PLATINUM ENTERTAINMENT INC, 10-Q, 1996-10-15

PLATINUM ENTERTAINMENT INC
10-Q, 1996-10-15
DURABLE GOODS, NEC

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<PAGE>

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended August 31, 1996

( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

Commission File Number 0-27852

PLATINUM ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)

Delaware 36-3802328
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

2001 Butterfield Road
Downers Grove, Illinois 60515
(Address of principal executive offices, including zip code)

(630) 769-0033
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.

Yes X No
--- ---

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:

5,151,439 Shares of Common Stock, par value $.001 per share, at October 14, 1996

<PAGE>

PLATINUM ENTERTAINMENT, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED AUGUST 31, 1996
TABLE OF CONTENTS

Page
----
Part I - FINANCIAL INFORMATION

Item 1. Consolidated Balance Sheets as of August 31 and
May 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . . 3-4

Consolidated Statements of Operations for the three months
ended August 31, 1996 and 1995 . . . . . . . . . . . . . . . 5

Consolidated Statements of Cash Flows for the three months
ended August 31, 1996 and 1995 . . . . . . . . . . . . . . . 6

Notes to Consolidated Financial Statements . . . . . . . . . 7

Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . . . . . . 8-13

Part II - OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . 13

Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Exhibits

<PAGE>

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

PLATINUM ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

AUGUST 31, MAY 31,
1996 1996
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . $ 4,759,938 $ 8,222,173
Cash in escrow. . . . . . . . . . . . . . . . . 350,000 -
Accounts receivable, less allowances of
$1,057,844 and $1,033,433, respectively . . . . 4,880,906 3,302,803
Artist advances . . . . . . . . . . . . . . . . 1,841,279 1,581,390
Inventories . . . . . . . . . . . . . . . . . . 2,458,127 1,538,108
Notes receivable. . . . . . . . . . . . . . . . 320,099 1,467,007
Other . . . . . . . . . . . . . . . . . . . . . 585,728 472,457
------------ ------------
Total current assets. . . . . . . . . . . . . . 15,196,077 16,583,938

Artist advances, net of current amounts, less
allowances of $5,280,223 and $4,942,021,
respectively. . . . . . . . . . . . . . . . . . . 2,911,208 2,093,224
Property and equipment, net. . . . . . . . . . . . 725,432 698,251
Music publishing rights and artist masters,
less accumulated amortization of
$93,222 and $90,443, respectively . . . . . . . . 686,778 349,557
Other. . . . . . . . . . . . . . . . . . . . . . . 22,176 18,568
------------ ------------
Total assets . . . . . . . . . . . . . . . . . . . $ 19,541,671 $ 19,743,538
------------ ------------
------------ ------------

See accompanying notes to financial statements

<PAGE>

PLATINUM ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

AUGUST 31, MAY 31,
1996 1996
(UNAUDITED)

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . $ 1,151,206 $ 997,378
Accrued liabilities and other. . . . . . . . . 1,539,715 2,104,015
Royalties payable. . . . . . . . . . . . . . . 2,268,460 1,427,588
------------ ------------
Total current liabilities. . . . . . . . . . . 4,959,381 4,528,981
Stockholders' equity:
Preferred stock:
Preferred stock ($.001 par value); 10,000,000
shares authorized, no shares issued and
outstanding at August 31 and May 31, 1996. . . - -
Common stock:
Common stock ($.001 par value); 40,000,000
shares authorized, 5,063,204 shares issued and
outstanding at August 31 and May 31, 1996. . . 5,063 5,063
Additional paid-in capital . . . . . . . . . . . 35,253,724 35,253,724
Accumulated deficit. . . . . . . . . . . . . . . (20,676,497) (20,044,230)
------------ ------------
Stockholders' equity . . . . . . . . . . . . . . 14,582,290 15,214,557
------------ ------------
Total liabilities and stockholders' equity . . . . $ 19,541,671 $ 19,743,538
------------ ------------
------------ ------------

See accompanying notes to financial statements

<PAGE>

PLATINUM ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

THREE THREE
MONTHS ENDED MONTHS ENDED
AUGUST 31, AUGUST 31,
1996 1995
(UNAUDITED) (UNAUDITED)

Gross product sales. . . . . . . . . . . . . . . . $ 5,203,175 $ 4,978,656
Less: Returns and allowances . . . . . . . . . . . (1,072,529) (859,083)
------------ ------------
Net product sales. . . . . . . . . . . . . . . . . 4,130,645 4,119,573
Cost of product sales . . . . . . . . . . . . . . 2,416,671 1,685,172
------------ ------------
1,713,974 2,434,401

Gross artist project revenues . . . . . . . . . . 1,180,429 919,109
Less: Allowance for unrecoupable
artist advances . . . . . . . . . . . . . . . . (150,000) (60,391)
------------ ------------
Net artist project revenues . . . . . . . . . . . 1,030,429 858,718
Licensing, publishing and other revenues . . . . . 140,509 379,181
------------ ------------
Net artist project and other revenues . . . . . . 1,170,938 1,237,899
Cost of artist project and
other revenues . . . . . . . . . . . . . . . . . 1,228,722 1,294,856
------------ ------------
(57,784) (56,957)
------------ ------------
Gross profit . . . . . . . . . . . . . . . . . . . 1,656,190 2,377,444
Selling, general and
administrative expenses . . . . . . . . . . . . 2,374,664 2,268,460
------------ ------------
Operating income (loss) . . . . . . . . . . . . . (718,474) 108,984
Interest income . . . . . . . . . . . . . . . . . 90,494 393
Interest expense . . . . . . . . . . . . . . . . . (2,814) (139,114)
------------ ------------
Loss from continuing
operations before income taxes . . . . . . . . . (630,794) (29,737)
Provision for income taxes . . . . . . . . . . . . - -
------------ ------------
Net loss . . . . . . . . . . . . . . . . . . . . . $ (630,794) (29,737)
------------
------------
Less - Cumulative preferred
dividends . . . . . . . . . . . . . . . . . . . (301,250)
------------
Loss applicable to common
shares . . . . . . . . . . . . . . . . . . . . . $ (330,987)
------------
------------

Net loss per common share . . . . . . . . . . . . $ (0.12) $ (0.14)
------------ ------------
------------ ------------

Weighted average number of common
shares outstanding . . . . . . . . . . . . . . . 5,063,204 2,334,949
------------ ------------
------------ ------------

See accompanying notes to financial statements

<PAGE>

PLATINUM ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE THREE
MONTHS ENDED MONTHS ENDED
AUGUST 31, AUGUST 31,
1996 1995
(UNAUDITED) (UNAUDITED)

OPERATING ACTIVITIES
Net loss . . . . . . . . . . . . . . . . . . . . . $ (630,794) $ (29,737)
Adjustments to reconcile net loss to net cash
used in continuing operating activities:
Charge for future returns. . . . . . . . . . . 10,000 -
Charge for unrecoupable
artist balances . . . . . . . . . . . . . . . 130,781 60,962
Depreciation and amortization. . . . . . . . . 69,867 35,236
Changes in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . (1,704,326) (1,130,856)
Inventories . . . . . . . . . . . . . . . . . . (781,859) (100,812)
Notes receivable. . . . . . . . . . . . . . . . 877,961 (1,922)
Artist advances . . . . . . . . . . . . . . . . (1,208,654) (966,183)
Accounts payable. . . . . . . . . . . . . . . . 153,828 (262,543)
Accrued liabilities and other . . . . . . . . . (581,354) (192,509)
Royalties payable . . . . . . . . . . . . . . . 840,872 390,468
Other . . . . . . . . . . . . . . . . . . . . . (198,743) (49,765)
------------ ------------
Net cash used in continuing operating
activities. . . . . . . . . . . . . . . . . . . (3,022,421) (2,247,661)
Discontinued operations:
Change in net liabilities . . . . . . . . . . . - (329,439)
------------ ------------
Net cash used in discontinued
operating activities . . . . . . . . . . . . . - (329,439)
------------ ------------
Net cash used in operating activities. . . . . . . (3,022,421) (2,577,100)

INVESTING ACTIVITIES
Purchases of property and equipment. . . . . . . . (89,814) (14,236)
Investment in joint venture. . . . . . . . . . . . (350,000) -
------------ ------------
Net cash used in investing activities. . . . . . . (439,814) (14,236)

FINANCING ACTIVITIES
Net proceeds from related parties. . . . . . . . . - 1,135,023
Net proceeds from revolving
line of credit. . . . . . . . . . . . . . . . . - 1,950,000
Payment of bank term loan. . . . . . . . . . . . . - (250,000)
------------ ------------
Net cash provided by financing activities. . . . . - 2,835,023
------------ ------------
Net increase (decrease) in cash. . . . . . . . . . (3,462,235) 243,687
Cash, beginning of period. . . . . . . . . . . . . 8,222,173 87,368
------------ ------------
Cash, end of period. . . . . . . . . . . . . . . . $ 4,759,938 $ 331,055
------------ ------------
------------ ------------

See accompanying notes to financial statements

<PAGE>

PLATINUM ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOLLOWING IS UNAUDITED)

1. BASIS OF PRESENTATION

The financial statements included herein are unaudited and have been
prepared in accordance with generally accepted accounting principles for interim
financial reporting and Securities and Exchange Commission regulations. In the
opinion of management, the financial statements reflect all adjustments (of a
normal and recurring nature) which are necessary to present fairly the financial
position, results of operations and cash flows for the interim periods
presented. These financial statements should be read in conjunction with the
audited consolidated financial statements and notes thereto for the fiscal year
ended May 31, 1996 of Platinum Entertainment, Inc. ("Company") included in the
Company's Annual Report on Form 10-K. The interim results presented are not
necessarily indicative of the results that may be expected for the year ending
May 31, 1997.

2. NET LOSS PER COMMON SHARE

Net loss per common share is computed based upon the weighted average
number of common shares outstanding. Common and common equivalent shares issued
during the 12-month period prior to the March 12, 1996 public offering have been
included in the calculation for the three months ended August 31, 1995 as if
they were outstanding for that period using the treasury stock method and the
public offering price of $13 per share. In addition, all convertible preferred
stock and convertible Class A common stock and Class B common stock are treated
as if converted into common shares at the date of issuance.

3. ACQUISITION

On June 20, 1996, the Company acquired substantially all of the assets of
REX Music, Inc. (REX) for $480,000. The purchase price approximated the
indebtedness of REX to the Company, which primarily arose prior to May 31, 1996.
REX produces, licenses and markets recorded music, primarily in the Gospel
format, for markets principally in the United States. The acquisition has been
accounted for by the purchase method of accounting and the purchase price of
$480,000 approximates the fair value of the assets acquired. The assets
acquired include accounts receivable, artist advances, inventory, copyrights and
artist contracts. The value allocated to music publishing rights and artist
masters totaled $340,000 and is being amortized over 15 years using the
straight-line method.

4. JOINT VENTURE

The Company agreed to purchase all rights from Private Music, a division of
Private, Inc. (Private), relating to Private's 50% interest in a joint venture
with House of Blues Records, Inc. for the House of Blues Music Company.
Accordingly, the Company has $350,000 in escrow towards the joint venture, which
will close pending the settlement of terms pursuant to the agreement. The
Company's commitment in the joint venture, while not yet final, is approximately
$3,000,000. House of Blues Records, Inc. is a subsidiary of House of Blues
Entertainment, Inc. The Chairman and Chief Executive Officer of House of Blues
Entertainment, Inc. is also a director of the Company.

5. SUBSEQUENT EVENT

On September 19, 1996, the Company acquired substantially all of the assets
of Double J Music Group for 88,000 shares of common stock and the assumption of
approximately $100,000 of debt. Double J Music Group develops and acquires
ownership of musical compositions and exploits those compositions by means of
recordings, performances, audio-visual works, print publications and other
licenses. The acquisition has been accounted for by the purchase method of
accounting and the purchase price of $1,006,000 approximates the fair value of
the assets acquired.

7
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

The information in this section should be read together with the
consolidated financial statements and notes thereto that are included elsewhere
in the filing.

OVERVIEW

The Company continued its growth during the three months ended August 31,
1996 through continued investment in artist projects and the release of The
Beach Boys' STARS AND STRIPES, VOLUME 1. The Company also acquired
substantially all of the assets of REX Music, Inc. during June 1996 and acquired
substantially all of the assets of Scott Entertainment, Inc. (Double J Music
Group) during September 1996. See "Recent Developments" below for details of
the Double J Music Group acquisition.

In addition, the Company agreed to purchase all rights from Private Music,
a division of Private, Inc. (Private), relating to Private's 50% interest in a
joint venture with House of Blues Records, Inc. for the House of Blues Music
Company. Accordingly, the Company has $350,000 in escrow at August 31, 1996
towards the joint venture, which will close pending the settlement of terms
pursuant to the agreement. The Company's commitment in the joint venture, while
not yet final, is approximately $3,000,000. House of Blues Records, Inc. is a
subsidiary of House of Blues Entertainment, Inc. The Chairman and Chief
Executive Officer of House of Blues Entertainment, Inc. is also a director of
the Company.

The Company records revenues for music products, other than telemarketing
C.O.D. sales, when such products are shipped to retailers. In accordance with
industry practice, the Company's music products are sold on a returnable basis.
The Company's allowance for future returns is based upon its historical results
of operations, SOUNDSCAN data and the return rate of the Company's primary
distributor, PolyGram Group Distribution, Inc.

The Company recognizes revenues from the shipment of telemarketing C.O.D.
sales when cash is received from the customer. C.O.D. product shipments began
during the first quarter of fiscal 1995 and were discontinued in mid-February
1996, when the Company determined that C.O.D. orders would no longer be
accepted.

A significant recurring funding requirement of the Company is for
repertoire expenses, which include recording costs and advances to artists. The
Company makes substantial payments each period for recording costs and advances
in order to maintain and enhance its artist roster. These costs are recouped
from the artists' royalties, to the extent possible, from future album sales.
Artist advances are capitalized as an asset when the current popularity and past
performance of the artist provides a sound basis for estimating the probable
future recoupment of such advances from earnings otherwise payable to the
artist.

In fiscal 1996, the Company entered into an international licensing
agreement with MCA Records, Ltd. (MCA). Revenues derived from the licensing are
calculated as a percentage of retail sales by the licensee net of returns and
are recognized by the Company upon notification of retail sales net of returns
by the licensee. Manufacturing and related costs (other than artist royalties,
which are paid by the Company) are borne by the licensee. Artist royalties paid
by the Company in connection with international sales are recorded as costs of
artist projects and other revenues and are calculated as a percentage of retail
sales net of returns.

<PAGE>

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, certain items
derived from the Company's consolidated statements of operations as a percentage
of gross revenues:

THREE THREE
MONTHS ENDED MONTHS ENDED
AUGUST 31, AUGUST 31,
1996 1995
<S> <C> <C> <C> <C>

Total gross revenues . . . . . . . . . . $ 6,524,000 100.0% $ 6,277,000 100.0%

Less: Returns and allowances . . . . . . (1,072,000) 16.4% (859,000) 13.7%
Less: Allowance for
unrecoupable artist advances . . . . . (150,000) 2.3% (60,000) 1.0%
----------- -----------
Total net revenues . . . . . . . . . . . 5,302,000 81.3% 5,358,000 85.3%
Cost of product sales. . . . . . . . . . 2,417,000 37.0% 1,685,000 26.9%
Cost of artist projects and
other revenues . . . . . . . . . . . . 1,229,000 18.8% 1,295,000 20.6%
----------- -----------
Total cost of sales and
services . . . . . . . . . . . . . . . 3,646,000 55.9% 2,980,000 47.5%
----------- -----------
Gross profit . . . . . . . . . . . . . . 1,656,000 25.4% 2,378,000 37.8%
Selling, general and
administrative expenses. . . . . . . . 2,375,000 36.4% 2,269,000 36.1%
----------- -----------
Operating income (loss). . . . . . . . . (719,000) (11.0%) 109,000 1.7%
Interest income. . . . . . . . . . . . . 91,000 1.3% - -
Interest expense . . . . . . . . . . . . (3,000) - (139,000) (2.2%)
----------- -----------
Net loss . . . . . . . . . . . . . . . . $ (631,000) (9.9%) $ (30,000) (0.5%)
----------- -----------
----------- -----------
</TABLE>

GROSS REVENUES

Gross revenues increased $247,000 or 3.9% to $6,524,000 for the three
months ended August 31, 1996 compared to $6,277,000 for the comparable period of
the prior fiscal year. Gross revenues generated in the Country, Gospel, Adult
Contemporary, and Blues and other formats as a percentage of total gross
revenues for the three months ended August 31, 1996 were 46.7%, 39.0%, 9.5% and
4.8% compared to 8.7%, 55.9%, 29.0% and 6.4% for the three months ended August
31, 1995. The changes in format percentages are due principally to the release
of The Beach Boys' STARS AND STRIPES, VOLUME 1 on August 20,1996. The increase
in revenues includes $2,693,000 attributable to the release of The Beach Boys'
album. This increase was largely offset by a decrease in telemarketing sales
which were significantly reduced due to the increased costs of television
advertising and the incremental revenue recognized in the first quarter of
fiscal 1996 from the release of Peter Cetera's ONE CLEAR VOICE. In addition,
no international revenues have been recorded for the three months ended
August 31, 1996 as the Company has not been notified to date by MCA regarding
international sales generated during this period. There were no significant
releases, other than The Beach Boys, during the three months ended
August 31, 1996.

RETURNS AND ALLOWANCES

Returns and allowances increased $213,000 or 24.8% to $1,072,000 for the
three months ended August 31, 1996 compared to $859,000 for the comparable
period of the prior fiscal year. Returns and allowances as a percentage of
gross product sales increased to 20.6% for the three months ended August 31,
1996 from 17.3% for the comparable period of the prior fiscal year. The increase
is attributable primarily to an increase in the Company's and the industry's
historical return experience rates, particularly

<PAGE>

in Country, as a result of the weak music retail market that began in 1995 and
has continued through this quarter.

ALLOWANCE FOR UNRECOUPABLE ARTIST ADVANCES

The allowance for unrecoupable artist advances increased $90,000 to
$150,000 for the three months ended August 31, 1996 compared to $60,000 for the
comparable period of the prior fiscal year. Allowances for unrecoupable artist
advances as a percentage of gross project revenues increased to 12.7% for the
three months ended August 31, 1996 from 6.5% for the comparable period of the
prior fiscal year. This increase primarily relates to several Country and Gospel
projects released during the three months ended August 31, 1996 or to be
released later in fiscal 1997.

COST OF PRODUCT SALES

Cost of product sales increased $732,000 or 43.4% to $2,417,000 for the
three months ended August 31, 1996 compared to $1,685,000 for the comparable
period of the prior fiscal year. Cost of product sales as a percentage of gross
revenues increased to 37.0% for the three months ended August 31, 1996 from
26.9% for the comparable period of the prior fiscal year. This increase is
primarily attributable to increased royalty costs associated with albums
released during the three months ended August 31, 1996, featuring established
artists in non-Gospel formats. Further, the reduction in telemarketing sales
negatively impacted this percentage due to the lower cost of product sales
attributable to telemarketing sales compared with other distribution channels.

COST OF ARTIST PROJECTS AND OTHER REVENUES

Cost of artist projects and other revenues decreased $66,000 or 5.1% to
$1,229,000 for the three months ended August 31, 1996 compared to $1,295,000 for
the comparable period of the prior fiscal year. The decrease relates primarily
to the timing of project releases and the related costs incurred to complete
those projects. Significant cost of projects scheduled for release in fiscal
1997, such as The Beach Boys' STARS AND STRIPES, VOLUME II and albums by Alan
Parsons and Crystal Bernard, were incurred in fiscal 1996.

GROSS PROFIT

Gross profit decreased $722,000 or 30.4% to $1,656,000 for the three months
ended August 31, 1996 compared to $2,378,000 for the comparable period of the
prior fiscal year. As a percentage of gross revenues, gross profit decreased to
25.4% for the three months ended August 31, 1996 from 37.8% for the comparable
period of the prior fiscal year. This decrease is attributable to a decrease in
telemarketing revenues which provide higher gross margins due to the lack of a
third-party distribution channel, an increase in the reserves for artist
advances and an increase in product returns. In addition, no international
revenues have been recorded for the three months ended August 31, 1996 as the
Company has not been notified to date by MCA regarding international sales
generated during this period. International sales typically generate a 50%
gross margin.

SELLING, GENERAL AND ADMINISTRATIVE

Selling, general and administrative expenses increased $106,000 or 4.7% to
$2,375,000 for the three months ended August 31, 1996 compared to $2,269,000 for
the comparable period of the prior fiscal year. Selling, general and
administrative expenses as a percentage of gross revenues increased to 36.4% for
the three months ended August 31, 1996 from 36.1% for the comparable period of
the prior fiscal year. The increases are primarily attributable to increases in
Country and Adult Contemporary promotional, advertising and marketing costs,
increases in compensation necessitated to support the Company's growth and
additional costs incurred to support the public aspect of the Company, offset
by decreases in telemarketing expenses.

<PAGE>

OPERATING INCOME/LOSS

As a result of the factors described above, the operating loss for the
three months ended August 31, 1996 totaled $719,000 compared to operating income
of $109,000 for the comparable period of the prior fiscal year.

INCOME TAX

No tax benefit has been recorded to date through August 31, 1996 due to the
Company's valuation allowance at May 31, 1996, as required under generally
accepted accounting principles. Pursuant to Section 382 of the Internal Revenue
Code of 1986, as amended, the Company's net operating loss carryforward of
approximately $12,523,000 at May 31, 1996, expiring in years 2007 through 2011,
is subject to annual limitations due to a change in ownership as a result of the
initial public offering in March 1996. Consequently, approximately $3,700,000
of the loss carryforward at May 31, 1996 will be available to offset fiscal 1997
taxable income.

INTEREST INCOME

Interest income for the three months ended August 31, 1996 totaled $91,000
compared to $0 for the comparable period of the prior fiscal year. The interest
income for the current period is primarily attributable to earnings on net
proceeds remaining from the initial public offering.

INTEREST EXPENSE

Interest expense decreased to $3,000 for the three months ended August 31,
1996 from $139,000 for the comparable period of the prior fiscal year. All
outstanding debt was retired with the net proceeds received from the initial
public offering.

NET LOSS

The net loss attributable to common shares increased to $631,000 for the
three months ended August 31, 1996 from $331,000 for the comparable period of
the prior fiscal year. The increased loss is attributable to increased product
returns, particularly related to Country products, an increase in reserves for
artist advances and increased selling, general and administrative costs as
discussed above. In addition, no international revenues have been recorded for
the three months ended August 31, 1996 as the Company has not been notified to
date by MCA regarding international sales generated during this period.

RECENT DEVELOPMENTS

RECENTLY ISSUED ACCOUNTING STANDARDS

In October 1995, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 123, "Accounting for Stock-Based Compensation"("FAS 123"). This
Statement establishes financial accounting and reporting standards for stock-
based employee compensation plans as well as transactions in which the Company
issues its equity instruments to acquire services from nonemployees. The
Statement defines a fair value based method of measuring compensation costs for
such activity, but does not require accounting compliance under this method and
allows compensation costs for such activity to be measured using the intrinsic
value based method prescribed by APB Opinion No. 25, "Accounting for Stock
Issued

<PAGE>

to Employees"("Opinion 25"), the method currently utilized by the Company.
Entities electing to remain with the accounting for Opinion 25 must make pro
forma disclosures of net income and earnings per share as if the fair value
based method of accounting defined in FAS 123 had been applied. This Statement
is effective for the Company's fiscal year ending May 31, 1997. Management
intends to continue accounting for stock options pursuant to Opinion 25 and has
not yet determined what impact this Statement will have on the Company's
financial disclosures.

SEASONALITY

The Company's results of operations are subject to seasonal variations. In
accordance with industry practice, the Company records revenues for music
product, except those related to the telemarketing C.O.D. sales, when such
products are shipped to retailers. The Company has historically experienced a
decline in revenues and net income in its third fiscal quarter (December,
January and February) due to the fact that retailers purchase products from the
Company in the quarter ending November 30 in anticipation of holiday sales. As
a result, sales are traditionally lower during December and the post holiday
period.

LIQUIDITY

The Company's cash balances were $4,760,000 and $8,222,000 at August 31 and
May 31, 1996, respectively. Net cash used in operating activities was
$3,022,000 for the three months ended August 31, 1996. The uses reflect the
increases in volume, including net cash used to fund trade receivables of
$1,704,000, inventories of $782,000, artist advances of $1,209,000 and accrued
liabilities of $581,000, attributable to The Beach Boys' release and scheduled
future releases including albums by The Beach Boys, Crystal Bernard, Steve
Kolander and National Baptist Convention, as well as marketing costs and product
manufacturing costs incurred to support the release of The Beach Boys' album.
Pursuant to the Company's agreement with its outside distributor, the Company
will not begin to receive cash from the sale of this album until November 1996.
In addition, net cash provided by notes receivable of $878,000 resulted from an
agreement dated May 1996, whereby the Company sold certain audio-visual rights
for $401,000 and its right to free future studio usage for $850,000 to a
minority stockholder and former officer of the Company.

Investing activities for the three months ended August 31, 1996 of $90,000
relate primarily to additions to office equipment and computers. The Company
acquired substantially all of the assets of REX for $480,000 during June 1996.
The purchase price approximated the indebtedness of REX to the Company and cash
payments relating to this purchase during the three months ended August 31, 1996
were not significant. The Company also has $350,000 in escrow towards a joint
venture agreement with House of Blues Records, Inc. - see "Overview" above for
details.

There was no financing activity during the three months ended August 31,
1996.

CAPITAL RESOURCES

The Company has no debt outstanding at August 31, 1996. The Company
intends to enter a Revised Credit Agreement with American National Bank and
Trust Company of Chicago with a borrowing facility of $10,000,000. Pursuant to
the Revised Credit Agreement, the Company will be required to maintain certain
financial and other covenants. The Revised Credit Agreement will have an
initial term of one year, subject to annual renewal.

The Company's long-term capital requirements will depend on numerous
factors, including the rate at which the Company grows and acquires new artists
and products. The Company has various ongoing needs for capital, including
working capital for operations, artist advances and project development costs
and capital expenditures to maintain and expand its operations. In addition, as
part of its strategy, the Company evaluates potential acquisitions of music
catalogs, publishing rights and labels. The Company

<PAGE>

may in the future consummate acquisitions which may require the Company to make
additional capital expenditures, and such expenditures may be significant.
Future acquisitions may be funded with available cash from the net proceeds of
the initial public offering, seller financing, institutional financing and/or
additional equity or debt offerings.

Stockholders' equity at August 31, 1996 totaled $14,582,000 compared to
$15,215,000 at May 31, 1996. This decrease of $633,000 or 4.2% is due to net
losses experienced by the Company during the three months ended August 31, 1996.

INFLATION

The impact of inflation on the Company's operating results has been
moderate in recent years, reflecting generally lower rates of inflation in the
economy. While inflation has not had a material impact on operating results,
there is no assurance that the Company's business will not be affected by
inflation in the future.

SAFE HARBOR PROVISION

This Report contains certain forward-looking statements (within the meaning
of the Private Securities Litigation Reform Act of 1995) that involve
substantial risks and uncertainties. When used in this Report, the words
"anticipate," "believe," "estimate and "expect" and similar expressions as they
relate to the Company or its management are intended to identify such forward-
looking statements. A number of important factors could cause the Company's
actual results, performance or achievements for fiscal 1997 and beyond to differ
materially form those expressed in such forward-looking statements. These
factors include, without limitation, commercial success of the Company's
repertoire, charges, and costs related to acquisitions, relationships with
artists and producers, attraction and retention of key personnel, general
economic and business conditions and enhanced competition and new competitors in
the recorded music industry.

PART II - OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

A. Exhibits.

10.1 Letter Agreement by and between House of Blues Records, Inc. and
the Registrant, dated August 26, 1996.
10.2 Asset Purchase Agreement by and between Scott Entertainment,
Inc., shareholders of Scott Entertainment, Inc., as listed in the
Asset Purchase Agreement, and the Registrant, dated September 19,
1996, with exhibits.
10.3 Amended and Restated Platinum Entertainment, Inc. 1995 Employee
Incentive Compensation Plan
27. Financial Data Schedule.

B. Form 8-K.

No reports on Form 8-K were filed.

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, Platinum
Entertainment, Inc. has duly caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized, on this 14th day of October, 1996.

PLATINUM ENTERTAINMENT, INC.

By: /s/ STEVEN DEVICK
-----------------------------------
Steven Devick
Chairman of the Board, President
and Chief Executive Officer

By: /s/ DOUGLAS C. LAUX
-----------------------------------
Douglas C. Laux
Chief Financial Officer
(Principal Financial and
Accounting Officer)

<PAGE>

August 26, 1996

House of Blues Records, Inc.
8439 Sunset Boulevard
West Hollywood, California 90069

Dear House of Blues Records, Inc.:

In order to confirm previous understandings and agreements with respect to
the formation of a joint venture between the House of Blues Records, Inc., a
Delaware corporation ("HOB"), and Platinum Entertainment, Inc., a Delaware
corporation ("Platinum"), for the purpose of producing and exploiting sound
recordings and audiovisual works, it is hereby agreed as follows:

1. The mutual execution of this letter agreement (the "Agreement"), and
the purchase by Platinum of the fifty percent (50%) interest of Private, Inc.
("Private") in the joint venture between Private and HOB formed pursuant to an
agreement dated as of April 28, 1994 (the "Former Agreement"), shall constitute
the formation of a joint venture between HOB and Platinum entitled "House of
Blues Music Company" (hereinafter, the "Venture"). The Venture is intended to
be a partnership under the laws of the State of California.

2. The purposes for which the Venture is formed and the business of the
Venture shall be the development and production of recording and related film
and video properties featuring blues, gospel and other music and the turning to
account of rights held by the Venture or enterprises formed by the Venture in
such productions (hereinafter referred to individually and collectively as the
"Projects"). The business of the Venture shall not include publishing,
merchandising, or film or video projects developed by HOB Productions, Inc.
unless the parties otherwise specifically agree in writing. The Venture may
accomplish its purposes and conduct its business either alone or as a co-owner
or operator of other enterprises as the parties may agree. The Venture shall
have the power to do and perform all things necessary for, incident to and
connected with or arising out of such activities and shall take such actions
as may be conducive to the accomplishment of such purposes.

3. HOB and Platinum shall contribute capital to the Venture as such
parties shall mutually agree. Unless the parties otherwise mutually agree,
Platinum shall make all cash capital contributions to the Venture in accordance
with the current Annual Budget (as determined in accordance with Paragraph
5(c)). These monies shall

<PAGE>

Page 2
- ------------------------------

be expended to develop the Projects. All directly related or allocable costs
paid by Platinum for producing, recording, remixing, manufacturing, shipping,
distribution, advertising, promotion, mastering, artwork, AFTRA and AFofM
payments, artist, producer, and publisher royalties, any other payments required
by applicable laws or pursuant to any contracts or licenses, and all taxes,
credits, and returns, shall be deemed cash capital contributions. HOB (or an
affiliate that owns the intellectual property) agrees to contribute as capital
to the Venture a license in the HOB's trademarks, logo, and other intellectual
property that are reasonably necessary for the Venture business, as well as the
other services and valuable consideration described herein. Such capital
contribution by HOB shall not be recoupable pursuant to PARAGRAPH 4 of this
Agreement. The parties agree to raise such additional monies and enter the
Venture in such other enterprises as the parties may mutually agree (including
the purchase of blues sound recordings). The parties hereby deem the value of
their respective capital contributions, excluding any cash contributions, to be
equal and their initial capital accounts shall be equal. For purposes of this
agreement, the $3,550,000.00 paid by Platinum to Private, Inc. ("Private") in
connection with the assignment to Platinum of Private's interest in the record
company joint venture with HOB shall be deemed to be a cash capital contribution
in addition to Platinum's initial capital contribution to the Venture.

4. (a) Subject to any agreement the parties may enter with any investor,
the Venture shall make distributions from Available Cash (as defined below) as
follows:

(i) first, an amount equal to forty percent (40%) of the total
net income allocated to the parties pursuant to Paragraph 4(b)(i) below shall be
distributed fifty percent (50%) to HOB and fifty percent (50%) to Platinum;

(ii) second, to the parties pro rata based on the remaining
balance of the cash contributions that have not previously been distributed to
them pursuant to this Paragraph 4(a)(ii) until both parties have been
distributed an amount equal to their cash capital contributions;

(iii) third, to repay loans made by the parties as provided in
Paragraph 7 below; and

(iv) thereafter, fifty percent (50%) to HOB and fifty percent
(50%) to Platinum.

The term "Gross Receipts" shall mean all receipts of the Venture, from
whatever source derived, but excluding loan proceeds and cash capital
contributions. The term "Available Cash" shall

<PAGE>

Page 3
- ------------------------------

mean Gross Receipts less cash expenditure for operating costs and debt service,
and appropriate reserves and accruals.

In consideration of the foregoing, the parties shall perform those
functions in connection with the development and production of Projects of the
Venture as referred to herein, or as the parties mutually agree, and each such
party shall receive appropriate credit for its participation as described
herein.

(b) (i) All income and gain of the Venture shall be allocated fifty
percent (50%) to HOB and fifty percent (50%) to Platinum.

(ii) Any loss of the Venture shall be allocated among the parties
pro rata based upon the sum of their relative cash capital contributions and
their outstanding loans to the Venture, and if losses are to be allocated in
excess of such amounts, then fifty percent (50%) to HOB and fifty percent (50%)
to Platinum. Thereafter, notwithstanding Paragraph 4(b)(i) above, income or gain
of the Venture shall be allocated to the parties pro rata based upon their
relative share of the losses previously allocated and in inverse order of
such losses until each party has been allocated income and gain equal to the
losses previously allocated to them under this Paragraph 4(b)(ii).

