevant. The
Committee shall also determine the form of option agreements to be issued under
this Plan and the terms and conditions to be included therein, provided such
terms and conditions are not inconsistent with the terms of this Plan. In its
discretion or in accordance with a direction from the Board, the Committee may
waive any provisions of any option agreement, provided such waiver is not
inconsistent with the terms of this Plan as then in effect.

                                 ARTICLE VIII.

                        AMENDMENT AND TERMINATION OF PLAN

         8.1 AMENDMENT OF PLAN AND OPTIONS

             (a) GENERALLY. The Board may at any time terminate or amend this
Plan in any respect, provided, however, that the Board shall not, without the
approval of the shareholders of the Company, amend this Plan in any manner
that requires such shareholder approval pursuant to any law, regulation or
rule relating to the listing of the Company's securities. No termination or
amendment of this Plan, without the consent of the holder of any Option then
existing, may terminate such holder's Option or materially and adversely
affect such holder's rights thereunder.

             (b) AMENDMENTS RELATING TO INCENTIVE STOCK OPTIONS. To the
extent applicable, this Plan is intended to permit the issuance of Incentive
Stock Options in accordance with the provisions of Section 422 of the Code. The
Plan may be modified or amended at any time, both prospectively and
retroactively, and in such manner as to affect Incentive Stock Options
previously granted (after taking into account Section 425(h) of the Code,
relating to "modifications," etc.), if such amendment or modification is
necessary for this Plan and the Incentive Stock Options granted hereunder to
qualify under said provisions of the Code.

             (c) AMENDMENT OR ASSUMPTION OF OPTIONS. Within the limitations
of the Plan, the Committee may modify, extend or assume outstanding options
or may accept the cancellation of outstanding options (whether granted by the
Company or by another issuer) in return for the grant of new options for the
same or a different number of shares and at the same or a different exercise
price. The foregoing notwithstanding, no modification of an Option shall,
without the consent of the Optionee, alter or impair his or her rights or
obligations under such Option. The Committee may at any time (a) offer to buy
out

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for a payment in cash or cash equivalents an Option previously granted or (b)
authorize an Optionee to elect to cash out an Option previously granted, in
either case at such time and based upon such terms and conditions as the
Committee shall establish.

         8.2 TERMINATION. The Board of Directors of the Company may at any time
terminate this Plan as of any date specified in a resolution adopted by the
Board. If not earlier terminated, this Plan shall terminate on the tenth
anniversary of the effective date of the Plan. No Options may be granted after
this Plan has terminated. After this Plan shall terminate, the function of the
Committee will be limited to supervising the administration of Options
previously granted.

                                  ARTICLE IX.

                            MISCELLANEOUS PROVISIONS

         9.1 RESTRICTIONS UPON GRANT OF OPTIONS. The registration or
qualification under any Federal or state law of any shares of Common Stock
issuable upon the exercise of Options granted pursuant to this Plan (whether to
permit the grant of Options or the resale or other disposition of any such
shares of Common Stock by or on behalf of the Optionees receiving such shares)
may be necessary or desirable and, in any such event, delivery of the
certificates for such shares of Common Stock shall, if the Board of Directors,
in its sole discretion, shall determine, not to be made until such listing,
registration or qualification shall have been completed.

         9.2 RESTRICTIONS UPON RESALE OF UNREGISTERED STOCK. If the shares of
Common Stock that have been transferred to an Optionee pursuant to the terms of
this Plan are not registered under the 1933 Act, pursuant to an effective
registration statement, such Optionee, if the Committee shall deem it advisable,
may be required to represent and agree in writing (i) that any shares of Common
Stock acquired by such Optionee pursuant to this Plan will not be sold except
pursuant to an effective registration statement under the 1933 Act, or pursuant
to an exemption from registration under the 1933 Act and (ii) that such Optionee
is acquiring such shares of Common Stock for such Optionee's own account and not
with a view to the distribution thereof.

         9.3 ADJUSTMENTS. In the event of any change whether through
recapitalization, merger, consolidation, stock dividend, split-up, or amount of
the Company's capital stock (or any other transaction described in Section
425(a) of the Code) after any Option is granted hereunder and prior to the
exercise thereof, the Option, to the extent that it has not been exercised,
shall entitle the holder to such number and kind of securities as such holder
would have been entitled to had such holder actually owned the stock subject to
the Option at the time of the occurrence of such change. If any such event
should occur, the number of shares subject to Options which are authorized to be
issued hereunder, but which have not been issued, shall be similarly adjusted.
If any other event shall occur, prior to the exercise of an Option granted to an
Optionee hereunder, which shall increase or decrease the amount of capital stock
outstanding and which the Committee, in its sole discretion, shall determine
equitably requires an adjustment in the number of shares which the holder should
be permitted to acquire, such adjustment as the Committee shall determine may be
made, and when so made shall be effective and binding for all purposes of this
Plan.

