Stock Option Agreement

ALLIANCE ENTERTAINMENT CORP.


Stock Option Agreement


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


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


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


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


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


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



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


c. Method of Exercising and Payment for Shares. This Option is exercisable by written notice, accompanied by payment of the Option Price, delivered to the attention of the Company's Secretary at either the Company's office in Coral Springs, Florida or the Company's office in New York City. The Date of Exercise shall be the date the payment of the option price is received by the Company. The option price may be paid in cash, certified or bank cashiers check or other consideration acceptable to the Compensation ...