(iii) Upon the termination of the Venture or upon the sale of all
or substantially all of its assets, income, gain or loss of the Venture for the
year in which the transaction occurs shall be allocated among the parties so as
to cause the capital accounts of the parties to most closely reflect the manner
in which the assets of the Venture are to be distributed to the parties upon
termination as provided in Paragraph 8.

5. (a) Each of the parties hereto shall devote such time as may be
necessary to the business of the Venture, it being expressly agreed that no
party hereto shall be required to devote exclusive time to the Venture's
business. Either party hereto may be engaged in one or more businesses other
than the business of the Venture, including, subject to the provisions of
PARAGRAPH 5(e), the production of other sound recordings or audiovisual works.
Neither the Venture nor any party hereto shall have any rights to any income or
profits derived by a party hereto with respect to such outside business
activity. Notwithstanding the foregoing, the parties agree that all
opportunities brought to the attention of either party during the term of this
agreement to purchase, record, distribute, or sell sound recordings featuring
performance of blues music (other than sound recordings owned or controlled by
Alligator Records, Inc.) shall first and promptly be brought to the attention of
the other party for consideration of such opportunity

<PAGE>

Page 4
- ------------------------------

by the Venture. The parties agree, after receipt of information sufficient to
enable the Venture to evaluate such opportunity, to promptly determine
whether to pursue such opportunity for acquisition by the Venture, and that
neither party shall pursue any such opportunity apart from the Venture unless
and until the Venture declines such opportunity. Each party shall conduct all
transactions with the Venture diligently and in good faith and shall at all
items give the other full information and truthful explanation of all matters
relative to the affairs of the Venture. Each party commits to use its best
efforts to fully exploit on behalf of the Venture all rights acquired by the
Venture in connection with the Projects.

(b) Unless otherwise agreed by the parties, and except as set forth
herein, all business decisions regarding the business of the Venture shall be
made jointly by the parties. The approval of either party shall not be
unreasonably withheld, delayed or conditioned. All recording artist contracts
undertaken by the Venture shall be through HOB. Unless the parties otherwise
agree, the copyright interests in all compilation albums produced by the
Venture (other than so-called promotional sampler albums primarily featuring
recording artists signed to HOB) shall be held by Platinum. All creative
decisions concerning the selection of recording artists to be signed to HOB, the
releases to be marketed through the Venture, and other Venture operations shall
be determined by HOB, subject to the reasonable consent of Platinum. Each party
may withdraw its participation from any Project of the Venture, and upon such
withdrawing party's request, such Project shall not be associated with such
withdrawing party or the Venture in any manner. The withdrawal of a party shall
not prevent the remaining party from continuing to develop and exploit such
Project.

(c) Beginning on or before October 1 of each year during the term
hereof the parties shall work diligently and in good faith to develop an annual
operating budget of the Venture for the next year, which budget shall include a
description of proposed Projects for the next year (the "Annual Budget"). In
attempting to develop an Annual Budget, each party shall act in a reasonable,
non-arbitrary manner, giving due consideration to the number and magnitude of
Projects undertaken in the current year, as well as reasonably expected growth
of the Venture during the next year. If the parties are not able to agree, by
December 1, on an Annual Budget for the next year, then HOB shall have the
right to purchase Platinum's entire interest in the Venture by giving written
notice thereof to Platinum by December 31 (the "HOB Option"). If HOB elects to
exercise the HOB Option, HOB shall pay to Platinum, within thirty (30) days
after the time of the election of the HOB Option (or cause to be paid to
Platinum at such time, for example,

<PAGE>

Page 5
- ------------------------------

by locating a third party to assume Platinum's Venture interest) an amount equal
to any unpaid loans or advances by Platinum and any cash capital contributions
of Platinum not previously distributed hereunder. If HOB does not elect to
exercise the HOB Option, and the parties are not otherwise able to agree to an
Annual Budget, then the Venture shall continue as provided herein and the Annual
Budget for the next year shall be the same as the Annual Budget for the current
year, as adjusted for changes in the Wholesale Price Index. HOB shall not be
entitled to exercise the HOB Option if the amount of the Annual Budget finally
proposed by HOB and rejected by Platinum (i) varies by more than one hundred
twenty five percent (125%) from the Annual Budget of the immediately preceding
year or (ii) exceeds the amount of the Annual Budget of the immediately
preceding year, and the Venture operated at a loss for such period. Each such
calculation shall be adjusted for changes in the Wholesale Price Index.

(d) Notwithstanding the foregoing, no party shall, in connection with
the Venture and without the consent of the other, (1) endorse any note, or act
as an accommodation party, or otherwise become surety for any person, (2) borrow
or lend money on behalf of the Venture or make, deliver or accept any commercial
paper, or execute any mortgage, security agreement, bond, or lease, or purchase
or contract to purchase, or sell or contract to sell, any property for or of the
Venture, or (3) assign, mortgage, grant a security interest in, or sell such
party's share in the Venture or in the Venture's assets or property, or enter
any agreement as a result of which any person shall become interested with a
party hereto in the Venture or do any act detrimental to the best interest of
the Venture or which would make it impossible to carry on the business of the
Venture. Any transaction not within the scope of the business of the Venture
entered by a party in this Venture, for whatever amount, shall be the sole and
separate liability of the party entering the transaction.

(e) The Venture, exclusively through Platinum, shall manufacture,
distribute, perform, exhibit and sell sound recordings ("Recordings") and
related audiovisual works ("Videos") under the HOUSE OF BLUES label. HOB shall
be entitled to purchase its requirements of copies of Videos and Recordings for
resale at the location of HOUSE OF BLUES clubs or by mail order either through
the U.S. mail, on-line computer services or any other media now or hereinafter
created at a price equal to the lowest wholesale price charged by Platinum to
third parties in such media (less all applicable discounts and allowances
offered on such Recordings and Videos) to the extend that such non-House of
Blues location sales do not conflict with rights granted by Platinum pursuant to
distribution agreements with third parties existing as of the date of this
agreement. Platinum shall be entitled to deduct from the

<PAGE>

Page 6
- ------------------------------

Venture's gross receipts from the exploitation of Videos and Recordings (after
returns, reasonable reserves and credits) ("Gross Revenue"), a label service fee
of seven percent (7%) of the initial Two Million Five Hundred Thousand Dollars
($2,500,000) of Gross Revenue per annum ("Base Revenue"), reduced in each year
prospectively by one percent (1%) for each Two Million Five Hundred Thousand
Dollars ($2,500,000) of Gross Revenue in excess of Base Revenue that is realized
by the Venture per annum thereafter, but not to be reduced to less than three
percent (3%) in any case during any year. In the event Recordings or Videos are
distributed in the Christian bookstore market through Platinum's Light
Distribution division, Platinum shall be entitled to deduct from Gross Revenues
a distribution fee shall be twenty seven percent (27%) of net sales (as defined
in Platinum's customary distribution agreement).

6. All expenses incurred with respect to the operation of the
Venture shall be mutually agreed in writing in advance. All expenses
advanced by the parties on behalf of the Venture shall be reimbursed on a pro
rata basis by the Venture upon submission of the statements accounting for
such expenses. The Venture's books shall be maintained at the principal
office of Platinum or at such other place as shall be mutually designated by
the parties, and each party or any designated representative of either party
shall at all times have access thereto. The Venture shall prepare, and each
party agrees to cooperate and assist in preparing, customary quarterly and
annual financial statements prepared in accordance with generally accepted
accounting principles (with each of the quarterly accounting periods subject
to adjustment). Such financial statements shall be provided to each of the
parties not later than the 30th day following the end of the Venture's first
three quarterly accounting periods and not later than the 45th day following
the end of the Venture's fiscal year. The Venture's fiscal year shall
commence on January 1 and conclude on December 31 of each calendar year. The
Venture may retain any duly licensed firm of accountants or attorneys in
connection with the business of the venture, including the maintenance of
books and records or the renditions of said accountings.

7. The parties may make loans to the Venture from time to time. Such
amounts and such terms shall be agreed upon by the parties in writing. Any such
loans shall be clearly segregated on the books of the Venture. All loans shall
bear interest at a legal market rate. Until such time as all loans have been
repaid in full, any distribution by the Venture to the parties will be in
partial or complete repayment of the loan or loans then outstanding, will be
made to each party in the proportion which the total of the then outstanding
loans from such party bears to the total of all the then outstanding loans from
all parties, and will

<PAGE>

Page 7
- -----------------------

not be deemed a distribution on account of the balance of each party's share of
the Venture's Net Profits. Monies contributed by the parties that are not
clearly designated as loans shall be deemed cash capital contributions.

8. The term of the Venture shall commence on the date first above written
and shall continue for five (5) years or until the first to occur of the
following events: (a) the adjudication of bankruptcy or insolvency of any party,
(b) the parties' written agreement to dissolve, or (c) by operation of law,
except as otherwise provided herein. Upon termination of the Venture, the
parties shall proceed with reasonable promptness to liquidate the business of
the Venture. Proceeds from the liquidation of the Venture's assets and
receivables shall be used and distributed in the following order: (a) to pay or
provide for the payment of all Venture liabilities and liquidating expenses and
obligations, (b) to repay any debts owing to any of the parties, including debts
arising from loans made to or for the benefit of the Venture, (c) to repay the
cash capital contribution of any party to the Venture not previously distributed
in accordance with Paragraph 4(a)(i), and (d) thereafter fifty percent (50%) to
HOB and fifty percent (50%) to Platinum.

The Venture, upon an event of termination, shall not have any right to use,
sell, or transfer any names, marks, logos or other intellectual property of HOB
or its affiliates (collectively, the "HOB Properties") without the prior written
consent of HOB, and all of the HOB Properties contributed to the Venture by HOB
(or its affiliate) shall be distributed to HOB, or its affiliate as designated
by HOB. Notwithstanding the preceding sentence, upon termination, Platinum
shall continue to have the right to use the HOB Properties in Videos and
Recordings physically in existence as of the date of the event of termination
(a) so long as HOB continues to receive its 50% distribution of the Net Profits
(that it would otherwise receive pursuant to PARAGRAPH 4) earned from sales of
such Videos and Recordings subsequent to the event of termination and (b) until
all Videos and Recordings manufactured in connection with the Projects as of the
time of the event of termination have been sold. Subsequent to an event of
termination, Platinum may only manufacture and distribute for sale additional
Videos and Recordings that bear any of the HOB Properties or any other HOB name
after obtaining the written consent of HOB and for such period and upon such
other terms as HOB may agree to in writing. Either party shall have the right
to purchase the assets (excluding rights to the HOB Properties) of the Venture
upon liquidation.

For the purposes of this PARAGRAPH 8, "Net Profits" and all related defined
terms in this Agreement shall continue to have the

<PAGE>

Page 8
- -----------------------

meaning such terms would have if an event of termination had not occurred and
the Venture had continued to exist.

9. (a) Platinum represents and warrants that it has the full right,
power and authority to grant to the Venture the right to use all intellectual
property and other proprietary rights of third parties used in connection with
the Venture in all media now or hereafter developed in connection with the
Venture, including, but not limited to, all consents, permits and licenses
required in connection therewith. Upon the oral or written request of HOB,
Platinum agrees to provide HOB with copies of all contracts between Platinum or
the Venture and third parties in connection with this PARAGRAPH 9(a), or, if
such contracts have not been executed or are unavailable, Platinum agrees to
provide HOB with all material terms of such contracts. Platinum agrees to
indemnify and hold harmless HOB in connection with any claims of third parties
that Platinum, HOB or the Venture has violated or infringed upon any
intellectual or other proprietary rights.

(b) HOB represents and warrants that it has the full right, power and
authority to grant to the Venture the right to use all intellectual property and
other proprietary rights of third parties used in connection with the Venture in
all media now or hereafter developed in connection with the Venture, including,
but not limited to, all consents, permits and licenses required in connection
therewith. Upon the oral or written request of Platinum, HOB agrees to provide
Platinum with copies of all contracts between HOB or the Venture and third
parties in connection with this PARAGRAPH 9(b), or, if such contracts have not
been executed or are unavailable, HOB agrees to provide Platinum with all
material terms of such contracts. HOB agrees to indemnify and hold harmless
Platinum in connection with any claims of third parties that HOB, Platinum or
the Venture has violated or infringed upon any intellectual or other
proprietary rights.

10. HOB and Platinum shall be accorded credit in connection with the
Projects of the Venture, as the parties shall agree.

11. The Venture shall be entitled to use the HOB Properties in promotional
materials related to the Venture; PROVIDED, HOWEVER, that any such use of such
names, marks or logos shall be approved in advance in writing by HOB (such
approval not to be unreasonably withheld).

12. This agreement is executed and intended to be performed in the State
of California and the laws of California shall govern its interpretation and
effect. If any term, provision, covenant or condition of this agreement is held
by a court of competent jurisdiction to be invalid, void or unenforceable, the
rest of the

<PAGE>

Page 9
- -----------------------

agreement shall remain in full force and effect and shall in no way be affected,
impaired or invalidated. This agreement may be executed in counterparts, each
of which shall be deemed an original.

13. In the event of any action, suit or proceeding arising from or based
upon this agreement brought by either party hereto against the other, the
prevailing party shall be entitled to recover from the other its reasonable
attorneys' fees in connection therewith in addition to the costs of such action,
suit or proceeding.

14. Neither party may assign its respective rights hereunder without the
prior written consent of the other; PROVIDED, HOWEVER, that such written consent
shall not be required for the assignment or transfer of such rights to a wholly
owned affiliate of such party. Subject to the restrictions on assignment set
forth in this Agreement, the provisions of this Agreement shall be binding upon
and inure to the benefit of the successors and assigns of the parties.

15. Neither party shall be deemed to be in breach of any obligation
hereunder unless and until the party alleging a breach shall give the other
specific written notice of the nature of such breach and the party receiving
such notice shall have failed of cure such breach within 30 days after receipt
of such written notice. Notice shall be deemed given when deposited in the U.S.
mail, postage prepaid, bearing the parties respective address as set forth
herein or such other address as the parties may later designate.

16. This Agreement constitutes the complete, exclusive statement of the
agreement among the parties and is not to be amended, supplemented, varied or
discharged except by agreement of the parties set forth in an instrument in
writing. No representation, statement, condition or warranty not contained in
this agreement shall be binding on the parties or have any force or effect
whatsoever. In particular and without limitation concerning any other
agreement, upon consummation of the purchase by Platinum of Private's fifty
percent (50%) interest in the joint venture with HOB that is memorialized in the
Former Agreement, this Agreement amends, restates, and supercedes the terms of
the Former Agreement; PROVIDED, HOWEVER, that the terms of the Former Agreement
shall be incorporated herein by reference and remain in full force and effect to
the extent only that it pertains to payments to HOB or Platinum for proceeds
form sales of LPs produced under such agreement.

<PAGE>

Page 10
- -----------------------

Kindly indicate agreement and acceptance of the foregoing by signing below.

Very truly yours,

PLATINUM ENTERTAINMENT, INC.

By: /s/ Steven Devick
-------------------------
Name: Steven Devick
-----------------------
Title: As CEO & President
----------------------

AGREED AND ACCEPTED:

HOUSE OF BLUES RECORDS, INC.

By: /s/ Gregory A. Trojan
-----------------------------
Name: Gregory A. Trojan
---------------------------
Title: President & COO
--------------------------

<PAGE>

ASSET PURCHASE AGREEMENT

THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made as of this 19th
day of September, 1996, by and among SCOTT ENTERTAINMENT, INC., an Illinois
corporation ("Seller"), and the shareholders of Seller listed on the signature
page hereto (collectively, the "Shareholders") and PLATINUM ENTERTAINMENT, INC.,
a Delaware corporation ("Buyer").

WHEREAS, Seller is engaged in the music publishing business and has its
principal offices located at 119 Seventeenth Avenue South, Nashville, Tennessee
37203 ("Seller's Business"); and

WHEREAS, Seller desires to sell and Buyer desires to purchase
substantially all of Seller's assets; and

NOW, THEREFORE, in consideration of the mutual covenants of the parties
set forth in this Agreement and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:

ARTICLE I

PURCHASE AND SALE OF ASSETS

1.1 ASSETS. On the terms and subject to the conditions hereinafter
set forth, at the Closing, Seller shall sell, convey, transfer, assign and
deliver to Buyer, free and clear of all liens, claims, mortgages, security
interests, charges, pledges or other encumbrances or adverse claims or interest
of any nature ("Liens"), and Buyer shall purchase from Seller, all of Seller's
right, title and interests in and to all of the property and assets of every
kind and nature which are used in or arise out of the conduct of the Business or
are considered to be assets of Seller in connection with the Business as of the
Closing Date (defined below), wherever located (collectively, the "Assets"),
including but not limited to, the following:

(a) all of Seller's musical compositions and master recordings;

(b) all contracts, agreements, relationships or commitments,
oral or written, to which any of the Assets are bound or relates,
directly or indirectly, to Seller's Business, including but not limited
to, all publishing agreements, artist contracts and license agreements
(collectively the "Contracts");

(c) all of Seller's inventory, including raw materials,
components, work-in-process, finished products, and supplies
(collectively, the "Inventory");

-1-

<PAGE>

(d) all of Seller's tangible personal property, including
fixtures, machinery, office furniture and equipment, computer equipment
and software and any licenses therefor (collectively, the "Personal
Property");

(e) all accounts receivable and notes, bonds or other evidences
of indebtedness of any Person held by or for the benefit of Seller
(collectively, "Accounts Receivable");

(f) all cash, cash equivalents, money on deposit with banks and
others and certificates of deposit (collectively the "Cash Amount");
provided, however, in no event shall the Cash Amount exceed $10,000;

(g) all of Seller's trademarks, trademark registrations and
trademark applications, trade-names, including d/b/a's, logos,
copyrights, patents and patent applications, patent and other licenses
thereof, patent disclosures and inventions (whether or not patentable and
whether or not reduced to practice), know-how, trade secrets, lists of
past and present customers, potential customers, recorded knowledge,
business plans, performance standards, catalogues, research data,
analyses and computer software and programs, sales data, sales and
advertising materials, scheduling and service methods, sales and service
manuals and all other proprietary, confidential and other similar
information (in whatever form or medium) relating to the manufacture,
merchandising, publication, sale or distribution of products and the
conduct of the Business (collectively, "INTELLECTUAL PROPERTY"), and
rights to sue for past infringements thereof;

(h) all of Seller's supplier lists, customer lists, sales and
marketing records and materials, general business records, and accounting
records;

(i) all deferred charges, advances, payments, prepaid items,
credits for refunds, rights of offset, and credits;

(j) all licenses, permits, franchises, and approvals and
authorizations by or of any Governmental Body or other persons required
for the conduct of the Business or in connection with ownership of the
Assets (the "Licenses"); and

(k) all causes of action, judgments, claims and demands of
whatever nature of Seller against any Person relating to the Assets or
arising out of or in connection with Seller's Business heretofore
existing or hereinafter accruing to Seller.

1.2 EXCLUDED ASSETS. Notwithstanding anything to the contrary
contained herein, the Assets do not include the following (collectively, the
"Excluded Assets"):

(a) Seller's corporate records, such as its Articles of
Incorporation, corporate seal, minute books, stock books, and other
records dealing exclusively with the corporate organization of Seller;

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(b) Seller's rights under this Agreement, including the
consideration paid to Seller pursuant to this Agreement;

(d) Seller's Employee Benefit Plans (as defined below) and any
and all rights therein or in the assets thereof;

(e) all cash, cash equivalents, money on deposit with banks and
others and certificates of deposit in excess of $10,000;

(f) The Seller's counterclaims and/or motions for sanctions
which have been, or may be filed in connection with the litigation
involving Danny Wells and Belinda Prather.

ARTICLE II
CONSIDERATION AND MANNER OF PAYMENT

2.1 PURCHASE PRICE. The purchase price for the Assets (the "Purchase
Price") to be paid by Buyer to Seller at Closing for the Business and the Assets
shall be (i) $1,050,000 payable in Purchase Shares, as set forth below, which is
the equivalent of the fair market value of $1,500,000 in Purchase Shares reduced
by a 30% discount to reflect the lack of marketability of such Purchase Shares,
plus (ii) an amount equal to the value of the Assumed Liabilities (as defined in
SECTION 2.2). The "Purchase Shares" are that number of Buyer's common stock,
par value $0.001 per share determined as follows: (i) if the average closing
price of Buyer's common stock as quoted on the Nasdaq National Market for the
five consecutive trading days ending on the last trading day prior to the
Closing Date (the "Average Price") is less than $17.00 per share, the number of
Purchase Shares shall be the result of $1,500,000 divided by $17.00; (ii) if the
Average Price is greater than or equal to $17.00 per share but less than or
equal to $20.00 per share, the number of Purchase Shares shall be $1,500,000
divided by the Average Price, and; (iii) if the Average Price is greater than
$20.00 per share, the number of Purchase Shares shall be the result of
$1,500,000 divided by $20.00.

2.2 ASSUMPTION OF LIABILITIES. Notwithstanding anything to the
contrary contained in this Agreement or any of the Seller's or Buyer's
Agreements (as defined below), and regardless of whether such liability is
disclosed in this Agreement or any of the Seller's or Buyer's Agreements, or in
the Disclosure Letter (as defined below) or Exhibit hereto or thereto, Buyer
will not assume, agree to pay, perform or discharge or in any way be responsible
for any debts, liabilities, or obligations Seller or any Affiliate (as defined
below) of Seller of any kind or nature whatsoever (whether due or to become due,
absolute or contingent, direct or indirect, asserted or unasserted, known or
unknown, and regardless of whether such debts, liabilities, or obligations
relate to Seller's Business) (the "Excluded Liabilities"), except for those
liabilities stated on PART 2.2 OF THE DISCLOSURE LETTER (the "Assumed
Liabilities"); provided, however, in no event shall the Assumed Liabilities
exceed $100,000, in the aggregate.

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2.2.1 ASSUMPTION OF LIABILITIES. Buyer will execute and
deliver to Seller a counterpart of an Assignment and Assumption
Agreement, in substantially the form of EXHIBIT 2.2.1 ("Bill of Sale and
Assignment and Assumption Agreement"), whereby Buyer agrees to assume the
Assumed Liabilities.

2.2.2 PRORATION. The parties acknowledge that after the
Closing, Buyer shall continue to utilize the office space currently
leased by Seller. Therefore, the parties agree to pro rate, as of the
Closing Date, all prepaid rent.

2.3 INDEMNITY ESCROW. The parties hereto agree that at Closing,
Seller and the Shareholders shall deliver a number of shares equal to 15% of the
Purchase Shares into an escrow account pursuant to the terms of an Escrow
Agreement in the form of EXHIBIT 2.3, attached hereto (the "Escrow Agreement").

2.4 CLOSING EXPENSES AND RELATED TAXES. Seller shall pay at the
Closing any stamp or other sales, transfer, or transaction tax imposed on the
transfer of the Assets by Seller to Buyer.

2.5 ALLOCATION OF PURCHASE PRICE. The purchase price shall be
allocated among the Assets as set forth on EXHIBIT 2.5, with said allocation to
be mutually agreed upon by the Buyer and Seller. Buyer and Seller agree to
report on its respective tax returns the transactions which are the subject of
this Agreement in a manner consistent with the allocation agreed-upon by the
respective parties.

2.6 NONCOMPETITION CONSIDERATION. In consideration of Mr. James H.
Scott entering into the Noncompetition Agreement in the form attached hereto as
EXHIBIT 2.6 (the "Non-Competition Agreement") and abiding by the restrictive
covenants contained therein, Buyer shall pay $45,000 in cash to Mr. Scott
payable by check or wire transfer at the Closing.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

3.1 REPRESENTATIONS AND WARRANTIES OF SELLER AND THE ACTIVE
SHAREHOLDERS. Seller and the Active Shareholders (and the Passive Shareholders,
solely with respect to SECTION 3.1.33), jointly and severally, hereby represent
and warrant to Buyer as of the Closing Date as follows:

3.1.1 ORGANIZATION. Seller is a corporation duly organized,
existing, and in good standing under the laws of the State of Illinois
and has all requisite power and authority to conduct Seller's Business
and to own or hold under lease the Assets. Seller has been a valid
S-corporation under the Code since its inception.

3.1.2 AUTHORITY.

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(a) Seller has full right, power, and authority to execute
and deliver this Agreement, and all other agreements, documents,
certificates and instruments delivered in connection with the
transactions contemplated hereby, to which it is a party and any
other document to be delivered by it at Closing (collectively, the
"Seller's Agreements"). The execution and performance of this
Agreement and the Seller's Agreements have been duly authorized by
all necessary corporate action, including the unanimous approval
by the Board of Directors of Seller and each of the Shareholders.
This Agreement and the Seller's Agreements have been duly and
validly executed and delivered by Seller and constitute the valid
and binding obligations of Seller, enforceable against it in
accordance with their respective terms;

(b) Each of the Shareholders has full right, power and
authority to enter into and perform his obligations under this
Agreement and all other documents entered into in connection with
the transactions contemplated hereby. This Agreement and each of
the other documents entered into by the Shareholders in connection
herewith have been duly and validly executed and delivered by each
of the Shareholders and constitutes the valid and binding
obligation of each Shareholder executing such agreement or
document, enforceable against each of them in accordance with
their respective terms.

3.1.3 QUALIFICATION OF SELLER. There are no other
jurisdictions (other than Illinois and Tennessee) in which the conduct of
Seller's Business or its ownership of the Assets requires any
qualification under the law of such jurisdiction.

3.1.4 NO SUBSIDIARIES. Seller does not have, directly or
indirectly, any equity or ownership interest in any Person.

3.1.5 ARTICLES OF INCORPORATION, BYLAWS, OFFICERS, AND
DIRECTORS. Seller has previously delivered to Buyer true and complete
copies of Seller's Articles of Incorporation and all amendments thereof
to date, certified by the Secretary of State of Illinois, and Seller's
Bylaws as amended to date, certified by an officer of Seller. PART 3.1.5
OF THE DISCLOSURE LETTER is a true and complete list of all of Seller's
officers and directors.

3.1.6 CAPITALIZATION. The authorized capital of Seller
consists of 20,000 shares of common stock, no par value, of which 18,000
are issued and outstanding. The foregoing shares of common stock
constitute the "Shares." The shareholders listed on PART 3.1.6 OF THE
DISCLOSURE LETTER are and on the Closing Date will be the sole record and
beneficial owners and holders of the Shares.

3.1.7 ASSETS USED IN SELLER'S BUSINESS. Except for the
Excluded Assets, the Assets constitute all of the rights, properties, and
other assets of every type and

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description (whether tangible or intangible, real or personal) used in
the conduct of Seller's Business.

3.1.8 TITLE TO ASSETS. Subject only to SECTION 8.1(A) and only
to the extent of the limitations set forth in SECTION 8.1(A), Seller
holds good and marketable title to all of the Assets, free and clear of
all Liens.

3.1.9 NO RESTRICTIONS AGAINST SALE OF ASSETS. Seller has full
right, power, and authority to sell the Assets to Buyer as provided in
this Agreement without obtaining the consent or approval of any
Governmental Body or other Person. The execution and delivery by Seller
of, and the performance by Seller of its respective obligations under,
the Seller's Agreements do not require Seller to obtain any consent,
approval, or waiver of any acceleration, termination, or other right or
remedy by, or to make any filing with or give any notice to, any other
person, except as set forth in PART 3.1.9 OF THE DISCLOSURE LETTER.

3.1.10 BUYER'S TITLE ON CONSUMMATION. Upon consummation of the
transactions which are subject of this Agreement, Buyer will be vested
with good and marketable title to all of the Assets, free and clear of
all Liens.

3.1.11 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth
in PART 3.1.11 OF THE DISCLOSURE LETTER, the Seller has no liabilities or
obligations of any nature (whether absolute, accrued, contingent, or
otherwise) other than (i) liabilities or obligations reflected or
reserved against in the Financial Statements (as defined below), (ii)
current liabilities incurred in the Seller's ordinary course of business
since June 30, 1996, (iii) obligations under the Contracts that are set
forth in PART 3.1.14 OF THE DISCLOSURE LETTER or that are required to be
so set forth and which obligations are to be performed in the ordinary
course of business, which obligations are apparent from the plain reading
of such Contracts; (none of which liabilities, obligations or matters
would result from a breach of contract, breach of warranty, tort,
infringement or lawsuit) and (iv) those liabilities which relate to the
Claims specifically disclosed in PART 3.1.17 OF THE DISCLOSURE LETTER.

3.1.12 FINANCIAL STATEMENTS. Seller has furnished Buyer with
Seller's balance sheets and income statements as of and for the fiscal
year ended December 31, 1995, and as of the end of the three months ended
March 31, 1996 and June 30, 1996 (collectively, the "Financial
Statements"). Except as set forth in PART 3.1.12 OF THE DISCLOSURE
LETTER, such Financial Statements are complete and correct in all
material respects in accordance with GAAP, are consistent with Seller's
books and records, and fairly present the financial condition, assets and
liabilities as of their respective dates and results of operations and
cashflows for the periods related thereto, in accordance with GAAP. No
financial statements of any Person or Affiliate of Seller are required by
GAAP to be consolidated with the Financial Statements of Seller.

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3.1.13 TAX RETURNS. Seller has filed all Tax Returns (as
defined below) that it is required to have filed, and such Tax Returns
are true and correct. Seller has paid all Taxes (as defined below)
reflected on such Tax Returns or otherwise due and payable by it in
connection with the Assets or the operation of the Business as of the
Closing. Seller has paid or made adequate provision for the payment of
all Taxes that have or may become due pursuant to such Tax Returns or
pursuant to any notice of deficiency or assessment received with respect
to such Tax Returns. There are no unexpired waivers by Seller of any
statute of limitations with respect to any Taxes, and neither Seller nor
the Shareholders is a party to any action or proceedings by any
Governmental Body for the collection or assessment of Taxes.

3.1.14 CONTRACTS. Attached hereto as PART 3.1.14 OF THE
DISCLOSURE LETTER is a list of all Contracts, correct and complete
copies of which have been previously furnished to the Buyer. To the
Actual Knowledge of Seller, except as set forth in PART 3.1.14 OF THE
DISCLOSURE LETTER, all of the Contracts may be assigned to Buyer without
the consent, approval, novation or waiver of any Person. To the Actual
Knowledge of the Seller, Seller is not in default, and no event has
occurred which the giving of notice or the passage of time or both would
constitute a default, under any Contract or any other obligation owed by
Seller, an no event has occurred which with the giving of notice or the
passage of time or both would constitute a default by any other party to
any such Contract or obligation.

3.1.15 LEASED PROPERTIES. The only real estate used in the
operation of Seller's Business are the real properties listed in PART
3.1.15 OF THE DISCLOSURE LETTER, which are collectively referred to
herein as the "Leased Properties." All of such Leased Properties are
leased pursuant to leases described in said Disclosure Letter, a true and
correct copy of each having been previously delivered to Buyer (the
parties from whom the Leased Properties are leased are referred to herein
as the "Landlords"), and which have not been amended, modified or
assigned. With respect to each of the Leased Properties:

(a) Seller is not aware of any material problems with,
the buildings, plants, improvements, structures and fixtures on
the Leased Property, including, without limitation, heating,
ventilation and air conditioning systems, roof, foundation and
floors and believe that the Leased Property is in good operating
condition and repair and the Seller has received a Certificate of
Occupancy regarding such Leased Property;

(b) to the Actual Knowledge of the Seller, since Seller
has not received any notice of any special assessment, or any
notice alleging violation of any applicable building, zoning, fire
or health codes, or any notice requiring or calling attention to
the need for any work, repairs, construction, alteration or
installation on or in connection with the Leased Property which
has not been heretofore complied with by Seller at its sole cost
and expense or the Landlord,

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and is not aware of any such notices which may have been issued
but not yet received by Seller;

(c) to the Actual Knowledge of the Seller, there are no
leases, subleases, licenses, concessions, or other agreements
(whether written or oral) to which Seller is a party, that grant
to any Person the right to use or occupy any portion of the Leased
Property;

(d) to the Actual Knowledge of the Seller, there are no
Persons (other than Seller) in possession of the Leased Property;

(e) to the Actual Knowledge of Seller, the Leased
Property is supplied with utilities and other services necessary
for the operation of Seller's Business; and

(f) to the Actual Knowledge of Seller, the lease for the
Leased Property is being fully performed and is in full force and
effect, is enforceable in accordance with its terms and neither
Seller nor to the knowledge of Seller, the Landlord is in breach
or default, or alleged to be in breach or default with respect
thereto, and no conditions exist or events have occurred which
with the giving of notice or the passage of time on both could
give rise to a breach or default thereunder.

3.1.16 PERSONAL PROPERTY. PART 3.1.16 OF THE DISCLOSURE LETTER
is a true and complete list of the Personal Property owned by Seller or
used in the Business. Except as set forth in PART 3.1.16 OF THE
DISCLOSURE LETTER, to Seller's Actual Knowledge, no Personal Property is
held under any lease, security agreement, conditional sales contract, or
other title retention or security arrangement. To the Actual Knowledge
of the Seller, all such Personal Property is in good operating condition
repair.

3.1.17 LITIGATION. Except as set forth in PART 3.1.17 OF THE
DISCLOSURE LETTER (which discloses the parties to, nature of, and relief
sought for each matter to be disclosed in PART 3.1.17 OF THE DISCLOSURE
LETTER):

3.1.17.1 CLAIMS. There is no suit, action,
proceeding, investigation, arbitration, claim, or order (a) that
is, pending or to Seller's knowledge, threatened against Seller
(or, pending or to Seller's knowledge, threatened against any of
the officers, directors, or employees of Seller with respect to
Seller's Business), (b) to which, Seller is otherwise a party, or
(c) that may, affect Seller, the Assets, or Seller's Business,
before any court or any other Governmental Body (collectively,
"Claims"); and to Seller's knowledge, there is no basis for any
such Claim.