         9.4 WITHHOLDING OF TAXES. Each Optionee who exercises an Option to
purchase Common Stock shall, prior to the issuance of any shares, pay to the
Company, or make arrangements (including withholding of shares of Common Stock
purchased upon exercise of the Option at the Fair Market Value thereof)
satisfactory to the committee regarding payment of, any taxes of any kind
required by law to be withheld with respect to the transfer to such Optionee of
such shares of Common Stock and/or amounts upon exercise of such Option.

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         9.5 USE OF PROCEEDS. The proceeds from the sale of Common Stock
pursuant to Options granted under this Plan shall constitute general funds of
the Company and may be used for such corporate purposes as the Company may
determine.

         9.6 OTHER GRANTS. Options may be granted under this Plan from time to
time in substitution for stock options held by employees of other corporations
who are or are about to become employees of the Company or a Subsidiary as the
result of a merger or consolidation of the employing corporation with the
Company or a Subsidiary, or the acquisition by the Company or a Subsidiary of
the assets of the employing corporation, or the acquisition by the Company or a
Subsidiary of stock of the employing corporation as the result of which it
becomes a Subsidiary of the Company. The terms and conditions of the substituted
Options so granted may vary from the terms and conditions set forth n Part II to
such extent as the Committee may deem appropriate to conform, in whole or in
part, to the provisions of the substituted stock incentives.

         9.7 OTHER BENEFITS. Nothing contained herein shall prevent the Company
from establishing other incentive plans in which Employees under the Plan may
also participate. No award under this Plan shall be considered as compensation
in calculating any insurance, pension or other benefit for which the recipient
is eligible unless any such insurance, pension or other benefit is granted under
a plan which expressly provides that compensation under this Plan (and
specifying the type of such compensation) shall be considered as compensation
under such plan.

                                      10<PAGE>

                                                                    EXHIBIT 10.2

                            K-TEL INTERNATIONAL, INC.

                      NON-QUALIFIED STOCK OPTION AGREEMENT

         THIS AGREEMENT made and entered into as of October 19, 1998, by and
between K-TEL INTERNATIONAL, INC., a Minnesota corporation (the "Company"), and
LAWRENCE KIEVES, a New York resident (the "Optionee");

                               W I T N E S S E T H

         WHEREAS, the Optionee has consented to serving as the Company's
President; and

         WHEREAS, the Company desires to afford the Optionee an opportunity to
purchase shares of its common stock, par value $.01, (the "Common Stock"),

         NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth and for other good and valuable consideration, the parties hereto
agree as follows:

         1. GRANT OF OPTION. The Company hereby grants to the Optionee the right
and option (hereinafter called the "Option") to purchase all or any part of an
aggregate of two hundred thousand (200,000) shares of Common Stock (the "Option
Shares") (such number being subject to adjustment as provided in Paragraph 4
hereof) on the terms and conditions herein set forth. The Option is a
non-qualified stock option under the Internal Revenue Code of 1986, as amended.

         2. PURCHASE PRICE. Subject to the provisions of Paragraph 4 hereof, the
purchase price for the Option Shares shall be $6.50 per share, which has been
determined to be the fair market value of the Option Shares at the date of grant
of the Option.

         3. TERM AND VESTING OF OPTION. The Option shall expire (the "Expiration
Date") upon the earlier to occur of: (a) the close of business on the tenth
anniversary of the date hereof or (b) thirty (30) days after the date on which
the Optionee is no longer employed by the Company. Prior to the Expiration Date,
the Optionee shall be entitled to exercise the Option as to all or any part of
the Option Shares which have theretofore become vested. The Option Shares shall
vest and become exercisable as follows: (1) 66,666 shares upon and after the
first anniversary of the date hereof, (2) 66,666 shares upon and after the
second anniversary of the date hereof, and (3) 66,667 shares upon and after the
third anniversary of the date hereof; provided, however, in the event of (i) the
sale of all or substantially all of the assets of the Company, or (ii) a merger,
consolidation or other reorganization of the Company in which the shareholders
of the Company immediately prior to such merger, consolidation or reorganization
constitute less than fifty-one percent (51%) of the voting power of the
surviving corporation, then all of the shares subject to the Option shall be
vested and exercisable in full upon the occurrence of such event. In addition,
in the event of a Going Private Transaction (as defined below) is consummated,
then all of the shares subject to the Option shall become fully vested upon the
closing of the Going Private Transaction and shall be entitled to receive from
the Company in cancellation of all rights under the Option and this Agreement,
in cash the excess of the price per share for the common stock of the Company
paid to shareholders (other than Philip Kives or any entity which he controls)
in the Going Private Transaction over the option exercise price of the Option
multiplied by the number of shares subject to the Option. The term "Going
Private Transaction" means any transaction or series of transaction between the
Company and any entity directly or indirectly controlled by Philip Kives,
including a sale of all or substantially all of the assets of the Company to
such an entity or any merger, consolidation or other reorganization of the
Company with such

