CREDIT AGREEMENT

THIS CREDIT AGREEMENT is dated as of the 27th day of September, 1999 and is by and between K-TEL INTERNATIONAL, INC., a Minnesota corporation with offices located at 2605 Fernbrook Lane North, Plymouth, Minnesota 55447 (the Borrower), and K-5 LEISURE PRODUCTS, INC., a Nevada corporation with offices located at 220 Saulteaux Crescent, Winnipeg, Manitoba, Canada (the Lender).

RECITALS:

WHEREAS, the Borrower has entered into a Loan and Security Agreement with Foothill Capital Corporation (Foothill) dated November 19, 1997 for a revolving loan of SIX MILLION AND NO/100 U.S. DOLLARS (U.S. $6,000,000) and a term loan of FOUR MILLION AND NO/100 U.S. DOLLARS (U.S. $4,000,000)(the Foothill Agreement);

WHEREAS, the Lender desires to extend to Borrower a conditional revolving credit line in the principal amount of EIGHT MILLION AND NO/100 U.S. DOLLARS (U.S. $8,000,000.00) (the Credit) for working capital purposes; and

WHEREAS, the Lender is willing to make the Credit available to the Borrower subject to the provisions of this Credit Agreement;

NOW, THEREFORE, in consideration of the premises and of the mutual agreements herein, the parties agree as follows:

SECTION 1                                   Definitions

In addition to those terms as defined in the above recitals, as used herein:

1.1                                 Agreement shall mean this Credit Agreement and all amendments and supplements hereto which may from time to time become effective hereafter in accordance with the terms hereof.

1.2                                 Banking Day shall mean a day on which banks are generally open for business in Minneapolis, Minnesota.

1.3                                 Borrowed Money shall mean funds obtained by incurring contractual indebtedness and shall not include trade accounts payable or money borrowed from the Lender.

1.4                                 Closing Date shall mean the date on which funds are advanced under the Credit.

1.5                                 Current Note shall mean the promissory note of the Borrower substantially in the form of attached Exhibit A, evidencing borrowings under Section 2.1 hereof.

1.6                                 Events of Default shall mean any and all events of default described in Section 8 hereof.

1.7                                 Guaranty shall mean the Guaranty of K-Tel Online, Inc.; Dominion Entertainment, Inc.; K-Tel Consumer Products, Inc.; K-Tel TV, Inc.; K-Tel Video, Inc.; K-Tel International (USA), Inc.; K-Tel International GmbH; K-Tel Entertainment (UK) Ltd.; K-Tel Entertainment (Can) Inc.; K-Tel Direct, Inc.; K-Tel Marketing (UK) Limited; and K-Tel Ireland Limited in form and content acceptable to the Lender.

1.8                                 Liens shall have the same definition as in the Foothill Agreement.

1.9                                 Loan Documents shall mean this Agreement, the Current Note, the Guaranty, the Security Agreement, the Stock Security Agreement and all other documents contemplated by this Agreement.

1.10                           Maturity Date shall mean November 20, 2001.

1.11                           Permitted Liens shall have the same definition as in the Foothill Agreement, with the addition of the liens created by the Foothill Agreement.

1.12                           Permitted Protests shall have the same meaning as in the Foothill Agreement.

1.13                           Reference Rate means the variable rate of interest, per annum, most recently announced by Norwest Bank Minnesota, National Association, or any successor thereto, as its base rate, irrespective of whether such announced rate is the best rate available from such financial institution.

1.14                           Security Agreement shall mean the security agreement of the Borrower substantially in the form of Exhibit B.

1.15                           Stock Security Agreement shall mean the stock pledge agreement substantially in the form of Exhibit C.

1.16                           Subsidiary shall mean any corporation of which more than fifty percent (50%) of the outstanding voting securities shall, at the time of determination, be owned directly, or indirectly through one or more intermediaries, by the Borrower.

SECTION 2                                   The Loan

2.1                                 Subject to the other provisions of this Agreement, the Lender agrees to continue to lend to the Borrower from time to time sums not to exceed EIGHT MILLION AND NO/100 U.S. DOLLARS (U.S. $8,000,000.00) in aggregate principal amount at any one time outstanding.  Each borrowing under this Section 2.1 will be requested in writing or in person by an authorized officer of the Borrower, or telephonically by any person reasonably believed by the Lender to be an authorized officer or designee of the Borrower.  Each borrowing under this Section 2.1 will be

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