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3.1.17.2 ORDERS. Seller is not subject to or bound by
any judgment, order, or decree of any court or any other
Governmental Body. Seller has not received any opinion or
memorandum from legal counsel to the effect that it is exposed to
any liability or disadvantage that may be material to Seller's
Business, and Seller is not engaged in any legal action to recover
monies due it or for damages sustained by it.

3.1.18 COMPLIANCE WITH APPLICABLE LAWS. Seller has complied and
is currently in compliance with all laws, regulations, writs,
injunctions, decrees, orders, and other decisions applicable to it or to
the operation of Seller's Business (collectively, "Laws") and has not
received any notice of any alleged violation of or liability under any
such Law. Without limiting the generality of the foregoing, Seller has
complied in all respects with all applicable federal, state, and local
Laws related to antitrust and trade regulations, the protection of the
environment, and the employment of labor and collective bargaining.

3.1.19 INTELLECTUAL PROPERTY. PART 3.1.19 OF THE DISCLOSURE
LETTER contains a complete and accurate description of all Intellectual
Property of Seller, including information regarding Seller's ownership of
such Intellectual Property and licenses, rights, or immunities in such
Intellectual Property and the registration of such Intellectual Property.
To the Actual Knowledge of Seller, Seller owns all of the Intellectual
Property, and all of the Intellectual Property is valid and in good
standing, free and clear of any Liens, and are not being challenged in
any way. To the Actual Knowledge of Seller, Seller has not infringed and
is not now infringing on any copyright, trademark, service mark or trade
name of, or belonging to, any person. To the Actual Knowledge of Seller,
there is no claim pending or, threatened against Seller related to
alleged infringement of any Intellectual Property owned by any Person.
To the Actual Knowledge of Seller, the operation of Seller's Business in
the manner in which it has been operated prior to the date of this
Agreement or is presently operated does not give rise to any such claim.

3.1.20 TRANSACTIONS NOT A BREACH. The execution, delivery, or
performance by Seller and the Shareholders of this Agreement and the
Seller's Agreements will not:

(a) violate, conflict with, or result in a breach of any
provision of any Law binding on Sellers and/or the Shareholder;

(b) violate or conflict with Seller's Articles of
Incorporation or Bylaws or with any provision of any contract,
agreement, mortgage, note, bond, license, or other instrument or
obligation to which Seller and/or the Shareholders is a party or
by which Seller, the Shareholders or any of the Assets may be
bound or affected;

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(c) constitute an event that would permit any party to
terminate any agreement, or accelerate the maturity of any
indebtedness or other obligation, to which Seller and/or the
Shareholders is a party or by which Seller and/or the Shareholders
is bound;

(d) result in the creation or imposition of any lien,
security interest, charge, or encumbrance upon the Assets; or

(e) have a material adverse effect on Seller or the
Assets.

3.1.21 CONDUCT OF SELLER'S BUSINESS. Except as set forth in
PART 3.1.21 OF THE DISCLOSURE LETTER, since December 31, 1995, Seller has
conducted its business with respect to the Assets only in the ordinary
course of business, and has incurred no liabilities in connection with
the Assets other than in the ordinary course of business, and there has
been no material adverse change in the assets, condition (financial or
otherwise), operating results, employee or customer relations, business
activities or business prospects involving the Assets as of such date.
Set forth in PART 3.1.21 OF THE DISCLOSURE LETTER is a description of all
bonuses, dividends or other distributions declared or paid in 1995 to any
shareholder, director or employee of Seller for who aggregate bonuses,
dividends and other distributions declared or paid in 1995 exceed
$10,000.

3.1.22 INSURANCE POLICIES. PART 3.1.22 OF THE DISCLOSURE LETTER
contains a complete and accurate list and description of all insurance
policies (including "self-insurance" programs) now maintained by Seller
(the "Insurance Policies") and all general liability policies maintained
by Seller during the past two years with respect to Seller's Business or
the Assets. To the Actual Knowledge of the Seller, the Insurance
Policies are in full force and effect, Seller is not in default under any
Insurance Policy, and no claim for coverage under any Insurance Policy
has been denied. Seller covenants and agrees that all of the Insurance
Policies will be maintained in full force and effect until the Closing
Date.

3.1.23 ACCOUNTS RECEIVABLE. Attached hereto as PART 3.1.23 OF
THE DISCLOSURE LETTER is a true and complete list of Seller's accounts
receivable as of August 31, 1996. To the Actual Knowledge of the Seller,
all such accounts receivable are valid, collectible (subject to any
reserves set forth on the Financial Statements) and have arisen in the
ordinary course of business and, to Seller's knowledge, not subject to
any counterclaim or setoff.

3.1.24 INVENTORY. To the Actual Knowledge of the Seller, all
Inventory owned by Seller is and will be fit for the purpose for which it
was produced and is in good and marketable condition. All Inventory
consists of quality and quantity historically usable in Seller's ordinary
course of business except for items which are obsolete, damaged or
unsalable all of which have been determined and written down to net
realizable value in accordance with GAAP.

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3.1.25 LICENSES. PART 3.1.25 OF THE DISCLOSURE LETTER is a
complete and accurate list of all of the Licenses. To the Actual
Knowledge of the Seller, Seller owns or possesses all right, title, and
interest in and to all such Licenses, and to Seller's Actual Knowledge,
all such Licenses are valid, binding, and in full force and effect.

3.1.26 EMPLOYEES. Seller previously has delivered to Buyer a
correct and complete list setting forth (a) the name, job title, current
salary, accrued vacation and years of employment for each employee of
Seller, and (b) the names and total annual compensation for all
independent contractors who render services on a regular basis to Seller.
Except as disclosed in PART 3.1.26 OF THE DISCLOSURE LETTER, to the
knowledge of the Seller, no employee or independent contractor of Seller
has received any bonus or increase in compensation and there has been no
general increase in the compensation or rate of compensation payable to
any employees or independent contractors of Seller, since December 31,
1995 nor has there been any change in any Employee Benefit Plan or any
promise by Seller to employees or independent contractors orally or in
writing of any bonus or increase in compensation or a general increase or
change in any Employee Benefit Plan, whether or not legally binding.
Except as disclosed on PART 3.1.26 OF THE DISCLOSURE LETTER, and to the
knowledge of Seller, no former or current employee or current or former
officer or director of Seller is a party to, or is otherwise bound by,
any agreement or arrangement, including any confidentiality,
non-competition, or proprietary rights agreement, between such employee,
officer or director and any other Person that in any way adversely
affected, affects, or will affect (x) the performance of this or her
duties as an employee, officer or director of Buyer, or (y) the ability
of Buyer to conduct its business. To the knowledge of Seller, except for
Mr. James Scott, each officer or other employee of Seller intends to
become an employee of Buyer.

3.1.27 ENVIRONMENTAL MATTERS.

3.1.27.1 COMPLIANCE WITH ENVIRONMENTAL LAWS. Seller
is in compliance with all Environmental and Safety Requirements (as
defined below), Seller has not received notice of any violation or
alleged violation of any such Environmental and Safety Requirements.
Seller possesses all required Licenses relating to health, safety or
protection of the environment which, if not possessed, could result or
has resulted in adverse consequences for the Business, the Assets, or a
violation of any applicable Environmental and Safety Requirements.

3.1.27.2 NO HAZARDOUS SUBSTANCES. Seller has not
generated, transported, treated, stored, or disposed of, nor has there
been a release or threatened release of, any Hazardous Substances (as
defined below) in, under, upon or from any real property, equipment or
other personal property now or heretofore owned, leased, used or operated
by Seller, except in compliance with all applicable Environmental and
Safety Requirements. There are no underground storage tanks under or
upon any real property now or heretofore owned, leased, used or operated
by Seller.

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3.1.27.3 NO ACTIONS OR PROCEEDINGS. Seller is not,
nor has been subject to, nor has received any notice of, any private,
administrative or judicial action, or notice of any intended private,
administrative, or judicial action, relating to the presence or alleged
presence of Hazardous Substances in, under or upon any real property,
equipment or other personal property now or heretofore owned, leased,
used or operated by Seller or any property, whether or not it was owned,
leased, used or operated by Seller, which was used by Seller for the
storage of inventory or production of finished goods or for the storage,
treatment or disposal of any waste, product or by-product and there is no
basis for any such notice or action. There are no pending or, to
Seller's knowledge, threatened actions or proceedings or notices of
potential actions or proceedings from any government body or any other
Person against Seller regarding any matter relating to health, safety or
protection of the environment.

3.1.27.4 CONTINUED COMPLIANCE. Without limiting any
of the other representations or warranties of Seller herein, there are
and have been no past or present events, conditions, circumstances,
activities, practices, incidents or actions which could be expected to
interfere with or prevent continued compliance with any Environmental Law
or License relating to the health, safety or protection of the
environment or which may give rise to any legal liability or otherwise
form the basis of any claim, action, suit, proceeding, hearing or
investigation against Seller or involving any real property now or
heretofore owned, leased, used or operated by Seller, or the Assets,
based on any condition, release, violation or alleged violation of any
Environmental and Safety Requirements relating to health, safety or
protection of the environment.

3.1.28 EMPLOYEE BENEFIT PLANS. Except for those plans, policies
and agreements described in PART 3.1.28 OF THE DISCLOSURE LETTER, neither
Seller nor any Plan Affiliate of Seller has at any time, with respect to
any employees of Seller, maintained, sponsored, adopted, made
contributions to or obligated itself to make contributions to or to pay
any benefits or grant rights under or with respect to any Employee
Benefit Plans, whether or not written or pursuant to a collective
bargaining agreement, which could give rise to or result in Seller or
such Plan Affiliate having any debt, liability, claim or obligation of
any kind of nature, whether accrued, absolute, contingent, direct,
indirect, known or unknown, perfected or inchoate or otherwise and
whether or not due or to become due. Correct and complete copies of all
Employee Benefit Plans previously have been furnished to Buyer. The
Employee Benefit Plans are in substantial compliance with governing
documents and agreements and with applicable Laws.

3.1.29 AFFILIATE TRANSACTIONS. PART 3.1.29 OF THE DISCLOSURE
LETTER contains a complete and accurate list of the parties to and the
date, nature, and amount of each transaction involving the transfer of
any cash, property, or rights to or from Seller from, to, or for the
benefit of any Affiliate or former Affiliate of Seller ("Affiliate
Transactions") within the two years preceding the date of this Agreement
and any existing commitments of Seller to engage in the future in any
Affiliate Transactions. Except as noted in said Disclosure Letter, each
Affiliate Transaction was effected on

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terms equivalent to those that would have been established in an
arms-length negotiation. As used in this Agreement, "Affiliate" has the
meaning given to that term in Rule 405 under the Securities Act of 1933,
as amended (the "Securities Act") and includes each past and present
Affiliate of a person.

3.1.30 BANK ACCOUNTS. Attached as PART 3.1.30 OF THE DISCLOSURE
LETTER is a true and complete list of each bank in which Seller has an
account or safe deposit box, the account number thereof, and the name of
all persons authorized to draw thereon or to have access thereto.

3.1.31 BROKERS. Seller has not incurred any liability to any
broker, finder, or agent, and there are no claims for any brokerage fees,
finder's fees, or commissions in connection with the transactions
contemplated hereby.

3.1.32 SECURITIES. The Seller represents that it has received
the prospectus, dated March 12, 1996, filed in connection with the
initial public offering of the Buyer's common stock (the "Prospectus"),
all of Buyer's quarterly reports on Form 10-Q filed with the Securities
and Exchange Commission ("SEC") since March 12, 1996 and Buyer's 10-K for
fiscal year 1996.

3.1.33 SECURITIES LAW REPRESENTATIONS. Upon consummation of the
transactions contemplated hereby, the Seller shall distribute the
Purchase Shares to the Shareholders in the form of S-Corporation
distributions. In connection with such distribution, the Shareholders
represent and warrant the following:

(1) Each Shareholder represents that he and his Purchaser
Representative (as defined below):

(a) has received and reviewed the Prospectus and all of
Buyer's quarterly reports on Form 10-Q filed since March 12, 1996.

(b) (i) was provided the opportunity to ask questions of
and receive answers from Buyer, or its representative, concerning the
operations, business and financial condition of Buyer, and all such
questions have been answered to his full satisfaction and any information
necessary to verify such responses has been made available to him; (ii)
has received such documents, materials and information as he deems
necessary or appropriate for evaluation of the Purchase Shares, and
further confirms that he has carefully read and understands these
materials and has made such further investigation as was deemed
appropriate to obtain additional information to verify the accuracy of
such materials; (iii) confirms that the Purchase Shares were not offered
to him by any means of general solicitation or general advertising; (iv)
believes that he has such knowledge and experience in financial and
business matters that he is capable of evaluating the merits and risks of
an investment in the Purchase Shares; (v) is acquiring the Purchase
Shares for his own account, for investment purposes only, and

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not with a view towards the sale or other distribution thereof, other
than pursuant to an effective resale registration statement in whole or
in part; (vi) understands that the Purchase Shares have not been
registered under the securities laws of any state or under the Securities
Act and are offered in reliance on exemptions therefrom, that the
Purchase Shares have not been approved or disapproved by the SEC or by
any other federal or state agency; and (vii) understands that: (A) there
are restrictions on the transferability of the Purchase Shares; (B)
owners of Purchase Shares have only such rights to require the Purchase
Shares to be registered under the Securities Act as will be provided
hereunder; and (C) it may not be possible for him to sell his Purchase
Shares and accordingly, he may have to hold the Purchase Shares, and bear
the economic risk of this investment for an extended period of time. The
foregoing, however, does not limit or modify the representations and
warranties of Buyer in SECTION 3.2 of this Agreement or the right of the
Shareholders to rely thereon.

(2) Each Shareholder agrees with Buyer that the Purchase Shares
will not be sold or otherwise disposed of except pursuant to (a) an
exemption or exclusion from the registration requirements under the
Securities Act which does not require the filing by Buyer with the SEC of
any registration statement, offering circular or other document, in which
case the Shareholder shall first supply to Buyer an opinion of counsel
(which opinion and counsel shall be reasonably satisfactory to Buyer)
that such exemption or exclusion is available, or (b) a registration
statement filed by Buyer with the SEC under the Securities Act (which the
Shareholder acknowledges Buyer has no obligation to file, except as may
otherwise be required hereunder).

(3) Each Shareholder agrees that the certificates for the
Purchase Shares received shall bear the following legend:

The shares represented by this certificate have not been
registered under the Securities Act of 1933 or with any
state securities commission, and may not be transferred or
disposed of by the holder in the absence of a registration
statement which is effective under the Securities Act of
1933 and applicable state laws and rules, or unless,
immediately prior to the time set for transfer, such
transfer can be effected without violation of the
Securities Act of 1933 and other applicable state laws and
rules.

The Purchase Shares are being sold to, and acquired
by, the Investor in a transaction exempt under
Section 517.061(11) of the Florida Securities Act.
The Purchase Shares have not been registered under
that act in the State of Florida. In addition, the
Florida Securities Act provides that where sales are
made to 5 or more Florida Investors, all Florida
Investors shall have the privilege of

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voiding the purchase within 3 days after the first tender of
consideration is made by such Purchaser to the Issuer, an Agent of
the Issuer or an Escrow Agent, or within 3 days after the
availability of that privilege is communicated to such Purchaser,
whichever occurs later.

In addition, each Shareholder agrees that Buyer may place stop transfer
orders with its transfer agents with respect to such certificates. The
appropriate portions of the legend will be removed from the certificate
for the Purchase Shares of the Shareholder promptly upon delivery to
Buyer of such satisfactory evidence as may be reasonably required by
Buyer that such legend is not required to ensure compliance with the
Securities Act.

(4) The Shareholders have appointed James H. Scott as their
purchaser representative (the "Purchaser Representative"). The Purchaser
Representative shall have such knowledge and experience in financial and
business matters that he is capable of evaluating the merits and risks of an
investment in the Purchase Shares.

3.1.34 NO MISREPRESENTATION. None of the representations and
warranties of Seller and the Shareholders in this Agreement (for the
Passive Shareholders, only with respect to SECTION 3.1.33), or the
Seller's Agreements contains any untrue statement of a material fact or
omits to state a material fact necessary to make the statements contained
herein or therein not misleading. To the knowledge of Seller and the
Active Shareholders, there is no material fact which has not been
disclosed to the Buyer which materially affects or could reasonably be
anticipated to materially adversely affect the Assets, Seller's Business
or Seller's ability to consummate the transactions contemplated hereby.

3.2 REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer hereby represents
and warrants to Seller and the Active Shareholders as of the Closing Date as
follows:

3.2.1 ORGANIZATION. Buyer is a corporation duly organized,
existing, and in good standing under the laws of the State of Delaware.

3.2.2 AUTHORITY. Buyer has full corporate power and authority to
execute and deliver this Agreement, and all other agreements, documents,
certificates and instruments delivered in connection with the
transactions contemplated hereby to which it is a party, and any other
documents to be delivered by it at Closing (collectively, the "Buyer's
Agreements") and to perform its obligations under this Agreement and the
Buyer's Agreements. The execution and performance of this Agreement and
the Buyer's Agreements by Buyer have been duly authorized by all
necessary corporate action on the part of Buyer, in accordance with law
and with Buyer's Articles of Incorporation and Bylaws. This Agreement
and the Buyer's Agreements have been duly and validly executed and
delivered by Buyer and constitute the valid and binding obligations of
Buyer, enforceable against Buyer in accordance with their respective
terms.

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3.2.3 TRANSACTIONS NOT A BREACH. Buyer's execution and
performance of this Agreement and the Buyer's Agreements will not
violate, delivery, and conflict with, or result in a breach of any
provision of any Law binding on Buyer or conflict with or result in the
breach of any of the terms, conditions, or provisions of the Buyer's
Articles of Incorporation or Bylaws or of any contract, agreement,
mortgage, or other instrument or obligation of any nature to which Buyer
is a party or by which Buyer is bound.

3.2.4 BROKER. Buyer has not incurred any liability to any
broker, finder, or agent, and there are no claims for any brokerage fees,
finder's fees, or commissions in connection with the transactions
contemplated hereby.

3.2.5 NO MISREPRESENTATION. None of the representations and
warranties of Buyer in this Agreement or the Buyer's Agreements contains
any untrue statement of a material fact or omits to state a material fact
necessary to make the statements contained herein and therein not
misleading.

ARTICLE IV

CLOSING

4.1 TIME AND PLACE. The closing of the transactions contemplated by
this Agreement (the "Closing") will take place at the offices of Platinum
Entertainment, Inc., 2001 Butterfield Rd., Downers Grove, Illinois, on a date to
be specified by the parties, which shall be no later than the second business
day after the satisfaction or waiver of the conditions set forth in Article VI
or at such other time, date and location as the parties may agree (the "Closing
Date"). Subject to the provisions of SECTION 5.1, failure to consummate the
transactions contemplated hereby will not result in the termination of this
Agreement and will not relieve any party of any obligation under this Agreement.

4.2 DELIVERIES. At the Closing:

4.2.1 SELLER DELIVERIES. Seller shall, at its sole cost and
expense, execute and deliver or cause to be executed and delivered to
Buyer:

(a) such bills of sale, assignments and other good and
sufficient instruments of conveyance as shall be effective to vest
Buyer with good and marketable title to the Assets, including,
without limitation, trademark and copyright assignments suitable
for filing with the U.S. Copyright Office;

(b) a counterpart of the Bill of Sale and Assignment and
Assumption Agreement, pursuant to which Seller assigns the
Contracts to Buyer;

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(d) a counterpart of the Escrow Agreement, executed by
Seller and each of the Active Shareholders;

(e) a counterpart of the Non-Competition Agreement,
executed by James H. Scott;

(f) A Certificate of Good Standing, dated not more than
fifteen (15) days prior to the Closing, with respect to Seller
issued by the Secretary of State of Illinois;

(g) a Payoff Letter from Nations Bank, indicating the
amount to be paid as of the Closing Date in order to fully pay all
amounts outstanding under Seller's loan;

(h) any required consents and certificates of assignment
required of Seller to transfer the Assets, Assumed Liabilities and
the Contracts, and otherwise consummate the transactions
contemplated hereby;

(i) Certificates of Estoppel executed by each of the
songwriters in connection with those songwriter agreements listed
in PART 3.1.14 OF THE DISCLOSURE LETTER;

(j) an opinion of Paul Stacey, counsel for Seller, dated
as of the Closing Date, in form and substance satisfactory to
Buyer;

(k) copies of unanimous resolutions of the Board of
Directors of Seller and the Shareholders, certified by the
secretary of Seller as having been duly and validly adopted and in
full force and effect, authorizing the execution and delivery of
this Agreement and the Seller's Agreements and the performance of
Seller's obligations under this Agreement and the Seller's
Agreements and approval of the consummation of the transactions
contemplated hereby;

(l) an written statement setting forth the
qualifications of the Purchaser Representative to hold such
position;

(m) Tax clearance certificates or similar documents
required by any state taxing authority in order to relieve Buyer
of any obligation to withhold any portion of the purchase price,
if previously obtained;

(n) all of Seller's business papers and records that are
part of the Assets, including, without limitation, originals of
all Contracts, sales and advertising materials and customer and
supplier lists, publishing agreements and customer accounts
receivable files; provided, that all such business papers,

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records and materials shall be deemed delivered to the extent that
they are located at any of the Leased Properties as of the Closing
Date;

(o) checks or other instruments of transfer pursuant to
which Buyer will obtain, or obtain control over, Seller's cash,
cash equivalents, money on deposit with banks and certificates of
deposits; and

(p) such other documents and instruments as Buyer or its
counsel may reasonably request.

All documents delivered to Buyer shall be in form and substance
reasonably satisfactory to Katten Muchin & Zavis, counsel for Buyer.

4.2.2 BUYER DELIVERIES. Buyer shall execute and deliver or cause
to be executed and delivered to Seller simultaneously with delivery of
the items referred to in subsection 4.2.1 above:

(a) stock certificates representing the Purchase Shares;

(b) a counterpart of the Bill of Sale and Assignment and
Assumption Agreement, whereby Buyer assumes Seller's obligations
under the Contracts and the Assumed Liabilities;

(d) a counterpart of the employment agreement, executed
by Buyer;

(e) a counterpart of the Non-Competition Agreement,
executed by Buyer:

(f) a Certificate of Good Standing, dated not more than
fifteen (15) days prior to the Closing, with respect to Buyer,
issued by the Secretary of State of Delaware;

(g) copies of resolutions of the stockholders and Board
of Directors of Buyer, certified by the secretary of Buyer as
having been duly and validly adopted and in full force and effect,
authorizing the execution and delivery of this Agreement and the
Buyer's Agreements and the performance of Buyer's obligations
under this Agreement and the Buyer's Agreements and approving the
consummation of the transactions contemplated hereby;

(h) an opinion of Katten Muchin & Zavis, counsel for the
Buyer, dated as of the Closing Date, in form and substance
satisfactory to Seller; and

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(i) such other documents and instruments as Seller or
its counsel may reasonably request.

All documents delivered to Seller shall be in form and substance
reasonably satisfactory to counsel for Seller.

ARTICLE V

TERMINATION

5.1 TERMINATION OF AGREEMENT. This Agreement may be terminated at any
time prior to Closing under the following described circumstances:

(i) upon the mutual written consent of Buyer and Seller;
and

(ii) by Buyer if at any time Buyer determines in its sole
discretion that it is not satisfied with its due diligence review
of the Seller or the disclosures set forth in the Disclosure
Letter.

ARTICLE VI

CLOSING CONDITIONS

6.1 COVENANTS OF SELLER.

6.1.1 ACCESS AND INVESTIGATION. During the period from the date
of this Agreement to the Closing Date, the Seller will, (i) afford Buyer
full and free access to the Seller's personnel, properties, contracts,
books, and records, and other documents and data, (ii) furnish Buyer with
access to or copies of all such contracts, books and records, and other
existing documents and data as Buyer may reasonably request, and (iii)
furnish Buyer with such additional financial, operating, and other data
and information as Buyer may reasonably request. No information or
knowledge obtained in any investigation pursuant to this SECTION 6.1
shall affect or be deemed to modify any representation or warranty
contained herein or the conditions to the obligations of the parties to
consummate the transactions contemplated hereby.

6.1.2 OPERATION OF THE BUSINESSES OF THE SELLER. During the
period from the date of this Agreement to the Closing Date, the Seller
will:

(a) conduct the business of the Seller only in the ordinary
course of business, including maintaining the Seller's assets in good
repair, order, and condition;

(b) use its best efforts to preserve intact the current
business organization of the Seller, keep available the services of the
current officers, employees, and agents of

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such the Seller, and maintain the relations and goodwill with its
suppliers, customers, artists, landlords, creditors, employees, agents,
and others having business relationships with the Seller;

(d) otherwise report periodically to Buyer concerning the
status of the business, operations, and finances of Seller.

6.1.3 NON-NEGOTIATION. In consideration of the substantial
expenditure of time, effort and expense undertaken by Buyer in connection
with its due diligence review and the preparation and execution of this
Agreement, Seller agrees that neither it nor its representatives, agents
or employees will, after the execution of this Agreement until the
earlier of (i) the termination of this Agreement, or (ii) the Closing,
directly or indirectly, solicit, encourage, negotiate or discuss with any
third party (including by way of furnishing any information concerning
Seller) any acquisition proposal relating to or affecting Seller or any
part of it, or any direct or indirect interests in Seller, whether by
purchase of assets or stock, purchase of interests, merger or other
transaction substantially similar in effect, and that Seller will
promptly advise Buyer orally and in writing of the terms of any
communications Seller may receive or become aware of relating to any bid
for all or any part of Seller.

6.1.4 REQUIRED APPROVALS AND CONSENTS. As promptly as
practicable after the date of this Agreement, Seller will (i) make all
filings required to be made by it and (ii) obtain all necessary consents
or approvals required under the Contracts, in order to consummate the
transactions contemplated hereby.

6.1.5 NOTIFICATION. Between the date of this Agreement and the
Closing Date, Seller will promptly notify Buyer in writing if Seller or
any Shareholder becomes aware of any occurrence or any fact or condition
which will result in any of Seller's, or the Shareholders'
representations and warranties hereunder (for the Passive Shareholders,
only with respect to SECTION 3.1.33), not being true and correct if
restated as of the Closing Date.

6.1.6 DISCLOSURE LETTER. Seller and the Active Shareholders
shall use their best efforts to deliver to Buyer a complete Disclosure
Letter, setting forth the disclosure required pursuant to the terms
hereof, but no later than three (3) days prior to Closing.

6.2 COVENANTS OF BUYER.

6.2.1 NOTIFICATION. Between the date of this Agreement and the
Closing Date, Buyer will promptly notify Seller in writing if Buyer
becomes aware of any occurrence or any fact or condition which will
result in any of Buyer's representations and warranties hereunder not
being true and correct if restated as of the Closing Date.

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6.3 MUTUAL CONDITIONS PRECEDENT TO PARTIES' OBLIGATION TO CLOSE.

6.3.1 MUTUAL CONDITIONS. Each of the parties' obligations to
consummate the transactions contemplated hereby and to take other actions
required to be taken by the parties at the Closing is subject to the
satisfaction at or prior to the Closing, of the condition that no
temporary restraining order, preliminary or permanent injunction or other
order issued by any court of competent jurisdiction or other legal or
regulatory restraint or prohibition preventing the consummation of the
transactions contemplated hereby shall be in effect.

6.4 CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS TO CLOSE.

Buyer's obligations to consummate the transactions contemplated hereby
and to take the other actions required to be taken by Buyer at the Closing is
subject to the satisfaction, at or prior to the Closing, of each of the
following conditions (any of which may be waived by Buyer, in whole or in part):

6.4.1 ACCURACY OF REPRESENTATIONS. Each of Seller's and the
Shareholders' representations and warranties in this Agreement (for the
Passive Shareholders, only with respect to SECTION 3.1.33), must have
been accurate in all respects as of the date of this Agreement, and must
be accurate in all respects as of the Closing Date as if made on the
Closing Date.

6.4.2 SELLER'S AND THE ACTIVE SHAREHOLDERS' PERFORMANCE.

(a) Each of the covenants and obligations that Seller and the
Active Shareholders are required to perform or to comply with pursuant to
this Agreement at or prior to the Closing must have been duly performed
and complied with in all respects.

(b) Seller and the Active Shareholders must have delivered or
caused to be delivered, each of the documents required to be delivered or
caused to be delivered, by it pursuant to SECTION 4.2.1.

6.4.3 MATERIAL ADVERSE CHANGE. There shall have been no material
adverse change in the assets, liabilities of any kind, operations,
condition (financial or otherwise), operating results, employee, customer
or supplier relations, business activities or prospects of Seller since
December 31, 1995.

6.4.4 DUE DILIGENCE AND DISCLOSURE LETTER. The Buyer shall be
satisfied, in its sole discretion, with (i) its due diligence review (and
the due diligence review completed by its representatives) of Seller and
(ii) the disclosures made by Seller and the Active Shareholders in the
Disclosure Letter.

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6.5 CONDITIONS PRECEDENT TO THE SELLER'S AND THE ACTIVE SHAREHOLDERS'
OBLIGATION TO CLOSE.

Seller's and the Active Shareholders' obligation to consummate the
transactions contemplated hereby and to take the other actions required to be
taken by Seller at the Closing is subject to the satisfaction, at or prior to
the Closing, of each of the following conditions (any of which may be waived by
Seller in whole or in part):

6.5.1 ACCURACY OF REPRESENTATIONS. Each of Buyer's
representations and warranties in this Agreement must have been accurate
in all respects as of the date of this Agreement and must be accurate in
all respects as of the Closing Date as if made on the Closing Date.

6.5.2 BUYER'S PERFORMANCE.

(a) Each of the covenants and obligations that Buyer is
required to perform or to comply with pursuant to this Agreement at or
prior to the Closing must have been performed and complied with in all
respects; and

(b) Buyer must have delivered each of the documents required to
be delivered by them pursuant to SECTION 4.2.2.

ARTICLE VII

OTHER AGREEMENTS

7.1 BOOKS AND RECORDS. After the Closing, neither party shall destroy
(or permit the destruction of) any of the books and records pertaining to the
Assets or the Seller's Business in such party's possession that may be required
by the other party in connection with any tax audit, examination or other
proceeding without first offering them to the other party in writing at least
thirty (30) days prior to the date of their proposed destruction. After the
Closing Date, either party may inspect and make copies from such books and
records in the possession of the other party on reasonable notice and at
reasonable times.

7.2 COOPERATION AFTER CLOSING. From time to time after the Closing,
at Buyer's request and without further consideration, Seller will execute and
deliver such other instruments of sale, transfer, conveyance and assignment and
take such action as Buyer may reasonably deem necessary in order more
effectively to transfer, convey and assign to Buyer, and to confirm Buyer's
title to the Assets.

7.3 PUBLIC DISCLOSURE. Buyer and the Seller shall consult with each
other before issuing any press release or otherwise making any public statement
with respect to this Agreement or the transactions contemplated hereby and shall
not issue any such press release

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or make any such public statement prior to such consultation, except as may be
required by law or any listing agreement with a national securities exchange or
the Nasdaq National Market.

7.4 MAIL. All mail relating to the Assets that is delivered to Seller
or any of the Shareholders after the Closing Date shall forthwith be delivered
to Buyer.

7.5 ASSUMED LIABILITIES. Buyer agrees to discharge, as and when due,
the Assumed Liabilities.

7.6 DANNY WELLS LITIGATION. Reference is made to that certain
litigation matter known as Daniel M. Wells v. Scott Entertainment Inc., d/b/a
Double J Music Group and John Juan Music, Case No. 96-1326-I (the "Wells
Litigation"). The parties hereto acknowledge that Mr. Wells is alleging, among
other things, that his songwriter's agreement dated April 11, 1995, by and
between Mr. Wells and Seller (the "Wells Agreement"), is not enforceable. The
parties hereto agree that although Seller is transferring all of its rights in
and to the Wells Agreement hereunder, Buyer is specifically not assuming or
agreeing to discharge in any manner any Losses (as defined below) of Seller or
any other parties in connection with the Wells Litigation. Furthermore, Seller
and/or James H. Scott, individually, agree to (i) pay for any and all and costs,
expenses, fines, penalties, actual, consecutive, punitive or other damages or
any other amounts (including attorneys' fees and expenses) directly or
indirectly in connection with the Wells Litigation (the "Litigation Expenses").
In the event that (a) a court of competent jurisdiction issues a final and
nonappealable order or judgment declaring the Wells Agreement enforceable or a
settlement between the parties which requires musical compositions be delivered
by Mr. Wells after the Closing Date and (b) Buyer realizes any future royalty
income from the exploitation of musical compositions delivered by Mr. Wells to
Buyer after Closing Date (the "Option Income"), as a direct result of such order
or judgment or settlement Buyer agrees to reimburse Seller and/or Mr. Scott, as
the case may be, on a priority basis, solely out of the money received from such
Option Income, for the Litigation Expenses incurred by Mr. Scott less any monies
collected by Seller (or Mr. Scott, as the case may be) in connection with the
Wells Litigation, including, without limitation, an award of sanctions. Mr.
Scott agrees to provide Buyer reasonable supporting documentation evidencing his
payment of the Litigation Expenses for which he is seeking reimbursement and
fully disclose to Buyer any monies collected as a result of counterclaim
judgements in connection with the Wells Litigation. In the event that the Wells
Litigation is resolved in a settlement, the parties hereto agree that Buyer
shall not incur any obligations, liabilities or Losses as a direct or indirect
result of such settlement.