<PAGE>

an entity for which a filing is required under Regulation 13e-3 of the
Securities and Exchange Commission. Notwithstanding the foregoing, the Option
may in no event be exercised by anyone to any extent in the event of a
voluntary dissolution, liquidation or winding up of the affairs of the
Company, after the close of business on the later of (i) the date of the
twentieth day after the mailing of written notice of such dissolution,
liquidation or winding up, and (ii) the record date for determination of
holders of Common Stock entitled to participate therein.

         4. ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. If all or any portion
of this Option shall be exercised subsequent to any share dividend,
recapitalization, merger, consolidation, exchange of shares or reorganization as
a result of which shares of any class shall be issued in respect to outstanding
Common Stock, or if Common Stock shall be changed into the same or a different
number of shares of the same or another class or classes, the person so
exercising this Option shall receive, for the aggregate price paid upon such
exercise, the aggregate number and class of shares to which they would have been
entitled if Common Stock (as authorized at the date hereof) had been purchased
at the date hereof for the same aggregate price (on the basis of the price per
share set forth in Paragraph 2 hereof) and had not been disposed of. No
fractional share shall be issued upon any such exercise and the aggregate price
paid shall be appropriately reduced on account of any fractional share not
issued.

         5. METHOD EXERCISE. Subject to the terms and conditions of this
Agreement, the Option may be exercised by written notice to the Company at its
principal office and place of business in the State of Minnesota. Such notice
shall state the election to exercise the Option and the number of Option Shares
in respect of which it is being exercised, and shall be signed by the person so
exercising the Option. Such notice shall be accompanied by the payment of the
full purchase price of such Option Shares and the delivery of such payment to
the Treasurer of the Company. The certificate for the Option Shares as to which
the Option shall have been so exercised shall be registered in the name of the
person exercising the Option. If the Optionee shall so request in the notice
exercising the Option, the certificate shall be registered in the name of the
Optionee and another person jointly with right of survivorship, and shall be
delivered as provided above to or upon the written order of the person
exercising the Option. In the event the Option shall be exercised by any person
other than Optionee, such notice shall be accompanied by appropriate proof of
the right of such person to exercise the Option.

         6. RESERVATION OF SHARES. The Company shall, at all times during the
term of the Option, reserve and keep available such number of shares of its
capital stock as will be sufficient to satisfy the requirements of this
Agreement, and shall pay all original issue and transfer taxes with respect to
the issue and transfer of Option Shares pursuant hereto, and all other fees and
expenses necessarily incurred by the Company in connection therewith.

         7. NO RIGHTS AS STOCKHOLDER. The holder of the Option shall not have
any of the rights of a stockholder with respect to the Option Shares covered by
the Option except to the extent that one or more certificates for shares shall
be delivered to him upon the due exercise of the Option.

         8. RESIGNATION AND INVESTMENT PURPOSE. The Company shall use reasonable
efforts to have the shares issuable upon the exercise of this Option registered
on a Form S-8 Registration Statement with the Securities and Exchange Commission
under the Securities Act of 1933, as amended. Unless the Option Shares have been
so registered, the Option is granted on the condition that the acquisition of
shares hereunder shall be for investment purposes only and the person acquiring
Option Shares upon exercise of the Option must bear the economic risk of the
investment for an indefinite period of time since the shares so acquired cannot
be sold unless they are subsequently registered or an exemption from such
registration is available. Optionee agrees that a legend may be placed on the
stock certificates acknowledging the restrictions on subsequent distribution of
the shares issued upon exercise of this Option.

                                       2
<PAGE>

         9. MISCELLANEOUS. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their heirs, successors, assigns and
representatives and shall be governed by the laws of the State of Minnesota.

         IN WITNESS WHEREOF, this Agreement has been duly executed as of the day
and year first above written.

                                                   K-TEL INTERNATIONAL, INC.

                                                   By /s/ Philip Kives
                                                     -------------------------
                                                     Philip Kives, Chairman and
                                                     Chief Executive Officer

                                                      /s/ Lawrence Kieves
                                                      ------------------------
                                                      Lawrence Kieves

                                       3

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