7.7 TAXES. Seller shall be liable for filing all Tax Returns and
shall pay all Taxes (whether assessed or unassessed) applicable to the Assets
and the Seller's Business, in each case attributable to periods (or portions
thereof) ending on or prior to the Closing Date. Buyer shall be liable for
filing all Tax Returns and shall pay all Taxes (whether assessed or unassessed)
applicable to the Assets attributable to periods (or portions thereof) beginning
after the Closing Date. For purposes of this SECTION 7.7, any period beginning
before and ending after the Closing Date shall be treated as two partial
periods, one ending on the Closing Date and the

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other beginning after the Closing Date. Buyer and Seller agree to timely sign
and deliver such certificates or forms as may be necessary or appropriate to
establish an exemption from (or otherwise reduce) or make a report with respect
to, such taxes, including filings required under Section 1060 of the Code (as
defined below) or any successor statute thereof.

7.8 NONASSIGNABLE CONTRACTS. To the extent that the assignment
hereunder by Seller to Buyer of any Contract is not permitted or is not
permitted without the consent of any other party to the Contract, this Agreement
shall not be deemed to constitute an assignment of any such Contract if such
consent is not given or if such assignment otherwise would constitute a breach
of, or cause a loss of contractual benefits under, any such Contract, and Buyer
shall not assume any obligations or liabilities thereunder. Without in any way
limiting Seller's obligations to obtain all consents and waivers necessary for
the sale, transfer, assignment and delivery of the Contracts and the Assets to
Buyer hereunder, if any such consent is not obtained or if such assignment is
not permitted irrespective of consent and the Closing hereunder is consummated,
Seller shall continue to use its reasonable efforts to obtain such consents and
shall cooperate with Buyer in any arrangement designed to provide Buyer with the
rights and benefits (subject to the obligations) under any such Contracts.

7.9 TRANSFEREE/SUCCESSOR LIABILITY. The parties agree that Buyer will
not by virtue of the transactions contemplated hereby assume any liabilities or
obligations of Seller other than the Assumed Liabilities and, accordingly,
Seller agrees to take all necessary actions to fully protect Buyer from and
against any and all transferee or successor liability (other than with respect
to the Assumed Liabilities) arising out of the transactions contemplated hereby,
including any and all liabilities relating to COBRA, Taxes, Environmental and
Safety Requirements and Employee Benefit Plans.

7.10 PIGGYBACK REGISTRATION RIGHTS.

7.10.1 RIGHT TO INCLUDE THE REGISTRABLE SECURITIES. Subject to
the limitations set forth herein, if Buyer, at any time before the
Shareholders no longer hold any Registerable Securities (as defined
below), proposes to register securities under the Securities Act by
registration on Forms S-1, S-2 or S-3 or any successor or similar form(s)
(except registrations on such Forms S-4 or S-8 and any successor or
similar forms) whether for sale for its own account or pursuant to
another demand for registration granted any other party, it will give
prompt written notice each such time to the Shareholders of its intention
to do so and of such Shareholders' rights under this SECTION 7.10. Upon
the written request of any Shareholder (specifying the Registrable
Securities intended to be disposed of and the intended method of
disposition thereof), made within 15 business days after the receipt of
any such notice (10 business days if Buyer gives telephonic notice to the
Shareholders with written confirmation to follow promptly thereafter,
stating that (i) such registration will be on Form S-3 and (ii) such
shorter period of time is required because of a planned filing date)
(which request shall specify the Registrable Securities to be disposed of
by any Shareholder), Buyer will include in its proposed registration the
Registrable Securities specified in any such

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request, subject to the priorities set forth in SECTION 7.10.2 below. If
Buyer thereafter determines for any reason not to register or to delay
registration of such securities, Buyer may, at its election, give written
notice of such determination to each Shareholder participating in such
registration and, thereupon, (i) in the case of a determination not to
register, shall be relieved of the obligation to register such
Registrable Securities in connection with such registration (but not from
any obligation of Buyer to pay the Registration Expenses (as defined in
SECTION 7.13) in connection therewith), and (ii) in the case of a
determination to delay registration, shall be permitted to delay
registering any Registrable Securities, for the same period as the delay
in registration of such other securities.

7.10.2 PRIORITY OF PIGGYBACK REGISTRATION RIGHTS IN CONNECTION
WITH REGISTRATIONS FOR BUYER'S ACCOUNT. If the registration referred to
in this SECTION 7.10 is to be an underwritten registration and the
managing underwriter(s) advise Buyer (or the other shareholders
participating therein) in writing that in their good faith opinion such
offering would be adversely affected by the inclusion therein of the
total number of Registrable Securities requested to be included therein
by a Shareholder participating in such registration under this Agreement,
Buyer shall include in such registration: (1) first, all securities Buyer
proposes to sell for its own account and (2) second, up to the full
number of securities proposed to be registered for the account of (A) the
shareholders (other than the Shareholders) on behalf of whom registration
may have initially been requested and who are entitled to a priority in
such case and (B) the Shareholders, on a pari passu basis with the
shareholders contemplated by (A) above ((A) and (B) above shall be
defined as the "Priority Shareholders") and (3) other shareholders (other
than the Priority Shareholders) entitled to participate in the
registration, drawn from them pro rata based on the number each has
requested to be included in such registration.

7.10.3 LIMITATIONS; EXCEPTIONS. Buyer shall not be required to
effect any registration of Registrable Securities under this SECTION 7.10
incidental to the registration of any of its securities in connection
with mergers, acquisitions, exchange offers, subscription offers or any
Employee Benefit Plan.

7.10.4 NUMBER OF PIGGYBACK REGISTRATIONS; EFFECTIVE REGISTRATION
STATEMENT. Each Shareholder may exercise his right to piggyback
registration under this SECTION 7.10 one (1) time after the Closing Date.
A registration requested pursuant to this SECTION 7.10 shall not be
deemed to have been effected (i) unless a registration statement with
respect thereto has become effective, or (ii) if, after it has become
effective, it does not remain effective and available to a Shareholder
for resale for a period of at least 45 days (unless the Registrable
Securities registered thereunder have been sold or disposed of prior to
the expiration of such 45-day period) or such registration is interfered
with by any stop order, injunction or other order or requirement of the
United States Securities and Exchange Commission (the "SEC") or other
Governmental Body or court for any reason and has not thereafter become
effective.

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7.11 DEMAND REGISTRATION.

7.11.1 REQUEST. Subject to the terms of this Agreement,
beginning on the one year anniversary of the Closing Date, the holders of
Registrable Securities may request, in writing, registration of all or
part of their Registrable Securities (the Shareholders making such a
request being referred to as "Requesting Shareholders") by Buyer under
the Securities Act, specifying the number of Registrable Securities to be
registered and the intended method of disposition thereof. Buyer will
deliver within two (2) business days of receipt of such written request a
written notice of such request to the other Shareholders and thereupon
Buyer will use its best efforts to effect the registration in the most
expeditious manner possible under the Securities Act of the Registrable
Securities which Buyer has been requested to register by the Requesting
Shareholders, and all other Registrable Securities which Buyer has been
requested to register by written request of the other Shareholders and
given to Buyer within 21 business days after receipt of the written
notice by the Shareholders, specifying the number and intended method of
disposition of such Registrable Securities, all to the extent requisite
to permit the intended disposition of the Registrable Securities to be so
registered; provided, however, that a Shareholder shall not be entitled
to have his Registrable Securities registered pursuant to this SECTION
7.11 if such Shareholder has previously had the opportunity to exercise
his right to piggyback registration under SECTION 7.10 or if his
Registrable Securities are saleable under any securities law, including
without limitation Rule 144 of the Securities Act ("Rule 144"), in which
case all rights under this SECTION 7.11 shall be deemed terminated and of
no further force and effect.

7.11.2 REGISTRATION OF OTHER SECURITIES. Whenever Buyer shall
effect a registration pursuant to this SECTION 7.11, securities other
than Registrable Securities may be included among the securities covered
by such registration without restriction.

7.11.3 REGISTRATION STATEMENT FORM. Registrations under this
SECTION 7.11 shall be on such appropriate registration form of the SEC
(i) as shall be selected by the Buyer and (ii) as shall permit the
disposition of such Registrable Securities in accordance with the
intended method or methods of disposition specified in the request for
registration and consistent with Buyer's obligation to effect the
registration in the most expeditious manner possible.

7.11.4 EFFECTIVE REGISTRATION STATEMENT. A registration
requested pursuant to this SECTION 7.11 shall not be deemed to have been
effected and will not be considered a demand registration which may be
requested by the Shareholders hereunder (i) unless a registration
statement with respect thereto has become effective, or (ii) if, after it
has become effective, it does not remain effective and available to a
shareholder of the Seller for resale for a period of at least 30 days
(unless the Registrable Securities registered thereunder have been sold
or disposed of prior to the expiration of such 30 day period) or such
registration is interfered with by any stop order, injunction or other
order or

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requirement of the SEC or other governmental agency or court for any
reason and has not thereafter become effective.

7.11.5 NUMBER OF DEMAND REGISTRATIONS; LIMITATIONS.
Notwithstanding anything in this Agreement to the contrary, the Buyer shall not
be required to effect more than one (1) demand registration for the
Shareholders, taken as a whole, pursuant to this SECTION 7.11, without regard to
any subsequent transfer of any Registrable Securities by a shareholder of the
Seller.

7.12 SHAREHOLDER OBLIGATIONS. Each Shareholder shall furnish to Buyer
in writing such information relating to such Person as Buyer may reasonably
request in writing in connection with the preparation of such registration
statement and each such Person agrees to notify Buyer as promptly as practicable
of any inaccuracy or change in information it has previously furnished to Buyer
or of the happening of any event, in either case as a result of which any
prospectus relating to such registration contains an untrue statement of a
material fact regarding such Person or the distribution of such Registrable
Securities or omits to state any material fact regarding such Person or the
distribution of such Registrable Securities required to be stated therein or
necessary to make the statement therein not misleading in light of the
circumstances then existing, and to promptly furnish to Buyer any additional
information required to correct and update any previously furnished information
or required such that such prospectus shall not contain, with respect to such
Person or the distribution of such Registrable Securities, an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances then existing. Each such Shareholder agrees that, upon
receipt of any notice from Buyer of an event which Buyer believes necessitates
the Shareholder discontinue the disposition of such Registrable Securities, such
holder will forthwith discontinue disposition of such Registrable Securities
covered by such registration statement or prospectus until such holder's receipt
of the copies a supplemented or amended prospectus relating to such registration
statement or prospectus, or until it is advised in writing by Buyer that the use
of the applicable prospectus may be resumed, and has received copies of any
additional or supplemental filings which are incorporated by reference in such
prospectus, and, if so directed by Buyer, such holder will deliver to Buyer (at
Buyer's expense) all copies, other than permanent file copies then in such
person's possession, of the prospectus covering the Registrable Securities
current at the time of receipt of such notice. In addition, Buyer shall not be
obligated to register such Registrable Securities in any underwritten
registration unless, each Shareholder participating in the registration is party
to and performs its obligations pursuant to the underwriting agreement entered
into with respect to such underwritten registration.

7.13 REGISTRATION EXPENSES. Buyer will pay all Registration Expenses
(as defined below) in connection with the registration of Registrable Securities
requested under SECTION 7.10 or SECTION 7.11. Buyer will pay all Registration
Expenses other than (i) counsel's fees and expenses for the Shareholders
participating in such registrations and (ii) the fees and expenses of any other
Person retained by the Shareholders. "Registration Expenses" include all
expenses incident to the Buyer's performance of or compliance with this
Agreement, including without

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limitation all registration and filing fees, including fees with respect to
filings required to be made with the National Association of Securities Dealers,
Inc., fees and expenses of compliance with securities or blue sky laws,
including, without limitation, reasonable fees and disbursements of counsel for
the underwriters, all word processing, duplicating and printing expenses,
messenger, telephone and delivery expenses, and fees and disbursements of
counsel of Buyer and of all independent certified public accountants of Buyer
(including the expenses of any special audit and "cold comfort" letters required
by or incident to such performance), underwriters fees and disbursements
(excluding discounts, commissions, fees of underwriters, selling brokers, dealer
managers or similar securities industry professionals relating to the
distribution of the Registrable Securities), fees and expenses of other persons
retained by Buyer (all such expenses being herein called "Registration
Expenses"). Except as otherwise provided above, Buyer will also pay its
internal expenses (including, without limitation, all salaries and expenses of
its officers and employees performing legal or accounting duties), the expense
of any annual audit, the fees and expenses incurred in connection with the
listing of the securities to be registered on any securities exchange, rating
agency fees and the fees and expenses of any person, including special experts,
retained by Buyer.

ARTICLE VIII

INDEMNIFICATION

8.1 INDEMNIFICATION BY SELLER. From and after the Closing, Seller and
the Active Shareholders, on behalf of themselves and their respective heirs,
successors and assigns, hereby agree jointly and severally to indemnify, defend,
and save Buyer and its Affiliates, and each of their respective officers,
directors, employees, and agents (each a "Buyer Indemnified Party"), forever
harmless from and against, and to promptly pay to a Buyer Indemnified Party or
reimburse a Buyer Indemnified Party for, any and all liabilities (whether
contingent, fixed, or unfixed, liquidated or unliquidated, or otherwise),
obligations, deficiencies, demands, claims, suits, actions, or causes of action,
assessments, losses, costs, expenses, interest, fines, penalties, actual or
punitive damages, or costs or expenses of any and all investigations,
proceedings, judgments, environmental analyses, remediations, settlements, and
compromises (including reasonable fees and expenses of attorneys, accountants,
and other experts) (collectively, the "Losses") sustained or incurred by any
Buyer Indemnified Party relating to, resulting from, arising out of, or
otherwise by virtue of any of the following:

8.1.1 any breach of any covenant, agreement, representation or
warranty of Seller or the Active Shareholders (or a breach of SECTION
3.1.33 of any Shareholder) under this Agreement or any of the Seller's
Agreements;

8.1.2 the operation of Seller's Business prior to the Closing
Date or any liabilities, actions or omissions of Seller or the Active
Shareholders (except for the Assumed Liabilities), including, without
limiting the generality of the foregoing, Losses relating, directly or
indirectly, to (i) Taxes, (ii) wages and salaries, (iii) rents and any
other operating or non-operating expenses or liabilities, (iv) violations
or obligations

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under Environmental and Safety Requirements, (v) COBRA and (vi) Employee
Benefit Plans, it being understood and agreed that Buyer is not to assume
any liabilities of Seller of any kind or character, contingent or
otherwise, except for the Assumed Liabilities;

8.1.3 any assertion against Buyer or its Affiliates with
respect to the Excluded Liabilities; and

8.1.4 any of the Claims disclosed in PART 3.1.17 OF THE
DISCLOSURE LETTER, including, but not limited to, any money damages
incurred by a Buyer Indemnified Party in connection with such Claims.

8.1(A) Notwithstanding anything to the contrary, neither Seller nor the
Active Shareholders shall (i) make any representation or warranty or be
construed to have made any representation and warranty with respect to the
existence or nonexistence of any third party claim of infringement which arises
after the Closing and involves any of the musical compositions constituting
Intellectual Property or contract rights under that certain agreement between
Victoria Kay Contreras and Juan M. Contreras, Partners, d/b/a Victoria Kay Music
and American Society of Composers, Authors & Publishers, dated June 4, 1992 or
that certain agreement between Juan M. Contreras, d/b/a John Juan Music and
Broadcast Music, Inc., dated January 19, 1990 (the "ASCAP and BMI Agreements")
purchased by Buyer hereunder. Further, neither Seller nor the Active
Shareholders have any indemnification obligation relating to the existence or
nonexistence of any third party claim of infringement which arises after the
Closing and involves any of the musical compositions constituting Intellectual
Property or the contract rights under the ASCAP and BMI Agreements purchased by
Buyer hereunder. Nothing herein shall limit the indemnification obligations of
Seller for acts or omissions of Seller or the Active Shareholders with respect
to any third party claim of infringement which arises after the Closing and
involves any of the musical compositions constituting the Intellectual Property
or contract rights under the ASCAP and BMI Agreements purchased by Buyer
hereunder. The parties agree that in the event this provision contradicts any
other provision of this Agreement, this provision shall prevail.

8.2 INDEMNIFICATION BY BUYER. From and after the Closing, Buyer
agrees to indemnify, defend, and save Seller and its officers, directors,
employees, and agents and the Active Shareholders, on behalf of themselves and
their respective heirs, successors and assigns (each a "Seller Indemnified
Party") forever harmless from and against, and to promptly pay to a Seller
Indemnified Party or reimburse a Seller Indemnified Party for, any and all
Losses sustained or incurred by any Seller Indemnified Party related to,
resulting from, arising out of, or otherwise by virtue of any of the following:

8.2.1 any breach of any covenant, agreement representation or
warranty of Buyer under this Agreement and any of the Buyer's Agreements;
or

8.2.2 breach by Buyer of any of its obligations with respect to
the Assumed Liabilities.

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8.3 INDEMNIFICATION PROCEDURE FOR THIRD PARTY CLAIMS. In the event
that subsequent to the Closing any Person or entity entitled to indemnification
under this Agreement (an "Indemnified Party") asserts a claim for
indemnification or receives notice of the assertion of any claim or of the
commencement of any action or proceeding by any entity who is not a party to
this Agreement or an Affiliate of a party to this Agreement (including, but not
limited to any domestic or foreign court or Governmental Body) (a "Third Party
Claim") against such Indemnified Party, against which a party to this Agreement
is required to provide indemnification under this Agreement (an "Indemnifying
Party"), the Indemnified Party shall give written notice together with a
statement of any available information (other than privileged information)
regarding such claim to the Indemnifying Party within thirty (30) business days
after learning of such claim (or within such shorter time as may be necessary to
give the Indemnifying Party a reasonable opportunity to respond to such claim).
The Indemnifying Party shall have the right, upon written notice to the
Indemnified Party (the "Defense Notice") within fifteen days (15) after receipt
from the Indemnified Party of notice of such claim, which notice by the
Indemnifying Party shall specify the counsel it will appoint to defend such
claim ("Defense Counsel"), to conduct at its expense the defense against such
claim in its own name, or if necessary in the name of the Indemnified Party;
provided, however, that the Indemnified Party shall have the right to approve
the Defense Counsel, which approval shall not be unreasonably withheld, and in
the event the Indemnifying Party and the Indemnified Party cannot agree upon
such counsel within ten (10) days after the Defense Notice is provided, then the
Indemnifying Party shall propose an alternate Defense Counsel, which shall be
subject again to the Indemnified Party's approval which approval shall not be
unreasonably withheld. If the parties still fail to agree on the Defense
Counsel, then, at such time, they shall mutually agree in good faith on a
procedure to determine the Defense Counsel.

(a) In the event that the Indemnifying Party shall fail to give
the Defense Notice within said 15 day period, it shall be deemed to have
elected not to conduct the defense of the subject claim, and in such
event the Indemnified Party shall have the right to conduct the defense
in good faith and to compromise and settle the claim in good faith
without prior consent of the Indemnifying Party and the Indemnifying
Party will be liable for all reasonable costs, expenses, settlement
amounts or other Losses paid or incurred in connection therewith.

(b) In the event that the Indemnifying Party does deliver a
Defense Notice and thereby elects to conduct the defense of the subject
claim, the Indemnifying Party shall be entitled to have the exclusive
control over said defense settlement of the subject claim and the
Indemnified Party will cooperate with and make available to the
Indemnifying Party such assistance and materials as it may reasonably
request, all at the expense of the Indemnifying Party, and the
Indemnified Party shall have the right at its expense to participate in
the defense assisted by counsel of its own choosing. In such an event,
the Indemnifying Party will not settle the subject claim without the
prior written consent of the Indemnified Party, which consent will not be
unreasonably withheld.

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(c) Without the prior written consent of the Indemnified Party,
the Indemnifying Party will not enter into any settlement of any Third
Party Claim or cease to defend against such claim, if pursuant to or as a
result of such settlement or cessation, (i) injunctive relief or specific
performance would be imposed against the Indemnified Party, or (ii) such
settlement or cessation would lead to liability or create any financial
or other obligation on the part of the Indemnified Party for which the
Indemnified Party is not entitled to indemnification hereunder.

(d) Notwithstanding paragraph (b) above, the Indemnifying Party
shall not be entitled to control, but may participate in, and the
Indemnified Party shall be entitled to have sole control over, the
defense or settlement of any claim (i) that seeks a temporary restraining
order, a preliminary or permanent injunction or specific performance
against the Indemnified Party, (ii) to the extent such claim involves
criminal allegations against the Indemnified Party, (iii) that if
unsuccessful, would set a precedent that would materially interfere with,
or have a material adverse effect on, the business or financial condition
of the Indemnified Party, or (iv) to the extent such claim imposes
liability on the part of the Indemnified Party for which the Indemnified
Party is not entitled to indemnification hereunder. In such an event,
the Indemnifying Party will still have all of its obligations hereunder
provided that the Indemnified Party will not settle the subject claim
without the prior written consent of the Indemnifying Party, which
consent will not be unreasonably withheld.

(e) Any final judgment entered or settlement agreed upon in the
manner provided herein shall be binding upon the Indemnifying Party, and
shall conclusively be deemed to be an obligation with respect to which
the Indemnified Party is entitled to prompt indemnification hereunder.

(f) A failure by an Indemnified Party to give timely, complete
or accurate notice as provided in this SECTION 8.3 will not affect the
rights or obligations of any party hereunder except and only to the
extent that, as a result of such failure, any party entitled to receive
such notice was deprived of its right to recover any payment under its
applicable insurance coverage or was otherwise directly and materially
damaged as a result of such failure to give timely notice.

ARTICLE IX

MISCELLANEOUS

9.1 NOTICE. Any notices, consents, or other communication required to
be sent or given by any of the parties shall in every case be in writing and
will be deemed properly served if (a) delivered personally, (b) sent by
telecopier, provided that a copy is mailed by Certified U.S. mail, return
receipt requested; (c) sent by Certified U.S. mail, return receipt requested, or
(d) sent by a recognized overnight courier service, in each case, to the parties
at the addresses

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and telecopier numbers as set forth below or at such other addresses and
telecopier numbers as may be furnished to the other parties in writing.

9.1.1 If to Seller or the Shareholders:

Scott Entertainment, Inc.
119 Seventeenth Avenue South
Nashville, Tennessee 37203
Attention: James H. Scott
Telecopy: (312) 683-6412

with a copy to:

The Law Offices of Paul Stacey
202 West Willow Avenue
Wheaton, Illinois 60187
Attention: Paul Stacey, Esq.
Telecopy: (630) 462-9293

9.1.2 If to Buyer:

Platinum Entertainment, Inc.
2001 Butterfield Road, Suite 1400
Downers Grove, IL 60515
Attention: Steven Devick
Telecopy No.: (630) 769-0049

with a copy to:

Katten Muchin & Zavis
525 West Monroe Street
Suite 1600
Chicago, Illinois 60661-3693
Attention: Matthew S. Brown, Esq.
Telecopy No.: (312) 902-1061

Date of service of such notice will be (i) the date such notice is personally
delivered, (ii) three days after the date of mailing if sent by certified or
registered mail, or (iii) one day after delivery to the overnight courier.

9.2 SEVERABILITY. The unenforceability or invalidity of any provision
of this Agreement will not affect the enforceability or validity of any other
provision.

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9.3 SUCCESSORS. This Agreement will be binding upon and inure to the
benefit of the parties and their respective successors, permitted assigns,
heirs, and personal representatives.

9.4 DOCUMENTS. At and after the Closing, each party will execute all
documents and take such other actions as the other parties may reasonably
request in order to consummate the Acquisition and to accomplish the purposes of
this Agreement.

9.5 COUNTERPARTS. This Agreement may be executed simultaneously in
one or more counterparts, each of which will be deemed an original but all of
which together will constitute one and the same instrument.

9.6 EXPENSES. Except as otherwise specifically provided herein, each
of the parties shall pay all costs and expenses incurred or to be incurred by it
in negotiating and preparing this Agreement and in consummating the Acquisition.

9.7 GOVERNING LAW. This Agreement will be governed by and construed
in accordance with the laws of the State of Illinois, without giving effect to
principles of conflicts of law.

9.8 HEADINGS. The subject headings of Articles and Sections of this
Agreement are included for purposes of convenience only an will not affect the
construction or interpretation of any of its provisions.

9.9 ASSIGNMENT. This Agreement will not be assignable or delegable by
any party without the prior written consent of the other parties; provided,
however, that nothing in this Agreement will limit Buyer's ability to assign its
rights or delegate its responsibilities, liabilities, and obligations under this
Agreement to any Person at any time without the consent of the other parties.

9.10 NO STRICT CONSTRUCTION. The language used in this Agreement will
be deemed to be the language chosen by the parties to express their mutual
intent, and no rule of strict construction will be applied against any party.

9.11 INVESTMENT DECISION. IN MAKING AN INVESTMENT DECISION, SELLER AND
THE SHAREHOLDERS MUST RELY ON THEIR OWN EXAMINATION OF THE ISSUER AND THE TERMS
OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THE SECURITIES BEING
SOLD HEREUNDER HAVE NOT BEEN RECOMMENDED, APPROVED OR DISAPPROVED BY ANY STATE
SECURITIES COMMISSION OR ANY OTHER REGULATORY AUTHORITY. NONE OF THE FOREGOING
AUTHORITIES HAVE PASSED UPON, OR ENDORSED THE MERITS OF, THIS OFFERING OR THE
ACCURACY OR ADEQUACY OF INFORMATION PROVIDED. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

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THE PURCHASE SHARES BEING SOLD HEREUNDER HAVE NOT BEEN REGISTERED WITH
THE SEC UNDER THE SECURITIES ACT, OR UNDER THE SECURITIES LAWS OF ANY STATES,
AND ARE BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND SUCH STATE LAWS. THE PURCHASE SHARES ARE
SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE, AND MAY NOT BE
TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND SUCH
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREUNDER.

9.12 DEFINITIONS. As used in this Agreement, (a) the term "Person"
means any individual, sole proprietorship, partnership, joint venture, trust,
unincorporated association, corporation, entity, or Government Body, (b) the
term "Governmental Body" means any foreign, federal, state, or local
governmental or regulatory body, including any instrumentality, division,
agency, or department of such a body, (c) the term "ordinary course of business"
means an action taken by a Person will be deemed to have been taken in the
ordinary course of Seller's business if (i) such action is consistent with the
past practices of such Person and is taken in the ordinary course of the normal
day-to-day operations of such Person; (ii) such action is not required to be
authorized by the board of directors of such Person (or by any Person or group
of Persons exercising similar authority) and does not require any other separate
or special authorization of any nature; and (iii) such action is similar in
nature and magnitude to actions customarily taken without any separate or
special authorization, in the ordinary course of the normal day-to-day
operations of other Persons that are in the same line of business as such
Person, (d) the term "to the knowledge of Seller," "to Seller's knowledge" or
any similar term means knowledge possessed, or which should have been possessed
after due inquiry in connection therewith, by the officers, and/or Active
Shareholders of Seller; and (e) "to the Actual Knowledge of Seller," "to
Seller's Actual Knowledge" means knowledge possessed by the officers, and/or
Active Shareholders of Seller or the Active Shareholders as of the Closing Date.
For the purposes of this Agreement, the following terms have the meaning set
forth below:

"ACTIVE SHAREHOLDERS" means, together, James H. Scott and Juan M.
Contreras, shareholders of the Company.

"COBRA" means the limited continued medical benefit coverage
required to be provided under Section 4980B of the Code or state continuation
coverage laws.

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

"DISCLOSURE LETTER" means the letter delivered by the Seller and
the Shareholders to Buyer concurrently with the execution and delivery of this
Agreement.

"EMPLOYEE BENEFIT PLANS" means any Employee Pension Benefit Plan
as defined in Section 3(2) of ERISA, "Employee Welfare Benefit Plan" (as defined
in Section 3(1) of

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ERISA), "multi-employer plan" (as defined in Section 3(37) of ERISA), plan of
deferred compensation, medical plan, life insurance plan, long-term disability
plan, dental plan or other plan providing for the welfare of any of Seller's or
any Plan Affiliate's employees or former employees or beneficiaries thereof,
personnel policy (including but not limited to vacation time, holiday pay, bonus
programs, moving expense reimbursement programs and sick leave), excess benefit
plan, bonus or incentive plan (including but not limited to stock options,
restricted stock, stock bonus and deferred bonus plans), salary reduction
agreement, change-of-control agreement, employment agreement, consulting
agreement or any other benefit, program or contract.

"ENVIRONMENTAL AND SAFETY REQUIREMENTS" means all federal, state
and local laws, rules, regulations, ordinances, orders, statutes, actions,
policies and requirements relating to public health and safety, worker health
and safety, pollution or protection of the environment, all as amended or
hereafter amended.

"ERISA" means the Employment Retirement Income Security Act of
1974, as amended.

"GAAP" means generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board (or any successor
authority) that are applicable as the date of determination, as consistently
applied by Seller.

"HAZARDOUS SUBSTANCES" means any pollutant or contaminant (as that
term is defined in 42 U.S.C. Section 9601(33)), toxic pollutant (as that term is
defined in 33 U.S.C. Section 1362(13)), hazardous substance (as that term is
defined in 42 U.S.C. Sections 9601 ET SEQ. and the regulations promulgated
thereunder), hazardous chemical (as that term is defined by 29 C.F.R. Section
1910.1200(c)), hazardous waste (as that term is defined in 42 U.S.C. Section
6903(5)), radioactive material, including without limitation any naturally
occurring radioactive material, any source, special nuclear or by-product
material as defined in 42 U.S.C. Sections 2011 ET SEQ., friable asbestos and
asbestos containing material, regulated levels of polychlorinated biphenyls,
petroleum and petroleum waste, including crude oil or any petroleum derived
substance, waste or breakdown or decomposition product thereof, or any
constituent of any such petroleum substance or waste, or any substance or
material which because of its toxicity, corrosiveness, ignitability, reactivity
or infectious characteristics may pose a threat to human health or the
environment and which is subject to any Environmental and Safety Requirements.

"PLAN AFFILIATE" means any Person or entity with which Seller
constitutes all or part of a controlled group of corporations, a group of trades
or businesses under common control or an affiliated service group, as each of
those terms are defined in Section 414 of the Code.

"PASSIVE SHAREHOLDERS" means, collectively, Robert E. Gramm Family
Trust, James R. Sanger, James D. Dodson, Theodore F. Perlman Revocable Trust,
Harriette L. Perlman Revocable Trust, Ruth Bender, Co. Wolcott Henry III, Nancy
C. Henry, Nancy H.

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McKelvy, Alexander Henry, V. Duane Rath Estate and Charles W. Lofgren,
shareholders of the Company.

"REGISTRABLE SECURITIES" The Purchase Shares (as presently
constituted) and any stock or other securities held by a Shareholder into which
such Purchase Shares shall have hereafter been changed, converted or exchanged;
PROVIDED, HOWEVER, that any such securities shall cease to be Registrable
Securities with respect to a proposed offer or sale thereof (i) when a
registration statement with respect to the sale of such securities shall have
become effective under the Securities Act and such securities shall have been
disposed of in accordance with the plan of distribution set forth in such
registration statement (ii) to the extent that such securities, in the opinion
of counsel to Buyer are permitted to be distributed pursuant to Rule 144 under
the Securities Act or (iii) they shall have ceased to be outstanding.

"TAX" means any federal, state, local or foreign income, gross
receipts, franchise, estimated, alternative minimum, add-on minimum, sales, use,
transfer, registration, value added, excise, natural resources, severance,
stamp, occupation, premium, windfall profit, environmental, customs, duties,
real property, personal property, capital stock, social security, unemployment,
disability, payroll, license, employee or other withholding, or other tax, of
any kind whatsoever, including any interest, penalties or additions to tax or
additional amounts in respect of the foregoing; the foregoing shall include any
transferee or secondary liability for a Tax and any liability assumed by
agreement or arising as a result of being (or ceasing to be) a member of any
Affiliated Group, as defined in Section 1504 of the Code, (or being included (or
required to be included) in any Tax Return relating thereto).

"TAX RETURNS" means returns, declarations, reports, claims for
refund, information returns or other documents (including any related or
supporting schedules, statements or information) filed or required to be filed
in connection with the determination, assessment or collection of any Taxes of
any party or the administration of any laws, regulations or administrative
requirements relating to any Taxes.

9.13 ENTIRE AGREEMENT. This Agreement and the Disclosure Letter and
all Exhibits attached to the Agreement (which will be deemed incorporated in the
Agreement and made a part of this Agreement) set forth the entire understanding
of the parties and may be modified only by instruments signed by all of the
parties.

9.14 THIRD PARTIES. Nothing expressed or implied in this Agreement is
intended or will be construed to confer upon or give to any person, other than
the parties to this Agreement, any rights or remedies under or by reason of this
Agreement.

9.15 INTERPRETATIVE MATTERS. Unless the context otherwise requires,
(i) all references to Articles, Sections, the Disclosure Letter, or Exhibits are
to Articles, Sections, the Disclosure Letter, or Exhibits in this Agreement,
(ii) each accounting term not otherwise defined in this Agreement has the
meaning assigned to it in accordance with generally accepted accounting
principles, (iii) words in the singular or plural include the singular and
plural and pronouns

-36-

<PAGE>

stated in either the masculine, feminine, or neuter gender will include the
masculine, feminine, and neuter and (iv) the term "including" shall mean by way
of example and not by way of limitation.

-37-

<PAGE>

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

PLATINUM ENTERTAINMENT, INC.

By: /s/ Steven Devick
-------------------------
Steven Devick
Its: President and Chief Executive Officer

SCOTT ENTERTAINMENT, INC.

/s/ Juan M. Contreras
-------------------------
Juan M. Contreras
Its: President

SHAREHOLDERS

/s/ James H. Scott
- ----------------------------
James H. Scott

/s/ Juan M. Contreras
- ----------------------------
Juan M. Contreras

Robert E. Gramm Family Trust

By: /s/ Robert E. Gramm
-------------------------
Its: Trustee

/s/ James R. Sanger
- ----------------------------
James R. Sanger

/s/ James D. Dodson
- ----------------------------
James D. Dodson

-38-

<PAGE>

Theodore F. Perlman Revocable Trust

By: /s/ Theodore F. Perlman
--------------------------------
Its: Trustee

Harriet L. Perlman Revocable Trust

By: /s/ Harriet L. Perlman
--------------------------------
Its: Trustee

/s/ Ruth Bender
- -----------------------------------
Ruth Bender

/s/ C. Wilcott Henry III
- -----------------------------------
C. Wolcott Henry III

/s/ Nancy C. Henry
- -----------------------------------
Nancy C. Henry

/s/ Nancy H. McKelvy
- -----------------------------------
Nancy H. McKelvy

/s/ Alexander Henry
- -----------------------------------
Alexander Henry

V. Duane Rath Estate

By: /s/ James Dodson Agent
--------------------------------
Its: Trustee

/s/ Charles W. Lofgren
- -----------------------------------
Charles W. Lofgren

-39-

<PAGE>

EXHIBIT 2.2.1

BILL OF SALE AND ASSIGNMENT AND ASSUMPTION AGREEMENT

THIS BILL OF SALE AND ASSIGNMENT AND ASSUMPTION AGREEMENT (this
"Agreement") is executed as of September 19, 1996, by and between Scott
Entertainment, Inc., an Illinois corporation ("Seller"), and Platinum
Entertainment, Inc., a Delaware corporation ("Buyer"). Capitalized terms used
but not defined herein shall have the meaning ascribed them in that certain
Asset Purchase Agreement dated as of September 19, 1996, by and between Seller
and Buyer (the "Purchase Agreement").

1. SALE AND ASSIGNMENT OF ASSETS. Seller, for good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
hereby grants, transfers, sells, conveys, assigns and delivers to Buyer, free of
all Liens, all of Seller's right, title and interest in and to all of the
Assets.

2. ASSIGNMENT OF CONTRACTS. Seller, for good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
hereby assigns, conveys and delivers to Buyer, all of Seller's right, title and
interest in and to the Contracts, to be held and enjoyed by Buyer and its
successors and assigns as fully and entirely as the same would have been held by
the Seller had this assignment and sale not have been made.

3. ASSUMPTION OF CONTRACTS. Buyer hereby accepts the assignment of
Contracts and assumes all of Seller's obligations relating to the Contracts.

4. ASSUMPTION OF LIABILITIES. Buyer hereby assumes and undertakes to
pay, perform and otherwise discharge all of the Assumed Liabilities.

5. FURTHER ASSURANCES. Each party hereto shall execute, acknowledge
and deliver to the other party all documents, and shall take all actions,
reasonably required by such other party from time to time to confirm or effect
the matters set forth herein, or otherwise to carry out the purpose of the
Purchase Agreement and this Agreement.

6. PURCHASE AGREEMENT. This Agreement is entered into pursuant to
and is subject to all of the terms of the Purchase Agreement, and nothing herein
shall be deemed to modify any of the representations, warranties, covenants and
obligations of the parties thereunder.

7. INTERPRETATION. In the event of any conflict or inconsistency
between the terms, provisions and conditions of this Agreement and the Purchase
Agreement, the terms, provisions and conditions of the Purchase Agreement shall
govern.

8. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original but all of which together shall
constitute a single agreement.

<PAGE>

9. EFFECTIVE DATE. This Agreement shall be effective as of the start
of business on September 19, 1996.

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

SCOTT ENTERTAINMENT, INC.,
an Illinois corporation

By: /s/ Juan M. Contreras
---------------------------------------------
Juan M. Contreras
Its: President

PLATINUM ENTERTAINMENT, INC.,
a Delaware corporation

By: /s/ Steven Devick
---------------------------------------------
Steven Devick
Its: President and Chief Executive Officer

-2-

<PAGE>

September 12, 1996

Angela Sanchez
Katten Muchin & Zavis
525 W. Monroe St.
Suite 1600
Chicago, IL 60661-3693

RE: Scott Entertainment, Inc.: Sale of Assets to Platinum Entertainment, Inc.

The following DISCLOSURE STATEMENT, signed by Juan M. Contreras, President
of Scott Entertainment, Inc. and James H. Scott, is submitted to comply with
the Seller's disclosure requirements under the above-referenced ASSET PURCHASE
AGREEMENT.

DISCLOSURE STATEMENT

2.2 ASSUMPTION OF LIABILITIES

Buyer expressly agrees to assume, to the maximum amount of
$100,000, the Seller's balance on its line of credit with
NationsBank. Buyer expressly agrees to indemnify and hold Seller
harmless from any and all liabilities, damages or expenses of any
kind or nature whatsoever that may accrue to Seller as a result
of Buyer's failure to pay the sum of $100,000.00 to NationsBank
upon closing. Seller agrees to pay off any balance on the
NationsBank line of credit in excess of $100,000.00 upon closing.

<PAGE>

3.1.5 ARTICLES OF INCORPORATION, BYLAWS, OFFICERS AND DIRECTORS

The Officers and Directors of Sellers are as follows, to wit:

Juan Contreras - President, Secretary/Treasurer

Juan Contreras - Director
James H. Scott - Director
Robert E. Gramm - Director

3.1.6 CAPITALIZATION

The list of Seller's shareholders is as follows:

James H. Scott
Juan M. Contreras
Robert E. Gramm Family Trust
James R. Sanger
James D. Dodson
Theodore F. Perlman Rev Trust
Harriette L. Perlman Rev Trust
Ruth Bender
Wolcott Henry III
Nancy C. Henry
Nancy H. McKelvy
Alexander Henry
Duane Rath Estate
Charles W. Lofgren

3.1.9 NO RESTRICTIONS AGAINST SALE OF ASSETS

There are no restrictions against the sale of the assets.

3.1.11 ABSENCE OF UNDISCLOSED LIABILITIES

There are no undisclosed liabilities.

3.1.12 FINANCIAL STATEMENTS

None.

<PAGE>

3.1.14 CONTRACTS

Copies of all Writer's contracts have been previously delivered
to Seller. Copies of all Seller's licensing agreements are
attached hereto marked Exhibit "A". The following is a list of
the Writers under contract and the expiration date for each such
agreement:

WRITER EXPIRATION DATE
------ ---------------

BILLY PIERSON April 9, 1997
JODY HARRIS March 11, 1997
PATRICK MICHAEL LEHMBERG November 1, 1996
RICHARD DONAHUE December 1, 1996
STEVE CLARK November 14, 1996
MICHAEL B. WARE Month-to-month/terminable at will
ROCKY WIMBERLY " " "

3.1.15 LEASED PROPERTIES

The only real properties used in the operation of Seller's
business is located at 119 17th Avenue South, Nashville,
Tennessee, 37203, which is leased pursuant to an oral month to
month lease agreement. The Lessor is Steve Cropper and the
amount of the monthly rent is $1,700.00, which includes all
utilities except telephone.

3.1.16 PERSONAL PROPERTY

A complete list of the personal property owned by Seller or used
in Seller's business is attached hereto, marked Exhibit "B,"
which consist of 2 pages.

3.1.17 LITIGATION

Seller is a party to two matters in litigation, to wit:

Belinda J. Prather vs. Double J. Music Group et al.,
Case #96-471-I, Chancery Court for Davidson County,
Tennessee;

<PAGE>

The Plaintiff, Belinda J. Prather, instituted suit against
the Seller for sexual harassment under the Tennessee Human
Rights Act, constructive discharge, wrongful discharge, and
breach of contract for failure to perform what Ms. Prather
has characterized as a "BONUS AGREEMENT."

Danny M. Wells vs. Scott Entertainment, Inc. et al.,
Case #96-1326-I, Chancery Court for Davidson County,
Tennessee;

The Plaintiff, Danny M. Wells, has instituted suit against
the Seller seeking a declaratory judgment that the
Plaintiff's Writer's Contract has expired and has not been
effectively extended by the exercise of any valid option by
the Seller. The Plaintiff has summarily alleged violations
of his constitutional rights, as well as negligence and
fraud on the part of the Seller.

BUYER HAS RECEIVED TRUE AND CORRECT COPIES OF THE COMPLAINTS
FILED IN THE FOREGOING LISTED PROCEEDINGS.

3.1.17.1 CLAIMS

See 3.1.17 SUPRA.

3.1.17.2 ORDER

None.

3.1.19 INTELLECTUAL PROPERTY

A copy of Seller's catalog of musical compositions and sound
recordings is attached hereto marked Exhibit "C," which consists
of 5 pages. Seller's tradenames are as follows: DOUBLE J MUSIC
GROUP, JOHN JUAN MUSIC, VICTORIA KAY MUSIC.

3.1.21 CONDUCT OF SELLER'S BUSINESS

Bonus paid to Juan Contreras in September, 1996 - $15,000.00.

<PAGE>

3.1.22 INSURANCE POLICIES

Copies of the insurance policies maintained by the Seller during
the previous 2 years are reflected in Exhibit "D" attached
hereto, which consists of 3 pages. The Seller's Worker's
Compensation insurance policy with the United States Fidelity and
Guarantee, Policy No. 5114642952, expired July 13, 1996, and has
not been renewed. The Seller's property Casualty Insurance on
its personal property items has also lapsed and has not been
renewed.

3.1.23 ACCOUNTS RECEIVABLE

The only accounts receivable to which Seller is entitled are
pursuant to licensing agreements disclosed in Section 3.1.25
INFRA. The amounts receivable under said licensing agreements
are unknown until such time as royalties are actually received by
Seller/license holder.

3.1.25 LICENSES

Copies of all Seller's licenses are attached hereto, marked
Exhibit "A."

3.1.26 EMPLOYEES

All non-officer employees of the Seller were granted a 5% wage
increase in May, 1996. No officers, directors or employees are
bound by confidential, non-compete or proprietary rights
agreements adversely affecting this transaction.

3.1.28 EMPLOYEE BENEFIT PLANS

The Seller's group medical insurance and term life insurance is
with Time Insurance Company, Policy No. 360687. No other
employee benefit plans.

3.1.31 AFFILIATE TRANSACTIONS

None.

<PAGE>

3.1.32 BANK ACCOUNTS

NationsBank, One NationsBank Plaza, Nashville, Tennessee, 37219,
Account #011301-079 (Royalty Savings Account).

NationsBank, One NationsBank Plaza, Nashville, Tennessee, 37219,
Account #011301-069 (Investor Savings Account).

Authorized person for such accounts is Juan Contreras.

SCOTT ENTERTAINMENT, INC.

BY: /s/ JUAN CONTRERAS
------------------------------
Juan Contreras, President

/s/ JAMES H. SCOTT
------------------------------
James H. Scott

<PAGE>

EXHIBIT 2.3

ESCROW AGREEMENT

ESCROW AGREEMENT (this "Agreement") is made and entered into as of
September 19, 1996, by and among PLATINUM ENTERTAINMENT, INC., a Delaware
corporation ("Buyer"), SCOTT ENTERTAINMENT, INC., an Illinois corporation
("Seller"), the James H. Scott and Juan M. Contreras, (the "Active
Shareholders"), and American National Bank and Trust Company of Chicago, as
Escrow Agent ("Escrow Agent").

WHEREAS, the parties hereto are entering into this Agreement pursuant to
the terms of that certain Asset Purchase Agreement dated of even date herewith
(the "Purchase Agreement"), by and among Buyer, Seller, and the Active
Shareholders;

WHEREAS, pursuant to the Purchase Agreement, Seller will be receiving a
certain number of Purchase Shares as part of the Purchase Price to be paid to
Seller by Buyer; and

WHEREAS, the Active Shareholders own outstanding capital of Seller and,
as such, will derive substantial direct and indirect economic benefit from
Seller consummating the transactions contemplated by the Purchase Agreement.

NOW, THEREFORE, the parties hereto agree as follows:

1. DEFINITION OF TERMS. Terms not otherwise defined herein shall
have the meaning ascribed to such terms in the Purchase Agreement. The Escrow
Agent shall not be responsible for any other provisions of the Purchase
Agreement.

2. APPOINTMENT AND ACCEPTANCE. Buyer, Seller and the Active
Shareholders hereby appoint Escrow Agent as escrow agent for the purposes and
upon the terms and conditions hereinafter set forth. Escrow Agent hereby
accepts such appointment and agrees to serve as escrow agent as described
herein.

3. THE ESCROW DEPOSIT. On the date hereof, Buyer shall deliver to
Escrow Agent for deposit in escrow pursuant to the provisions hereof, a stock
certificate which stock certificate represents 13,235 shares (the number of
shares equal to 15% of the Purchase Shares received by Seller pursuant to the
terms of the Purchase Agreement) (the "Escrowed Shares"). The parties hereto
acknowledge that upon any S-distribution of the Purchase Shares by Seller to its
shareholders, the Escrowed Shares shall be transferred into the names of the
Active Shareholders, with 6,617 Escrowed Shares being transferred into the name
of James Scott and 6,618 Escrowed Shares being transferred into the name of Juan
M. Contreras. Such transferred shares shall remain in escrow pursuant to the
terms hereof.

4. PURPOSE OF AGREEMENT. The Seller, Active Shareholders and Buyer
represent that this Agreement has been executed and the deposit of the Escrowed
Shares hereunder shall be made pursuant to SECTION 2.3 of the Purchase Agreement
for the purpose of paying any amounts

-1-

<PAGE>

due to Buyer pursuant to Sellers' and Active Shareholders' obligations under
SECTION 6.1 of the Purchase Agreement ("Covered Claims").

5. DELIVERY OF ESCROWED SHARES. Subject to the terms set forth in
SECTION 6.1 of the Purchase Agreement, if at any time Buyer shall claim that it
is entitled to all or a portion of the Escrowed Shares as a result of any
Covered Claim, Buyer shall give notice of such Covered Claim (the "Notice of
Claim") to Seller and the Escrow Agent. The Notice of Claim shall be an
affidavit describing the event or circumstances giving rise to the Covered
Claim, specifying Buyer's estimate of the reasonably foreseeable maximum amount
of the alleged damages (which amount may be revised by Buyer at any time prior
to the release of Escrowed Shares with respect to such Covered Claims) and
certifying that the Notice of Claim is being submitted in good faith.

If Escrow Agent shall have received a Notice of Claim from Buyer, Escrow
Agent shall promptly deliver a copy thereof to Seller. Within thirty (30)
calendar days ("Dispute Period") after delivery by Escrow Agent of a copy of
such Notice of Claim to Seller, Seller may deliver to Escrow Agent a written
notice (the "Notice of Dispute") contesting a request for payment in the Notice
of Claim. The Notice of Dispute shall be an affidavit specifying the amount
being disputed (the "Disputed Amount"), describing in reasonable detail the
reasons for such dispute and certifying that the Notice of Dispute is being
submitted in good faith. If Escrow Agent has not received a Notice of Dispute
prior to the expiration of Dispute Period referred to above, then Escrow Agent
shall immediately transfer to Buyer that number of Escrowed Shares having a Fair
Market Value determined as of the date of transfer equal to the full amount
requested in the Notice of Claim and will notify Seller of such transfer. As
used herein, the term "Fair Market Value" means, with respect to each Escrowed
Share, the average closing (last sale) price per share of Buyer's common stock
on the trading day immediately prior to the date of determination as quoted on
the Nasdaq National Market or such other national exchange or quotation system
upon which Buyer's common stock is then listed or quoted and provided in writing
to Escrow Agent by Buyer. If Escrow Agent has received a Notice of Dispute
during the Dispute Period which contests in part a payment in the Notice of
Claim, then Escrow Agent shall, following receipt of such Notice of Claim,
immediately transfer to Buyer, the number of Escrowed Shares having a Fair
Market Value determined as of the date of transfer equal to the amount requested
in the Notice of Claim which is in excess of the Disputed Amount.

If Escrow Agent receives a Notice of Dispute from Seller, Escrow Agent
shall promptly deliver a copy of the Notice of Dispute to Buyer, and shall not
deliver the portion of the Escrowed Shares constituting the Disputed Amount
until Escrow Agent shall have received one of the following:

(a) A certified copy of an order, decree or judgment issued or
rendered by a court of competent jurisdiction, which order, decree or
judgment has been finally affirmed on appeal or which by lapse of time or
otherwise is no longer subject to appeal (a "Final Decision") with
respect to the Notice of Claim which is the subject to the Notice of
Dispute; or

-2-

<PAGE>

(b) A joint written direction executed by Buyer and Seller
directing the distribution of the Escrowed Shares.

Upon receipt of either (a) or (b) above, Escrow Agent shall immediately transfer
the Escrowed Shares in respect of the Disputed Amount to Buyer in accordance
with the terms of such Final Decision or joint direction, as the case may be.

6. VOTING AND RIGHTS OF OWNERSHIP.

(a) Except for any stock splits, stock paid in shares of
capital stock of Buyer or recapitalizations declared with respect to the
common stock of Buyer, any cash dividends, dividends payable in
securities other than common stock or other distributions of any kind
made with respect to the Escrowed Shares will be distributed by Buyer to
Seller (or, as applicable, to the permitted assignees thereof on a pro
rata basis). Any shares of capital stock of Buyer to be issued as a
consequence of any stock split, stock dividend paid in shares of capital
stock of Buyer or recapitalization shall be deemed to be included with
the Escrowed Shares previously placed in escrow under this Agreement and
shall be deposited by Seller or each permitted assignee thereof or on his
or her behalf, into escrow along with any necessary additional
assignments in blank therefor executed by Seller or each permitted
assignee thereof, as applicable.

(b) Seller or the permitted assignees thereof, as applicable,
will have the right to vote, or not vote, the Escrowed Shares, or any
portion thereof, deposited in escrow, so long as such Escrowed Shares are
held in escrow, and Escrow Agent will take all steps necessary to allow
the exercise of such rights and, at Seller's expense, Escrow Agent shall
promptly forward, or cause to be forwarded, copies of any proxies, proxy
statements and other soliciting materials to Seller or the permitted
assignees thereof, as applicable, and Escrow Agent shall vote by proxy
the applicable portion of the Escrowed Shares in accordance with any
written instructions timely received from Seller or the permitted
assignees thereof, as applicable. While the Escrowed Shares remain in
escrow pursuant to this Agreement, Seller and the permitted assignees
thereof, as applicable, will retain and will be able to exercise all
other incidents of ownership of said Escrowed Shares that are not
inconsistent with the terms and conditions hereof.

(c) No Escrowed Shares or any beneficial interest therein may
be pledged, sold, hedged, assigned or otherwise transferred (including by
operation of law) by Seller or any permitted assignee thereof or may be
taken or reached by any legal or equitable process in satisfaction of any
debt or other liability of Seller and/or such permitted assignee thereof
(other than as expressly contemplated by this Agreement) prior to the
release from escrow of such Escrowed Shares to such party pursuant to
this Agreement.

-3-

<PAGE>

7. RELEASE DATE AND TERMINATION OF ESCROW.

(a) On the first anniversary of the Closing Date (the "Release
Date"), Escrow Agent shall ascertain the balance of the number of
Escrowed Shares (the "Escrow Balance"), which shall equal the number of
Escrowed Shares then held hereunder LESS the number of Escrowed Shares,
if any, then (i) covered by a pending Notice of Claim which is subject to
a Notice of Dispute as provided in SECTION 5 hereof, (ii) covered by a
pending Notice of Claim which was delivered by Escrow Agent to Seller at
any time prior to the Release Date, or (iii) covered by a Notice of Claim
determined to be valid and no longer subject to a Notice of Dispute, but
not yet transferred. On the Release Date, Escrow Agent shall deliver to
Seller the Escrow Balance. If, on the Release Date, a pending Notice of
Claim is subject to a Notice of Dispute as described in clause (i) above
or if, after the Release Date, a pending Notice of Claim described in
clause (ii) above is disputed by a Notice of Dispute in accordance with
SECTION 5 hereof, then this Escrow Agreement shall continue in full force
and effect with respect to the aggregate amount in dispute until Escrow
Agent shall have been instructed as to the disposition thereof in
accordance with the terms of SECTION 5. To the extent that a Notice of
Claim described in clause (ii) above is not contested by a Notice of
Dispute in accordance with the provisions of SECTION 5 hereof, the
uncontested portion of the Notice of Claim shall be paid to Buyer
immediately after the expiration of the Dispute Period referred to in
SECTION 5. Once all requests for payment of Covered Claims have been
settled and all of the Escrowed Shares have been transferred in
accordance with the foregoing provisions, this Agreement and all of the
obligations of the Escrow Agent hereunder shall terminate (such date
being referred to herein as the "Termination Date").

(b) Notwithstanding the foregoing, this Agreement may be
terminated at any time by and upon the receipt by Escrow Agent of written
notice of termination executed by Buyer and Seller directing the
distribution of all property then held by Escrow Agent under and pursuant
to this Agreement, and this Agreement shall automatically terminate if
and when all the Escrowed Shares (and all the securities in which any of
the Escrowed Shares shall have been invested) shall have been distributed
by Escrow Agent in accordance with the terms of this Agreement.

8. NOTICES. Any notices or other communication required to be sent
or given hereunder by any of the parties shall in every case be in writing and
shall be deemed properly served if (a) delivered personally, (b) sent by
registered or certified mail, in all such cases with first class postage
prepaid, return receipt requested, (c) delivered by a recognized overnight
courier service, or (d) sent by facsimile transmission to the parties at the
addresses as set forth below or at such other addresses as may be furnished in
writing.

-4-

<PAGE>

(a) If to Seller or Active Shareholders:

Scott Entertainment, Inc.
119 Seventeenth Avenue South
Nashville, Tennessee 37203
Attention: James H. Scott
Telecopy: (312) 683-6412

with a copy to:

The Law Offices of Paul Stacey
202 West Willow Avenue
Wheaton, Illinois 60187
Attention: Paul Stacey, Esq.
Telecopy: (630) 462-9293

(b) If to Buyer:

Platinum Entertainment, Inc.
2001 Butterfield Road
Downers Grove, IL 60515
Attention: Steven Devick
Facsimile: (630) 769-0049

with a copy to:

Katten Muchin & Zavis
525 West Monroe Street
Suite 1600
Chicago, Illinois 60661
Facsimile: (312) 902-1061
Attention: Matthew S. Brown, Esq.

(c) If to Escrow Agent:
American National Bank and Trust Company
of Chicago
33 N. LaSalle St.
Corporate Trust Department
Chicago, Illinois 60690
Facsimile: (312) 661-6491
Attention: Timothy P. Martin

Date of service of such notice shall be (w) the date such notice is personally
delivered, (x) three days after the date of mailing if sent by certified or
registered mail, (y) the next succeeding

-5-

<PAGE>

business day after date of delivery to the overnight courier if sent by
overnight courier or (z) the next succeeding business day after transmission by
facsimile.

9. ESCROW AGENT'S LIABILITY. Escrow Agent undertakes to perform such
duties and only such duties as are specifically set forth in this Agreement, and
no implied covenants or obligations shall be read into this Agreement against
Escrow Agent. In the absence of bad faith, gross negligence or wilful
misconduct on its part, Escrow Agent may conclusively rely, as to the truth of
the statements and the correctness of the opinions expressed therein, upon
certificates or opinions furnished to Escrow Agent. Escrow Agent may act upon
any instrument, certificate, opinion or other writing believed by it in good
faith and without gross negligence to be genuine, and shall not be liable in
connection with the performance by it of its duties pursuant to the provisions
of the Agreement, except for its own bad faith, gross negligence or wilful
misconduct. Escrow Agent may consult with counsel of its own choice and shall
have full and complete authorization and protection for any action taken,
suffered or omitted by it hereunder in good faith and in accordance with the
opinion of such counsel. Escrow Agent may execute powers hereunder or perform
any duties hereunder either directly or by or through agents or attorneys.

10. INDEMNIFICATION OF ESCROW AGENT. Buyer, Seller and the Active
Shareholders hereby agree severally and jointly to indemnify Escrow Agent for,
and to hold it harmless against, any loss, liability or expense incurred without
gross negligence, wilful misconduct or bad faith on the part of Escrow Agent,
arising out of or in connection with its entering into the Agreement, carrying
out its duties hereunder and accepting the Escrowed Shares, including the costs
and expenses of defending itself against any claim of liability in connection
with the exercise or performance of any of its powers or duties hereunder
(including reasonable fees, expenses and disbursements of its counsel).

11. ESCROW AGENT TO FOLLOW INSTRUCTIONS OF BUYER AND SELLER.
Notwithstanding any provision contained herein to the contrary, Escrow Agent
shall at any time and from time to time take such action hereunder with respect
to the Escrowed Shares as shall be directed in writing by Buyer and Seller,
provided that Escrow Agent shall first be indemnified to its satisfaction with
respect to any of its costs or expenses which might be involved.

12. RESIGNATION OF ESCROW AGENT. Escrow Agent, or any successor, may
resign at any time upon giving written notice, thirty (30) days before such
resignation shall take effect, to Buyer and Seller. In the event Escrow Agent
shall resign or be unable to serve, it shall be succeeded by such bank or trust
company as Buyer and Seller shall appoint, or if no appointment is made, by a
bank or trust company appointed by a court of competent jurisdiction. In the
absence of a successor so appointed by Buyer and Seller, Escrow Agent may
petition such a court to appoint a successor escrow agent. The resigning escrow
agent shall transfer to its successor all monies, securities and investments
then held subject to this escrow and all pending notices, instructions and
directions then in its possession, and shall thereupon be discharged, and the
successor shall thereupon succeed to all the rights, powers and duties and shall
assume all of the obligations of the resigning escrow agent.

-6-

<PAGE>

13. ESCROW AGENT'S FEE AND EXPENSES, ETC..

(a) Escrow Agent shall be entitled to a $2,000.00 annual fee,
which annual fee shall be prorated to the date of termination of this
Agreement, for services rendered and for reimbursement of extraordinary
expenses incurred in performance of its duties which expenses are not
included in said fee. Such fees and expenses shall be divided equally
between the Buyer, on one hand and Seller, on the other hand.

(b) In case said property shall be attached, garnished, or
levied upon any court order, or the delivery thereof shall be stayed or
enjoined by an order of court, or any order, judgement or decree shall be
made or entered by any court order affecting the property deposited under
this Agreement, or any part thereof, Escrow Agent is hereby expressly
authorized in its sole direction, to obey and comply with all writs,
orders or decrees so entered or issued, which it is advised by legal
counsel of its own choosing is binding upon it, whether with or without
jurisdiction, and in case Escrow Agent obeys or complies with any such
writ, order or decree it shall not be liable to any of the parties hereto
or to any other person, firm or corporation, by reason of such compliance
notwithstanding such writ, order or decree be subsequently reversed,
modified, annulled, set aside or vacated.

(c) In case said Escrow Agent becomes involved in litigation on
account of this deposit or of this Agreement, it shall have the right to
retain counsel and shall have a lien on the property deposited hereunder
for any and all costs, attorneys' and solicitors' fees, charges,
disbursements, and expenses in connection with such litigation; and shall
be entitled to reimburse itself therefor out of the property deposited
hereunder, and if it shall be unable to reimburse itself from the
property deposited hereunder, the parties hereto jointly and severally
agree to pay to said Escrow Agent on demand, its reasonable charges,
counsel and attorneys' fees, disbursements, and expenses in connection
with such litigation.

(d) In case conflicting demands are made upon it for any
situation not addressed in this Agreement, Escrow Agent may withhold
performance of this escrow until such time as said conflicting demands
shall have been withdrawn or the rights of the respective parties shall
have been settled by court adjudication, arbitration, joint order or
otherwise.

(e) The parties acknowledge that Escrow Agent will have no
obligations or responsibilities with respect to tax reporting of the
parties.

14. SUCCESSORS. The obligations imposed and the rights conferred by
this Escrow Agreement shall be binding upon and inure to the benefit of the
respective heirs (including estates), successors and permitted assigns of the
parties hereto, but will not be assignable or delegable by any party without the
prior written consent of the other parties.

-7-

<PAGE>

15. GOVERNING LAW. This Escrow Agreement shall be governed by and
construed in accordance with the laws of the State of Illinois, without giving
effect to principles of conflicts of law.

16. ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the parties hereto with respect to the transactions contemplated herein.

17. AMENDMENT. This Agreement cannot be terminated, altered or
amended except pursuant to an instrument in writing signed by Buyer, the Active
Shareholders and Escrow Agent.

18. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS. Any
corporation into which Escrow Agent may be merged or converted or with which it
may be consolidated, or any corporation resulting from any merger, conversion or
consolidation to which Escrow Agent shall be a party, or any corporation
succeeding to all or substantially all of the corporate trust business of Escrow
Agent, shall be the successor of Escrow Agent hereunder without the execution or
filing of any paper or any further act on the part of any of the parties hereto.

19. ENFORCEABILITY. If any provision of the Agreement shall be held
invalid or unenforceable, such invalidity or unenforceability shall attach only
to such provision and shall not in any manner affect or render invalid or
unenforceable any other provision of this Escrow Agreement, and the Agreement
shall be carried out as if any such invalid or unenforceable provision were not
contained herein.

20. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed on original and all of which
together shall constitute one and the same instrument.

21. NO STRICT CONSTRUCTION. The language used in this Agreement will
be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction will be applied against any
party hereto.

[INTENTIONALLY LEFT BLANK]

-8-

<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused the this Agreement to
be signed as of the date first above written.

SELLER:

SCOTT ENTERTAINMENT, INC.

/s/ Juan M. Contreras
--------------------------------------
Juan M. Contreras
Its: President

ACTIVE SHAREHOLDERS:

/s/ James H. Scott
--------------------------------------
James H. Scott

/s/ Juan M. Contreras
--------------------------------------
Juan M. Contreras

BUYER:

PLATINUM ENTERTAINMENT, INC.

/s/ Steven Devick
--------------------------------------
Steven Devick
Its: President and Chief Executive
Officer

ESCROW AGENT:

AMERICAN NATIONAL BANK AND TRUST
COMPANY OF CHICAGO, AS ESCROW
AGENT

By: /s/ Timothy P. Martin
-----------------------------------
Its: Assistant Vice President
---------------------------

-9-

<PAGE>

EXHIBIT 2.5

ALLOCATION OF PURCHASE PRICE

1. The Assumed Liabilities will be allocated based on the amount assumed by
Buyer, on a dollar for dollar basis.

2. The $50,000 payment to James H. Scott shall be allocated, in total, to
the Noncompetition Agreement.

3. The value of the Purchase Shares shall be allocated as follows:

(a) To cash equivalents on a dollar for dollar basis;

(b) To prepaids and deposits on a dollar for dollar basis;

(d) To net fixed assets based on the assessed fair market value
of such assets; and

(e) The remainder of the Purchase Price shall be allocated to
copyrights.

This allocation assumes that all writer advances will be fully
reserved.

<PAGE>

EXHIBIT 2.6

NON-COMPETITION AGREEMENT

This NON-COMPETITION AGREEMENT (the "Agreement") is made as of this 19th
day of September, 1996 by and between JAMES H. SCOTT ("Shareholder") and
PLATINUM ENTERTAINMENT, INC., a Delaware corporation ("Buyer").

WHEREAS, on the date of this Agreement, Buyer is buying substantially all
of the assets and business (the "Asset Purchase") of Scott Entertainment, Inc.,
an Illinois corporation ("Scott"), pursuant to an Asset Purchase Agreement of
even date herewith (the "Asset Purchase Agreement"); and

WHEREAS, Shareholder is a principal shareholder and member of the Board
of Directors of Scott and has intimate and detailed knowledge of the operations
of Scott; and

WHEREAS, the execution of this Agreement is a condition to the closing of
the Asset Purchase;

NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants contained herein, the parties agree as follows:

A. SHAREHOLDER'S ACKNOWLEDGEMENT. Scott has been engaged in the
business of music publishing (the "Business"). Shareholder acknowledges that,
as a result of his long-term relationship with and position as a shareholder and
board member of Scott, he has developed knowledge about the business of Scott
that is special, unique, and of intellectual character. Such knowledge includes
information concerning operation of Scott's business, its contracts with artists
and songwriters, its techniques, copyrights, and other assets. Such business
information is considered confidential and proprietary by Scott and Buyer and
will, upon consummation of the Asset Purchase constitute valuable assets of
Buyer, the value of which would be destroyed by its use in competition with
Buyer.

B. SHAREHOLDER COVENANTS. In light of the foregoing, the additional
monetary benefit accruing to Shareholder by virtue of the consummation of the
Asset Purchase, and as an inducement to Buyer to consummate the Asset Purchase,
Shareholder is agreeing to the covenants set forth in this Agreement.
Shareholder acknowledges that compliance with these covenants will not preclude
him from earning a living and supporting his family during the Restricted
Period. Accordingly, Shareholder hereby agrees as follows:

(a) NON-COMPETITION COVENANTS. Shareholder will NOT, during the
Restricted Period (as defined below), anywhere within the United States,
and specifically in Nashville, Tennessee and its greater metropolitan
area, (the "Restricted Territory"), directly or indirectly (whether as an
owner, partner, shareholder, agent, officer, director, employee,
independent contractor, consultant, or otherwise):

(i) perform services for, or engage in, the Business in
any capacity;

(ii) except on behalf of Buyer, solicit any person or
entity who is now or was at any time during the eighteen months
prior to the intended solicitation,

<PAGE>

an artist, songwriter, customer or distributor of Buyer or Scott
for the sale, publication or distribution of any music or any
products relating to the Business; or

(iii) solicit for employment any person who is, or was at
any time during the eighteen months prior to the intended
solicitation, an employee of Scott.

The term "Restricted Period" shall mean the period commencing on the date hereof
and continuing thereafter until fifteen months from the date hereof. Nothing
contained in Section 2(b) above shall be construed to prevent Shareholder from
investing in the stock of any company which operates in the Business (including
House of Blues Records, Inc.), but only if Shareholder (i) is solely a passive
investor, (ii) and is not involved in any manner in any aspect of the business
or operations of said corporation and (iii) if Shareholder and his associates
(as such term is defined in Regulation 14(A) promulgated under the Securities
Exchange Act of 1934, as in effect on the date hereof), collectively, do not own
more than an aggregate of 4.9 percent of the stock of such corporation.

(b) NEGATIVE COMMENT COVENANT. Shareholder will NOT, at
anytime, make any statements, whether orally or in writing, which would bring
disrepute to Buyer or Scott, their products or services, or otherwise hinder the
business prospects thereof.

3. CONSIDERATION. Shareholder agrees that the $45,000 payable to him
under the Asset Purchase Agreement and the material benefits accruing to him as
a result of the Asset Purchase are in consideration for Shareholder's abiding by
the covenants set forth in Section 2 of this Agreement,

4. SCOPE/SEVERABILITY. The parties acknowledge that the businesses
of Buyer and Scott are and will be national and international in scope and thus
the covenants in Section 2 would be particularly ineffective if the covenants
were to be limited to a particular geographic area of the United States. If any
court of competent jurisdiction at any time deems the Restricted Period
unreasonably lengthy, or the Restricted Territory unreasonably extensive, or any
of the covenants set forth in Sections 2(a) or (b) not fully enforceable, the
other provisions of Section 2, and this Agreement in general, will nevertheless
stand and to the full extent consistent with law continue in full force and
effect, and it is the intention and desire of the parties that the court treat
any provisions of this Agreement which are not fully enforceable as having been
modified to the extent deemed necessary by the court to render them reasonable
and enforceable and that the court enforce them to such extent (for example,
that the Restricted Period be deemed to be the longest period permissible by
law, but not in excess of the length provided for in Section 2(a), and the
Restricted Territory be deemed to comprise the largest territory permissible by
law under the circumstances).

5. EQUITABLE REMEDIES. Shareholder acknowledges and agrees that the
agreements and covenants set forth in this Agreement are reasonable and
necessary for the protection of Buyer's and Scott's business interests, that
irreparable injury will result to Buyer and Scott if Shareholder breaches any of
the terms of these agreements and covenants, and that in the event of the
Shareholder's actual or threatened breach of any covenant set forth in Section
2, Buyer

<PAGE>

will have no adequate remedy at law. Shareholder accordingly agrees that in the
event of any actual or threatened breach by him of such covenant, Buyer will be
entitled to immediate injunctive and other equitable relief, without bond and
without the necessity of showing actual monetary damages. Nothing in this
Agreement will be construed as prohibiting Buyer from pursuing any other
remedies available to it for such breach or threatened breach, including the
recovery of any damages that Buyer is able to prove.

6. INDEPENDENT COVENANTS. Each of the covenants in Section 2 will be
construed as independent of any other covenant or provision in Section 2 or in
any other part of this Agreement.

7. REPRESENTATIONS OF SHAREHOLDER. Shareholder represents and
warrants to Buyer that he has the absolute and unrestricted right, power,
authority, and capacity to execute and deliver this Agreement and to perform his
obligations hereunder.

8. GOVERNING LAW. This Agreement will be governed by and construed
in accordance with the laws of the State of Illinois without regard to conflicts
of law principles.

9. NO STRICT CONSTRUCTION. The language used in this Agreement will
be deemed to be the language chosen by the parties to express their mutual
intent, and no rule of strict construction will be applied against any person.

10. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original but all of which together shall
constitute a single agreement.

11. ENTIRE AGREEMENT. This Agreement sets forth the entire
understanding of the parties, and supersedes and preempts all prior oral or
written understandings and agreements, with respect to the subject matter
hereof, except as otherwise expressly set forth in the Asset Purchase Agreement.

IN WITNESS WHEREOF, Shareholder and Buyer have executed this Agreement as
of the date first written above.

PLATINUM ENTERTAINMENT, INC.

/s/ James H. Scott By: /s/ Steven Devick
- -------------------------------- -------------------------------
James H. Scott Its: CEO
-------------------------------

<PAGE>

LICENSING AGREEMENTS

1. Agreement by and between Victoria Kay Contreras and Juan M. Contreras,
Partners, d/b/a/ Victoria Kay Music and

2. American society of Composers, Authors & Publishers, dated June 4, 1992.

3. Agreement by and between Juan M. Contreras, d/b/a John Juan Music and
Broadcast Music, Inc. (BMI), dated January 17, 1990.

4. Mechanical License Agreement by and between John Juan Music and EMI Music
Canada, dated March 13, 1995 regarding "Desperate Measures."

5. Mechanical License Agreement by and between Victoria Kay Music and Sound
Source, dated January 8, 1996 regarding "Check Yes or No."

6. Mechanical License Agreement by and between Victora Kay Music and Pocket
Songs, dated January 8, 1996 regarding "Check Yes or No."

7. Mechanical License Agreement by and between Victoria Kay Music and
Patricia Blair/ MCA Music Entertainment Group, dated September 28, 1995
regarding "Check Yes or No."

8. Mechanical License Agreement by and between Victoria Kay Music and Angela
Longo, dated March 12, 1996 regarding "Check Yes or No."

9. Music License Agreement by and between Victoria Kay Music and John Juan
Music and The Martin Agency, as agent for Wrangler, dated August 10, 1995
regarding "Check Yes or No."

10. Mechanical License Agreement by and between Victoria Kay Music and
Atlantic Records, dated May 30, 1995 regarding "I'm on Your Side."

11. Mechanical License Agreement by and between John Juan Music and Patricia
Blair/MCA Music Entertainment Group, dated April 12, 1995 regarding "Love
a Little Stronge."

12. Mechanical License Agreement by and between Jon Juan Music and Ken
Batchelor/MCA Records, dated September 7, 1995 regarding "Love a Little
Stronger."

13. Mechanical License Agreement by and between John Juan Music and The Music
Maestro, dated August 30, 1995 regarding "Love a Little Stronger."

<PAGE>

14. Mechanical License Agreement by and between John Juan Music and Sound
Source, dated February 27, 1995 and received March 24, 1995 regarding
"Love a Little Stronger."

15. Mechanical License Agreement by and between John Juan Music and Moseley
Enterprises, dated March 8, 1995 regarding "Love a Little Stronger."

16. Mechanical License Agreement by and between John Juan Music and BMG
Entertainment, dated May 6, 1996 regarding "Love a Little Stonger."

17. Mechanical License Agreement by and between John Juan Music and BMG Music
Canada, dated March 26, 1996 regarding "Love a Little Stronger."

18. Mechanical License Agreement by and between John Juan Music and Vanguard
Records dated March 29, 1995, regarding "Love a Little Stronger".

19. Mechanical License Agreement by and between John Juan Music and Honest
Entertainment Group, dated May 18, 1995 regarding "That Was the One."

20. Mechanical License Agreement by and between John Juan Music and Rep-Con,
dated June 27, 1994 regarding "Give it a Push."

21. Mechanical License Agreement by and between John Juan Music and The
Atlantic Group, dated January 9, 1995 regarding "That Ol' Train."

22. Mechanical License Agreement by and between John Juan Music and Sony
Music dated, March 12, 1996 regarding "You're Backin' Up."

23. Mechanical License Agreement by and between Victoria Kay Music and Zion
Music Group, dated January 8, 1996 regarding "Jimmy and Jesus."

24. Mechanical License Agreement by and between Victoria Kay Music and Sun
Entertainment Corporation, dated July 20, 1994 regarding
"Honkytonkville."

25. Mechanical License Agreement by and between Victoria Kay Music and
Pageant Tapes, Inc./Express Trax, dated April 4, 1995 regarding "You
Can't Make a Heart Love Somebody."

26. Mechanical License Agreement by and between Victoria Kay Music and Pocket
Songs, dated January 8, 1996 regarding "You Can't Make a Heart Love
Somebody."

27. Mechanical License Agreement by and between Victoria Kay Music and Sound
Source, dated February 27, 1995 regarding "You Can't Make a Heart Love
Somebody."

<PAGE>

28. Mechanical License Agreement by and between Victoria Kay Music and MCA
Records Canada, a division of MCA Canada Ltd., dated October 24, 1994
regarding "You Can't Make a Heart Love Somebody."

29. Mechanical License Agreement by and between Victoria Kay Music and MCA
Records, dated January 16, 1994 and January 1995 regarding "You Can't
Make a Heart Love Somebody."

30. Mechanical License Agreement by and between Victoria Kay Music and Image
Marketing, c/o MCA Music Entertainment Group, dated March 16, 1995
regarding "You Can't Make a Heart Love Somebody."

<PAGE>

PLATINUM ENTERTAINMENT, INC.

1995 EMPLOYEE INCENTIVE COMPENSATION PLAN

AS AMENDED AND RESTATED EFFECTIVE JUNE 1, 1996

P-1

<PAGE>

TABLE OF CONTENTS

Page
----
ARTICLE I

ESTABLISHMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P-6
1.1 PURPOSE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . P-6

ARTICLE II

DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P-6
2.1 "AFFILIATE". . . . . . . . . . . . . . . . . . . . . . . . . . . P-6
2.2 "AGREEMENT" or "AWARD AGREEMENT" . . . . . . . . . . . . . . . . P-6
2.3 "AWARD". . . . . . . . . . . . . . . . . . . . . . . . . . . . . P-7
2.4 "BENEFICIARY". . . . . . . . . . . . . . . . . . . . . . . . . . P-7
2.5 "BOARD OF DIRECTORS" or "BOARD". . . . . . . . . . . . . . . . . P-7
2.6 "CASH INCENTIVE AWARD" . . . . . . . . . . . . . . . . . . . . . P-7
2.7 "CAUSE". . . . . . . . . . . . . . . . . . . . . . . . . . . . . P-7
2.8 "CHANGE IN CONTROL" and "CHANGE IN CONTROL PRICE". . . . . . . . P-7
2.9 "CODE" or "INTERNAL REVENUE CODE". . . . . . . . . . . . . . . . P-7
2.10 "COMMISSION" . . . . . . . . . . . . . . . . . . . . . . . . . . P-7
2.11 "COMMITTEE". . . . . . . . . . . . . . . . . . . . . . . . . . . P-8
2.12 "COMMON STOCK" . . . . . . . . . . . . . . . . . . . . . . . . . P-8
2.13 "COMPANY". . . . . . . . . . . . . . . . . . . . . . . . . . . . P-8
2.14 "COVERED EMPLOYEE" . . . . . . . . . . . . . . . . . . . . . . . P-8
2.15 "DEFERRED STOCK" . . . . . . . . . . . . . . . . . . . . . . . . P-8
2.16 "DISABILITY" . . . . . . . . . . . . . . . . . . . . . . . . . . P-8
2.17 "DISINTERESTED PERSON" . . . . . . . . . . . . . . . . . . . . . P-8
2.18 "DIVIDEND EQUIVALENT". . . . . . . . . . . . . . . . . . . . . . P-8
2.19 "EFFECTIVE DATE" . . . . . . . . . . . . . . . . . . . . . . . . P-8
2.20 "EXCHANGE ACT" . . . . . . . . . . . . . . . . . . . . . . . . . P-9
2.21 "FAIR MARKET VALUE". . . . . . . . . . . . . . . . . . . . . . . P-9
2.22 "GRANT DATE" . . . . . . . . . . . . . . . . . . . . . . . . . . P-9
2.23 "INCENTIVE STOCK OPTION" . . . . . . . . . . . . . . . . . . . . P-9
2.24 "NASDAQ" . . . . . . . . . . . . . . . . . . . . . . . . . . . . P-9
2.25 "NON-EMPLOYEE DIRECTOR". . . . . . . . . . . . . . . . . . . . . P-9
2.26 "NON-QUALIFIED STOCK OPTION" . . . . . . . . . . . . . . . . . . P-9
2.27 "OPTION" . . . . . . . . . . . . . . . . . . . . . . . . . . . . P-9
2.28 "OPTION PERIOD". . . . . . . . . . . . . . . . . . . . . . . . . P-9
2.29 "OPTION PRICE" . . . . . . . . . . . . . . . . . . . . . . . . . P-9
2.31 "PARTICIPANT". . . . . . . . . . . . . . . . . . . . . . . . . . P-9
2.32 "PERFORMANCE AWARD". . . . . . . . . . . . . . . . . . . . . . .P-10
2.33 "PLAN" . . . . . . . . . . . . . . . . . . . . . . . . . . . . .P-10
2.34 "REPRESENTATIVE" . . . . . . . . . . . . . . . . . . . . . . . .P-10
2.35 "RESTRICTED STOCK" . . . . . . . . . . . . . . . . . . . . . . .P-10
2.36 "RETIREMENT" . . . . . . . . . . . . . . . . . . . . . . . . . .P-10

P-2

<PAGE>

Page
----

2.37 "RULE 16b-3" and "RULE 16a-1(c)(3)". . . . . . . . . . . . . . .P-10
2.38 "SECURITIES ACT" . . . . . . . . . . . . . . . . . . . . . . . .P-10
2.39 "STOCK APPRECIATION RIGHT" . . . . . . . . . . . . . . . . . . .P-10
2.40 "STOCK OPTION" . . . . . . . . . . . . . . . . . . . . . . . . .P-11
2.41 "TERMINATION OF EMPLOYMENT". . . . . . . . . . . . . . . . . . .P-11

ARTICLE III

ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .P-11
3.1 COMMITTEE STRUCTURE AND AUTHORITY. . . . . . . . . . . . . . . .P-11

ARTICLE IV

STOCK SUBJECT TO PLAN. . . . . . . . . . . . . . . . . . . . . . . . . . . .P-14
4.1 NUMBER OF SHARES . . . . . . . . . . . . . . . . . . . . . . . .P-14
4.2 RELEASE OF SHARES. . . . . . . . . . . . . . . . . . . . . . . .P-14
4.3 RESTRICTIONS ON SHARES . . . . . . . . . . . . . . . . . . . . .P-14
4.4 STOCKHOLDER RIGHTS . . . . . . . . . . . . . . . . . . . . . . .P-15
4.5 BEST EFFORTS TO REGISTER . . . . . . . . . . . . . . . . . . . .P-15
4.6 ANTI-DILUTION. . . . . . . . . . . . . . . . . . . . . . . . . .P-15

ARTICLE V

ELIGIBILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .P-16
5.1 ELIGIBILITY. . . . . . . . . . . . . . . . . . . . . . . . . . .P-16

ARTICLE VI

STOCK OPTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .P-16
6.1 GRANT OF STOCK OPTIONS TO PARTICIPANTS WHO ARE NOT NON-EMPLOYEE
DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . .P-16
6.2 GRANT OF DIRECTOR OPTIONS. . . . . . . . . . . . . . . . . . . .P-17
6.3 TERMS AND CONDITIONS . . . . . . . . . . . . . . . . . . . . . .P-17
6.4 TERMINATION BY REASON OF DEATH . . . . . . . . . . . . . . . . .P-20
6.5 TERMINATION BY REASON OF DISABILITY. . . . . . . . . . . . . . .P-20
6.6 OTHER TERMINATION. . . . . . . . . . . . . . . . . . . . . . . .P-20
6.7 CASHING OUT OF OPTION. . . . . . . . . . . . . . . . . . . . . .P-21

ARTICLE VII

STOCK APPRECIATION RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . .P-21
7.1 GENERAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . .P-21
7.2 GRANT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .P-21
7.3 TERMS AND CONDITIONS . . . . . . . . . . . . . . . . . . . . . .P-22

P-3

<PAGE>

Page
----
ARTICLE VIII

RESTRICTED STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .P-23
8.1 GENERAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . .P-23
8.2 AWARDS AND CERTIFICATES. . . . . . . . . . . . . . . . . . . . .P-24
8.3 TERMS AND CONDITIONS . . . . . . . . . . . . . . . . . . . . . .P-24

ARTICLE IX

DEFERRED STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .P-25
9.1 GENERAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . .P-25
9.2 TERMS AND CONDITIONS . . . . . . . . . . . . . . . . . . . . . .P-25

ARTICLE X

OTHER AWARDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .P-26
10.1 BONUS STOCK AND AWARDS IN LIEU OF OBLIGATIONS. . . . . . . . . .P-27
10.2 DIVIDEND EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . .P-27
10.3 OTHER STOCK-BASED AWARDS . . . . . . . . . . . . . . . . . . . .P-27
10.4 PERFORMANCE AWARDS . . . . . . . . . . . . . . . . . . . . . . .P-27

ARTICLE XI

PROVISIONS APPLICABLE TO STOCK ACQUIRED UNDER THE PLAN . . . . . . . . . . .P-30
11.1 LIMITED TRANSFER DURING OFFERING . . . . . . . . . . . . . . . .P-31
11.2 COMMITTEE DISCRETION . . . . . . . . . . . . . . . . . . . . . .P-31
11.3 NO COMPANY OBLIGATION. . . . . . . . . . . . . . . . . . . . . .P-31

ARTICLE XII

CHANGE IN CONTROL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . .P-31
12.1 IMPACT OF EVENT. . . . . . . . . . . . . . . . . . . . . . . . .P-31
12.3 CHANGE IN CONTROL PRICE. . . . . . . . . . . . . . . . . . . . .P-33

ARTICLE XIII

MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .P-33
13.1 AMENDMENTS AND TERMINATION . . . . . . . . . . . . . . . . . . .P-33
13.2 STAND-ALONE, ADDITIONAL, TANDEM, AND SUBSTITUTE AWARDS . . . . .P-34
13.3 FORM AND TIMING OF PAYMENT UNDER AWARDS; DEFERRALS . . . . . . .P-35
13.4 STATUS OF AWARDS UNDER CODE SECTION 162(M) . . . . . . . . . . .P-35
13.5 UNFUNDED STATUS OF PLAN; LIMITS ON TRANSFERABILITY . . . . . . .P-35
13.6 GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . .P-35
13.7 MITIGATION OF EXCISE TAX . . . . . . . . . . . . . . . . . . . .P-37
13.8 RIGHTS WITH RESPECT TO CONTINUANCE OF EMPLOYMENT . . . . . . . .P-38

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Page
----
13.9 AWARDS IN SUBSTITUTION FOR AWARDS GRANTED BY OTHER
CORPORATIONS . . . . . . . . . . . . . . . . . . . . . . . . . .P-38
13.10 PROCEDURE FOR ADOPTION . . . . . . . . . . . . . . . . . . . . .P-38
13.11 PROCEDURE FOR WITHDRAWAL . . . . . . . . . . . . . . . . . . . .P-38
13.12 DELAY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .P-39
13.13 HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . .P-39
13.14 SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . .P-39
13.15 SUCCESSORS AND ASSIGNS . . . . . . . . . . . . . . . . . . . . .P-39
13.16 ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . .P-39

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PLATINUM ENTERTAINMENT, INC.
1995 EMPLOYEE INCENTIVE COMPENSATION PLAN

ARTICLE I

ESTABLISHMENT

1.1 PURPOSE.

The Platinum Entertainment, Inc. 1995 Employee Incentive Compensation
Plan ("Plan") previously established by Platinum Entertainment, Inc. ("Company")
and amended and restated effective as of January 1, 1996 is hereby amended and
restated in its entirety, effective as of June 1, 1996. The purpose of the Plan
is to promote the overall financial objectives of the Company and its
stockholders by motivating those persons selected to participate in the Plan to
achieve long-term growth in stockholder equity in the Company and by retaining
the association of those individuals who are instrumental in achieving this
growth. The Plan is intended to qualify certain compensation awarded under the
Plan for tax deductibility under Section 162(m) of the Code (as defined herein)
to the extent deemed appropriate by the Committee (as defined herein). The Plan
as amended and restated and the grant of awards thereunder, to the extent
affected by the amendment and restatement or granted after the effective date of
the amendment and restatement, are expressly conditioned upon the Plan's
approval by the stockholders of the Company. If such approval is not obtained,
then this Plan and all Awards (as defined herein) to the extent affected by the
amendment and restatement or granted after the effective date of the amendment
and restatement hereunder shall be null and void AB INITIO. The Plan as amended
and restated is adopted, subject to stockholder approval, effective as of June
1, 1996.

ARTICLE II

DEFINITIONS

For purposes of the Plan, the following terms are defined as set forth
below:

2.1 "AFFILIATE" means any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated association or other
entity (other than the Company) that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with, the
Company including, without limitation, any member of an affiliated group of
which the Company is a common parent corporation as provided in Section 1504 of
the Code.

2.2 "AGREEMENT" or "AWARD AGREEMENT" means, individually or
collectively, any agreement entered into pursuant to the Plan pursuant to which
an Award is granted to a Participant.

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2.3 "AWARD" means any Option, SAR, Restricted Stock, Deferred Stock,
Stock, Dividend Equivalent, Other Stock-Based Award, Performance Award or Cash
Incentive Award, together with any other right or interest granted to a
Participant under the Plan.

2.4 "BENEFICIARY" means the person, persons, trust or trusts which
have been designated by a Participant in his or her most recent written
beneficiary designation filed with the Committee to receive the benefits
specified under the Plan upon such Participant's death or to which Awards or
other rights are transferred if and to the extent permitted hereunder. If, upon
a Participant's death, there is no designated Beneficiary or surviving
designated Beneficiary, then the term Beneficiary means the person, persons,
trust or trusts entitled by will or the laws of descent and distribution to
receive such benefits.

2.5 "BOARD OF DIRECTORS" or "BOARD" means the Board of Directors of
the Company.

2.6 "CASH INCENTIVE AWARD" means a conditional right granted to a
Participant under Section 10.4(c) hereof to receive a cash payment, unless
otherwise determined by the Committee, after the end of a specified period.

2.7 "CAUSE" shall mean, for purposes of whether and when a Participant
has incurred a Termination of Employment for Cause, any act or omission which
permits the Company to terminate the written agreement or arrangement between
the Participant and the Company or an Affiliate for "cause" as defined in such
agreement or arrangement, or in the event there is no such agreement or
arrangement or the agreement or arrangement does not define the term "cause" or
a substantially equivalent term, then Cause shall mean (a) any act or failure to
act deemed to constitute cause under the Company's established practices,
policies or guidelines applicable to the Participant or (b) the Participant's
act or act of omission which constitutes gross misconduct with respect to the
Company or an Affiliate in any material respect, including, without limitation,
an act or act of omission of a criminal nature, the result of which is
detrimental to the interests of the Company or an Affiliate, or conduct, or the
omission of conduct, which constitutes a material breach of a duty the
Participant owes to the Company or an Affiliate.

2.8 "CHANGE IN CONTROL" and "CHANGE IN CONTROL PRICE" have the
meanings set forth in Sections 12.2 and 12.3, respectively.

2.9 "CODE" or "INTERNAL REVENUE CODE" means the Internal Revenue Code
of 1986, as amended, Treasury Regulations (including proposed regulations)
thereunder and any subsequent Internal Revenue Code.

2.10 "COMMISSION" means the Securities and Exchange Commission or any
successor agency.

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2.11 "COMMITTEE" means the person or persons appointed to administer
this Plan, as further described herein.

2.12 "COMMON STOCK" means the shares of the regular voting Common
Stock, $.001 par value, whether presently or hereafter issued, and any other
stock or security resulting from adjustment thereof as described hereinafter or
the common stock of any successor to the Company which is designated for the
purpose of the Plan.

2.13 "COMPANY" means Platinum Entertainment, Inc., a Delaware
corporation, and includes any successor or assignee corporation or corporations
into which the Company may be merged, changed or consolidated; any corporation
for whose securities the securities of the Company shall be exchanged; and any
assignee of or successor to substantially all of the assets of the Company.

2.14 "COVERED EMPLOYEE" means a Participant who is a "covered employee"
within the meaning of Section 162(m) of the Code.

2.15 "DEFERRED STOCK" means a right, granted to a Participant under
Section 9.1 hereof, to receive Common Stock, cash or a combination thereof at
the end of a specified deferral period.

2.16 "DISABILITY" means a mental or physical illness that entitles the
Participant to receive benefits under the long-term disability plan of the
Company or an Affiliate, or if the Participant is not covered by such a plan or
the Participant is not an employee of the Company or an Affiliate, a mental or
physical illness that renders a Participant totally and permanently incapable of
performing the Participant's duties for the Company or an Affiliate.
Notwithstanding the foregoing, a Disability shall not qualify under this Plan if
it is the result of (i) a willfully self-inflicted injury or willfully self-
induced sickness; or (ii) an injury or disease contracted, suffered, or incurred
while participating in a criminal offense. The determination of Disability
shall be made by the Committee. The determination of Disability for purposes of
this Plan shall not be construed to be an admission of disability for any other
purpose.

2.17 "DISINTERESTED PERSON" shall have the meaning set forth in Rule
16b-3, or any successor definition adopted by the Commission, and shall mean a
person who is also an "outside director" under Section 162(m) of the Code.

2.18 "DIVIDEND EQUIVALENT" means a right, granted to a Participant
under Section 10.2, to receive cash, Common Stock, other Awards or other
property equal in value to dividends paid with respect to a specified number of
shares of Common Stock.

2.19 "EFFECTIVE DATE" means as to the Plan's amendment and restatement,
June 1, 1996.

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<PAGE>

2.20 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.

2.21 "FAIR MARKET VALUE" means the fair market value of Common Stock,
Awards, or other property as determined by the Committee or under procedures
established by the Committee. Unless otherwise determined by the Committee and
in the event of grants of Directors Options under Section 6.2, the Fair Market
Value per share of Common Stock as of any given date shall be the closing sale
price per share reported on a consolidated basis for stock listed on the
principal stock exchange or market on which Common Stock is traded on the date
as of which such value is being determined or, if there is no sale on that date,
then on the last previous day on which a sale was reported.

2.22 "GRANT DATE" means the date as of which an Award is granted
pursuant to the Plan.

2.23 "INCENTIVE STOCK OPTION" means any Stock Option intended to be and
designated as an "incentive stock option" within the meaning of Section 422 of
the Code.

2.24 "NASDAQ" means The Nasdaq Stock Market, including the Nasdaq
National Market.

2.25 "NON-EMPLOYEE DIRECTOR" means each and any director who serves on
the Board and who is not an officer or employee of the Company or any of its
Affiliates.

2.26 "NON-QUALIFIED STOCK OPTION" means an Option to purchase Common
Stock in the Company granted under the Plan, the taxation of which is pursuant
to Section 83 of the Code.

2.27 "OPTION" means a right, granted to a Participant under Section 6.1
hereof, to purchase Common Stock or other Awards at a specified price during
specified time periods.

2.28 "OPTION PERIOD" means the period during which an Option shall be
exercisable in accordance with the related Agreement and Article VI.

2.29 "OPTION PRICE" means the price at which the Common Stock may be
purchased under an Option as provided in Section 6.3(b).

2.30 "OTHER STOCK BASED AWARDS" means Awards granted to a Participant
under Section 10.3 hereof.

2.31 "PARTICIPANT" means a person who satisfies the eligibility
conditions of Article V and to whom an Award has been granted by the Committee
under the Plan, and in the event a Representative is appointed for a Participant
or another person becomes a Representative, then the term "Participant" shall
mean such

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<PAGE>

Representative. The term shall also include a trust for the benefit of the
Participant, a partnership the interest of which is held by or for the benefit
of the Participant, the Participant's parents, spouse or descendants, or a
custodian under a uniform gifts to minors act or similar statute for the benefit
of the Participant's descendants, to the extent permitted by the Committee and
not inconsistent with Rule 16b-3. Notwithstanding the foregoing, the term
"Termination of Employment" shall mean the Termination of Employment of the
person to whom the Award was originally granted.

2.32 "PERFORMANCE AWARD" means a right, granted to a Participant under
Section 10.4 hereof, to receive Awards based upon performance criteria specified
by the Committee.

2.33 "PLAN" means the Platinum Entertainment, Inc. 1995 Employee
Incentive Compensation Plan, as herein set forth and as may be amended from time
to time.

2.34 "REPRESENTATIVE" means (a) the person or entity acting as the
executor or administrator of a Participant's estate pursuant to the last will
and testament of a Participant or pursuant to the laws of the jurisdiction in
which the Participant had the Participant's primary residence at the date of the
Participant's death; (b) the person or entity acting as the guardian or
temporary guardian of a Participant; (c) the person or entity which is the
Beneficiary of the Participant upon or following the Participant's death; or (d)
any person to whom an Option has been transferred with the permission of the
Committee; provided that only one of the foregoing shall be the Representative
at any point in time as determined under applicable law and recognized by the
Committee.

2.35 "RESTRICTED STOCK" means Common Stock granted to a Participant
under Section 8.1 hereof, that is subject to certain restrictions and to a risk
of forfeiture.

2.36 "RETIREMENT" means the Participant's Termination of Employment
after attaining either the normal retirement age or the early retirement age as
defined in the principal (as determined by the Committee) tax-qualified plan of
the Company or an Affiliate, if the Participant is covered by such a plan, or if
the Participant is not covered by such a plan, then age 65, or age 55 with the
accrual of 10 years of service.

2.37 "RULE 16b-3"and "RULE 16a-1(c)(3)" mean Rule 16b-3 and Rule 16a-
1(c)(3), as from time to time in effect and applicable to the Plan and
Participants, promulgated by the Securities and Exchange Commission under
Section 16 of the Exchange Act.

2.38 "SECURITIES ACT" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.

2.39 "STOCK APPRECIATION RIGHT" means a right granted under Article
VII.

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2.40 "STOCK OPTION" means a right, granted to a Participant under
Sections 6.1 or 6.2 hereof, to purchase Common Stock.

2.41 "TERMINATION OF EMPLOYMENT" means the occurrence of any act or
event, whether pursuant to an employment agreement or otherwise, that actually
or effectively causes or results in the person's ceasing, for whatever reason,
to be an officer, independent contractor, director or employee of the Company or
of any Affiliate of the Company, or to be an officer, independent contractor,
director or employee of any entity that provides services to the Company or a
Affiliate of the Company, including, without limitation, death, Disability,
dismissal, severance at the election of the Participant, Retirement, or
severance as a result of the discontinuance, liquidation, sale or transfer by
the Company or its Affiliates of all businesses owned or operated by the Company
or its Affiliates. With respect to any person who is not an employee with
respect to the Company or a Affiliate of the Company, the Agreement shall
establish what act or event shall constitute a Termination of Employment for
purposes of the Plan. A transfer of employment from the Company to a Affiliate,
or from a Affiliate to the Company, will not be a Termination of Employment,
unless expressly determined by the Committee. A Termination of Employment shall
occur for an employee who is employed by a Affiliate of the company if the
Affiliate shall cease to be a Affiliate and the Participant shall not
immediately thereafter become an employee of the Company or a Affiliate of the
Company.

In addition, certain other terms used herein have definitions given to
them in the first place in which they are used.

ARTICLE III

ADMINISTRATION

3.1 COMMITTEE STRUCTURE AND AUTHORITY. Prior to the date of the first
registration of an equity security of the Company under the Exchange Act (the
"Registration Date"), the Plan shall be administered by the Board of Directors.
From and after the Registration Date, the Plan shall be administered by the
Committee which shall be comprised of one or more persons. The Committee shall
be the Compensation Committee of the Board of Directors, unless such committee
does not exist or the Board establishes or identifies another committee whose
purpose is the administration of this Plan; provided that only those members of
the Committee who participate in the decision relative to Awards under this Plan
shall be deemed to be the "Committee" for purposes of this Plan. The Committee
shall be comprised of such number of Disinterested Persons as is required for
application of Rule 16b-3 and the deduction of compensation under Section 162(m)
of the Code. In the absence of an appointment, the Board or the portion thereof
that is a Disinterested Person shall be the Committee. A majority of the
Committee shall constitute a quorum at any meeting thereof (including by
telephone conference) and the acts of a majority of the members present, or acts
approved in writing by a majority of the entire Committee

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<PAGE>

without a meeting, shall be the acts of the Committee for purposes of this Plan.
The Committee may authorize any one or more of its members or an officer of the
Company to execute and deliver documents on behalf of the Committee. A member
of the Committee shall not exercise any discretion respecting himself or herself
under the Plan. The Board shall have the authority to remove, replace or fill
any vacancy of any member of the Committee upon notice to the Committee and the
affected member. Any member of the Committee may resign upon notice to the
Board. The Committee may allocate among one or more of its members, or may
delegate to one or more of its agents, such duties and responsibilities as it
determines.

Among other things, the Committee shall have the authority, subject to
the terms of the Plan and the limitation of section (c)(2)(ii) of Rule 16b-3 so
that the Plan is described in that section:

(a) to select those persons to whom Awards may be granted from
time to time;

(b) to determine whether and to what extent Awards or any
combination thereof are to be granted hereunder;

(d) to determine the terms and conditions of any Award granted
hereunder (including, but not limited to, the Option Price, the Option
Period, any exercise restriction or limitation and any exercise
acceleration, forfeiture or waiver regarding any Award, any shares of
Common Stock relating thereto, any performance criteria and the
satisfaction of each criteria);

(e) to adjust the terms and conditions, at any time or from
time to time, of any Award, subject to the limitations of Section 13.1;

(f) to determine to what extent and under what circumstances
Common Stock and other amounts payable with respect to an Award shall be
deferred;

(g) to determine under what circumstances an Award may be
settled in cash or Common Stock;

(h) to provide for the forms of Agreements to be utilized in
connection with the Plan;

(i) to determine whether a Participant has a Disability or a
Retirement;

(j) to determine what securities law requirements are
applicable to the Plan, Awards and the issuance of shares of Common Stock
under the Plan and

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<PAGE>

to require of a Participant that appropriate action be taken with respect
to such requirements;

(k) to cancel, with the consent of the Participant or as
otherwise provided in the Plan or an Agreement, outstanding Awards;

(l) to interpret and make final determinations with respect to
the remaining number of shares of Common Stock available under this Plan;

(m) to require, as a condition of the exercise of an Award or
the issuance or transfer of a certificate of Common Stock, the
withholding from a Participant of the amount of any Federal, state or
local taxes as may be necessary in order for the Company or any other
employer to obtain a deduction or as may be otherwise required by law;

(n) to determine whether and with what effect a Participant has
incurred a Termination of Employment;

(o) to determine whether the Company or any other person has a
right or obligation to purchase Common Stock from a Participant and, if
so, the terms and conditions on which such Common Stock is to be
purchased;

(p) to determine the restrictions or limitations on the
transfer of Common Stock;

(q) to determine whether an Award is to be adjusted, modified
or purchased, or is to become fully exercisable, under the Plan or the
terms of an Agreement;

(r) to determine the permissible methods of Award exercise and
payment, including cashless exercise arrangements;

(s) to adopt, amend and rescind such rules and regulations as,
in its opinion, may be advisable in the administration of the Plan; and

(t) to appoint and compensate agents, counsel, auditors or
other specialists to aid it in the discharge of its duties.

The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable, to interpret the terms and provisions of the
Plan and any Award issued under the Plan (and any Agreement) and to otherwise
supervise the administration of the Plan. The Committee's policies and
procedures may differ with respect to Awards granted at different times or to
different Participants.

Any determination made by the Committee pursuant to the provisions of the
Plan shall be made in its sole discretion, and in the case of any determination
relating

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<PAGE>

to an Award, may be made at the time of the grant of the Award or, unless in
contravention of any express term of the Plan or an Agreement, at any time
thereafter. All decisions made by the Committee pursuant to the provisions of
the Plan shall be final and binding on all persons, including the Company and
Participants. No determination shall be subject to DE NOVO review if challenged
in court.

ARTICLE IV

STOCK SUBJECT TO PLAN

4.1 NUMBER OF SHARES. Subject to the adjustment under Section 4.6,
the total number of shares of Common Stock reserved and available for
distribution pursuant to Awards under the Plan shall be 5,000,000 shares of
Common Stock authorized for issuance on the Effective Date (after taking into
account the 1-for-25 reverse stock split effected on March 4, 1996 (the "Reverse
Split"). In any one fiscal year, shares of Common Stock covered by Awards
issued during such year shall not exceed the greater of (i) 500,000 shares
(after taking into account the Reverse Split and subject to adjustment under
Section 4.6) and (ii) ten percent (10%) of the shares of Common Stock
outstanding at the date of the Annual Meeting of the Stockholders of the Company
held during such fiscal year. Such shares may consist, in whole or in part, of
authorized and unissued shares or treasury shares.

4.2 RELEASE OF SHARES. The Committee shall have full authority to
determine the number of shares of Common Stock available for Award, and in its
discretion may include (within limitation) as available for distribution any
shares of Common Stock that have ceased to be subject to an Award, any shares of
Common Stock subject to any Award that are forfeited, any Award that otherwise
terminates without issuance of shares of Common Stock being made to the
Participant, or any shares (whether or not restricted) of Common Stock that are
received by the Company in connection with the exercise of an Award, including
the satisfaction of any tax liability or the satisfaction of a tax withholding
obligation. If any shares could not again be available for Options to a
particular Participant under applicable law, such shares shall be available
exclusively for Options to Participants who are not subject to such limitations.

4.3 RESTRICTIONS ON SHARES. Shares of Common Stock issued as or in
conjunction with an Award shall be subject to the terms and conditions specified
herein and to such other terms, conditions and restrictions as the Committee in
its discretion may determine or provide in an Award Agreement. The Company
shall not be required to issue or deliver any certificates for shares of Common
Stock, cash or other property prior to (i) the listing of such shares on any
stock exchange or NASDAQ (or other public market) on which the Common Stock may
then be listed (or regularly traded), (ii) the completion of any registration or
qualification of such shares under Federal or state law, or any ruling or
regulation of any government body which the Committee determines to be necessary
or advisable, and (iii) the satisfaction of any applicable withholding
obligation in order for the Company or an Affiliate to obtain

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<PAGE>

a deduction with respect to the exercise of an Award. The Company may cause any
certificate for any share of Common Stock to be delivered to be properly marked
with a legend or other notation reflecting the limitations on transfer of such
Common Stock as provided in this Plan or as the Committee may otherwise require.
The Committee may require any person exercising an Award to make such
representations and furnish such information as it may consider appropriate in
connection with the issuance or delivery of the shares of Common Stock in
compliance with applicable law or otherwise. Fractional shares shall not be
delivered, but shall be rounded to the next lower whole number of shares.

4.4 STOCKHOLDER RIGHTS. No person shall have any rights of a
stockholder as to shares of Common Stock subject to an Award until, after proper
exercise of the Award or other action required, such shares shall have been
recorded on the Company's official stockholder records as having been issued and
transferred. Upon exercise of the Award or any portion thereof, the Company
will have thirty (30) days in which to issue the shares, and the Participant
will not be treated as a stockholder for any purpose whatsoever prior to such
issuance. No adjustment shall be made for cash dividends or other rights for
which the record date is prior to the date such shares are recorded as issued
and transferred in the Company's official stockholder records, except as
provided herein or in an Agreement.

4.5 BEST EFFORTS TO REGISTER. The Company will register under the
Securities Act the Common Stock delivered or deliverable pursuant to Awards on
Commission Form S-8 if available to the Company for this purpose (or any
successor or alternate form that is substantially similar to that form to the
extent available to effect such registration), in accordance with the rules and
regulations governing such forms, as soon after stockholder approval of the Plan
as the Committee, in its sole discretion, shall deem such registration
appropriate. The Company will use its best efforts to cause the registration
statement to become effective and will file such supplements and amendments to
the registration statement as may be necessary to keep the registration
statement in effect until the earliest of (a) one year following the expiration
of the Option Period of the last Option outstanding, (b) the date the Company is
no longer a reporting company under the Exchange Act and (c) the date all
Participants have disposed of all shares delivered pursuant to any Award.

4.6 ANTI-DILUTION. In the event of any Company stock dividend, stock
split, reverse stock split, combination or exchange of shares, recapitalization
or other change in the capital structure of the Company, corporate separation or
division of the Company (including, but not limited to, a split-up, spin-off,
split-off or distribution to Company stockholders other than a normal cash
dividend), sale by the Company of all or a substantial portion of its assets
(measured on either a stand-alone or consolidated basis), reorganization, rights
offering, a partial or complete liquidation, or any other corporate transaction,
Company stock offering or event involving the Company and having an effect
similar to any of the foregoing, then the Committee shall adjust or substitute,
as the case may be, the number of shares of Common Stock available for Awards
under the Plan, the number of shares of Common Stock covered by outstanding
Awards, the maximum number of Awards available for grant to any

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<PAGE>

Participant for a stated period of time (including the maximum number of Stock
Appreciation Rights), the number of Director Options granted pursuant to Section
6.2, the exercise price per share of outstanding Awards, and performance
conditions and any other characteristics or terms of the Awards as the Committee
shall deem necessary or appropriate to reflect equitably the effects of such
changes to the Participants; provided, however, that the Committee may limit any
such adjustment so as to maintain the deductibility of the Awards under Section
162(m) of the Code and that any fractional shares resulting from such adjustment
shall be eliminated by rounding to the next lower whole number of shares with
appropriate payment for such fractional shares as shall reasonably be determined
by the Committee.

ARTICLE V

ELIGIBILITY

5.1 ELIGIBILITY. Except as herein provided, the persons who shall be
eligible to participate in the Plan and be granted Awards shall be those persons
who are directors, officers, employees and consultants of the Company or any
subsidiary of the Company, who shall be in a position, in the opinion of the
Committee, to make contributions to the growth, management, protection and
success of the Company and its Subsidiaries. Of those persons described in the
preceding sentence, the Committee may, from time to time, select persons to be
granted Awards and shall determine the terms and conditions with respect
thereto. In making any such selection and in determining the form of the Award
with respect to Participants, the Committee may give consideration to the
person's functions and responsibilities, the person's contributions to the
Company and its Subsidiaries, the value of the individual's service to the
Company and its Subsidiaries and such other factors deemed relevant by the
Committee. The Committee may designate in writing any person who is not
eligible to participate in the Plan if such person would otherwise be eligible
to participate in this Plan (and members of the Committee, except as provided in
Section 6.2, are expressly excluded to the extent such persons are intended to
be Disinterested Persons).

ARTICLE VI

STOCK OPTIONS

6.1 GRANT OF STOCK OPTIONS TO PARTICIPANTS WHO ARE NOT NON-EMPLOYEE
DIRECTORS. The Committee shall have authority to grant Stock Options under the
Plan at any time or from time to time, to Participants who are not Non-Employee
Directors. The grant of a Stock Option to such Participants shall occur as of
the date the Committee determines. Stock Options to such Participants may be
granted alone or in addition to other Awards and may be either Incentive Stock
Options or Non-Qualified Stock Options. An Option shall entitle such
Participant to receive shares of Common Stock upon exercise of such Option,
subject to the Participant's satisfaction

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<PAGE>

in full of any conditions, restrictions or limitations imposed in accordance
with the Plan or an Agreement (the terms and provisions of which may differ from
other Agreements), including, without limitation, payment of the Option Price.
During any fiscal year, and subject to the limitation set forth in Section 4.1,
Options to purchase no more than 500,000 shares of Common Stock (after taking
into account the Reverse Split, and subject to adjustment under Section 4.6)
shall be granted to any Participant.

Each Option granted under this Plan shall be evidenced by an Agreement,
in a form approved by the Committee, which shall embody the terms and conditions
of such Option and which shall be subject to the express terms and conditions
set forth in the Plan. Such Agreement shall become effective upon execution by
the Participant. Only a person who is a common-law employee of the Company, any
parent corporation of the Company or a subsidiary (as such terms are defined in
Section 424 of the Code) on the date of grant shall be eligible to be granted an
Option which is intended to be and is an Incentive Stock Option. To the extent
that any Stock Option is not designated as an Incentive Stock Option or even if
so designated does not qualify as an Incentive Stock Option, it shall constitute
a Non-Qualified Stock Option. Anything in the Plan to the contrary
notwithstanding, no term of the Plan relating to Incentive Stock Options shall
be interpreted, amended or altered, nor shall any discretion or authority
granted under the Plan be exercised, so as to disqualify the Plan under
Section 422 of the Code or, without the consent of the Participant affected, to
disqualify any Incentive Stock Option under such Section 422.

6.2 GRANT OF DIRECTOR OPTIONS. On March 1, 1996, subject to
availability of shares of Common Stock under the Plan, each Non-Employee
Director who is still a Non-Employee Director on such date shall be granted an
option ("Director Option") to purchase 375,000 shares of Common Stock without
further action by the Board or the Committee. Such Directors Options shall vest
in three equal increments on each of the first three anniversaries of the
closing of the initial public offering of the Company's Common Stock subject to
the Non-Employee Director continuing to be a Non-Employee Director on the
vesting date. If the number of shares of Common Stock available to grant under
the Plan on the scheduled date of grant is insufficient to make all automatic
grants required to be made pursuant to the Plan on such date, then each Non-
Employee Director shall receive a Director Option to purchase a pro rata number
of the remaining shares of Common Stock available under the Plan; provided
further, however, that if such proration results in fractional shares of Common
Stock, then such Director Option shall be rounded down to the nearest number of
whole shares of Common Stock. In all events, the price at which the Common
Stock may be purchased under the Director Option shall be the per share price to
the public as set forth in the Prospectus delivered in connection with the
initial public offering of the Company's Common Stock. Each Director Option
granted under this Plan shall be evidenced by an Agreement, in a form approved
by the Committee, which shall embody the terms and conditions of such Director
Option and which shall be subject to the express terms and conditions set forth
in the Plan. Such Agreement shall become effective upon execution by the Non-
Employee Director.

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6.3 TERMS AND CONDITIONS. Stock Options shall be subject to such
terms and conditions as shall be determined by the Committee, including the
following:

(a) OPTION PERIOD. The Option Period of each Stock Option
shall be fixed by the Committee; provided that no Stock Option shall be
exercisable more than ten (10) years after the date the Stock Option is
granted. In the case of an Incentive Stock Option granted to an
individual who owns more than ten percent (10%) of the combined voting
power of all classes of stock of the Company, a corporation which is a
parent corporation of the Company or any subsidiary of the Company (each
as defined in Section 424 of the Code), the Option Period shall not
exceed five (5) years from the date of grant. No Option which is
intended to be an Incentive Stock Option shall be granted more than ten
(10) years from the date the Plan is adopted by the Company or the date
the Plan is approved by the stockholders of the Company, whichever is
earlier.

(b) OPTION PRICE. The Option Price per share of the Common
Stock purchasable under an Option shall be determined by the Committee;
provided, however, that the Option Price per share shall be not less than
the Fair Market Value per share on the date the Option is granted. If
such Option is intended to qualify as an Incentive Stock Option and is
granted to an individual who owns or who is deemed to own stock
possessing more than ten percent (10%) of the combined voting power of
all classes of stock of the Company, a corporation which is a parent
corporation of the Company or any subsidiary of the Company (each as
defined in Section 424 of the Code), the Option Price per share shall not
be less than one hundred ten percent (110%) of such Fair Market Value per
share.

(c) EXERCISABILITY. Subject to Section 12.1, Stock Options
shall be exercisable at such time or times and subject to such terms and
conditions as shall be determined by the Committee. If the Committee
provides that any Stock Option is exercisable only in installments, the
Committee may at any time waive such installment exercise provisions, in
whole or in part. In addition, the Committee may at any time accelerate
the exercisability of any Stock Option. If the Committee intends that an
Option be an Incentive Stock Option, the Committee may, in its
discretion, provide that the aggregate Fair Market Value (determined at
the Grant Date) of the Common Stock as to which such Incentive Stock
Option which is exercisable for the first time during any calendar year
shall not exceed $100,000.

(d) METHOD OF EXERCISE. Subject to the provisions of this
Article VI, a Participant may exercise Stock Options, in whole or in
part, at any time during the Option Period by the Participant's giving
written notice of exercise on a form provided by the Committee (if
available) to the Company specifying the number of shares of Common Stock
subject to the Stock Option to be purchased. Except when waived by the
Committee, such notice shall be accompanied by payment in full of the
purchase price by cash or check or such other form of payment as the
Company may accept. If approved by the

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<PAGE>

Committee (including approval at the time of exercise), payment in full
or in part may also be made (i) by delivering Common Stock already owned
by the Participant having a total Fair Market Value on the date of such
delivery equal to the Option Price; (ii) by the execution and delivery of
a note or other evidence of indebtedness (and any security agreement
thereunder) satisfactory to the Committee and permitted in accordance
with Section 6.3(e); (iii) by authorizing the Company to retain shares of
Common Stock which would otherwise be issuable upon exercise of the
Option having a total Fair Market Value on the date of delivery equal to
the Option Price; (iv) by the delivery of cash or the extension of credit
by a broker-dealer to whom the Participant has submitted a notice of
exercise or otherwise indicated an intent to exercise an Option (in
accordance with Part 220, Chapter II, Title 12 of the Code of Federal
Regulations, so-called "cashless" exercise); or (v) by any combination of
the foregoing or by any other method permitted by the Committee. If
payment of the Option Price of a Stock Option is made in whole or in part
in the form of Restricted Stock or Deferred Stock, the number of shares
of Common Stock to be received upon such exercise that is equal to the
number of shares of Restricted Stock or Deferred Stock used for payment
of the Option Price shall be subject to the same forfeiture restrictions
or deferral limitations to which such Restricted Stock or Deferred Stock
was subject, unless otherwise determined by the Committee. In the case
of an Incentive Stock Option, the right to make a payment in the form of
already owned shares of Common Stock of the same class as the Common
Stock subject to the Stock Option may be authorized only at the time the
Stock Option is granted. No shares of Common Stock shall be issued until
full payment therefor, as determined by the Committee, has been made.
Subject to any forfeiture restrictions or deferral limitations that may
apply if a Stock Option is exercised using Restricted Stock or Deferred
Stock, a Participant shall have all of the rights of a stockholder of the
Company holding the class of Common Stock that is subject to such Stock
Option (including, if applicable, the right to vote the shares and the
right to receive dividends), when the Participant has given written
notice of exercise, has paid in full for such shares and such shares have
been recorded on the Company's official stockholder records as having
been issued or transferred.

(e) COMPANY LOAN OR GUARANTEE. Upon the exercise of any Option
and subject to the pertinent Agreement and the discretion of the
Committee, the Company may at the request of the Participant:

(i) lend to the Participant an amount equal to such
portion of the Option Price as the Committee may determine; or

(ii) guarantee a loan obtained by the Participant from a
third-party for the purpose of tendering the Option Price.

The terms and conditions of any loan or guarantee, including the term,
interest rate and any security interest thereunder and whether the loan
shall be with recourse, shall be determined by the Committee, except that
no extension of

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<PAGE>

credit or guarantee shall obligate the Company for an amount to exceed
the lesser of the aggregate Fair Market Value per share of the Common
Stock on the date of exercise, less the par value of the shares of Common
Stock to be purchased upon the exercise of the Award, or the amount
permitted under applicable laws or the regulations and rules of the
Federal Reserve Board and any other governmental agency having
jurisdiction.

(f) NON-TRANSFERABILITY OF OPTIONS. Except as provided herein
or in an Agreement and then only consistent with the intent that the
Option be an Incentive Stock Option, no Stock Option or interest therein
shall be transferable by the Participant other than by will or by the
laws of descent and distribution or by a designation of beneficiary
effective upon the death of the Participant, and all Stock Options shall
be exercisable during the Participant's lifetime only by the Participant.
If and to the extent transferability is permitted by Rule 16b-3 or does
not result in liability to any Participant and except as otherwise
provided herein or by an Agreement, every Option granted hereunder shall
be freely transferable, but only if such transfer does not result in
liability under Section 16 of the Exchange Act to the Participant or
other Participants and is consistent with registration of the Option and
sale of Common Stock on Form S-8 (or a successor form) or is consistent
with the use of Form S-8 (or the Committee's waiver of such condition)
and consistent with an Award's intended status as an Incentive Stock
Option (as applicable).

6.4 TERMINATION BY REASON OF DEATH. Unless otherwise provided in an
Agreement or determined by the Committee, if a Participant incurs a Termination
of Employment due to death, any unexpired and unexercised Stock Option held by
such Participant shall thereafter be fully exercisable for a period of ninety
(90) days following the date of the appointment of a Representative (or such
other period or no period as the Committee may specify) or until the expiration
of the Option Period, whichever period is the shorter.

6.5 TERMINATION BY REASON OF DISABILITY. Unless otherwise provided in
an Agreement or determined by the Committee, if a Participant incurs a
Termination of Employment due to a Disability, any unexpired and unexercised
Stock Option held by such Participant shall thereafter be fully exercisable by
the Participant for the period of ninety (90) days (or such other period or no
period as the Committee may specify) immediately following the date of such
Termination of Employment or until the expiration of the Option Period,
whichever period is shorter, and the Participant's death at any time following
such Termination of Employment due to Disability shall not affect the foregoing.
In the event of Termination of Employment by reason of Disability, if an
Incentive Stock Option is exercised after the expiration of the exercise periods
that apply for purposes of Section 422 of the Code, such Stock Option will
thereafter be treated as a Non-Qualified Stock Option.

6.6 OTHER TERMINATION. Unless otherwise provided in an Agreement or
determined by the Committee, if a Participant incurs a Termination of Employment
due to Retirement, or the Termination of Employment is involuntary on the part
of the

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Participant (but is not due to death or Disability or with Cause), any Stock
Option held by such Participant shall thereupon terminate, except that such
Stock Option, to the extent then exercisable, may be exercised for the lesser of
the ninety (90) day period commencing with the date of such Termination of
Employment or until the expiration of the Option Period. Unless otherwise
provided in an Agreement or determined by the Committee, if the Participant
incurs a Termination of Employment which is either (a) voluntary on the part of
the Participant (and is not due to Retirement) or (b) with Cause, the Option
shall terminate immediately. Unless otherwise provided in an Agreement or
determined by the Committee, the death or Disability of a Participant after a
Termination of Employment otherwise provided herein shall not extend the time
permitted to exercise an Option.

6.7 CASHING OUT OF OPTION. On receipt of written notice of exercise,
the Committee may elect to cash out all or part of the portion of any Stock
Option with respect to which Option at least six months have elapsed since the
Grant Date (provided that such limitation shall not apply to an Option granted
to a Participant who has subsequently died) to be exercised by paying the
Participant an amount, in cash or Common Stock, equal to the excess of the Fair
Market Value of the Common Stock that is subject to the Option over the Option
Price times the number of shares of Common Stock subject to the Option on the
effective date of such cash-out. Cash-outs relating to Options held by
Participants who are actually or potentially subject to Section 16(b) of the
Exchange Act shall comply with the "window period" provisions of Rule 16b-3, to
the extent applicable, and, in the case of cash-outs of Non-Qualified Stock
Options held by such Participants, the Committee may determine Fair Market Value
under the pricing rule set forth in Section 7.3(b).

ARTICLE VII

STOCK APPRECIATION RIGHTS

7.1 GENERAL. The Committee shall have authority to grant Stock
Appreciation Rights under the Plan at any time or from time to time. Subject to
the Participant's satisfaction in full of any conditions, restrictions or
limitations imposed in accordance with the Plan or an Agreement, a Stock
Appreciation Right shall entitle the Participant to surrender to the Company the
Stock Appreciation Right and to be paid therefor in shares of the Common Stock,
cash or a combination thereof as herein provided, the amount described in
Section 7.3(b).

7.2 GRANT. Stock Appreciation Rights may be granted in conjunction
with all or part of any Stock Option granted under the Plan, in which case the
exercise of the Stock Appreciation Right shall require the cancellation of a
corresponding portion of the Stock Option, and the exercise of a Stock Option
shall result in the cancellation of a corresponding portion of the Stock
Appreciation Right. In the case of a Non-Qualified Stock Option, such rights
may be granted either at or after the time of grant of such Stock Option. In
the case of an Incentive Stock Option, such rights may be granted only at the
time of grant of such Stock Option. A Stock Appreciation Right

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may also be granted on a stand-alone basis. The grant of a Stock Appreciation
Right shall occur as of the date the Committee determines. Each Stock
Appreciation Right granted under this Plan shall be evidenced by an Agreement,
which shall embody the terms and conditions of such Stock Appreciation Right and
which shall be subject to the terms and conditions set forth in this Plan.
During any fiscal year, and subject to the limitation set forth in Section 4.1,
Stock Appreciation Rights covering no more than 500,000 shares of Common Stock
(after taking into account the Reverse Split, and subject to adjustment under
Section 4.6) shall be granted to any Participant.

7.3 TERMS AND CONDITIONS. Stock Appreciation Rights shall be subject
to such terms and conditions as shall be determined by the Committee, including
the following:

(a) PERIOD AND EXERCISE. The term of a Stock Appreciation
Right shall be established by the Committee. If granted in conjunction
with a Stock Option, the Stock Appreciation Right shall have a term which
is the same as the Option Period and shall be exercisable only at such
time or times and to the extent the related Stock Options would be
exercisable in accordance with the provisions of Article VI. A Stock
Appreciation Right which is granted on a stand-alone basis shall be for
such period and shall be exercisable at such times and to the extent
provided in an Agreement. Stock Appreciation Rights shall be exercised
by the Participant's giving written notice of exercise on a form provided
by the Committee (if available) to the Company specifying the portion of
the Stock Appreciation Right to be exercised.

(b) AMOUNT. Upon the exercise of a Stock Appreciation Right
granted in conjunction with a Stock Option, a Participant shall be
entitled to receive an amount in cash, shares of Common Stock or both as
determined by the Committee or as otherwise permitted in an Agreement
equal in value to the excess of the Fair Market Value per share of Common
Stock over the Option Price per share of Common Stock specified in the
related Agreement multiplied by the number of shares in respect of which
the Stock Appreciation Right is exercised. In the case of a Stock
Appreciation Right granted on a stand-alone basis, the Agreement shall
specify the value to be used in lieu of the Option Price per share of
Common Stock. The aggregate Fair Market Value per share of the Common
Stock shall be determined as of the date of exercise of such Stock
Appreciation Right.

(c) SPECIAL RULES. In the case of Stock Appreciation Rights
relating to Stock Options held by Participants who are actually or
potentially subject to Section 16(b) of the Exchange Act:

(i) The Committee may require that such Stock
Appreciation Rights be exercised only in accordance with the
applicable "window period" provisions of Rule 16b-3;

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(ii) The Committee may provide that the amount to be paid
upon exercise of such Stock Appreciation Rights (other than those
relating to Incentive Stock Options) during a Rule 16b-3 "window
period" shall be based on the highest mean sales price of the
Common Stock on the principal exchange on which the Common Stock
is traded, NASDAQ or other relevant market for determining value
on any day during such "window period"; and

(iii) No Stock Appreciation Right shall be exercisable
during the first six months of its term, except that this
limitation shall not apply in the event of death or Disability of
the Participant prior to the expiration of the six-month period.

(d) NON-TRANSFERABILITY OF STOCK APPRECIATION RIGHTS. Stock
Appreciation Rights shall be transferable only when and to the extent
that a Stock Option would be transferable under the Plan unless otherwise
provided in an Agreement.

(e) TERMINATION. A Stock Appreciation Right shall terminate at
such time as a Stock Option would terminate under the Plan, unless
otherwise provided in an Agreement.

(f) EFFECT ON SHARES UNDER THE PLAN. Upon the exercise of a
Stock Appreciation Right, the Stock Option or part thereof to which such
Stock Appreciation Right is related shall be deemed to have been
exercised for the purpose of the limitation set forth in Section 4.2 on
the number of shares of Common Stock to be issued under the Plan, but
only to the extent of the number of shares of Common Stock covered by the
Stock Appreciation Right at the time of exercise based on the value of
the Stock Appreciation Right at such time.

(g) INCENTIVE STOCK OPTION. A Stock Appreciation Right granted
in tandem with an Incentive Stock Option shall not be exercisable unless
the Fair Market Value of the Common Stock on the date of exercise exceeds
the Option Price. In no event shall any amount paid pursuant to the
Stock Appreciation Right exceed the difference between the Fair Market
Value on the date of exercise and the Option Price.

ARTICLE VIII

RESTRICTED STOCK

8.1 GENERAL. The Committee shall have authority to grant Restricted
Stock under the Plan at any time or from time to time. Shares of Restricted
Stock may be awarded either alone or in addition to other Awards granted under
the Plan. The Committee shall determine the persons to whom and the time or
times at which

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<PAGE>

grants of Restricted Stock will be awarded, the number of shares of Restricted
Stock to be awarded to any Participant, the time or times within which such
Awards may be subject to forfeiture and any other terms and conditions of the
Awards. Each Award shall be confirmed by, and be subject to the terms of, an
Agreement. The Committee may condition the grant of Restricted Stock upon the
attainment of specified performance goals by the Participant or by the Company
or an Affiliate (including a division or department of the Company or an
Affiliate) for or within which the Participant is primarily employed or upon
such other factors or criteria as the Committee shall determine. The provisions
of Restricted Stock Awards need not be the same with respect to any Participant.

8.2 AWARDS AND CERTIFICATES. Notwithstanding the limitations on
issuance of shares of Common Stock otherwise provided in the Plan, each
Participant receiving an Award of Restricted Stock shall be issued a certificate
in respect of such shares of Restricted Stock. Such certificate shall be
registered in the name of such Participant and shall bear an appropriate legend
referring to the terms, conditions, and restrictions applicable to such Award as
determined by the Committee. The Committee may require that the certificates
evidencing such shares be held in custody by the Company until the restrictions
thereon shall have lapsed and that, as a condition of any Award of Restricted
Stock, the Participant shall have delivered a stock power, endorsed in blank,
relating to the Common Stock covered by such Award.

8.3 TERMS AND CONDITIONS. Shares of Restricted Stock shall be subject
to the following terms and conditions:

(a) LIMITATIONS ON TRANSFERABILITY. Subject to the provisions
of the Plan and the Agreement, during a period set by the Committee
commencing with the date of such Award (the "Restriction Period"), the
Participant shall not be permitted to sell, assign, transfer, pledge or
otherwise encumber any interest in shares of Restricted Stock.

(b) RIGHTS. Except as provided in Section 8.3(a), the
Participant shall have, with respect to the shares of Restricted Stock,
all of the rights of a stockholder of the Company holding the class of
Common Stock that is the subject of the Restricted Stock, including, if
applicable, the right to vote the shares and the right to receive any
cash dividends. Unless otherwise determined by the Committee and subject
to the Plan, cash dividends on the class of Common Stock that is the
subject of the Restricted Stock shall be automatically deferred and
reinvested in additional Restricted Stock, and dividends on the class of
Common Stock that is the subject of the Restricted Stock payable in
Common Stock shall be paid in the form of Restricted Stock of the same
class as the Common Stock on which such dividend was paid.

(c) ACCELERATION. Based on service, performance by the
Participant or by the Company or an Affiliate, including any division or
department for which the Participant is employed, or such other factors
or criteria as the Committee

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may determine, the Committee may provide for the lapse of restrictions in
installments and may accelerate the vesting of all or any part of any
Award and waive the restrictions for all or any part of such Award.

(d) FORFEITURE. Unless otherwise provided in an Agreement or
determined by the Committee, if the Participant incurs a Termination of
Employment during the Restriction Period due to death or Disability, the
restrictions shall lapse and the Participant shall be fully vested in the
Restricted Stock. Except to the extent otherwise provided in the
applicable Agreement and the Plan, upon a Participant's Termination of
Employment for any reason during the Restriction Period other than death
or Disability, all shares of Restricted Stock still subject to
restriction shall be forfeited by the Participant, except the Committee
shall have the discretion to waive in whole or in part any or all
remaining restrictions with respect to any or all of such Participant's
shares of Restricted Stock.

(e) DELIVERY. If and when the Restriction Period expires
without a prior forfeiture of the Restricted Stock subject to such
Restriction Period, unlegended certificates for such shares shall be
delivered to the Participant.

(f) ELECTION. A Participant may elect to further defer receipt
of the Restricted Stock for a specified period or until a specified
event, subject in each case to the Committee's approval and to such terms
as are determined by the Committee. Subject to any exceptions adopted by
the Committee, such election must be made one (1) year prior to
completion of the Restriction Period.

ARTICLE IX

DEFERRED STOCK

9.1 GENERAL. The Committee shall have authority to grant Deferred
Stock under the Plan at any time or from time to time. Shares of Deferred Stock
may be awarded either alone or in addition to other Awards granted under the
Plan. The Committee shall determine the persons to whom and the time or times
at which Deferred Stock will be awarded, the number of shares of Deferred Stock
to be awarded to any Participant, the duration of the period (the "Deferral
Period") prior to which the Common Stock will be delivered, and the conditions
under which receipt of the Common Stock will be deferred and any other terms and
conditions of the Awards. Each Award shall be confirmed by, and be subject to
the terms of, an Agreement. The Committee may condition the grant of Deferred
Stock upon the attainment of specified performance goals by the Participant or
by the Company or an Affiliate, including a division or department of the
Company or an Affiliate for or within which the Participant is primarily
employed, or upon such other factors or criteria as the Committee shall
determine. The provisions of Deferred Stock Awards need not be the same with
respect to any Participant.

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9.2 TERMS AND CONDITIONS. Deferred Stock Awards shall be subject to
the following terms and conditions:

(a) LIMITATIONS ON TRANSFERABILITY. Subject to the provisions
of the Plan and the Agreement, Deferred Stock Awards, or any interest
therein, may not be sold, assigned, transferred, pledged or otherwise
encumbered during the Deferral Period. At the expiration of the Deferral
Period (or Elective Deferral Period as defined in Section 9.2(e), where
applicable), the Committee may elect to deliver Common Stock, cash equal
to the Fair Market Value of such Common Stock or a combination of cash
and Common Stock to the Participant for the shares covered by the
Deferred Stock Award.

(b) RIGHTS. Unless otherwise determined by the Committee and
subject to the Plan, cash dividends on the Common Stock that is the
subject of the Deferred Stock Award shall be automatically deferred and
reinvested in additional Deferred Stock, and dividends on the Common
Stock that is the subject of the Deferred Stock Award payable in Common
Stock shall be paid in the form of Deferred Stock of the same class as
the Common Stock on which such dividend was paid.

(c) ACCELERATION. Based on service, performance by the
Participant or by the Company or the Affiliate, including any division or
department for which the Participant is employed, or such other factors
or criteria as the Committee may determine, the Committee may provide for
the lapse of deferral limitations in installments and may accelerate the
vesting of all or any part of any Award and waive the deferral
limitations for all or any part of such Award.

(d) FORFEITURE. Unless otherwise provided in an Agreement or
determined by the Committee, if the Participant incurs a Termination of
Employment during the Deferral Period due to death or Disability, the
restrictions shall lapse and the Participant shall be fully vested in the
Deferred Stock. Unless otherwise provided in an Agreement or determined
by the Committee, upon a Participant's Termination of Employment for any
reason during the Deferral Period other than death or Disability, the
rights to the shares still covered by the Award shall be forfeited by the
Participant, except the Committee shall have the discretion to waive in
whole or in part any or all remaining deferral limitations with respect
to any or all of such Participant's Deferred Stock.

(e) ELECTION. A Participant may elect further to defer receipt
of the Deferred Stock payable under an Award (or an installment of an
Award) for a specified period or until a specified event (an "Elective
Deferral Period"), subject in each case to the Committee's approval and
to such terms as are determined by the Committee. Subject to any
exceptions adopted by the Committee, such election must be made at least
one (1) year prior to completion of the Deferral Period for the Award (or
of the applicable installment thereof).

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ARTICLE X

OTHER AWARDS

10.1 BONUS STOCK AND AWARDS IN LIEU OF OBLIGATIONS. The Committee is
authorized to grant Common Stock as a bonus, or to grant Common Stock or other
Awards in lieu of Company obligations to pay cash or deliver other property
under other plans or compensatory arrangements, provided that, in the case of
Participants subject to Section 16 of the Exchange Act, the amount of such
grants remains within the discretion of the Committee to the extent necessary to
ensure that acquisition of Common Stock or other Awards are exempt from
liability under Section 16(b) of the Exchange Act. Common Stock or Awards
granted hereunder shall be subject to such other terms as shall be determined by
the Committee.

10.2 DIVIDEND EQUIVALENTS. The Committee is authorized to grant
Dividend Equivalents to a Participant, entitling the Participant to receive
cash, Common Stock, other Awards, or other property equal in value to dividends
paid with respect to a specified number of shares of Common Stock. Dividend
Equivalents may be awarded on a free-standing basis or in connection with
another Award. The Committee may provide that Dividend Equivalents will be paid
or distributed when accrued or will be deemed to have been reinvested in
additional Common Stock, Awards, or other investment vehicles, and subject to
such restrictions on transferability and risks of forfeiture, as the Committee
may specify.

10.3 OTHER STOCK-BASED AWARDS. The Committee is authorized, subject to
limitations under applicable law, to grant to Participants such other Awards
that may be denominated or payable in, valued in whole or in part by reference
to, or otherwise based on, or related to, Common Stock, as deemed by the
Committee to be consistent with the purposes of the Plan, including, without
limitation, convertible or exchangeable debt securities, other rights
convertible or exchangeable into Common Stock, purchase rights for Common Stock,
Awards with value and payment contingent upon performance of the Company or any
other factors designated by the Committee, and Awards valued by reference to the
book value of Common Stock or the value of securities of or the performance of
specified Subsidiaries. The Committee shall determine the terms and conditions
of such Awards. Common Stock delivered pursuant to an Award in the nature of a
purchase right granted under this Section 10.3 shall be purchased for such
consideration, paid for at such times, by such methods, and in such forms,
including, without limitation, cash, Common Stock, other Awards, or other
property, as the Committee shall determine. Cash awards, as an element of or
supplement to any other Award under the Plan, may also be granted pursuant to
this Section 10.3.

10.4 PERFORMANCE AWARDS.

(a) PERFORMANCE CONDITIONS. The right of a Participant to
exercise or receive a grant or settlement of any Award, and its timing,
may be subject to performance conditions specified by the Committee. The
Committee may use

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business criteria and other measures of performance it deems appropriate
in establishing any performance conditions, and may exercise its
discretion to reduce or increase the amounts payable under any Award
subject to performance conditions, except as limited under Sections
10.4(b) and 10.4(c) hereof in the case of a Performance Award intended to
qualify under Code Section 162(m).

(b) PERFORMANCE AWARDS GRANTED TO DESIGNATED COVERED EMPLOYEES.
If the Committee determines that a Performance Award to be granted to a
person the Committee regards as likely to be a Covered Employee should
qualify as "performance-based compensation" for purposes of Code
Section 162(m), the grant and/or settlement of such Performance Award
shall be contingent upon achievement of preestablished performance goals
and other terms set forth in this Section 10.4(b).

(i) PERFORMANCE GOALS GENERALLY. The performance goals
for such Performance Awards shall consist of one or more business
criteria and a targeted level or levels of performance with
respect to such criteria, as specified by the Committee consistent
with this Section 10.4(b). Performance goals shall be objective
and shall otherwise meet the requirements of Code Section 162(m),
including the requirement that the level or levels of performance
targeted by the Committee result in the performance goals being
"substantially uncertain." The Committee may determine that more
than one performance goal must be achieved as a condition to
settlement of such Performance Awards. Performance goals may
differ for Performance Awards granted to any one Participant or to
different Participants.

(ii) BUSINESS CRITERIA. One or more of the following
business criteria for the Company, on a consolidated basis, and/or
for specified Affiliates or business units of the Company (except
with respect to the total stockholder return and earnings per
share criteria), shall be used exclusively by the Committee in
establishing performance goals for such Performance Awards: (1)
total stockholder return; (2) such total stockholder return as
compared to total return (on a comparable basis) of a publicly
available index such as, but not limited to, the Standard & Poor's
500 or the Nasdaq-U.S. Index; (3) net income; (4) pre-tax
earnings; (5) EBITDA; (6) pre-tax operating earnings after
interest expense and before bonuses, service fees, and
extraordinary or special items; (7) operating margin; (8) earnings
per share; (9) return on equity; (10) return on capital; (11)
return on investment; (12) operating income, before payment of
executive bonuses; and (13) working capital. The foregoing
business criteria shall also be exclusively used in establishing
performance goals for Cash Incentive Awards granted under
Section 10.4(c) hereof.

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(iii) PERFORMANCE PERIOD: TIMING FOR ESTABLISHING
PERFORMANCE GOALS. Achievement of performance goals in respect of
such Performance Awards shall be measured over such periods as may
be specified by the Committee. Performance goals shall be
established on or before the dates that are required or permitted
for "performance-based compensation" under Code Section 162(m).

(iv) SETTLEMENT OF PERFORMANCE AWARDS; OTHER TERMS.
Settlement of Performance Awards may be in cash or Common Stock,
or other Awards, or other property, in the discretion of the
Committee. The Committee may, in its discretion, reduce the
amount of a settlement otherwise to be made in connection with
such Performance Awards, but may not exercise discretion to
increase any such amount payable in respect of a Performance Award
subject to this Section 10.4(b). The Committee shall specify the
circumstances in which such Performance Awards shall be forfeited
or paid in the event of a Termination of Employment or a Change in
Control prior to the end of a performance period or settlement of
Performance Awards, and other terms relating to such Performance
Awards.

(c) CASH INCENTIVE AWARDS GRANTED TO DESIGNATED COVERED
EMPLOYEES. The Committee may grant Cash Incentive Awards to Participants
including those designated by the Committee as likely to be Covered
Employees, which Awards shall represent a conditional right to receive a
payment in cash, unless otherwise determined by the Committee, after the
end of a specified fiscal year or fiscal quarter or other period
specified by the Committee, in accordance with this Section 10.6(c).
With respect to any fiscal year, the maximum Cash Incentive Award payable
to any Participant shall not exceed three percent (3.0%) of the Company's
gross revenues for such fiscal year.

(i) CASH INCENTIVE AWARD. The Cash Incentive Award for
Participants the Committee regards as likely to be regarded as
Covered Employees shall be based on achievement of a performance
goal or goals based on one or more of the business criteria set
forth in Section 10.4(b), and may be based on such criteria for
any other Participant. The Committee may specify the amount of
the individual Cash Incentive Award as a percentage of any such
business criteria, a percentage thereof in excess of a threshold
amount, or another amount which need not bear a strictly
mathematical relationship to such relationship criteria. The
Committee may establish an Cash Incentive Award pool that includes
Participants the Committee regards likely to be regarded as
Covered Employees, which shall be an unfunded pool, for purposes
of measuring Company performance in connection with Cash Incentive
Awards. The amount of the Cash Incentive Award pool shall be
based upon the achievement of a performance goal or goals based on
one or more of the business criteria set forth in Section 10.4(b)
hereof in the given performance period, as specified by the
Committee. The

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Committee may specify the amount of the Cash Incentive Award pool
as a percentage of any of such business criteria, a percentage
thereof in excess of a threshold amount, or as another amount
which need not bear a strictly mathematical relationship to such
business criteria.

(ii) POTENTIAL CASH INCENTIVE AWARDS. Not later than the
date required or permitted for "qualified performance-based
compensation" under Code Section 162(m), the Committee shall
determine the Participants who will potentially receive Cash
Incentive Awards for the specified fiscal year, fiscal quarter or
other period, either as individual Cash Incentive Awards or out of
an Cash Incentive Award pool established by such date and the
amount or method for determining the amount of the individual Cash
Incentive Award or the amount of such Participant's portion of the
Cash Incentive Award pool or the individual Cash Incentive Award.

(iii) PAYOUT OF CASH INCENTIVE AWARDS. After the end of
the specified fiscal year, fiscal quarter or other period, as the
case may be, the Committee shall determine the amount, if any, of
potential individual Cash Incentive Award otherwise payable to a
Participant, the Cash Incentive Award pool and the maximum amount
of potential Cash Incentive Award payable to each Participant in
the Cash Incentive Award pool. The Committee may, in its
discretion, determine that the amount payable to any Participant
as a final Cash Incentive Award shall be increased or reduced from
the amount of his or her potential Cash Incentive Award, including
a determination to make no final Award whatsoever, but may not
exercise discretion to increase any such amount in the case of an
Cash Incentive Award intended to qualify under Code
Section 162(m). The Committee shall specify the circumstances in
which an Cash Incentive Award shall be paid or forfeited in the
event of Termination of Employment by the Participant or a Change
in Control prior to the end of the period for measuring
performance or the payout of such Cash Incentive Award, and other
terms relating to such Cash Incentive Award in accordance with the
Plan. Upon the completion of the measuring period and the
determination of the right to payment and the amount, the
Committee shall direct the Committee to make payment.

(d) WRITTEN DETERMINATIONS. All determinations by the
Committee as to the establishment of performance goals and the potential
Performance Awards or Cash Incentive Awards related to such performance
goals and as to the achievement of performance goals relating to such
Awards, the amount of any Cash Incentive Award pool and the amount of
final Cash Incentive Awards, shall be made in writing in the case of any
Award intended to qualify under Code Section 162(m). The Committee may
not delegate any responsibility relating to such Performance Awards or
Cash Incentive Awards.

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ARTICLE XI

PROVISIONS APPLICABLE TO STOCK ACQUIRED UNDER THE PLAN

11.1 LIMITED TRANSFER DURING OFFERING. In the event there is an
effective registration statement under the Securities Act pursuant to which
shares of Common Stock shall be offered for sale in an underwritten offering, a
Participant shall not, during the period requested by the underwriters managing
the registered public offering, effect any public sale or distribution of shares
received directly or indirectly pursuant to an exercise of an Award.

11.2 COMMITTEE DISCRETION. The Committee may in its sole discretion
include in any Agreement an obligation that the Company purchase a Participant's
shares of Common Stock received upon the exercise of an Award (including the
purchase of any unexercised Awards which have not expired), or may obligate a
Participant to sell shares of Common Stock to the Company, upon such terms and
conditions as the Committee may determine and set forth in an Agreement. The
provisions of this Article X shall be construed by the Committee in its sole
discretion, and shall be subject to such other terms and conditions as the
Committee may from time to time determine. Notwithstanding any provision herein
to the contrary, the Company may upon determination by the Committee assign its
right to purchase shares of Common Stock under this Article X, whereupon the
assignee of such right shall have all the rights, duties and obligations of the
Company with respect to purchase of the shares of Common Stock.

11.3 NO COMPANY OBLIGATION. None of the Company, an Affiliate or the
Committee shall have any duty or obligation to disclose affirmatively to a
record or beneficial holder of Common Stock or an Award, and such holder shall
have no right to be advised of, any material information regarding the Company
or any Affiliate at any time prior to, upon or in connection with receipt or the
exercise of an Award or the Company's purchase of Common Stock or an Award from
such holder in accordance with the terms hereof.

ARTICLE XII

CHANGE IN CONTROL PROVISIONS

12.1 IMPACT OF EVENT. Notwithstanding any other provision of the Plan
to the contrary, unless otherwise provided in an Agreement, in the event of a
Change in Control (as defined in Section 12.2):

(a) Any Stock Appreciation Rights and Stock Options outstanding
as of the date such Change in Control and not then exercisable shall
become fully exercisable to the full extent of the original grant;

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(b) The restrictions and deferral limitations applicable to any
Restricted Stock, Deferred Stock or other Award shall lapse, and such
Restricted Stock, Deferred Stock or other Award shall become free of all
restrictions and become fully vested and transferable to the full extent
of the original grant.

(c) The performance goals and other conditions with respect to
any outstanding Performance Award or Cash Incentive Award shall be deemed
to have been satisfied in full, and such Award shall be fully
distributable, if and to the extent provided by the Committee in the
Agreement relating to such Award or otherwise, notwithstanding that the
Award may not be fully deductible to the Company under Section 162(m) of
the Code.

(d) The Committee shall have full discretion, notwithstanding
anything herein or in an Award Agreement to the contrary, to do any or
all of the following with respect to an outstanding Award:

(1) To cause any Award to be cancelled, provided notice
of at least 15 days thereof is provided before the
date of cancellation;

(2) To provide that the securities of another entity be
substituted hereunder for the Common Stock and to
make equitable adjustment with respect thereto;

(3) To grant the Participant by giving notice during a
pre-set period to surrender all or part of a stock-
based Award to the Company and to receive cash in an
amount equal to the amount by which the "Change in
Control Price" (as defined in Section 12.3) per
share of Common Stock on the date of such election
shall exceed the amount which the Participant must
pay to exercise the Award per share of Common Stock
under the Award (the "Spread") multiplied by the
number of shares of Common Stock granted under the
Award;

(4) To require the assumption of the obligation of the
Company under the Plan subject to appropriate
adjustment; and

(5) To take any other action the Committee determines to
take.

12.2 DEFINITION OF CHANGE IN CONTROL. For purposes of this Plan, a
"Change in Control" shall be deemed to have occurred if (a) any corporation,
person or other entity (other than the Company, a majority-owned subsidiary of
the Company or any of its subsidiaries, or an employee benefit plan (or related
trust) sponsored or maintained by the Company), including a "group" as defined
in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, becomes
the beneficial owner of stock representing more than the greater of (i) twenty-
five percent (25%) of the combined

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voting power of the Company's then outstanding securities or (ii) the percentage
of the combined voting power of the Company's then outstanding securities which
equals (A) ten percent (10%) plus (B) the percentage of the combined voting
power of the Company's outstanding securities held by such corporation, person
or entity on the Effective Date; (b)(i) the stockholders of the Company approve
a definitive agreement to merge or consolidate the Company with or into another
corporation other than a majority-owned subsidiary of the Company, or to sell or
otherwise dispose of all or substantially all of the Company's assets, and (ii)
the persons who were the members of the Board of Directors of the Company prior
to such approval do not represent a majority of the directors of the surviving,
resulting or acquiring entity or the parent thereof; (c) the stockholders of the
Company approve a plan of liquidation of the Company; or (d) within any period
of 24 consecutive months, persons who were members of the Board of Directors of
the Company immediately prior to such 24-month period, together with any persons
who were first elected as directors (other than as a result of any settlement of
a proxy or consent solicitation contest or any action taken to avoid such a
contest) during such 24-month period by or upon the recommendation of persons
who were members of the Board of Directors of the Company immediately prior to
such 24-month period and who constituted a majority of the Board of Directors of
the Company at the time of such election, cease to constitute a majority of the
Board.

12.3 CHANGE IN CONTROL PRICE. For purposes of the Plan, "Change in
Control Price" means the higher of (a) the highest reported sales price of a
share of Common Stock in any transaction reported on the principal exchange on
which such shares are listed or on NASDAQ during the 60-day period prior to and
including the date of a Change in Control or (b) if the Change in Control is the
result of a tender or exchange offer, merger, consolidation, liquidation or sale
of all or substantially all of the assets of the Company (in each case a
"Corporate Transaction"), the highest price per share of Common Stock paid in
such Corporate Transaction, except that, in the case of Incentive Stock Options
and Stock Appreciation Rights relating to Incentive Stock Options, such price
shall be based only on the Fair Market Value of the Common Stock on the date any
such Incentive Stock Option or Stock Appreciation Right is exercised. To the
extent that the consideration paid in any such Corporate Transaction consists
all or in part of securities or other non-cash consideration, the value of such
securities or other non-cash consideration shall be determined in the sole
discretion of the Committee.

ARTICLE XIII

MISCELLANEOUS

13.1 AMENDMENTS AND TERMINATION. The Board may amend, alter or
discontinue the Plan at any time, but no amendment, alteration or
discontinuation shall be made which would (a) impair the rights of a Participant
under a Stock Option, Stock Appreciation Right, Restricted Stock Award or
Deferred Stock Award theretofore granted without the Participant's consent,
except such an amendment (a)

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<PAGE>

made to avoid an expense charge to the Company or an Affiliate, (b) made to
cause the Plan to qualify for the exemption provided by Rule 16b-3 or (c) to
prevent the Plan from being disqualified from the exemption provided by Rule
16b-3. In addition, no such amendment shall be made without the approval of the
Company's stockholders to the extent such approval is required by law or
agreement. Notwithstanding the foregoing, the Plan may not be amended more than
once every six (6) months to change the Plan provisions listed in section
(c)(2)(ii)(A) of Rule 16b-3, other than to comport with changes in the Code or
Rule 16b-3.

The Committee may amend the Plan at any time provided that (a) no
amendment shall impair the rights of any Participant under any Award theretofore
granted without the Participant's consent, (b) no amendment shall disqualify the
Plan from the exemption provided by Rule 16b-3, and (c) any amendment shall be
subject to the approval or rejection of the Board (d) an amendment may be made
to avoid an expense charge to the Company or an Affiliate. Notwithstanding the
foregoing, the Plan may not be amended more than once every six (6) months to
change the Plan provisions listed in section (c)(2)(ii)(A) of Rule 16b-3, other
than to comport with changes in the Code or Rule 16b-3.

The Committee may amend the terms of any Award or other Award theretofore
granted, prospectively or retroactively, but no such amendment shall impair the
rights of any Participant without the Participant's consent or reduce an Option
Price, except such an amendment made to cause the Plan or Award to qualify for
the exemption provided by Rule 16b-3 or to avoid an expense charge to the
Company or an Affiliate. The Committee's discretion to amend the Plan or
Agreement shall be limited to the Plan's constituting a plan described in
section (c)(2)(ii) of Rule 16b-3.

Subject to the above provisions, the Board shall have authority to amend
the Plan to take into account changes in law and tax and accounting rules, as
well as other developments, and to grant Awards which qualify for beneficial
treatment under such rules without stockholder approval. Notwithstanding
anything in the Plan to the contrary, if any right under this Plan would cause a
transaction to be ineligible for pooling of interest accounting that would, but
for the right hereunder, be eligible for such accounting treatment, the
Committee may modify or adjust the right so that pooling of interest accounting
shall be available, including the substitution of Common Stock having a Fair
Market Value equal to the cash otherwise payable hereunder for the right which
caused the transaction to be ineligible for pooling of interest accounting.

13.2 STAND-ALONE, ADDITIONAL, TANDEM, AND SUBSTITUTE AWARDS. Awards
granted under the Plan may, in the discretion of the Committee, be granted
either alone or in addition to, in tandem with, or in substitution or exchange
for, any other Award or any award granted under another plan of the Company, any
subsidiary, or any business entity to be acquired by the Company or a
subsidiary, or any other right of a Participant to receive payment from the
Company or any subsidiary. Such additional, tandem, and substitute or exchange
Awards may be granted at any time. If an Award is granted in substitution or
exchange for another Award or award, the

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Committee shall require the surrender of such other Award or award in
consideration for the grant of the new Award. In addition, Awards may be
granted in lieu of cash compensation, including in lieu of cash amounts payable
under other plans of the Company or any subsidiary, in which the Fair Market
Value of Common Stock subject to the Award is equivalent in value to the cash
compensation, or in which the exercise price, grant price or purchase price of
the Award in the nature of a right that may be exercised is equal to the Fair
Market Value of the underlying Common Stock minus the value of the cash
compensation surrendered.

13.3 FORM AND TIMING OF PAYMENT UNDER AWARDS; DEFERRALS. Subject to
the terms of the Plan and any applicable Agreement, payments to be made by the
Company or an Affiliate upon the exercise of an Award or settlement of an Award
may be made in such forms as the Committee shall determine, including, without
limitation, cash, Common Stock, other Awards or other property, and may be made
in a single payment or transfer, in installments, or on a deferred basis. The
settlement of any Award may be accelerated, and cash paid in lieu of Common
Stock in connection with such settlement, in the discretion of the Committee or
upon occurrence of one or more specified events (in addition to a Change in
Control). Installment or deferred payments may be required by the Committee
(subject to Section 13.1 of the Plan) or permitted at the election of the
Participant. Payments may include, without limitation, provisions for the
payment or crediting of reasonable interest on installment or deferred payments
or the granting or crediting of Dividend Equivalents in respect of installment
or deferred payments denominated in Common Stock.

13.4 STATUS OF AWARDS UNDER CODE SECTION 162(M). It is the intent of
the Company that Awards granted to persons who are Covered Employees within the
meaning of Code Section 162(m) shall constitute "qualified performance-based
compensation" satisfying the requirements of Code Section 162(m). Accordingly,
the provisions of the Plan shall be interpreted in a manner consistent with Code
Section 162(m). If any provision of the Plan or any agreement relating to such
an Award does not comply or is inconsistent with the requirements of Code
Section 162(m), such provision shall be construed or deemed amended to the
extent necessary to conform to such requirements.

13.5 UNFUNDED STATUS OF PLAN; LIMITS ON TRANSFERABILITY. It is
intended that the Plan be an "unfunded" plan for incentive and deferred
compensation. The Committee may authorize the creation of trusts or other
arrangements to meet the obligations created under the Plan to deliver Common
Stock or make payments; provided, however, that, unless the Committee otherwise
determines, the existence of such trusts or other arrangements is consistent
with the "unfunded" status of the Plan. Unless otherwise provided in this Plan
or in an Agreement, no Award shall be subject to the claims of Participant's
creditors and no Award may be transferred, assigned, alienated or encumbered in
any way other than by will or the laws of descent and distribution or to a
Representative upon the death of the Participant.

13.6 GENERAL PROVISIONS.

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(a) REPRESENTATION. The Committee may require each person
purchasing or receiving shares pursuant to an Award to represent to and
agree with the Company in writing that such person is acquiring the
shares without a view to the distribution thereof. The certificates for
such shares may include any legend which the Committee deems appropriate
to reflect any restrictions on transfer.

(b) NO ADDITIONAL OBLIGATION. Nothing contained in the Plan
shall prevent the Company or an Affiliate from adopting other or
additional compensation arrangements for its employees.

(c) WITHHOLDING. No later than the date as of which an amount
first becomes includible in the gross income of the Participant for
Federal income tax purposes with respect to any Award, the Participant
shall pay to the Company (or other entity identified by the Committee),
or make arrangements satisfactory to the Company or other entity
identified by the Committee regarding the payment of, any Federal, state,
local or foreign taxes of any kind required by law to be withheld with
respect to such amount required in order for the Company or an Affiliate
to obtain a current deduction. Unless otherwise determined by the
Committee, withholding obligations may be settled with Common Stock,
including Common Stock that is part of the Award that gives rise to the
withholding requirement provided that any applicable requirements under
Section 16 of the Exchange Act are satisfied. The obligations of the
Company under this Plan shall be conditional on such payment or
arrangements, and the Company and its Affiliates shall, to the extent
permitted by law, have the right to deduct any such taxes from any
payment otherwise due to the Participant. If the Participant disposes of
shares of Common Stock acquired pursuant to an Incentive Stock Option in
any transaction considered to be a disqualifying transaction under the
Code, the Participant must give written notice of such transfer and the
Company shall have the right to deduct any taxes required by law to be
withheld from any amounts otherwise payable to the Participant. Unless
otherwise determined by the Committee, withholding obligations may be
settled with Common Stock, including Common Stock that is part of the
Award that gives rise to the withholding requirement, provided that any
applicable requirements under Section 16 of the Exchange Act are
satisfied. The obligations of the Company under the Plan shall be
conditional on such payment or arrangements, and the Company and its
Affiliates shall, to the extent permitted by law, have the right to
deduct any such taxes from any payment otherwise due to the Participant.

(d) REINVESTMENT. The reinvestment of dividends in additional
Deferred or Restricted Stock at the time of any dividend payment shall be
permissible only if sufficient shares of Common Stock are available under
the Plan for such reinvestment (taking into account then outstanding
Options and other Awards).

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<PAGE>

(e) REPRESENTATION. The Committee shall establish such
procedures as it deems appropriate for a Participant to designate a
Representative to whom any amounts payable in the event of the
Participant's death are to be paid.

(f) CONTROLLING LAW. The Plan and all Awards made and actions
taken thereunder shall be governed by and construed in accordance with
the laws of the State of Illinois (other than its law respecting choice
of law) except to the extent the General Corporation Law of the State of
Delaware would be mandatorily applicable. The Plan shall be construed to
comply with all applicable law and to avoid liability to the Company, an
Affiliate or a Participant, including, without limitation, liability
under Section 16(b) of the Exchange Act.

(g) OFFSET. Any amounts owed to the Company or an Affiliate by
the Participant of whatever nature may be offset by the Company from the
value of any shares of Common Stock, cash or other thing of value under
this Plan or an Agreement to be transferred to the Participant, and no
shares of Common Stock, cash or other thing of value under this Plan or
an Agreement shall be transferred unless and until all disputes between
the Company and the Participant have been fully and finally resolved and
the Participant has waived all claims to such against the Company or an
Affiliate.

(h) FAIL SAFE. With respect to persons subject to Section 16
of the Exchange Act, transactions under this Plan are intended to comply
with all applicable conditions of Rule 16b-3 or Rule 16a-1(c)(3), as
applicable. To the extent any provision of the Plan or action by the
Committee fails to so comply, it shall be deemed null and void, to the
extent permitted by law and deemed advisable by the Committee. Moreover,
in the event the Plan does not include a provision required by Rule 16b-3
or Rule 16a-1(c)(3) to be stated herein, such provision (other than one
relating to eligibility requirements or the price and amount of Awards)
shall be deemed to be incorporated by reference into the Plan with
respect to Participants subject to Section 16.

(i) The grant of an Award shall in no way affect the right of
the Company to adjust, reclassify, reorganize or otherwise change its
capital or business structure or to merge, consolidation, dissolve,
liquidate or sell or transfer all or any part of its business or assets.

13.7 MITIGATION OF EXCISE TAX. If any payment or right accruing to a
Participant under this Plan (without the application of this Section 13.7),
either alone or together with other payments or rights accruing to the
Participant from the Company or an Affiliate ("Total Payments"), would
constitute a "parachute payment" (as defined in Section 280G of the Code and
regulations thereunder), such payment or right shall be reduced to the largest
amount or greatest right that will result in no portion of the amount payable or
right accruing under the Plan being subject to an excise tax under Section 4999
of the Code or being disallowed as a deduction under Section 280G of the Code.
The determination of whether any reduction in the rights

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or payments under this Plan is to apply shall be made by the Committee in good
faith after consultation with the Participant, and such determination shall be
conclusive and binding on the Participant. The Participant shall cooperate in
good faith with the Committee in making such determination and providing the
necessary information for this purpose. The foregoing provisions of this
Section 13.7 shall apply with respect to any person only if, after reduction for
any applicable Federal excise tax imposed by Section 4999 of the Code and
Federal income tax imposed by the Code, the Total Payments accruing to such
person would be less than the amount of the Total Payments as reduced, if
applicable, under the foregoing provisions of the Plan and after reduction for
only Federal income taxes.

13.8 RIGHTS WITH RESPECT TO CONTINUANCE OF EMPLOYMENT. Nothing
contained herein shall be deemed to alter the relationship between the Company
or an Affiliate and a Participant, or the contractual relationship between a
Participant and the Company or an Affiliate if there is a written contract
regarding such relationship. Nothing contained herein shall be construed to
constitute a contract of employment between the Company or an Affiliate and a
Participant. The Company or an Affiliate and each of the Participants continue
to have the right to terminate the employment or service relationship at any
time for any reason, except as provided in a written contract. The Company or
an Affiliate shall have no obligation to retain the Participant in its employ or
service as a result of this Plan. There shall be no inference as to the length
of employment or service hereby, and the Company or an Affiliate reserves the
same rights to terminate the Participant's employment or service as existed
prior to the individual's becoming a Participant in this Plan.

13.9 AWARDS IN SUBSTITUTION FOR AWARDS GRANTED BY OTHER CORPORATIONS.
Awards (including cash in respect of fractional shares) may be granted under the
Plan from time to time in substitution for awards held by employees, directors
or service providers of other corporations who are about to become officers,
directors or employees of the Company or an Affiliate as the result of a merger
or consolidation of the employing corporation with the Company or an Affiliate,
or the acquisition by the Company or an Affiliate of the assets of the employing
corporation, or the acquisition by the Company or Affiliate of the stock of the
employing corporation, as the result of which it becomes a designated employer
under the Plan. The terms and conditions of the Awards so granted may vary from
the terms and conditions set forth in this Plan at the time of such grant as the
majority of the members of the Committee may deem appropriate to conform, in
whole or in part, to the provisions of the awards in substitution for which they
are granted.

13.10 PROCEDURE FOR ADOPTION. Any Affiliate of the Company may by
resolution of such Affiliate's board of directors, with the consent of the Board
of Directors and subject to such conditions as may be imposed by the Board of
Directors, adopt the Plan for the benefit of its employees as of the date
specified in the board resolution.

13.11 PROCEDURE FOR WITHDRAWAL. Any Affiliate which has adopted the
Plan may, by resolution of the board of directors of such Affiliate, with the
consent

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of the Board of Directors and subject to such conditions as may be imposed by
the Board of Directors, terminate its adoption of the Plan.

13.12 DELAY. If at the time a Participant incurs a Termination of
Employment (other than due to Cause) or if at the time of a Change in Control,
the Participant is subject to "short-swing" liability under Section 16 of the
Exchange Act, any time period provided for under the Plan or an Agreement to the
extent necessary to avoid the imposition of liability shall be suspended and
delayed during the period the Participant would be subject to such liability,
but not more than six (6) months and one (1) day and not to exceed the Option
Period, or the period for exercise of a Stock Appreciation Right as provided in
the Agreement, whichever is shorter. The Company shall have the right to
suspend or delay any time period described in the Plan or an Agreement if the
Committee shall determine that the action may constitute a violation of any law
or result in liability under any law to the Company, an Affiliate or a
stockholder of the Company until such time as the action required or permitted
shall not constitute a violation of law or result in liability to the Company,
an Affiliate or a stockholder of the Company. The Committee shall have the
discretion to suspend the application of the provisions of the Plan required
solely to comply with Rule 16b-3 if the Committee shall determine that Rule 16b-
3 does not apply to the Plan.

13.13 HEADINGS. The headings contained in this Plan are for reference
purposes only and shall not affect the meaning or interpretation of this Plan.

13.14 SEVERABILITY. If any provision of this Plan shall for any reason
be held to be invalid or unenforceable, such invalidity or unenforceability
shall not effect any other provision hereby, and this Plan shall be construed as
if such invalid or unenforceable provision were omitted.

13.15 SUCCESSORS AND ASSIGNS. This Plan shall inure to the benefit of
and be binding upon each successor and assign of the Company. All obligations
imposed upon a Participant, and all rights granted to the Company hereunder,
shall be binding upon the Participant's heirs, legal representatives and
successors.

13.16 ENTIRE AGREEMENT. This Plan and the Agreement constitute the
entire agreement with respect to the subject matter hereof and thereof, provided
that

P-39

<PAGE>

in the event of any inconsistency between the Plan and the Agreement, the terms
and conditions of this Plan shall control.

Executed this ____ day of __________, 19___, effective June 1, 1996.

PLATINUM ENTERTAINMENT, INC.

By: /s/ Steven Devick
-----------------------------

P-40

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED BALANCE SHEET AT AUGUST 31, 1996, THE UNAUDITED
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED AUGUST 31, 1996
AND THE UNAUDITED NOTES THERETO FOR PLATINUM ENTERTAINMENT, INC. AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>

<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> JUN-01-1996
<PERIOD-END> AUG-31-1996
<CASH> 5109938
<SECURITIES> 0
<RECEIVABLES> 6258849
<ALLOWANCES> 1057844
<INVENTORY> 2458127
<CURRENT-ASSETS> 15196077<F1>
<PP&E> 1021837
<DEPRECIATION> 296405
<TOTAL-ASSETS> 19541671<F2>
<CURRENT-LIABILITIES> 4959381
<BONDS> 0
0
0
<COMMON> 5063
<OTHER-SE> 14577227
<TOTAL-LIABILITY-AND-EQUITY> 19541671
<SALES> 4130645
<TOTAL-REVENUES> 6524113
<CGS> 2416671
<TOTAL-COSTS> 3645393
<OTHER-EXPENSES> 2374664
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2814
<INCOME-PRETAX> (630794)
<INCOME-TAX> 0
<INCOME-CONTINUING> (630794)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (630794)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> 0
<FN>
<F1>Includes gross artist advances of $1,841,279
<F2>Includes gross artist advances of $10,032,710, less an allowance for
unrecoupable artist advances of $5,280,223
</FN>

</TABLE>